UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q/A
                                 AMENDMENT NO. 2

(Mark  One)

[ X ]    QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE SECURITIES
         EXCHANGE  ACT  OF  1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 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  NO.:  000-30326

                                  VSOURCE, INC.
             (Exact name of registrant 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

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

Number  of  shares  of  common  stock  outstanding  as  of
December  6,  2001 . . . . . . . . . . . . . . . . . . . . . . . . .  21,431,394
Number  of  shares  of  Series 1-A Convertible Preferred Stock
outstanding as of December  6,  2001 . . . . . . . . . . . . . . . .   1,703,741
Number  of  shares  of  Series 2-A Convertible Preferred Stock
outstanding as of December  6,  2001 . . . . . . . . . . . . . . . .   1,174,669


                                        1
<PAGE>
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
                                -----------------


                                                                 Page
                                                                 ----
                        PART I - FINANCIAL INFORMATION
<S>                                                              <C>
Item 1.     FINANCIAL STATEMENTS. . . . . . . . . . . . . . . .     3
Item 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS . . . . . . . .    26
Item 3.     QUANTITATIVE AND QUALITATIVE
            DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . .    51

                         PART II - OTHER INFORMATION

Item 1.     LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . .    51
Item 2.     CHANGES IN SECURITIES . . . . . . . . . . . . . . .    51
Item 3.     DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . .    51
Item 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS    51
Item 5.     OTHER INFORMATION . . . . . . . . . . . . . . . . .    51
Item 6.     EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . .    52
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . .    53
</TABLE>


                                        2
<PAGE>
<TABLE>
<CAPTION>
PART  I  -  FINANCIAL  INFORMATION

                                         VSOURCE, INC.
                                  CONSOLIDATED BALANCE SHEETS

                                            ASSETS

                                                         October 31, 2001    January 31, 2001
                                                        ------------------  ------------------
<S>                                                     <C>                 <C>
CURRENT ASSETS                                             (Unaudited)           (Audited)
  Cash                                                  $         652,177   $       5,360,525
  Restricted cash                                                  49,011              47,737
  Restricted cash, letter of credit                             4,000,000                  --
  Accounts receivable                                             885,071               4,200
  Notes receivable-related parties                                     --             150,000
  Other receivables                                               173,103                  --
  Prepaid expenses                                                919,585             103,687
                                                        ------------------  ------------------
          Total current assets                                  6,678,947           5,666,149

PROPERTY AND EQUIPMENT
  Equipment and fixtures                                        8,740,532           1,099,628
       Less:  accumulated depreciation                         (1,067,114)           (167,283)
                                                        ------------------  ------------------
            Property and Equipment, net                         7,673,418             932,345

OTHER ASSETS
  Goodwill                                                             --           4,592,863
  Notes receivable-related parties                                     --              50,000
  Other assets                                                      8,899              19,559
                                                        ------------------  ------------------
TOTAL ASSETS                                            $      14,361,264   $      11,260,916
                                                        ==================  ==================


LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
  Accounts payable                                      $       2,507,527   $         598,717
  Accrued expenses                                              3,922,942             311,686
  Notes payable                                                 2,250,000                  --
  Convertible notes payable                                     4,251,500                  --
  Discount on convertible notes                                (4,335,804)                 --
                                                        ------------------  ------------------

          Total Current Liabilities                             8,596,165             910,403
</TABLE>


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


                                        3
<PAGE>

<TABLE>
<CAPTION>
                                          VSOURCE, INC.
                                   CONSOLIDATED BALANCE SHEETS

                                                            October 31, 2001    January 31,2001
                                                           ------------------  -----------------
                                                              (Unaudited)          (Audited)
<S>                                                        <C>                 <C>
LONG TERM LIABILITIES
  Convertible Notes Payable                                        4,558,056                 --
  Discount on convertible notes                                   (4,405,097)                --
  Accrued interest and other payables                                165,187                 --
                                                           ------------------  -----------------
          Total Long Term Liabilities                                318,146                 --

  COMMITMENTS AND CONTINGENCIES                                            -                  -

  PREFERRED STOCK
  Preferred Stock Series 1-A ($0.01 par value, 2,802,000
  shares authorized; 1,703,741 and 2,437,354 shares
  issued and outstanding as of October 31, 2001 and
  January 31, 2001, respectively)
  (Aggregate liquidation value is $4,259,353)                      4,150,774          5,984,802

  Preferred Stock Series 2-A ($0.01 par value, 1,672,328
  shares authorized; 1,330,675 and 1,375,917 shares
  issued and outstanding as of October 31, 2001 and
  January 31, 2001, respectively)
  (Aggregate liquidation value is $8,529,627)                      8,072,591          8,244,026
                                                           ------------------  -----------------
          Total Preferred Stock                                   12,223,365         14,228,828

  SHAREHOLDERS' DEFICIT
  Common stock ($0.01 par value, 100,000,000
  shares authorized; 21,275,389 and 17,938,912 shares
  issued and outstanding as of October 31, 2001 and
  January 31, 2001, respectively)                                    212,754            179,389

  Common stock additional paid-in-capital                         64,688,009         54,073,495
  Deferred compensation                                              (86,667)        (5,804,851)
  Accumulated deficit                                            (71,637,136)       (51,899,550)
  Other comprehensive income                                          46,628                 --
  Less:  Note receivable from sale of stock                               --           (426,798)
                                                           ------------------  -----------------
          Total Shareholders' Deficit                             (6,776,412)        (3,878,315)
                                                           ------------------  -----------------
  TOTAL LIABILITIES, PREFERRED STOCK
    AND SHAREHOLDERS' DEFICIT                              $      14,361,264   $     11,260,916
                                                           ==================  =================
</TABLE>


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


                                        4
<PAGE>
<TABLE>
<CAPTION>
                                            VSOURCE, INC.
                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                             (Unaudited)

                                                                     For the three months ended
                                                                October 31, 2001    October 31, 2000
                                                               ------------------  ------------------
<S>                                                            <C>                 <C>

Revenue                                                        $       2,400,566   $         151,500
Cost of sales                                                          2,411,627                  --
                                                               ------------------  ------------------
Gross (loss) profit                                                      (11,061)            151,500

Selling, general and administrative expenses
  (including $2,924 and $1,168,952 of stock-based
  compensation for the three months ended
  October 31, 2001 and 2000, respectively)                             4,669,646           2,017,562

Research and development expenses
  (including $29,575 and $1,210,201 of stock-based
  compensation for the three months ended October 31,
  2001 and 2000, respectively)                                            56,179           4,004,459
                                                               ------------------  ------------------

Loss from operations                                                  (4,736,886)         (5,870,521)

Interest income                                                           29,708              36,023

Interest expense                                                      (1,306,216)             (3,698)
                                                               ------------------  ------------------

Loss before income taxes                                              (6,013,394)         (5,838,196)
Provision for income taxes                                                12,212                  --
                                                               ------------------  ------------------

Net loss                                                       $      (6,025,606)  $      (5,838,196)
                                                               ==================  ==================

Net loss available
        to common shareholders                                 $      (6,025,606)  $     (13,465,683)
                                                               ==================  ==================

Basic and diluted weighted average number of
        common shares outstanding                                     21,272,943          15,969,038
                                                               ------------------  ------------------
Basic and diluted net loss per share
        available to common shareholders                                   (0.28)              (0.84)
                                                               ==================  ==================
</TABLE>


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


                                        5
<PAGE>
<TABLE>
<CAPTION>
                                       VSOURCE, INC.
                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                        (Unaudited)

                                                            For the nine months ended
                                                      October 31, 2001    October 31, 2000
                                                     ------------------  ------------------
<S>                                                  <C>                 <C>
Revenue                                              $       3,548,592   $         214,000
Cost of sales                                                3,794,422                  --
                                                     ------------------  ------------------

Gross (loss) profit                                           (245,830)            214,000

Selling, general and administrative expenses
  (including $81,972 and $6,617,357 of stock-based
  compensation for the nine months ended October 31,
  2001 and 2000, respectively)                               8,200,389           9,746,801

Research and development expenses
  (including $828,839 and $3,031,209 of stock-based
  compensation for the nine months ended October 31,
  2001 and 2000, respectively)                               3,097,844           9,087,797

Impairment of goodwill                                       4,078,872                  --
                                                     ------------------  ------------------

Loss from operations                                       (15,622,935)        (18,620,598)

Interest income                                                105,356              95,603

Interest expense                                            (2,108,708)            (11,096)
                                                     ------------------  ------------------

Loss before income taxes                                   (17,626,287)        (18,536,091)
Provision for income taxes                                      15,871               1,600
                                                     ------------------  ------------------
Net loss                                                   (17,642,158)  $     (18,537,691)
                                                     ==================  ==================
Net loss available
    to common shareholders (Note 8)                        (19,737,586)  $     (33,033,575)
                                                     ==================  ==================
Basic and diluted weighted average number of
    common shares outstanding                               19,743,234          15,869,895
                                                     ------------------  ------------------
Basic and diluted net loss per share
    available to common shareholders                             (1.00)              (2.08)
                                                     ==================  ==================
</TABLE>


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


                                        6
<PAGE>
<TABLE>
<CAPTION>
                                                         VSOURCE, INC.
                                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT

                                              Common Shares
                                         ----------------------     Additional         Deferred        Notes       Accumulated
                                            Stock      Amount     Paid-in-Capital    Compensation    Receivable      Deficit
                                         --------------------------------------------------------------------------------------
<S>                                      <C>          <C>        <C>                <C>             <C>           <C>
Balance at January 31, 2000              15,807,171   $158,071   $     10,645,934   $  (1,780,817)  $  (178,798)  $ (9,804,904)
(Audited)
Issuance of notes related to
      issuance of stock                                                                                (248,000)
Conversion of preferred stock               661,057      6,610          2,804,999
Acquisition of OTT                        1,089,389     10,894          4,047,360
Issuance of common stock upon
      conversion of demand notes             65,654        657            163,480
Deemed non-cash dividend and
      beneficial conversion feature                                    14,495,884                                  (14,495,884)
Compensation related to:
      options granted for services                                     11,942,646      (6,684,383)
      warrants issued for services                                     10,966,310
Issuance of stock for services                8,250         83            319,216
Expired and forfeited options                                          (2,660,349)      2,660,349
Exercise of stock options                   209,334      2,094          1,348,995
Exercise of warrants                         98,057        980               (980)
Net loss                                                                                                           (27,598,762)
                                         --------------------------------------------------------------------------------------
Balance at January 31, 2001              17,938,912    179,389         54,073,495      (5,804,851)     (426,798)   (51,899,550)
(Audited)

Translation adjustments
Net loss                                                                                                           (17,642,158)
     Comprehensive loss

Deemed non-cash dividend  and
     beneficial conversion feature                                      2,095,428                                   (2,095,428)
Beneficial conversion feature on
       convertible debt                                                 9,118,490
Issuance of warrants with
       convertible note                                                 1,324,856
Conversion of preferred stock               759,352      7,594          1,991,434
Return of shares related to notes
      receivable-shareholder               (300,000)    (3,000)           (96,000)                      426,798
Acquisition of NetCel360                  2,774,213     27,742            984,658
Acquisition of Domain name                   15,000        150              3,900
Compensation related to:
     options granted for services                                                         910,811
Expired and forfeited options                                          (4,807,373)      4,807,373
Exercise of warrants                         87,912        879               (879)
                                         --------------------------------------------------------------------------------------

Balance at October 31, 2001              21,275,389   $212,754   $     64,688,009   $     (86,667)  $         -   $(71,637,136)
(Unaudited)
                                         ======================================================================================

                                             Other        Total Shareholders'
                                         Comprehensive          Deficit
                                             Income
                                         -------------------------------------
<S>                                      <C>             <C>
Balance at January 31, 2000                          --  $           (960,514)
(Audited)
Issuance of notes related to
      issuance of stock                                              (248,000)
Conversion of preferred stock                                       2,811,609
Acquisition of OTT                                                  4,058,254
Issuance of common stock upon
     conversion of demand notes                                       164,137
Deemed non-cash dividend and
     beneficial conversion feature                                         --
Compensation related to:
      options granted for services                                  5,258,263
      warrants issued for services                                 10,966,310
Issuance of stock for services                                        319,299
Expired and forfeited options                                              --
Exercise of stock options                                           1,351,089
Exercise of warrants                                                       --
Net loss                                             --           (27,598,762)
                                         -------------------------------------
Balance at January 31, 2001                          --            (3,878,315)
(Audited)
Translation adjustments                          46,628                46,628
Net loss                                                          (17,642,158)
                                                         ---------------------
     Comprehensive loss                                           (17,595,530)
Deemed non-cash dividend  and
     beneficial conversion feature                                         --
Beneficial conversion feature on
       convertible debt                                             9,118,490
Issuance of warrants with
       convertible note                                             1,324,856
Conversion of preferred stock                                       1,999,028
Return of shares related to notes
      receivable-shareholder                                          327,798
Acquisition of NetCel360                                            1,012,400
Acquisition of Domain name                                              4,050
Compensation related to:
     options granted for services                                     910,811
Expired and forfeited options                                              --
Exercise of warrants                                                       --
                                         -------------------------------------

Balance at October 31, 2001              $       46,628  $         (6,776,412)
(Unaudited)
                                         =====================================
</TABLE>


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


                                        7
<PAGE>
<TABLE>
<CAPTION>
                                        VSOURCE, INC.
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                         (Unaudited)

                                                             For the nine months ended
                                                        October 31, 2001    October 31, 2000
                                                       ------------------  ------------------
<S>                                                    <C>                 <C>
Increase (decrease) in cash:
Cash flows from operating activities:

    Net loss                                           $     (17,642,158)  $     (18,537,691)
    Adjustments to reconcile net loss to
        net cash used by operating activities:
    Depreciation and amortization                              1,662,107             104,517
    Interest income                                              (64,997)                 --
    Bad debt                                                      25,807                  --
    Loss on disposal of property and equipment                   741,925                  --
    Impairment of goodwill                                     4,078,872                  --
    Compensation expense on stock options granted                910,812           3,775,099
    Compensation expense stock issued                                 --             164,656
    Compensation expense for warrants granted                         --           5,708,810
    Amortization of beneficial conversion feature
        on convertible debt                                    1,702,445                  --

    Write-off of notes receivable                                586,360                  --
     Changes in assets and liabilities:
Accounts receivable                                             (355,483)           (191,500)
Employee receivables                                                  --            (124,055)
Other receivables                                               (173,103)                 --
Prepaid expenses                                                (351,743)           (148,383)
Other assets                                                         687                  --
Accounts payable                                                 495,500             119,345
Accrued expenses                                                 961,956             (21,850)
                                                       ------------------  ------------------
            Net cash used in operating activities             (7,421,013)         (9,151,052)
Cash flows from investing activities:
    Acquisition of capitalized software/intangibles               (5,000)           (115,540)
    Acquisition of property and equipment                       (470,292)           (463,269)
    Proceeds from sale of property and equipment                  44,191                  --
    Advances to related parties                                       --            (248,000)
    Acquisition of NetCel360                                    (105,593)                 --
    Letter of credit                                          (4,000,000)                 --
                                                       ------------------  ------------------
            Net cash used in investing activities             (4,536,694)           (826,809)
Cash flows from financing activities:
Proceeds from issuance of common stock                                --           2,144,034
Proceeds from issuance of preferred stock                             --          10,889,828
Proceeds from borrowings and convertible debt                  7,447,761                  --
Repayment of borrowings                                         (200,000)                 --
            Net cash provided by financing activities          7,247,761          13,033,862
Effect of exchange rates on cash                                   2,872                  --
                                                       ------------------  ------------------
Net (decrease) increase in cash                               (4,707,074)          3,056,001
                                                       ------------------  ------------------
Cash at beginning of period                                    5,408,262           5,207,167
                                                       ------------------  ------------------
Cash at end of period                                  $         701,188   $       8,263,168
                                                       ==================  ==================
</TABLE>

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


                                        8
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                OCTOBER 31, 2001

1.   NATURE  OF  BUSINESS  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  PRINCIPLES

     Vsource, Inc. (the "Company") is a provider of business process outsourcing
and  distribution  services  to  companies, including Fortune 500 and Global 500
companies,  operating  across  multiple  markets in the Asia-Pacific region. The
Company  offers sophisticated outsourcing systems and solutions, along with core
administrative,  sales and distribution functions. The Company helps its clients
to  minimize the costs and complexities of doing business in Asia-Pacific across
the multiplicity of cultural and regulatory factors that exist in these markets.

     The  Vsource  suite  of  services  includes:

     -    Business  process  outsourcing  (or  "BPO")  services such as customer
          relationship  management, financial and payroll services, supply chain
          management,  globalization  services  and  proprietary  transaction
          solutions  for  public and private exchanges to support our clients as
          they  move  to  outsourcing;  and

     -    Distribution  services  such  as sales, marketing, market research and
          operations,  to  support  the sales of the Company's clients' products
          and  services.

     The  Company  delivers  its  services to support its clients' operations in
most  major  markets  across  the  Asia-Pacific  region,  including  Hong  Kong,
Malaysia,  Singapore,  Japan,  China,  Australia,  New  Zealand,  Korea, and the
Philippines from a single shared services operating center, known as the Vsource
Customer  Center,  in  Kuala  Lumpur,  Malaysia.

     The  interim  consolidated financial statements as of October 31, 2001 have
been  prepared  by  Vsource,  Inc.  (the  "Company")  pursuant  to the rules and
regulations  of  the  Securities and Exchange Commission (the "SEC") for interim
financial  reporting.  These  consolidated  statements are unaudited and, in the
opinion  of  management, include all adjustments (consisting of normal recurring
adjustments  and  accruals) necessary to present fairly the consolidated balance
sheets,  consolidated  operating  results,  and  consolidated cash flows for the
period  presented in accordance with accounting principles generally accepted in
the  United  States  of  America ("US GAAP").  The consolidated balance sheet at
January  31,  2001  has  been  derived  from  the audited consolidated financial
statements at that date. Operating results for the interim periods presented are
not  necessarily  indicative  of  the  results that may be expected for the year
ending  January  31, 2002. Certain information and footnote disclosures normally
included  in  financial statements prepared in accordance with US GAAP have been
omitted  in  accordance  with  the  rules  and  regulations  of  the  SEC. These
consolidated financial statements should be read in conjunction with the audited
consolidated  financial  statements,  and  accompanying  notes,  included in the
Company's  Annual  Report on Form 10-KSB/A for the fiscal year ended January 31,
2001  (File  No.  000-030326).


                                        9
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                OCTOBER 31, 2001

FUTURE  FUNDING

     The  Company's  major  source  of  funds from the date of inception through
October  31,  2001,  has  been  from  sale  of  equity  and debt securities. Its
principal sources of cash and cash equivalents for the nine months ended October
31,  2001,  other  than  from  investor  funds,  were  from  funds received from
approximately  $3.5  million  of  revenues  related  primarily  to the resale of
Gateway  products;  however,  we also incurred substantial expenses. Of the $3.5
million,  $0.9  million  of revenue was in accounts receivable as of October 31,
2001.  As  of  November  1, 2001, we terminated all of our reseller arrangements
with  Gateway  and  ceased  selling Gateway products in Hong Kong and Singapore.
Subsequent  to  October  31, 2001 we received an advance payment from Gateway in
the  amount  of  $3.0  million  in  connection  with our engagement as Gateway's
exclusive  provider  of  warranty  support  services  for  their products in the
Asia-Pacific region. We believe these funds will provide operating capital until
a  fund raising from shareholders or third party investors can be implemented in
late  2001 or early 2002. At November 30, 2001, the Company had cash balances of
approximately  $6.1  million,  of  which  $4.05  million  is  restricted.

     There  can  be  no  assurances  that  the  Company will continue generating
additional  revenue from clients.  The Company has implemented cash conservation
measures.  There is, however, no assurance that the client funding will occur in
the  projected  amount  or  in  any  amount, nor is there any assurance that the
Company  can  raise significant or any additional capital in a fund raising from
its  shareholders  or  other  third  party  investors.

     Should  the  Company  not  obtain  adequate  future  funding,  there exists
substantial  doubt  about  the  Company's ability to continue as a going concern
and,  therefore, its ability to realize its assets and discharge its liabilities
in  the  normal course of business.  The financial statements do not include any
adjustments  relating to the recoverability and classification of recorded asset
amounts or to amounts and classification of liabilities that may be necessary if
the  entity  is  unable  to  continue  as  a  going  concern.

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.

PRINCIPLES  OF  CONSOLIDATION

     The consolidated financial statements include the accounts of Vsource, Inc.
and  its  wholly  owned  subsidiaries  Virtual  Source, Inc., Online Transaction
Technologies,  Inc.  ("OTT"),  Vsource  (USA)  Inc.,  Vsource  (CI) Ltd, Vsource
Services  Limited,  Vsource (Asia) Limited, Vsource (Malaysia) Sdn Bhd (formerly
NetCel360  Sdn  Bhd),  Vsource Services (M) Sdn Bhd (formerly NetCel360 Services
(Malaysia)  Sdn  Bhd),  Vsource  (Singapore)  Pte  Ltd,  Vsource  Distribution
(Singapore)  Pte Ltd, and Vsource (Japan) Ltd. Significant intercompany accounts
have  been  eliminated,  including  the  reversal  of  intercompany revenues and
expenses.


                                       10
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                OCTOBER 31, 2001

RECENT  PRONOUNCEMENTS

     In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141("FAS No. 141"), Business Combinations and
No.  142  ("FAS  No.  142"),  Goodwill  and Other Intangible Assets. FAS No. 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under FAS No. 142, goodwill and intangible assets
with  indefinite  lives  are  no longer amortized, but are reviewed annually (or
more  frequently  if  impairment  indicators  arise)  for  impairment. Separable
intangible  assets  will  continue to be amortized over their useful lives, (but
with  no  maximum  life).  The  amortization  provisions of FAS No. 142 apply to
goodwill  and  intangible  assets  acquired after June 30, 2001. With respect to
goodwill  and  intangible  assets acquired prior to July 1, 2001, the Company is
required  to  adopt  FAS  No.  142  effective  January  1,  2002. The Company is
currently  evaluating  the effect that the adoption of the provisions of FAS No.
142,  that are effective January 1, 2002, will have on its results of operations
and  financial  position.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets", which is effective for fiscal
years  beginning after December 15, 2001.  SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be  Disposed".  We  are  currently  assessing,  but have not yet determined, the
impact  of  SFAS  No.  144  on our financial position and results of operations.

REVENUE  RECOGNITION

     Revenues  pursuant to time and materials contracts are generally recognized
as  services  are  performed.  Revenues  pursuant  to  fixed-fee  contracts  are
generally  recognized  as  services are rendered on the percentage-of-completion
method  of accounting (based on the portion of costs incurred to total estimated
costs). Revenues pursuant to service contracts are generally recognized over the
length  of  the  initial contract term with initial set-up costs incurred by the
Company deferred and amortized in proportion to the revenue recognition. Ongoing
monthly  transaction  fees  may  be  recognized  as  earned.  Revenues  exclude
reimbursable  expenses  charged  to  and  collected  from  customers.

     Revenues  provided  by  Web  based  auction  services  are accounted for in
accordance  with the Financial Accounting Standards Board issued EITF00-3, which
provides  guidance  on  applying  generally  accepted  accounting principles for
recognizing  revenues.  There  are  no  further  revenue  from Web based auction
services  for  the  nine  months  ended  October  31,  2001.

Gateway  Reseller  Agreement
----------------------------

     Revenue  under  the  Reseller  Agreement  dated  as  of  July  1, 2001 (the
"Reseller  Agreement") between Vsource (CI) Ltd (formerly NetCel360.com Ltd) and
Gateway  Manufacturing,  Inc.  is  recorded  under  the  guidance  of EITF 99-19
"Reporting  Revenue  Gross  as  a Principal versus net as an Agent". The Company
recognizes  this  revenue  on  a  gross  basis as the Company is responsible for
fulfillment including taking and accepting orders, the Company sets the price of


                                       11
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                OCTOBER 31, 2001

the  products  to  the  ultimate  customers, and the Company bears inventory and
credit  risk.  Thus,  the  Company  recognizes  revenue  from product sales upon
delivery of the product to its customers. The Company and Gateway Manufacturing,
Inc.  terminated  this  agreement  effective  November  1,  2001.

Service  Provider  Agreements
-----------------------------

     The  Company  accounts  for revenues under this type of agreement under the
guidance  of  Statements  of  Accounting Board SAB No.101 and also EITF 00-3 and
00-21.  This  type  of  agreement generally has two main revenue sources, set-up
fees  during  the  implementation  period  when  the  Company  performs  set-up
procedures to facilitate delivery of its services and subsequent monthly charges
for  use  of  these  services.

     The  Company  is  recognizing  set-up fees from this type of agreement on a
straight-line basis over the initial term of the contract or the expected period
during  which  the  specified  services will be performed, with costs related to
implementation  being  recognized  on  the  same basis. Monthly transaction fees
under  this type of agreement are accounted for separately and are recognized on
a  monthly  basis.

OTHER  COMPREHENSIVE  INCOME  (LOSS)

     Other  comprehensive  income (loss) refers to revenues, expenses, gains and
losses  that  under  US GAAP are included in comprehensive income (loss) but are
excluded  from  net  income  (loss) as these amounts are recorded directly as an
adjustment  to  stockholder's  equity,  net  of  tax.  The  Company's  other
comprehensive  income  (loss)  is  composed  of  unrealized  gains and losses on
foreign  currency  translation  adjustments.

SEGMENT  DATA

     The  Company  reports  segment  data based on the management approach which
designates  the  internal  reporting  that  is  used  by  management  for making
operating  decisions  and  assessing  performance  as  the  source of reportable
operating  segments.

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. The Company in the third quarter of
2002  is  only  expensing employee related expenses for research and development
(See  discussion  under  Software  Development  Costs.)


                                       12
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                OCTOBER 31, 2001

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.

CASH  AND  CASH  EQUIVALENT

     Cash  and  cash  equivalents  consist  of cash on hand and investments with
original  maturities  of  less  than  three  months.

RESTRICTED  CASH

     Restricted cash consists of deposits and a standby letter of credit that is
issued  in  favor of Gateway Manufacturing, Inc. in accordance with the Reseller
Agreement.  (See  note  3,  Convertible  Notes  Payable  - Series B Exchangeable
Notes).

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 two to five 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.

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.

     During  the  nine  months  ended  October  31,  2001,  the Company reviewed
long-lived  assets  and  other intangibles and made estimates of expected future
cash  flows,  based  on  management's best estimates and based on reasonable and


                                       13
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                OCTOBER 31, 2001

supportable  assumptions  and projections. All available evidence was considered
in  developing  these  estimates  of  expected  future  cash  flows. A range was
estimated  for the amount and timing of possible cash flows, and the probability
of  possible  outcomes was considered in determining the best estimate of future
cash  flows.

     As  part  of  the  acquisition of OTT, the Company had recorded goodwill of
$4,620,757,  and  was  amortizing it over three years. For the nine months ended
October  31,  2001,  the  Company determined, based on the estimates of expected
discounted  cash  flows,  that  the goodwill did not continue to carry the value
originally anticipated. As a result, the assets have been fully reduced to their
net  realizable  value  and  the Company recorded $4,078,872 as an impairment of
goodwill,  $2,138,019  and  $1,940,853 in the first and second quarter of fiscal
year  ending  January  31,  2002,  respectively.

     The  Company incurred a $741,233 loss on disposal of property and equipment
in  the  nine  months  ended October 31, 2001. The Company closed its Washington
facilities  and  disposed  of  assets  in the Ventura and Los Angeles facilities
during  the nine months ended October 31, 2001, and determined that the property
and  equipment  did not continue to carry the value originally anticipated. As a
result, and in accordance with Statement of Financial Accounting Standard (SFAS)
No.  121,  the  assets were reduced to their net realizable value, less costs of
disposal.

INTANGIBLE  ASSETS

     Intangible assets, principally goodwill, are amortized on the straight-line
method over their estimated useful lives of three 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. As such, an adjustment of $4,078,872
was  made to goodwill to recognize the loss on impairment of goodwill during the
nine  months  ended  October  31,  2001.

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  net 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.


                                       14
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                OCTOBER 31, 2001

2.   ACQUISITION  OF  CERTAIN  ASSETS  OF  NETCEL360


     On  June  22,  2001,  the Company purchased substantially all of the assets
(the "Acquisition") of NetCel360 Holdings Limited (the "Seller"), including 100%
of  the  capital stock of Vsource (CI) Ltd (formerly NetCel360.com Ltd), Vsource
(Asia)  Limited  (formerly  NetCel360 Hong Kong Limited), Vsource (Malaysia) Sdn
Bhd  (formerly  NetCel360  Sdn  Bhd).,  Vsource  (Singapore)  Pte  Ltd (formerly
NetCel360  (Singapore)  Pte  Ltd),  Vsource (USA) Inc. (formerly NetCel360 (USA)
Inc.)  and  Vsource  (Japan)  Ltd  (formerly  NetCel360  (Japan)  Limited)
(collectively,  the  "NetCel360  Corporations"), in exchange for up to 3,709,699
shares  of  common  stock  of the Company. Of this amount, 2,774,213 shares were
issued  at  the  closing  and the remaining 935,486 shares will be issued to the
Seller  six  months  following  the  closing,  subject to hold back of shares to
satisfy the Seller's indemnification obligations under the Acquisition Agreement
dated  May  24,  2001  between  the  Company  and  the Seller, as amended by the
Amendment  to  Acquisition  Agreement,  dated  June  22,  2001 (the "Acquisition
Agreement").  The  purchase was completed pursuant to the Acquisition Agreement.
This  purchase  price  was  based  on  negotiations  between the Company and the
Seller.  Based  on  the average closing price from May 23, 2001 to May 29, 2001,
the  shares  had  an  average  fair  market  value  of $1,344,766. The foregoing
description  of  the Acquisition is qualified in its entirety by the Acquisition
Agreement,  which  has been filed as an Exhibit to a Current Report on Form 8-K.

     The  NetCel360  Corporations  are  pan-Asian  providers of Business Process
Outsourcing  (BPO)  and  distribution  services,  including BPO services such as
payroll  and  financial  services,  customer  relationship  management (CRM) and
supply  chain  management  (SCM),  and  distribution  services such as sales and
marketing  services,  market  research  and  operations  solutions.  The Company
intends  to  continue  the  NetCel360  Corporations'  business  activities.



                                       15
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                OCTOBER 31, 2001

     Summary  unaudited  pro  forma  information  for  the  combined  results of
operations  of the Seller and the Company, for the nine months ended October 31,
2001  and  October  31,  2000,  respectively,  is presented below. The pro forma
information assumes the acquisition occurred on February 1, 2000 and February 1,
2001  and  presents  the  combined  results  of  companies

<TABLE>
<CAPTION>
                                                       October 31, 2001   October 31, 2000
                                                      ------------------  ----------------
                                                     (in thousands, except per share data)
                                                     -------------------------------------
<S>                                                   <C>                 <C>

Net revenue                                           $         4,990.2   $       4,249.8

Net loss                                              $        27,030.3   $      28,923.8

Net loss available to common shareholders             $        29,125.7   $      43,419.7

Weighted shares used in computing per share amounts          21,288,845        18,644,108

Net loss per share                                    $           (1.37)  $         (2.33)
</TABLE>


                                       16
<PAGE>
3.   CONVERTIBLE  NOTES  PAYABLE

Bridge  Loan  Financing

     In  connection with the Acquisition, the Company assumed approximately $3.7
million  of  bridge  financing (the "Bridge Loan") of the Seller.  Phillip Kelly
and  Dennis Smith, the founders of the Seller, together held approximately $2.66
million  in principal amount of the Bridge Loan.  Subsequent to the Acquisition,
Mr.  Kelly  became  co-chairman  and  chief  executive  officer,  and Mr. Smith,
vice-chairman,  chief  financial  officer  and  chief  strategy  officer, of the
Company.  Asia  Internet  Investment  Group I, L.P. ("AIIG"), an investment fund
that  held  approximately  2.8%  of  the  Seller, held approximately $294,000 in
principal  amount of the Bridge Loan.  I. Steven Edelson, the Acting Chairman of
the  Board  and acting chief executive officer of the Company at the time of the
Acquisition,  and  Nathaniel  Kramer,  a director of the Company, are two of the
managers  of the general partner of AIIG.  Prior to the Acquisition, other funds
managed  by  Messrs.  Edelson  and  Kramer  beneficially  owned in the aggregate
approximately  3.5% of the Company, and funds managed by Mr. Edelson but not Mr.
Kramer  beneficially  owned  approximately  an  additional 0.47% of the Company.

     Approximately  $1.26 million in principal (plus accrued interest) under the
Bridge  Loan  held  by Mr. Kelly, Mr. Smith and AIIG was converted into Series A
convertible  notes  of  the  Company  pursuant  to  a  Convertible Note Purchase
Agreement  dated  June  25, 2001 (the "Convertible Note Purchase Agreement") (as
described  below).  In  addition,  $200,000 in principal (plus accrued interest)
under the Bridge Loan held by Mr. Kelly was repaid.  The remaining $2.25 million
of  principal amount under the Bridge Loan will be due on December 31, 2001, and
bears interest at the rate of 5% per annum.  At the Company's option, the Bridge
Loan  may  be  repaid  by  delivering  shares of the Company's common stock at a
conversion  price  of  $0.20 per share.  The foregoing description of the Bridge
Loan  is  qualified  in  its  entirety  by  the Amended and Restated Bridge Loan
Agreement,  dated  May  24, 2001, among Vsource (CI) Ltd (formerly NetCel360.com
Ltd), NetCel360 Holdings Limited, Vsource (Malaysia) Sdn Bhd (formerly NetCel360
Sdn  Bhd),  and  the Lenders named therein, as amended by the First Amendment to
Amended  and  Restated Bridge Loan Agreement, which has been filed as an Exhibit
to  a  Current  Report  on  Form  8-K.

     On  November  20,  2001,  the  shareholders  of  the  Company  approved the
conversion of the Bridge Loan in principal amount plus all accrued interest into
shares  of  the Company's common stock at a conversion price of $0.20 per share.
The Company has notified the holders of the Bridge Loan that it intends to repay
the  Bridge  Loan  in  such  manner by delivering shares of the Company's common
stock  on  December  18,  2001.

Series  A  Convertible  Notes

     Under  the  Convertible Note Purchase Agreement, the Company issued a total
of  $4.56  million in principal amount of Series A Convertible Notes, consisting
of  $3.3 million of new funding and approximately $1.26 million of principal and
accrued  interest  converted  from  the  Bridge  Loan  (see above). The Series A
Convertible  Notes bear interest at 10.0% per annum and mature, unless otherwise
paid  or discharged, on June 30, 2003. The Series A Convertible Notes may not be
repaid  until  all amounts owing under the Bridge Loan have been repaid in full.


                                       17
<PAGE>
The  Series  A Convertible Notes are convertible, at the holder's option, into a
number  of  shares  of  Series  3-A  Convertible  Preferred  Stock  equal to the
outstanding  principal  and  accrued  interest of the Series A Convertible Notes
divided  by  $60.  The  Series 3-A Convertible Preferred Stock will be junior to
the  Company's outstanding Series 1-A and Series 2-A Convertible Preferred Stock
in  liquidation  preference.  The  foregoing  description  of  the  Series  A
Convertible  Notes  is  qualified  in  its  entirety by (a) the Convertible Note
Purchase  Agreement  dated  June  25,  2001  (the  "Convertible  Note  Purchase
Agreement")  among  the  Company, Vsource (CI) Ltd (formerly NetCel360.com Ltd),
Vsource  (Malaysia)  Sdn  Bhd  (formerly  NetCel360 Sdn Bhd), and the Purchasers
named  therein,  and  (b) the Certificate of Designation of the Company's Series
3-A  Convertible Preferred Stock, each of which have been filed as Exhibits to a
Current  Report  on  Form  8-K.

Series  B  Exchangeable  Notes

     On  July  12,  2001,  the  Company  issued  approximately  $4.25 million of
principal amount of Series B Exchangeable Notes pursuant to an Exchangeable Note
and Warrant Purchase Agreement. The Series B Exchangeable Notes bear interest at
10% per annum and mature, unless otherwise paid or discharged, on June 30, 2003.
The  Company  may  only use the proceeds from the Series B Exchangeable Notes to
post  a  deposit  (the  "Deposit") with a commercial bank to support a letter of
credit  (the  "Letter  of  Credit")  for Gateway Manufacturing, Inc. ("Gateway")
under  the  Reseller  Agreement,  to  otherwise  provide certain types of credit
support  for  the benefit of Gateway under the Reseller Agreement or to pay fees
and  expenses  relating  to  the  Series  B Exchangeable Notes and warrants, the
letter  of credit for Gateway or other credit support. The Series B Exchangeable
Notes  must  be repaid if and to the extent that: (i) the proceeds from the sale
of  the Series B Exchangeable Notes and warrants are no longer needed for credit
support  under  the Reseller Agreement with Gateway (including if the Deposit is
no  longer required as a result of the termination or expiration of the Reseller
Agreement);  or  (ii) the Company raises more than $6 million as a result of (x)
the issuance and sale of Series A Convertible Notes for cash or (y) the offering
by  the  Company of common stock by way of a rights offering to its stockholders
or sales of Series A Convertible Notes, in which case the amount in excess of $6
million  will  be  used  to  repay the Series B Exchangeable Notes. The Reseller
Agreement  was  terminated  as  of November 1, 2001. Upon payment in full of all
remaining  accounts  payable  owed  by the Company to Gateway under the Reseller
Agreement,  the  letter  of  credit  for Gateway will be terminated, which would
result  in  the  release of the Deposit for repayment to holders of the Series B
Exchangeable  Notes.

     If a Series B Exchangeable Note is not paid in full on or prior to February
15,  2002,  then,  at any time thereafter, the holder may at its option exchange
the  note,  in  whole  or in part, for a Series A Convertible Note. In the event
that  the  issuer  of  the  Letter of Credit withdraws funds from the Deposit to
reimburse  a  draw  on the Letter of Credit, and those funds are not replaced by
the Company within three business days, then a portion of each holder's Series B
Exchangeable  Note  equal  to  the  holder's  pro  rata  portion of unreimbursed
withdrawal  will  be  automatically exchanged for a Series A Convertible Note of
equal  principal  amount.  The  exchanged  portion  of  the  holder's  Series  B
Exchangeable  Note  will  then  be  cancelled.  The foregoing description of the
Series B Exchangeable Notes is qualified in its entirety by (1) the Exchangeable
Note  and  Warrant  Purchase  Agreement,  dated July 12, 2001 among the Company,
Vsource  (CI)  Ltd  (formerly  NetCel360.com  Ltd),  Vsource  (Malaysia) Sdn Bhd


                                       18
<PAGE>
(formerly  NetCel360  Sdn Bhd), and the Purchasers named therein, which has been
filed  as  an  Exhibit to the Quarterly Report on Form 10-Q for the period ended
July  31,  2001,  and  (b)  the  Certificate  of  Designation  of the Series 3-A
Convertible Preferred Stock and the Convertible Note Purchase Agreement, each of
which  have  been  filed  as  Exhibits  to  a  Current  Report  on  Form  8-K.


     In  conjunction  with  the  assumption of the Bridge Loan, the sales of the
Series A Convertible Notes and the Series B Exchangeable Notes, and the issuance
of  the  Series  B warrants (described below), the Company recorded a beneficial
conversion  feature  totaling  $9,118,490  as  additional  paid  in  capital and
allocated  $1,324,856  for  issuance  of warrants. Of this amount $1,702,445 was
expensed  during  the  nine  months  ending  October 31, 2001 and $8,740,901 was
recorded  as  an  offset  to  the  debt.



4.   INVESTOR  WARRANTS

     In  connection  with  issuing  the Series B Exchangeable Notes, the Company
issued warrants to purchase 21,257,500 shares of its common stock (the "Series B
Warrants")  to  purchasers  of  the  Series  B Exchangeable Notes.  The Series B
Warrants  have  an  exercise  price of $0.10 per share and a term of five years.
The  exercise  price  is  subject  to adjustment in the event of stock splits or
combinations;  certain  dividends  and  distributions; reorganizations, mergers,
consolidations  or  sales  of  assets; or a sale of shares of common stock below
$0.10  a  share.

     The Series B Warrants are only exercisable if the following conditions (the
"Series  B  Warrant  Conversion Conditions") are met:  (x) there is an effective
amendment  to  the  Company's  certificate  of  incorporation  increasing  the
authorized  shares  of  common  stock  to  at  least 200 million shares, and the
Company's  stockholders  have  approved  the  issuance of shares of common stock
pursuant  to the Series B Warrant, or (y) the Company has determined not to seek
one  or  both  of  the  approvals referred to in clause (x), and the Company has
received  an  opinion of counsel to the effect that (1) approval is not required
for the issuance of shares of common stock pursuant to the Series B Warrant, (2)
the  shares  of  common stock, upon issuance, will be fully paid, validly issued
and  nonassessable,  and  (3)  the  issuance  would  not  violate  the  rules or
regulations  of  any securities exchange or market on which any of the Company's
securities  is  then  listed, if any.  In the event that neither of the Series B
Conversion  Conditions  have  been  satisfied prior to February 15, 2002, or the
Series  B  Conversion  Conditions  fail  to be satisfied at any time on or after
February 15, 2002, then the holder of a Series B Warrant will have the right, at
any  time  after  June  30,  2002,  to  require the Company to redeem all or any
portion  of  the  Series B Warrant for a redemption price equal to the number of
shares  of common stock into which the Series B Warrant is otherwise exercisable
multiplied by the greater of: (i) $0.30 (adjusted to reflect stock splits, stock
dividends  and similar transactions), or (ii) the fair market value of one share
of  common  stock;  provided, that in no event will this amount exceed $0.35 per
share  (adjusted  to  reflect  stock  splits,  stock  dividends  and  similar
transactions).

     The  foregoing  description  of  the  Series B Warrants is qualified in its
entirety by the Exchangeable Note and Warrant Purchase Agreement, which has been
filed  as  an  Exhibit to the Quarterly Report on Form 10-Q for the period ended
July  31,  2001.


                                       19
<PAGE>
     On November 20, 2001, the stockholders of the Company approved the issuance
of  common  stock upon exercise of the Series B Warrants and an amendment to the
Company's  certificate  of  incorporation  increasing  the  authorized shares of
common  stock.  However,  the  Company has not yet implemented such amendment to
its  certificate  of  incorporation.


5.   NOTES  RECEIVABLE  -  RELATED  PARTIES


     During  the  nine  months  ended October 31, 2001 the Company had unsecured
notes  receivable  from  the following former and current executive officers and
directors:  Robert  McShirley, Richard McShirley, Samuel Bradt, P. Scott Turner,
and  Sandford  T.  Waddell.

     Certain  of  these  notes,  with an aggregate principal amount of $178,798,
were  issued  to  the  Company  in connection with the exercise of 636,100 stock
options  in  May 1999 by Robert McShirley, Richard McShirley and Mr. Bradt, each
of  whom  resigned  from  the  Company  in February or March 2001.  These notes,
bearing  interest  at a rate of 6% per annum, were due on demand.  As of October
31,  2001,  the  unsecured  notes  of  Richard McShirley and Mr. Bradt, totaling
$110,634,  have been written off, and the unsecured note of Robert McShirley has
been cancelled by the Company as part of the arrangement described below whereby
Robert  McShirley  transferred  300,000  shares  of common stock to the Company.

     Additional  notes, with a principal amount of $124,000 each, were issued to
the  Company  in September 2000 in connection with the issuance of 19,501 shares
of  Series  2-A  Convertible  Preferred  Stock  to each of Sandford Waddell, the
Company's  former  Chief  Financial  Officer, and P. Scott Turner, the Company's
former  Chief  Operating  Officer.  These  notes  are  secured  by the shares of
related  stock  and,  when originally issued, bore interest at an annual rate of
8%.  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.   These notes were accounted
for  as  options,  with  a  total  of $154,642 non-cash compensation recorded as
expense  in  the  three  months  ended  July  31,  2000.

     On March 8, 2001, in connection with Mr. Turner's resignation, the terms of
Mr.  Turner's  note  were revised to change the maturity date from September 18,
2003,  to  90  days  from  his last day of employment and to limit the Company's
recourse  solely  to  the  shares  of Series 2-A Convertible Preferred Stock and
related  warrants  securing Mr. Turner's obligations under his note. The average
price  per  share  of the Company's common stock on March 8, 2001 was $1.53. The
balance  of  Mr.  Turner's note on March 8, 2001 was $124,000. In addition, this
note  was combined with another note in principal amount of $50,000 representing
amounts  borrowed  from  the Company in October 2000 and originally subject to a
two-year  promissory  note  due  on October 12, 2002, also bearing interest at a
rate  of 8% per annum. On June 28, 2001, the Company demanded payment in full on
the  combined  note  (which  then  had  a balance of $174,000), and, thereafter,
exercised  its  rights  against the collateral securing Mr. Turner's obligations
and  took  possession of the Series 2-A Convertible Preferred Stock and warrants
which  secured  the  note.  The  average price per share of the Company's common
stock  on  June  28,  2001  was  $0.37.  The Company believed its only effective
recourse  was  to  take  the  collateral.  As  of October 31, 2001, there was no
remaining  balance  on  the  combined  note  of Mr. Turner. The Company expensed
$177,038  including  accrued  interest  for the loss on taking possession of the
collateral.

     On July 6, 2001, the terms of Mr. Waddell's note were revised to change the
maturity  date  from  September  18,  2003,  to  July  6, 2002, and to limit the
Company's  recourse  solely  to  the  shares of Series 2-A Convertible Preferred
Stock  securing  Mr. Waddell's obligations under his note. The average price per
share  of  the  Company's common stock on July 6, 2001 was $0.33. The balance of
Mr.  Waddell's note on July 6, 2001 was $124,000. The outstanding balance of Mr.
Waddell's  note  of  $124,000  was  written off on August 1, 2001 pursuant to an
agreement  under  which  the  Company  waived  its  right to exercise its rights
against  the collateral securing Mr. Waddell's obligations and instead cancelled
Mr.  Waddell's  grant  of 125,000 non-qualified employee options as of August 1,
2001.  The  average  price  per share of the Company's common stock on August 1,
2001  was  $0.21.


                                       20
<PAGE>
     In  October  2000,  Robert  McShirley borrowed $400,000 from the Company in
exchange  for a secured ninety-day promissory note bearing interest at a rate of
8% per annum and due on January 9, 2001. The note from Mr. McShirley was secured
by  300,000  shares  of  the  Company's common stock held by Mr. McShirley.  The
Company's sole recourse was to such shares.  In late October 2000, Mr. McShirley
repaid  the  Company  $250,000  of  the original balance, leaving an outstanding
balance  of $150,000. On January 30, 2001, the Board of Directors of the Company
approved an extension of this note for 90 days.  On March 8, 2001, in connection
with  Mr. McShirley's resignation, the terms of the note were extended to August
27, 2001, and all notes issued to the Company by Mr. McShirley were collectively
secured  by  300,000  shares  of  common  stock  held by Mr. McShirley, with the
Company's  recourse  limited solely to such shares.  The average price per share
of  the  Company's  common stock on March 8, 2001 was $1.53.  Effective July 31,
2001,  Mr.  McShirley  transferred  such  300,000  shares of common stock to the
Company,  which  cancelled  this  note  and  a  notes in the principal amount of
$68,164  and  expensed  $138,332  including  accrued  interest  on  the  loss on
cancellation  of  the note.  The average price per share of the Company's common
stock  on  July  31,  2001  was  $0.33.  As  of  October  31, 2001, there was no
remaining  balance  on  the  notes  receivable  from  Mr.  McShirley.


6.   PREFERRED  STOCK

     In  respect  to  the  anti-dilution conversion provisions of the Series 2-A
Convertible  Preferred  Stock,  a  beneficial conversion feature non-cash deemed
dividend of $2,095,428 was charged to retained earnings in the nine months ended
October  31,  2001.

     As  noted  in  Note  3,  the  Company's  Series  A  Convertible  Notes  are
convertible,  at  the  holder's  option,  into  a number of shares of Series 3-A
Convertible  Preferred  Stock  equal  to  the  outstanding principal and accrued
interest  of  the  Series  A Convertible Notes divided by $60. If the Series 3-A
Conversion  Conditions  (as  defined  below) have been satisfied, each holder of
Series  3-A  Convertible Preferred Stock may convert any of its shares of Series
3-A  Convertible  Preferred Stock into shares of the Company's common stock. The
number of shares of common stock to be issued upon a conversion is determined by
dividing  the  sum  of  $60  (as  adjusted for stock splits, stock dividends and
similar  transactions)  and  all  accrued  and unpaid dividends on the shares of
Series  3-A  Convertible  Preferred  Stock  to be converted, by $0.10. The $0.10
conversion  price  is  subject  to  adjustment  in  the event of stock splits or
combinations;  certain  dividends  and  distributions; reorganizations, mergers,
consolidations  or  sales  of assets; or a sale of shares of common stock by the
Company  below  $0.10  a  share.

     The  Series  3-A  Convertible  Preferred  Stock  may only be converted into
shares  of  the  Company's common stock if the following conditions (the "Series
3-A  Conversion Conditions") are met: (x) there is an effective amendment to the
Company's  certificate  of  incorporation  increasing  the  authorized shares of
common stock to at least 200 million shares, and the Company's stockholders have
approved  the  issuance  of shares of common stock pursuant to conversion of the
Series 3-A Convertible Preferred Stock, or (y) the Company has determined not to
seek one or both of the approvals referred to in clause (x), and the Company has
received  an  opinion of counsel to the effect that (1) approval is not required
for  the issuance of shares of common stock pursuant to conversion of the Series
3-A  Convertible Preferred Stock, (2) the shares of common stock, upon issuance,


                                       21
<PAGE>
will be fully paid, validly issued and nonassessable, and (3) the issuance would
not  violate  the  rules  or regulations of any securities exchange or market on
which  any of the Company's securities is then listed, if any. In the event that
neither  of  the  Series  3-A Conversion Conditions have been satisfied prior to
February  15, 2002, or the Series 3-A Conversion Conditions fail to be satisfied
at  any  time  on  or  after  February  15,  2002,  then  a holder of Series 3-A
Convertible  Preferred  Stock  will  have  the right, at any time after June 30,
2002, to require the Company to redeem all of such holder's shares of Series 3-A
Convertible  Preferred  Stock  for a price per share equal to the greater of (i)
three  (3)  times  the  sum of $60 plus all accrued and unpaid dividends on each
share  and  (ii)  the  fair  market value, not to exceed $0.35 per share, of the
common  stock  into  which  the  Series  3-A  Convertible  Preferred  Stock  is
convertible.

     On  November  20, 2001, the Company's stockholders approved the issuance of
shares  of  the  Company's common stock to the holders of Series 3-A Convertible
Preferred  Stock  that  may  be  issued  pursuant  to the conversion of Series A
Convertible  Notes,  including any Series A Convertible Notes issued in exchange
for  Series  B Exchangeable Notes, and an amendment to the Company's certificate
of incorporation increasing the authorized shares of common stock.  However, the
Company  has  not  yet  implemented  such  amendment  to  its  certificate  of
incorporation.

     In  conjunction  with  the  sale of Series A Convertible Notes and Series B
Exchangeable Notes, and with the issuance of Series B Warrants, all of which are
convertible  or exercisable at less than the conversion or exercise price of the
Series 2-A Convertible Preferred Stock, a beneficial conversion feature non-cash
deemed  dividend was recognized, in the amount of the net proceeds of Series 2-A
financing,  which  is  the  maximum  amount  of  a beneficial conversion feature
charge.


7.   SHAREHOLDERS'  DEFICIT

     On  June 22, 2001, the Company issued 2,774,213 restricted common shares to
the Seller under the terms of the Acquisition Agreement described in Note 2.  In
addition,  935,486  restricted common shares ("Deferred Stock") are to be issued
six months from June 22, 2001 provided that the Company does not withhold shares
of Deferred Stock under Article VII of the Acquisition Agreement in satisfaction
of  the  Seller's  indemnification  obligations.

     During the nine months ended October 31, 2001, 733,611 shares of Series 1-A
Convertible  Preferred  Stock  and  25,741  shares  of  Series  2-A  Convertible
Preferred  Stock  were  converted at $2.50 and $6.41 per share, respectively, to
759,352  shares  of common stock of the Company, in cashless transactions. Also,
during  the nine months ended October 31, 2001, 120,000 warrants were converted,
at $2.00 per share, to 87,914 shares of common stock of the Company, in cashless
transactions

     On  July  31,  2001, in relation to the cancellation of debt payable to the
Company  by  certain  related parties, 300,000 shares of common stock and 19,501
shares  of  Series  2-A Convertible Preferred Stock were cancelled. (See Note 5.
-Notes  receivable - related  parties).


                                       22
<PAGE>
     As  of  October  31,  2001 there were 21,275,389 common shares outstanding,
including  the yet unconverted common shares of Online Transaction Technologies,
Inc.  There were also 1,703,741 shares of Series 1-A Convertible Preferred Stock
and 1,330,675 shares of Series 2-A Convertible Preferred Stock outstanding as of
this  date.  If  all  outstanding  convertible  debt,  warrants, and options are
converted  to  common  stock,  and  if  all  currently  outstanding  convertible
preferred  stock  is  converted in accordance with the anti-dilution features of
those securities, the Company estimates that approximately 160 million shares of
common  stock  would  be  outstanding.  Although this number exceeds the current
authorized  limit  of  100 million shares of common stock, most of the potential
increase is based on convertible note conversions and warrant exercises that are
contingent  upon  either  (i)  implementation  of  an amendment to the Company's
certificate  of  incorporation  increasing  the  Company's  authorized shares of
common  stock  to  at least 200 million or (ii) receipt of an opinion of counsel
which  has not been withdrawn to the effect that, among other things, the shares
of  common  stock,  upon  issuance,  will  be  fully  paid,  validly  issued and
nonassessable.  An  amendment  to  the  Company's  certificate  of incorporation
referenced  in  the  preceding  clause (i) has not yet been implemented, and the
Company does not believe that its counsel could at this time deliver the opinion
referenced  in  the  preceding  clause  (ii).

8.   NET  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
nine  months  ended  October  31,  2001 and 2000 is the net loss for the period,
adjusted  for  deemed non-cash dividends on preferred stock. The deemed non-cash
dividends  on  preferred  stock  for the nine months ended October 31, 2000 have
been  restated for the prior period adjustment as reflected in Form 10-KSB/A for
the  fiscal  year  ended  January  31,  2001.

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


                                                   For the nine months ended
                                              October 31, 2001  October 31, 2000
                                              ----------------  ----------------
   Net loss                                   $   (17,642,158)  $   (18,537,691)

   Less - deemed non-cash dividend to              (2,095,428)      (14,495,884)
            preferred shareholders
                                              ----------------  ----------------
   Net loss available to common shareholders  $   (19,737,586)  $   (33,033,575)


     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.


                                       23
<PAGE>
9.   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  and  a  third  facility  in Los Angeles, California, under a
noncancellable  operating  lease expiring April 6, 2002. Although the Company is
in  the  process  of  finding a sub-lessee to assume its obligations under these
leases,  the  estimated  liability  for  the  full  terms  is  included  below.

     Upon  the  acquisition of the NetCel360 Corporations, the Company also took
over  noncancellable  operating  leases  in  Kuala Lumpur, Malaysia (expiring on
March  9,  2003), San Diego, California (expiring on January 13, 2004), and Hong
Kong  (expiring  on  August  31,  2002).  The  Company's  office  facilities  in
Singapore  are  leased  under  a month-to-month lease.  On October 31, 2001, the
Company's  Japan  subsidiary  entered  into  a  noncancellable  operating  lease
agreement  for facilities in Osaka, Japan, which expires on March 31, 2003.  The
Company's  lease  in  Tokyo,  Japan  was  terminated  as  of  November 12, 2001.


     The  future  minimum  rent  expense  that  will be incurred under operating
leases  are  as  follows:

For the fiscal year ended:
                               2002          $    363,596
                               2003             1,103,807
                               2004               203,002
                                             ------------
                                             $  1,670,405
                                             ============

  -  LEGAL

     On  or  about October 10, 2001, two lawsuits were filed against the Company
by purported holders of Series 2-A Convertible Preferred Stock before the United
States  District  Court for the Northern District of Illinois entitled Crestview
                                                                       ---------
Capital Fund, LLP v. Vsource, Inc., Case No. 01 C 7833, and Abrahams v. Vsource,
----------------------------------                          --------------------
Inc.,  Case  No.  01  C  7831.  Both  lawsuits allege that the Company failed to
----
register  the  underlying  common  stock  under  the  Securities Act of 1933, an
obligation  allegedly  undertaken  in connection with the original sale of those
securities.  Plaintiffs  seek  to  recover  at  least  $850,000  and  $200,000,
respectively,  plus attorney's fees and costs. A response to these complaints is
not  due  until December 14, 2001. At this early stage of the proceedings, it is
difficult  to  determine  the  outcome  of  this  litigation  or  the range of a
potential loss with any degree of certainty; however, the Company denies any and
all  liability  and  intends  to  vigorously  defend  against  these  charges.


                                       24
<PAGE>
10.  SUBSEQUENT  EVENTS

     On  November 16, 2001, the Company and Vsource (CI) Ltd entered into a four
year  Master  Services Agreement with Agilent Technologies Singapore (Sales) Pte
Ltd ("Agilent Technologies") to provide payroll services to Agilent Technologies
in  the  Asia-Pacific  region.  The  agreement  covers  12  countries  across
Asia-Pacific,  including Japan, Korea, Hong Kong, Singapore, Malaysia, China and
Australia.

     On November 20, 2001, the stockholders of the Company (i) granted the Board
of  Directors  of the Company the authority to increase the Company's authorized
share capital and/or effect a combination of the Company's outstanding shares if
deemed  strategically  appropriate  during  the upcoming year, (ii) approved the
repayment  of  the  Bridge  Loan  by  delivery  of  shares  of common stock at a
conversion  price  of  $0.20 per share, (iii) approved the issuance of shares of
common  stock  upon  conversion  of Series 3-A Convertible Preferred Stock, (iv)
approved  the  issuance  of  shares  of  common  stock upon exercise of Series B
Warrants,  (v) approved the Company's 2001 Stock Options/Stock Issuance Plan and
(vi)  approved  the  Company's  Employee  Stock  Purchase  Plan.


11.  SEGMENT  DATA

     Prior  to the quarter ended July 31, 2001, the Company's principal business
was  the development and sale of a technology solution. As such, the Company did
not prepare segment reporting. Following the acquisition of the NetCel360 assets
on  June  22,  2001, it became appropriate for the Company to report by business
segment. Geographically, all of the Company's material assets reside in Asia and
primarily  all  of  the revenues of the Company were derived in Asia. Management
does  not  review  the assets of the Company by geographical regions or business
units.

     The  Company's  segments  are  based on category of services. Categories of
services  are Financial Services, Customer Relationship Management (CRM), Supply
Chain  Management  (SCM),  Professional  Services,  Distribution  Services  and
Corporate  Expenses. The Company evaluates the performance of its segments based
on sales and net loss before taxes for management reporting purposes. Management
evaluates  sales  by category of services based on revenue recognized during the
period.  Segment operating income includes selling, general, and administrative,
and  other  overhead  charges  directly attributable to the segment and excludes
certain corporate expenses managed outside the reporting segment. Costs excluded
from  the segments primarily consist of general and administrative expenses that
are  managed  on  a  corporate basis, research and development charges and other
special  charges  including  loss  on  Impairment  of  goodwill.


                                       25
<PAGE>
The  following  table  sets  forth summary information by segment (in thousands)

<TABLE>
<CAPTION>
                         Three months to    Nine months to
                        -----------------  ----------------
                        October 31, 2001   October 31, 2000
                        -----------------  ----------------
<S>                     <C>                <C>
Revenue
Financial Services                 126.2             146.8
CRM                                168.8             297.3
SCM                                 50.7              78.9
Professional Services              195.9             300.4
Distribution Services            1,859.0           2,723.2
Other                                 --               2.0
                        -----------------  ----------------
Total                            2,400.6           3,548.6
                        =================  ================

Net Loss before Taxes
Financial Services                (306.1)           (742.6)
CRM                               (167.0)           (369.3)
SCM                                (43.2)           (115.6)
Professional Services               17.7            (274.9)
Distribution Services             (524.7)           (737.5)
Corporate expenses              (3,683.9)         (9,198.8)
Impairment of goodwill                --          (4,078.9)

Interest expense                (1,306.2)         (2,108.7)
                        -----------------  ----------------
Total                           (6,013.4)        (17,626.3)
                        -----------------  ----------------
</TABLE>



Item  2.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

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

FORWARD  LOOKING  STATEMENTS

     This Quarterly Report on Form 10-Q and the documents incorporated herein by
reference  contain  forward-looking  statements  based  on current expectations,
estimates  and  projections about our 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.  Potential  risks and uncertainties include, among others, those set
forth  in  this  Item  2.  Particular attention should be paid to the cautionary


                                       26
<PAGE>
statements  involving our limited operating history, the unpredictability of its
future  revenues,  our  need  for and the availability of capital resources, the
evolving  nature  of  its  business  model, the intensely competitive market for
business-to-business  electronic  procurement,  and  the  risks  associated with
systems  development,  management  of  growth and business expansion.  Except as
required  by  law,  we  undertake  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  we  file from time to time with the Securities and Exchange
Commission  ("SEC").


MANAGEMENT'S  DISCUSSION  &  ANALYSIS  OF  RESULTS OF OPERATIONS  - THREE MONTHS
ENDED  OCTOBER  31,  2001,  COMPARED TO THE THREE MONTHS ENDED OCTOBER 31, 2000:

REVENUES

      Revenues  for  the  three  months  ended  October  31,  2001  increased to
$2,400,566  from  $151,500  for  the  three  months  ended  October 31, 2000, an
increase of $2,249,066, or 1,484.5%. Revenues increased primarily because of the
acquisition  of assets of NetCel360 on June 22, 2001, and the resultant revenues
generated  from  the resale of Gateway products and Business Process Outsourcing
service  contracts.  There was little revenue for the three months ended October
31, 2000, because in the year ended January 31, 2000, we had ceased our sales of
subscriptions  to  the  software  version  of  VSN.

COST  OF  SALES

     Cost  of  sales  for  the  three months ended October 31, 2001 increased to
$2,411,627  from  no  cost of sales for the three months ended October 31, 2000.
This  increase  was  due  primarily  because  of  the  acquisition  of assets of
NetCel360  on  June  22,  2001,  and the resultant costs incurred in relation to
sales.  This  expense  was  high  due to the start-up phase of operations of the
subsidiaries  acquired  from  NetCel360.

SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES

     Selling,  general  and  administrative expenses increased to $4,669,646 for
the  three  months  ended  October 31, 2001 from $2,017,562 for the three months
ended  October  31, 2000, an increase of $2,652,084, or 131.4%. The increase was
due  to  the  acquisition  of  assets  of  NetCel360  on  June 22, 2001, and the
resultant  costs  incurred  in  relation  to  sales  and  higher  headcount.

RESEARCH  AND  DEVELOPMENT

     Research and development expenses decreased to $56,179 for the three months
ended  October  31,  2001 from $4,004,459 for the three months ended October 31,
2000,  a  decrease  of  $3,948,280  or  98.6%. The decrease was primarily due to
decreased  costs  associated with the development of the Internet version of VSN


                                       27
<PAGE>
electronic  purchasing  system. Such decreased costs include decreased personnel
and  personnel-related  expenses,  decreased  overhead,  as  well  as  decreased
licensing  fees  for  development-related  tools  and  systems and a substantial
decrease  in  the  recognition  of  stock-based  compensation.

LOSS  FROM  OPERATIONS

     The  loss  from operations of $4,736,886 for the three months ended October
31,  2001 decreased from a loss of $5,870,521 for the three months ended October
31,  2000,  a  decrease  of  $1,133,635, or 19.3%. The loss decreased because of
significant  reduction  in  development  and  marketing  expenses  related  to
LiquidMarketplace(TM)  and the Internet version of VSN, and due to a substantial
decrease  in  the  recognition  of  stock-based  compensation.

INTEREST  INCOME

     Interest income decreased to $29,708 for the three months ended October 31,
2001  from  $36,023  for  the three months ended October 31, 2000, a decrease of
$6,315,  or  17.5%.  The  decrease  was due primarily to the decrease in cash in
interest  bearing  accounts.

INTEREST  EXPENSE

     Interest expense increased to $1,306,216 for the three months ended October
31, 2001 from $3,698 for the three months ended October 31, 2000, an increase of
$1,302,518,  or  35,222.2%.  The  increase  was due primarily to the increase in
interest  expenses  related  to  the assumption of the Bridge Loan following the
Acquisition  and  issuance  of  the  Series  A Convertible Note and the Series B
Exchangeable  Notes.  Of  this increase,  $1,272,851 was in conjunction with the
recognition  of  the  beneficial  conversion  feature  on  convertible  debt.

NET  LOSS  BEFORE  TAXES

     The  net loss before taxes of $6,013,394 for the three months ended October
31,  2001 increased from $5,838,196 for the three months ended October 31, 2000,
an  increase  of  $175,198,  or  3.0%.  This  increase  was primarily due to the
interest  expense related to the Bridge Loan, the Series A Convertible Notes and
the  Series  B  Exchangeable  Notes.

PROVISION  FOR  INCOME  TAXES

     There  was  a  provision  for  income taxes of $12,212 for the three months
ended  October  31, 2001 compared to no tax provision for the three months ended
October  31,  2000.  This  was  due  to the provision of corporate tax in Japan.

NET  LOSS

     The  net  loss  of  $6,025,606  for the three months ended October 31, 2001
increased  from  $5,838,196  for  the  three  months  ended October 31, 2000, an
increase  of  $187,410, or 3.2%. This increase was primarily due to the interest
expense  related  to  the  Bridge  Loan,  the Series A Convertible Notes and the
Series  B  Exchangeable  Notes.


                                       28
<PAGE>
NET  LOSS  AVAILABLE  TO  COMMON  SHAREHOLDERS

     The  net  loss available to common shareholders of $6,025,606 for the three
months  ended  October  31, 2001 decreased from $13,465,683 for the three months
ended  October 31, 2001, a decrease of $7,440,077 or 55.3%. The decrease was due
to  no  deemed dividend for preferred shareholders, partially offset by interest
expense  on  convertible  debt  for  the  three months ended October 31, 2001 as
compared  to  $7,627,487  for  the  three  months  ended  October  31,  2000.


BASIC  WEIGHTED  AVERAGE  NUMBER  OF  COMMON  SHARES  OUTSTANDING

     The  weighted  average  number of common shares of 21,272,943 for the three
months  ended  October  31,  2001 increased from 15,969,038 for the three months
ended  October 31, 2000, an increase of 5,303,905 shares, or 33.2%. The increase
resulted  primarily  from the conversion of 1,420,409 shares of preferred stock,
the issuance of 15,000 shares in relation to the acquisition of domain name, the
issuance  of  1,089,389  shares  in  relation  to the acquisition of OTT and the
issuance  of  2,774,213  shares  in relation to the acquisition of the assets of
NetCel360.

NET  LOSS  PER  COMMON  SHARE-BASIC  AND  DILUTED

     The net loss per common share of ($0.28) for the three months ended October
31,  2001  decreased from the net loss per common share of ($0.84) for the three
months  ended  October  31,  2000.  This  was a result of the decreased net loss
available  to  common  shareholders  for  the  quarter  and  the increase in the
weighted  average  of  outstanding  common  shares of 5,303,905, as noted above.

MANAGEMENT'S  DISCUSSION  &  ANALYSIS  OF  RESULTS  OF OPERATIONS  - NINE MONTHS
ENDED  OCTOBER  31,  2001,  COMPARED  TO THE NINE MONTHS ENDED OCTOBER 31, 2000:

REVENUES

      Revenues  for  the  nine  months  ended  October  31,  2001  increased  to
$3,548,592 from $214,000 for the nine months ended October 31, 2000, an increase
of  $3,334,592,  or  1,558.2%.  Revenues  increased  primarily  because  of  the
acquisition  of assets of NetCel360 on June 22, 2001, and the resultant revenues
generated  from  its  operations.  There  was little revenue for the nine months
ended  October  31,  2000,  because  in  the year ended January 31, 2000, we had
ceased  our  sales  of  subscriptions  to  the  software  version  of  VSN.

COST  OF  SALES

     Cost  of  sales  for  the  nine  months ended October 31, 2001 increased to
$3,794,422  from  no  cost  of sales for the nine months ended October 31, 2000.
This  increase  was  due  primarily  because  of  the  acquisition  of assets of
NetCel360  on  June  22,  2001,  and the resultant costs incurred in relation to
sales.  This  expense  was  high  due to the start-up phase of operations of the
subsidiaries  acquired  from  NetCel360.


                                       29
<PAGE>
SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES

     Selling,  general  and  administrative expenses decreased to $8,200,389 for
the nine months ended October 31, 2001 from $9,746,801 for the nine months ended
October 31, 2000, a decrease of $1,546,412, or 15.9%. The decrease was due to in
the  termination  of expenses related to the product implementation of VSN and a
substantial  decrease  in  the  recognition  of  stock-based  compensation.

RESEARCH  AND  DEVELOPMENT

     Research  and  development  expenses  decreased  to $3,097,844 for the nine
months  ended October 31, 2001 from $9,087,797 for the nine months ended October
31,  2000,  a decrease of $5,989,953 or 65.9%. The decrease was primarily due to
with  the  termination  of  the  development  of  the  Internet  version  of VSN
electronic purchasing system. Such costs include personnel and personnel-related
expenses,  overhead, as well as licensing fees for development-related tools and
systems  and  a  substantial  decrease  in  the  recognition  of  stock-based
compensation.

LOSS  ON  IMPAIRMENT  OF  GOODWILL

     A  loss  on  impairment  of goodwill of $4,078,872 was incurred in the nine
months  ended  October  31,  2001.  No such impairment was incurred for the nine
months  ended  October  31, 2000. During the nine month period ended October 31,
2001,  we  evaluated  the  Company's long-lived assets by measuring the carrying
amount  of  the  assets  against  the  estimated  undiscounted future cash flows
associated  with them. We determined that goodwill did not continue to carry the
value  originally anticipated.  As a result, and in accordance with Statement of
Financial  Accounting Standard (SFAS) No. 121,an impairment charge of $4,078,872
was  made  against  goodwill.

LOSS  FROM  OPERATIONS

     The  loss  from operations of $15,622,935 for the nine months ended October
31,  2001 decreased from a loss of $18,620,598 for the nine months ended October
31,  2000, a decrease of $2,997,663, or 16.1%. The loss decreased because of the
acquisition  of assets of NetCel360 on June 22, 2001, and the resultant revenues
generated  from  its  operations,  significant  reduction  in  development  and
marketing  expenses related to LiquidMarketplace(TM) and the Internet version of
VSN,  and a substantial decrease in the recognition of stock-based compensation.

INTEREST  INCOME

     Interest income increased to $105,356 for the nine months ended October 31,
2001  from  $95,603  for  the  nine months ended October 31, 2000, a increase of
$9,753,  or  10.2%.  The  increase  was due primarily to the increase in cash in
interest  bearing  accounts.

INTEREST  EXPENSE

     Interest  expense increased to $2,108,708 for the nine months ended October
31, 2001 from $11,096 for the nine months ended October 31, 2000, an increase of
$2,097,612,  or  18,904.2%.  The  increase  was due primarily to the increase in
interest expenses related to the Bridge Loan, the Series A Convertible Notes and
the  Series  B  Exchangeable  Notes.  Of  this  increase,  $1,702,445  was  in
conjunction  with  the  recognition  of  the  beneficial  conversion  feature on
convertible  debt.


                                       30
<PAGE>
NET  LOSS  BEFORE  TAXES

     The  net loss before taxes of $17,626,287 for the nine months ended October
31,  2001 decreased from $18,536,091 for the nine months ended October 31, 2000,
a  decrease  of $909,804, or 4.9%. The loss decreased because of the acquisition
of  assets  of  NetCel360 on June 22, 2001, and the resultant revenues generated
from its operations, significant reduction in development and marketing expenses
related  to  LiquidMarketplace(TM)  and  the  Internet  version  of  VSN,  and a
substantial  decrease  in  the  recognition  of  stock-based  compensation.

PROVISION  FOR  INCOME  TAXES

     The provision for income taxes of $15,871 for the nine months ended October
31,  2001  increased  from $1,600 for the nine months ended October 31, 2000, an
increase  of  $14,271,  or  891.9%.  The  increase  was due to the provision for
corporate  tax  in  Japan.

NET  LOSS

     The  net  loss  of  $17,642,158  for the nine months ended October 31, 2001
decreased  from  $18,537,691  for  the  nine  months  ended  October 31, 2000, a
decrease  of  $895,533, or 4.8%. This increase was because of the acquisition of
assets  of NetCel360 on June 22, 2001, and the resultant revenues generated from
its  operations,  significant  reduction  in  development and marketing expenses
related  to  LiquidMarketplace(TM)  and  the  Internet  version  of  VSN,  and a
substantial  decrease  in  the  recognition  of  stock-based  compensation.


BASIC  WEIGHTED  AVERAGE  NUMBER  OF  COMMON  SHARES  OUTSTANDING

     The  weighted  average  number  of common shares of 19,743,234 for the nine
months  ended  October  31,  2001  increased from 15,869,895 for the nine months
ended  October 31, 2000, an increase of 3,873,339 shares, or 24.4%. The increase
resulted  primarily  from  the  return  of 300,000 shares from shareholders, the
conversion of 1,420,409 shares of preferred stock, the issuance of 15,000 shares
in  relation  to  the  acquisition  of domain name and the issuance of 2,774,213
shares  in  relation  to  the  acquisition  of  the  assets  of  NetCel360.

NET  LOSS  PER  COMMON  SHARE  -  BASIC  AND  DILUTED

     The  net loss per common share of ($1.00) for the nine months ended October
31, 2001 decreased from net loss per common share of ($2.08) for the nine months
ended  October  31,  2000,  a  decrease  of  $1.08,  or 51.9%. This decrease was
primarily  due  to  a  decrease  in  the non-cash deemed dividend and beneficial
conversion  feature  for the nine months ended October 31, 2001 and the increase
in  the  weighted  average  of  outstanding common shares of 3,873,339, as noted
above.


MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION - AT OCTOBER 31, 2001,
COMPARED  TO  JANUARY  31,  2001:

CASH

     On  October 31, 2001, cash totaled $701,188, down $4,707,074 or 87.0%, from
$5,408,262 at January 31, 2001. This decrease reflects funds used for operations
and  investing  activities,  partially offset by increased financing, during the
nine  months  ended  October  31,  2001.


                                       31
<PAGE>
LETTER  OF  CREDIT

     On  October 31, 2001, a letter of credit was outstanding for $4,000,000, up
from no balance at January 31, 2001. This reflects the posting of a deposit with
a  commercial  bank  for  the  purpose  of opening a standby letter of credit as
required under the reseller agreement (the "Reseller Agreement") we entered into
with  Gateway Manufacturing, Inc. as of July 1, 2001. The Reseller Agreement was
terminated  as  of  November  1,  2001.  Upon  payment  in full of all remaining
accounts  payable  owed  by us to Gateway Manufacturing, Inc. under the Reseller
Agreement,  the  letter  of credit will be terminated, which would result in the
release  of  the  Deposit  for repayment to holders of the Series B Exchangeable
Notes.

ACCOUNTS  RECEIVABLE

     On  October  31, 2001, accounts receivable totaled $885,071, up $880,871 or
20,973.1%,  from  $4,200 at January 31, 2001. This is due to the increase in the
generation  of  revenues  and  receivables  through NetCel360 in the nine months
ended  October  31,  2001.

NOTES  RECEIVABLE  -  RELATED  PARTIES

     On  October  31, 2001, there was no remaining balance of notes receivable -
related  parties,  current  and  long  term,  down  from  $150,000  and  $50,000
respectively,  at  January  31,  2001.  This  reflects the surrender of stock in
settlement  of  the receivable from related parties during the nine months ended
October  31,  2001.

OTHER  RECEIVABLES

     On October 31, 2001, other receivables totaled $173,103, up from no balance
at  January 31, 2001. This reflects Goods and Services tax recoverable and other
expenses  in  the  nine  months  ended  October  31,  2001.

PREPAID  EXPENSES

     On  October  31,  2001,  prepaid  expenses totaled $919,585, up $815,898 or
786.9%,  from  $103,687  at  January 31, 2001.  This increase primarily reflects
accrued  insurance  and other prepaid deposits and fees that will be expensed in
the  next  twelve  months.

TOTAL  CURRENT  ASSETS

     On October 31, 2001, total current assets totaled $6,678,947, up $1,012,798
or  17.9%,  from  $5,666,149  at  January  31,  2001.  This  increase  primarily
reflects the funds provided by borrowing and used for operations during the nine
months  ended  October  31,  2001.

PROPERTY  AND  EQUIPMENT

     On  October  31,  2001,  fixed  assets  totaled  $8,740,532, an increase of
$7,640,904,  or  694.9%,  from  $1,099,628  at January 31, 2001.   This increase
reflects  the  acquisition  of  assets  from  NetCel360, partially offset by the
adjustment to fixed assets for negative goodwill on the acquisition of NetCel360


                                       32
<PAGE>
and  the  recognition of loss and sale of equipment and software from the closed
facilities  in  Washington, Ventura and Los Angeles during the nine months ended
October  31,  2001.

ACCUMULATED  DEPRECIATION

     On  October  31,  2001,  accumulated  depreciation  totaled  $1,067,114, up
$899,831,  or 537.9%, from $167,283 at January 31, 2001.  This increase reflects
normal  depreciation  expense  primarily  of the acquired assets from NetCel360,
partially  offset  by  the write off and sale of equipment and software from the
closed  facilities  in  Washington,  Ventura and Los Angeles for the nine months
ended  October  31,  2001.

PROPERTY  AND  EQUIPMENT,  NET

     On  October  31,  2001,  property and equipment, net totaled $7,673,418, up
$6,741,073,  or  723.0%,  from  $932,345  at  January  31,  2001.  This increase
reflects  the  acquisition  of assets from NetCel360, partially offset by normal
depreciation  expenses  and  the  recognition  of  loss on sale of equipment and
software  from  the  closed  facilities  in  Washington, Ventura and Los Angeles
during  the  nine  months  ended  October  31,  2001.

GOODWILL

     On  October  31,  2001,  there was no balance in goodwill, down $4,592,863,
from  $4,592,863  at  January  31,  2001.  This  decrease  reflects amortization
expense,  partially  offset  by  additional  related  expenses,  as  well as the
recognition of the loss on impairment of goodwill of $4,078,872, during the nine
months ended October 31, 2001. (See Notes to Consolidated Financial Statements -
Note  1  Impairment  of  Goodwill.)

OTHER  ASSETS

     On  October  31, 2001, other assets totaled $8,899, down $10,660, or 54.5%,
from $19,559 at January 31, 2001.  This decrease reflects the write off of other
assets  during  the  nine  months  ended  October  31,  2001.

TOTAL  ASSETS

     On  October  31,  2001,  total  assets  were $14,361,264, up $3,100,348, or
27.5%,  from  $11,260,916  at January 31, 2001. This increase primarily reflects
the letter of credit, the acquisition of assets from NetCel360, partially offset
by  normal depreciation and amortization expenses and funds used for operations,
the  write off of property and equipment, as well as the recognition of the loss
in  impairment  of  goodwill,  during  the  nine  months ended October 31, 2001.

ACCOUNTS  PAYABLE

     On  October  31,  2001, accounts payable were $2,507,527, up $1,908,810, or
318.8%, from $598,717 at January 31, 2001. This change is primarily a result the
acquisition  of  assets from NetCel360 and the related liabilities for operating
expenses.


                                       33
<PAGE>
ACCRUED  EXPENSES

     On October 31, 2001, accrued liabilities were $3,922,942, up $3,611,256, or
1,158.6%,  from  $311,686 at January 31, 2001. This change is primarily a result
the acquisition of assets from NetCel360 and the related liabilities for expense
relating  to  operations.

CONVERTIBLE  NOTES  PAYABLE

     On  October  31,  2001,  convertible  notes  payable  were  $4,251,500,  up
$4,251,500 from no balance as of January 31, 2001. The increase was attributable
to  the  sale  of  $4,251,500  Series  B  Exchangeable  Notes  in  July  2001.

DISCOUNT ON CONVERTIBLE NOTES

     On  October  31,  2001,  discount  on  convertible notes was $4,335,804, up
$4,335,804 from no balance as of January 31, 2001. The increase was attributable
to  the  assumption of Bridge Loan and convertible notes convertible into common
stock  at  less  than  market  price.


NOTES  PAYABLE

     On  October  31, 2001, notes payable were $2,250,000, up $2,250,000 from no
balance as of January 31, 2001.  The increase was attributable to the assumption
of  the  Bridge  Loans  pursuant  to  the acquisition of the assets of NetCel360
during  June  2001.

TOTAL  CURRENT  LIABILITIES

     On  October  31,  2001,  total  current  liabilities totaled $8,596,165, up
$7,685,762,  or  844.2%,  from  $910,403  at  January  31, 2001.  This change is
primarily  the  result  of an increase in accounts payable, accrued liabilities,
Series B Exchangeable Notes of $4,251,500 and notes payable acquired in relation
to  the  acquisition of NetCel360 of $2,250,000, partially offset by the accrued
contingent  interest  on  convertible  debt  of  $4,335,804.  The funds used for
operating  expenses  were  for marketing, advertising, legal expenses, wages and
related  compensation  expenses  for  the  nine  months  ended October 31, 2001.


CONVERTIBLE  NOTES  PAYABLE

     On  October  31,  2001,  convertible  notes  payable  were  $4,558,056,  up
$4,558,056  from  no  balance  as  of  January  31,  2001.  The  increase  was
attributable  to the sale of $4,558,056 Series A Convertible Notes in June 2001.


DISCOUNT  ON  CONVERTIBLE NOTES

     On  October  31,  2001,  discount  on  convertible notes was $4,405,097, up
$4,405,097 from no balance as of January 31, 2001. The increase was attributable
to  the sale of Series A Notes convertible into common stock at less than market
price.



                                       34
<PAGE>
ACCRUED  INTEREST  AND  OTHER  PAYABLES

     On  October  31,  2001,  accrued interest expense was $165,187, up $165,187
from  no  balance  as of January 31, 2001.  The increase was attributable to the
10%  interest  accruing  on  Series  A  Notes.

LONG  TERM  LIABILITIES


     On  October  31,  2001,  total  long  term liabilities totaled $318,146, up
$318,146  from  no balance as of January 31, 2001.  This change is primarily the
result  of  an  increase  in convertible notes payable of $4,558,056 and accrued
interest  of  $165,187, offset by the accrued contingent interest on convertible
debt  of  $4,405,097.


PREFERRED  STOCK  -  SERIES  1-A

     On October 31, 2001, preferred stock for Series 1-A totaled $4,150,774 down
$1,834,028,  or  30.6%,  from $5,984,802 at January 31, 2001.  This reflects the
exercise  of  the  conversion  feature  of  759,352 shares of preferred stock to
common  stock  for  $1,834,028,  during  the nine months ended October 31, 2001.

PREFERRED  STOCK  -  SERIES  2-A

     On  October  31,  2001,  preferred stock for Series 2-A totaled $8,072,591,
down  $171,435,  or  2.1%,  from  $8,244,026 at January 31, 2001.  This decrease
reflects  the  exercise  of the conversion feature of 45,242 shares of preferred
stock  Series  2-A  to common stock for $165,000, and the cancellation of 19,501
shares  of  preferred stock Series 2-A for $6,435 of preferred stock, during the
nine  months  ended  October  31,  2001.

COMMON  STOCK,  $0.01  PAR  VALUE

     On  October  31, 2001, common stock totaled $212,754, up $33,365, or 18.6%,
from  $179,389  at  January  31,  2001.  This primarily reflects the issuance of
$27,742  of  stock  in  relation  to the acquisition of assets of NetCel360, the
conversion  of  preferred  stock  to  common  stock  for $7,594, the exercise of
warrants for $879 of common stock, $0.01 par value and issuance of $150 of stock
for  the purchase of domain name, partially offset by the cancellation of $3,000
of  common  stock,  during  the  nine  months  ended  October  31,  2001.

COMMON  STOCK  ADDITIONAL  PAID-IN-CAPITAL


On  October  31,  2001,  paid-in-capital totaled $64,688,009, up $10,614,514, or
19.6%, from $54,073,495 at January 31, 2001. This increase reflects the issuance
of  stock related to the acquisition of assets of NetCel360 of $984,658, and the
related  beneficial  conversion  feature  of $9,118,490 of the convertible notes
payable  and  $1,324,856  issuance  of  warrants, as well as the exercise of the
conversion  feature  of  759,352  shares  of  preferred  to  common  stock  for
$1,991,434,  and  the  recognition of a beneficial conversion feature related to
the  anti-dilution feature of the Series 2-A preferred stock of $2,095,428. This
is  partially  offset  by  the  cancellation  of 300,000 shares for $96,000, the
reduction  of stock based deferred compensation of $4,807,373 due to expired and
forfeited  options,  and  by  the exercise of warrants for $879 of common stock,
during  the  nine  months  ended  October  31,  2001.


                                       35
<PAGE>
DEFERRED  COMPENSATION

On  October  31,  2001,  deferred  compensation was $86,667, down $5,718,184, or
98.5%  from $5,804,851 at January 31, 2001. This decrease reflects the reduction
of stock based deferred compensation of $4,807,373, due to expired and forfeited
options,  and  $910,812  of  expense  recognized  for  stock based compensation.

ACCUMULATED  DEFICIT


On  October 31, 2001, the accumulated deficit was $71,637,136, up $19,737,586 or
38.0%  from  $51,899,550  at January 31, 2001. This change resulted from the net
loss  of  $17,642,158  and  the  recognition  of a beneficial conversion feature
related  to  the  anti-dilution  feature of the Series 2-A Convertible Preferred
Stock  of  $2,095,428  during  the  nine  months  ended  October  31,  2001.


NOTES  RECEIVABLE  FROM  THE  SALE  OF  STOCK

     On  October  31, 2001, notes receivable from the sale of stock is nil, down
$426,798  or 100%, from $426,798 at January 31, 2001. 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, of which $124,000
was  repaid  by  the return of shares of Series 2-A preferred stock and $234,634
was  written  off  during  the  nine  months  ended  October  31,  2001.

TOTAL  SHAREHOLDERS'  DEFICIT


On  October 31, 2001, total shareholders' deficit was $6,776,412, an increase of
$2,898,097,  or 74.7%, from $3,878,315 at January 31, 2001. This change resulted
primarily  from  the  issuance  of stock related to the acquisition of assets of
NetCel360,  including  the  beneficial  conversion  feature  of  $9,118,490  and
$1,324,856  issuance  of  warrants and the exercise of the conversion feature of
759,352  shares of preferred to common stock for $1,999,028, the cancellation of
300,000  shares,  net against the recognition of a beneficial conversion feature
related  to  the  anti-dilution  feature of the Series 2-A Convertible Preferred
Stock  of  $2,095,428 and a decrease in deferred compensation due to stock based
compensation  of  $910,812.  This  is  partially  offset  by  the  net  loss  of
$17,642,158  during  the  nine  months  ended  October  31,  2001.


LIQUIDITY  AND  CAPITAL  RESOURCES

     We  have implemented cash conservation measures.  Based on existing capital
and  contracted  revenues,  plus $2.9 million resulting from the exchange of our
Series  B  Exchangeable Notes for Series B-1 Exchangeable Notes, the proceeds of
which  may  be  used  for general working capital, and for which we have already
obtained  commitments  from  investors  and  which we expect to close in January
2002,  we  believe  that we can continue operations through May 2002.  We are in
negotiations  with  investors for additional cash funding in the amount of $5 to
$10  million, which we expect to close in the first quarter of 2002.  We believe
that  this  additional  funding  will  permit  us to continue operations through
January  31,  2003.  However,  there  can  be  no assurance that such additional
funding  will,  in  fact,  close.


                                       36
<PAGE>
     Our  major  source  of funds from the date of inception through October 31,
2001, has been from sale of equity and debt securities. Our principal sources of
cash and cash equivalents for the nine months ended October 31, 2001, other than
from investor funds, were from funds received from approximately $3.5 million of
revenues  related  primarily to the resale of Gateway products; however, we also
incurred  substantial expenses. Of the $3.5 million, $0.9 million of revenue was
in  accounts  receivable  as  of  October  31,  2001. As of November 1, 2001, we
terminated  all  of  our  reseller  arrangements with Gateway and ceased selling
Gateway  products  in Hong Kong and Singapore. Subsequent to October 31, 2001 we
received  an  advance  payment  from  Gateway  in  the amount of $3.0 million in
connection  with  our  engagement  as  Gateway's  exclusive provider of warranty
support services for their products in the Asia-Pacific region. We believe these
funds  will  provide operating capital until a fund raising from shareholders or
third party investors can be implemented in late 2001 or early 2002. At November
30,  2001, the Company had cash balances of approximately $6.1 million, of which
$4.05  million  is  restricted.

     There  can  be  no  assurances  that we will continue generating additional
revenue  from  clients.  The Company has implemented cash conservation measures.
There  is,  however,  no  assurance  that  the  client funding will occur in the
projected  amount  or in any amount, nor is there any assurance that the Company
can raise significant additional capital in a fund raising from its shareholders
or  other  third  party  investors.


     The Consolidated Statements of Cash Flows for the nine months ended October
31,  2001,  and  2000  show  that  net  losses were $17,642,158 and $18,537,691,
respectively.  We used $7,421,013 in cash from operations during the nine months
ended  October  31,  2001.  A  significant  non-cash entry was made to operating
activities  for  stock  based  compensation  expense  for  the nine months ended
October 31, 2001, and 2000 of $910,812 and $9,648,565 respectively. In addition,
a non-cash entry was made to operating activities for recognition of the loss on
impairment  fixed  assets  of  $741,925,  a  loss  on  impairment of goodwill of
$4,078,872, amortization of beneficial conversion feature on convertible debt of
$1,702,445  and  a write-off of notes receivable of $586,360 for the nine months
ended  October  31,  2001.


     We  used  $4,536,694  of cash in investing activities, primarily from using
$4,000,000  in  cash  for  cash  on deposit in support of a letter of credit and
$470,292  in  the  acquisition of property and equipment, during the nine months
ended  October  31,  2001.  We  were  provided $7,247,761 in cash from financing
activities,  primarily from the proceeds of convertible notes in the nine months
ended  October  31,  2001 and the effect of foreign exchange adjustments of cash
was  a  gain  of  $2,872.

     The  Company has sustained operating losses from operation since inception,
has  used,  rather  than  provided,  cash  from operation and has an accumulated
deficit  of  approximately $72 million as at October 31, 2001.  Continued losses
are  projected  for  the  following  fiscal  year, which raises doubts about the
Company's ability to continue as a going concern.  The accompanying consolidated
financial  statements  have  been prepared in conformity with generally accepted
accounting  principles  and  contemplate  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.


                                       37
<PAGE>
RISKS  RELATED  TO  OUR  BUSINESS

Our  business is still in the development stage, and to successfully develop and
--------------------------------------------------------------------------------
grow  our  BPO  and  distribution  services,  we  must complete various actions.
-------------------------------------------------------------------------------

     Our  business  is  still  in  the  development stage.  Some of the services
within  a  particular  category  of  our  suite  of  services  may  still  be in
development,  and  we  do  not  yet  have  the capability to provide our planned
services  in all of our targeted Asia-Pacific markets.  We must continue to grow
and  refine  our  businesses and identify vendors and partners that will enhance
our  ability  to  deliver  our  services.

To  date,  we  have  realized  revenues  that  are  significantly  less than our
--------------------------------------------------------------------------------
expenses, have had losses since inception and expect our losses to continue, and
--------------------------------------------------------------------------------
there  can  be  no  assurance  that  we  will  achieve  profitability.
---------------------------------------------------------------------

     To  date,  our revenues have been significantly less than our expenses, and
we  expect  to  continue  spending  to:

     -    maintain  and  enhance  our  network  and  technology  infrastructure;

     -    further  develop  and  grow  our  services  and  broaden  our  service
          capabilities;

     -    expand  our  general  administrative  operations  and  hire additional
          qualified  personnel;

     -    increase  and  expand  our  sales  and  marketing  activities;

     -    expand  our  business  through  acquisitions  and  alliances;  and

     -    expand  our  operations  in  Asia-Pacific.

     In  addition,  we  have  recognized only a small amount of revenue from the
Internet  version  of our prior product, Virtual Source Network ("VSN") and very
limited revenue from the LiquidMarketplace(TM) product acquired in January 2001.
In  March 2001, we announced our decision to stop marketing our VSN product; and
in  July  2001, we decided to discontinue marketing of the LiquidMarketplace(TM)
products.  There  is  no  assurance  that we will achieve positive cash flow and
operating  profitability  within  the  limits  of  our  available  capital.

     Accordingly,  we  expect  to  continue  to  incur  significant  losses  and
experience  negative  cash  flows  in  the  foreseeable  future. We will need to
generate  significant revenues to achieve profitability. In our current business
model,  we have never been profitable and we may not, under our current business
model,  be  able to become profitable or to sustain profitability. As of October
31,  2001,  we  had recorded substantial operating losses and had an accumulated
deficit  of  approximately  $72  million.

We  may  not  be  able  to  obtain  sufficient  funds  to  meet  our  operating
-------------------------------------------------------------------------------
requirements.
------------

     Our  major  source  of funds from the date of inception through October 31,
2001, has been from sale of equity and debt securities. Our principal sources of
cash and cash equivalents for the nine months ended October 31, 2001, other than
from investor funds, were from funds received from approximately $3.5 million of


                                       38
<PAGE>
revenues  related  primarily to the resale of Gateway products; however, we also
incurred  substantial expenses. Of the $3.5 million, $0.9 million of revenue was
in  accounts  receivable  as  of  October  31,  2001. As of November 1, 2001, we
terminated  all  of  our  reseller  arrangements with Gateway and ceased selling
Gateway  products  in Hong Kong and Singapore. Subsequent to October 31, 2001 we
received  an  advance  payment  from  Gateway  in  the amount of $3.0 million in
connection  with  our  engagement  as  Gateway's  exclusive provider of warranty
support services for their products in the Asia-Pacific region. We believe these
funds  will  provide operating capital until a fund raising from shareholders or
third party investors can be implemented in late 2001 or early 2002. At November
30,  2001,  the  Company  had  cash  balances  of  approximately  $6.1  million.

     There  can  be  no  assurances  that we will continue generating additional
revenue  from  clients.  The Company has implemented cash conservation measures.
There  is,  however,  no  assurance  that  the  client funding will occur in the
projected  amount  or in any amount, nor is there any assurance that the Company
can raise significant additional capital in a fund raising from its shareholders
or  other  third  party  investors.

Because  we  are  an  early  stage  company, even if we successfully develop and
--------------------------------------------------------------------------------
launch  our  services,  our  ability  to successfully and profitably operate our
--------------------------------------------------------------------------------
business  involves  various  additional  risks.
----------------------------------------------

     As  an early stage company, our rate of growth and change is unpredictable,
as  is  the nature of this change.  We will encounter the risks and difficulties
often  encountered by early stage companies in new and rapidly evolving markets.
These  risks  and  uncertainties  apply  particularly  to  our  markets  in  the
Asia-Pacific  region, which are particularly subject to rapid change.  Moreover,
the  market  for  outsourced services, particularly on a pan-Asian basis, is new
and  also  subject  to  rapid  change.  These  risks  include:

     -    not  being  able  to  attract,  develop  and  maintain clients for our
          services;

     -    not  being  able to successfully develop, grow, expand and improve our
          services;

     -    our business model not being capable of generating adequate revenue on
          a  sustained  basis;

     -    not  being able to attract sufficiently large client accounts in order
          to  achieve  the  necessary  economies  of  scale;

     -    not  being able to develop and maintain relationships with our vendors
          or  other  third  parties;

     -    not  being able to utilize our relationships and the services provided
          by  our  vendors  or  strategic  partners;

     -    rapid  technological change in our industry adversely affecting market
          acceptance  of  some  or  all  of  our  services;

     -    the  need  to  make  additional  acquisitions of or investments in, or
          enter  into arrangements with, third parties in order to grow, enhance
          and  expand  our  services;

                                       39
<PAGE>
     -    not  being  able  to  respond  effectively  to  competitive pressures;

     -    not  being able to develop and upgrade our technology or to expand our
          systems to handle increased demand, resulting in slower response times
          and  other  difficulties  in  providing  services  to our clients; and

     -    not  being  able  to attract, retain and motivate qualified personnel.

     If  we  are unsuccessful in addressing these risks, our business, financial
condition  and  results of operations will be materially and adversely affected.

Long  sale  cycles  for  our  services  could  cause  delays  in revenue growth.
-------------------------------------------------------------------------------

     Our sales cycles for our BPO and distribution services may take many months
to  complete and may vary from contract to contract.  Lengthy sales cycles could
cause  delays  in  revenue growth, and result in significant fluctuations in our
quarterly  operating  results.  The length of the sales cycle may vary depending
on  a  number  of factors over which we may have little or no control, including
the  internal decision making process of the potential customer and the level of
competition  that  we  encounter in our selling activities.  Additionally, since
the  market  for BPO services in Asia is relatively new, we believe that we will
have  to  educate  many  potential  customers  about the use and benefits of our
products  and  services,  which  can  in  turn  prolong  the  sales  process.

Complex  implementation  and integration of our services and products may impede
--------------------------------------------------------------------------------
market  penetration.
-------------------

     The  installation  and implementation of some of our services and products,
including  integration  with  a  client's  systems  currently  in  use, can be a
complex,  time  consuming and expensive process.  We anticipate that some of our
clients  will  be  mid-sized  or larger organizations that will require that our
products  undergo  substantial customization to meet their needs.  These clients
will  also likely require that our products be integrated with existing internal
legacy  systems.  We  estimate that the installation and integration process may
take  from  one to two months, 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.  We also
expect  that  most integration projects in larger companies will involve various
integrators  as  outside  systems  consultants  to  the  client.  Our ability to
continually  enhance  the  features of our services and products, in response to
clients' widely differing needs, is yet to be proven.  As a result, our services
and  products may not achieve significant market penetration in the near future,
or  ever.

We  expect  to  generate  a  substantial  part  of our revenues from one client.
-------------------------------------------------------------------------------

     Because our revenues are small, any one client could generate a substantial
part of our revenues.  We would then be vulnerable to any ability of that client
to  terminate  its  service agreement with us or the inability of that client to
satisfy  its  obligations  to  us.


                                       40
<PAGE>
     From July 1, 2001 to October 31, 2001, we derived a substantial majority of
our  revenues from our relationship with one client, Gateway Manufacturing, Inc.
Following  Gateway's  announcement  on  August  28, 2001 that it was immediately
closing  all  of  its  company-owned operations in Malaysia, Singapore and other
countries  in  the  Asia-Pacific  region, we ceased sales of Gateway products in
Hong Kong and Singapore shortly thereafter and terminated our reseller agreement
with Gateway on November 1, 2001. Accordingly, our revenues in the quarter ended
October  31,  2001  were  materially  and  adversely  affected,  and we incurred
expenses  in  terminating our Gateway reseller operations. We expect to continue
to  derive a substantial portion of our revenue, at least in the near term, from
the  warranty  support  services  contract  we  have  entered into with Gateway.

We  expect  that  our  quarterly  revenues  and operating results will fluctuate
--------------------------------------------------------------------------------
significantly  due to many factors, many of which are outside our control.  Such
--------------------------------------------------------------------------------
factors  include:
-----------------

     -    seasonal  variations  in  the  demand  for  our products and services;

     -    intense  and  increased  competition,  particularly  with  respect  to
          pricing;

     -    product  supply  constraints;

     -    the  introduction  of  new  products  and  services  offering improved
          features  and  functionality  (by  us  and  our  competitors);

     -    changes  in  the  level  of  operating  expenses;

     -    demand  for  and  market  acceptance  of  services  and  products;

     -    inconsistent  growth,  if  any,  of  our  client  base;

     -    loss  of  key  customers  or  strategic  partners;

     -    timing  of  the  recognition  of  revenue  for  large  contracts;

     -    interest  rate  fluctuations;  and

     -    general  economic  conditions.

Our  revenues  and operating results are difficult to predict and may be subject
--------------------------------------------------------------------------------
to  significant  fluctuations.
-----------------------------

     Revenues  derived  from  distribution  clients  will be closely tied to the
economic  cycles  relating  to such clients' underlying business, as well as the
state  of  the  economy in the markets in which such clients' products are sold.

     We  expect  to derive our BPO revenues in large part from transaction-based
fees for the BPO services we provide. The use of each BPO service and the number
of transactions effected by our clients will vary in volume, scope and duration.
In  addition, some of our BPO client contracts provide that the contracts can be
terminated  by  such  clients  on  relatively  short  notice without cause. As a
result,  our  revenues  may  not be recurring from period to period, which makes
them  more  difficult  to  predict.


                                       41
<PAGE>
     We  believe  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 our operating results will be
below  market  analysts' expectations in some future quarters, which would cause
the  market  price  of  our  stock  to  decline.

Risks  Related  to  Economic  Disruptions.
------------------------------------------

     As  a  provider of BPO and distribution services, the Company's business is
dependent  upon the underlying businesses of its clients. The September 11, 2001
terrorist  attack  on the United States appears to have slowed economic recovery
not  only  in  the  United States but in the Asia-Pacific region as well. We are
unable  to  fully  assess  the  impact such events have had upon our clients and
prospective  clients.  Further  events of the magnitude of those of September 11
could  significantly  slow  economic  growth  in  the  Asia-Pacific  region  and
adversely  affect  the businesses of our clients, thereby reducing their need or
desire  for  our  services.  A  significant  disruption  of  telecommunications,
transportation,  mail  and other infrastructure could make it difficult and more
expensive for us to service our customers in a timely fashion or at all, and for
our  vendors  and  service  providers to render goods and services to us. Such a
disruption  might  also  result  in  delays  in receiving payments from clients.
Volatility  and  uncertainty  in  the  world's  stock  markets  brought about by
terrorist  and  other  disruptive  events could also impair our ability to raise
capital.

Our  transaction-based service contracts with our clients contain pricing risks.
--------------------------------------------------------------------------------

     Generally,  our  contracts  with  our  clients  for  our  transaction-based
services  are  for  long-term  periods.  We  charge  and  bill  for  each of our
transaction-based  services  on  a  fixed  and  transactional  basis.  If  we
underestimate the costs and resources needed to provide these services or if our
service  providers  increase  their  charges to us, we could incur losses on our
transaction-based  service  contracts which would have a material adverse effect
on  our  business,  financial  condition  and  results  of  operations.

We  are  dependent  on  a  number  of  vendors  and  service  providers.
-----------------------------------------------------------------------

     We  are  dependent  on  vendors  and  service  providers  in delivering our
services.  In  particular,  our  warranty  support  services for Gateway rely on
arrangements  with  independent field service providers, warehouse providers and
shipping  companies.  The termination or disruption of our arrangements with one
or  more  of these vendors could have a material adverse effect on our business,
financial  condition  or  results  of  operation.

Difficulties  in  implementing  the  acquisition  of  NetCel360 could materially
--------------------------------------------------------------------------------
affect  our  business,  financial  condition  and  results  of  operations.
--------------------------------------------------------------------------

     On  June 22, 2001, we completed our acquisition of substantially all of the
assets  of NetCel360.  The acquisition increased the number of employees from 13
to  over  150,  added  new offices and facilities and significantly expanded our
geographic  focus.  This  growth and the integration process has placed and will


                                       42
<PAGE>
continue to place a significant strain and demand on our managerial, operational
and  financial  resources.  Moreover,  members  of  our senior management may be
required  to  devote considerable amounts of time to this growth and integration
process, which will decrease the time they will have to service current clients,
attract  new  clients  and  develop  new  services  and  products.

We  face risks associated with acquisitions, investments, strategic partnerships
--------------------------------------------------------------------------------
or  other  ventures.
-------------------

     As  part  of  our  overall  business  strategy,  we  may  pursue  strategic
acquisitions  or  investments  as  appropriate  opportunities  arise.  Such
acquisitions  or  investments  would  be in businesses, products or technologies
that  would  provide,  supplement  or  complement  our  services, and/or provide
additional  industry  expertise, a broader client base or an expanded geographic
presence.  We  may  not  be  successful  in  identifying  suitable  acquisition,
investment or strategic partnership candidates.  Even if we do identify suitable
candidates,  we  may  not complete those transactions on commercially acceptable
terms  or  on  a  timely  basis,  or at all.  We may incur indebtedness or issue
equity  securities  to  pay  for any acquisition or investment that could have a
dilutive  effect  on  existing  shareholders.  Such acquisitions and investments
involve  other  risks,  such  as:

     -    the  diversion  of our management's attention and other resources from
          other  business  concerns;

     -    expenses,  delays and difficulties in assimilating and integrating the
          operations,  technologies,  products  and  personnel  of  the acquired
          company;

     -    not  realizing  the  anticipated  benefits  of  any  acquisition  or
          investment;

     -    paying  more  than  the  acquired  company  or  investment  is  worth;

     -    the  impact  on  our  financial  condition  due  to  the timing of the
          acquisition  or  investment;

     -    the  expenses  of  amortizing the acquired company's intangible assets
          and  goodwill;  and

     -    the  potential  for  claims  asserted  against  the acquired business.

     If  any  of these risks are realized, our business, financial condition and
results  of  operations  could  be  materially  adversely  affected.

We  may  not  be  able  to  compete  effectively  against  our  competitors.
---------------------------------------------------------------------------

     We  operate  in a highly competitive environment. In particular, increasing
numbers  of  companies are entering the BPO industry in the Asia-Pacific region.
This  industry is relatively new and, as it develops, our competitors may better
position  themselves  to  compete  in our lines of business and markets. We face
competition  from  local,  regional  and  global  companies  that:


                                       43
<PAGE>
     -    specialize  in  one  or  more of the services included in the suite of
          services  we  offer  our  clients;

     -    are  expanding  their  services  beyond  those they have traditionally
          offered;  and

     -    are  increasing  their  activities  in  our  markets.

     These  competitors  may  have greater resources or more advanced technology
than  we  do.  Other  competitors  may  emerge  in the future with significantly
greater  financial,  technical  and  marketing  resources  than  we have.  These
competitors  may  be  in a better position than us to develop current and future
services,  expand  market  share and to offer services and products that provide
significant  performance, price, creative or other advantages over those offered
by  us.

The  barriers  to  enter  our  business  are  low.
-------------------------------------------------

     There  are  relatively low barriers to entry into our line of business.  We
do  not  own any technologies that preclude or inhibit competitors from entering
our  markets.  Our competitors may independently develop and patent or copyright
proprietary  technologies  that  are  superior  or  substantially similar to our
technologies.  The  costs  to  develop and provide BPO and distribution services
are  relatively  low.

We  depend  on  our  key senior management and executive officers to execute our
--------------------------------------------------------------------------------
business  strategy  and  could  be  harmed  by  the  loss  of  their  services.
------------------------------------------------------------------------------

     We  believe  that  successful  management  and  the  ability to execute our
services will be critical in the success of our business. Therefore, our success
depends in large part upon the continued efforts, service and performance of our
senior  management  team  and  executive  officers,  and  in  particular  of the
following  key  management  executives:

     -    Phillip  Kelly,  our  Co-Chairman  and  CEO;

     -    Dennis  Smith,  our  Vice  Chairman, Chief Financial Officer (CFO) and
          Chief  Strategy  Officer  (CSO);  and

     -    John  Cantillon,  our  Chief  Operating  Officer.

     We  depend  on  their  services  because  each  one of these executives has
experience  and  in-depth  knowledge  regarding  the development, needs, special
opportunities,  and  challenges  of  our  business, and the BPO and distribution
environment  and  activities  in  our  targeted  markets.  We  have  employment
agreements with these key executives as well with all of our other non-executive
officers  and  employees.  The  loss  of  the services of any of these executive
officers or any of our key management, sales or technical personnel could have a
material  adverse  effect  on  our  business, financial condition and results of
operations.

Our  failure  to adequately protect our intellectual property rights or maintain
--------------------------------------------------------------------------------
our  rights  to use third party intellectual property could adversely affect our
--------------------------------------------------------------------------------
business.
--------


                                       44
<PAGE>
     We  believe  our  success  depends,  in part, on protecting our proprietary
intellectual  property  and  other  intellectual  property  rights.  We have not
received  patent protections for our intellectual property and rely primarily on
copyright  and  trade secret protection.  Our efforts to protect our proprietary
rights  may  not  be  effective  to prevent unauthorized parties from copying or
otherwise  obtaining  and  using our technology.  Monitoring unauthorized use of
our  technology  or  products  is difficult and costly, and we cannot be certain
that  the  steps  we  take  will  effectively  prevent  misappropriation  of our
technology.  There  can  be  no  assurance  that  we  will  be  able  to prevent
infringement  of  our  intellectual  property.  A  failure  to  protect  our
intellectual  property  against unauthorized use by others could have a material
adverse  effect  on our business, financial condition and results of operations.

     Portions  of  our business are substantially dependent upon technology that
we  license  from  third  parties.  In  particular,  we  rely  upon  third-party
technologies  and  software  for our BPO services, such as financial and payroll
services,  customer relationship management and supply chain management. We also
expect  to  need  new licenses in the future as our business grows, the existing
products  we  license become obsolete, and technology evolves. We cannot be sure
that  we  will  be  able to obtain necessary licenses on commercially reasonable
terms,  or  at  all,  which  could  result  in  a material adverse effect on our
business,  financial  condition  and  results  of  operations.

     Third  parties  may  claim that our technology or services, including those
which  we  have licensed from a third-party supplier, infringe their proprietary
rights.  Although  in most cases we are indemnified by our licensor in the event
of  a  claim  of  intellectual  property  infringement  by  a  third-party,  any
infringement  claims, even if without merit, can be time-consuming and expensive
to  defend.  They  may divert our management's attention and resources and could
cause  service  implementation  delays.  In  the  event of a successful claim of
infringement  and  the  failure  or  inability  of  either us or our licensor to
develop non-infringing technology or license the infringed or similar technology
on  a  timely or commercially favorable basis, our business, financial condition
and  results  of  operations  could  be  materially  adversely  affected.

We  are  dependent  upon  and  subject  to  risks  related  to  the  Internet.
-----------------------------------------------------------------------------

     The  use  of  our  services and 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 rapid rates, there can be no 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  us and the results of our 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, our future would be
negatively  impacted.

System  failures  and capacity constraints could result in a reduction of demand
--------------------------------------------------------------------------------
for  our  services.
------------------


                                       45
<PAGE>
     Our  ability  to  provide  acceptable  levels  of  customer service largely
depends  on  the efficient and uninterrupted operation of our hardware, software
and  network infrastructure.  Inadequacies in the performance and reliability of
our  information  systems  could  result in interruptions in the availability of
some  or  all  of  our  services,  lower  the volume of transactions or increase
response  times  for  effecting  a  transaction.  This  could  lead  to  client
dissatisfaction,  loss  of  clients  and  damage  to our reputation, which could
materially  adversely  affect  our  business, financial condition and results of
operations.

     Our  systems  and  operations  may  be vulnerable to damage or interruption
from:

     -    power  loss,  telecommunications  or  network  failures,  operator
          negligence,  improper  operation  by employees, physical break-ins and
          other  similar  events;

     -    unauthorized  access  or  electronic  break-ins,  or  "hacking";  and

     -    computer  viruses.

Breaches  of  our security systems could have a materially adverse impact on our
--------------------------------------------------------------------------------
business  and  operations.
-------------------------

     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 our security
systems  and  client  data  stored  in  our  information  systems.  If  any
well-publicized  compromises of security were to occur, it could have the effect
of  substantially reducing the willingness of clients to entrust their data to a
third  party  outsourced  service provider.  Anyone who circumvents our security
measures  could  misappropriate our 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  our  systems,  or those of our clients or vendors, which could
disrupt our products or services, or make our systems inaccessible to clients or
vendors.  We  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 our activities may involve the storage
and transmission of exclusive information, such as personal data and credit card
numbers,  security  breaches could expose us to a risk of loss or litigation and
possible liability.  Our security measures may be inadequate to prevent security
breaches,  and  our  business  could  be  seriously  impacted  if  they  are not
prevented.

We  have  an  incomplete  disaster  recovery  plan.
--------------------------------------------------

     A  significant  portion of our information systems is located in the VCC in
Kuala  Lumpur.  We  do  not maintain a redundant site, although we are currently
planning  to do so.  We are currently assessing a disaster recovery plan.  Until
the plan is completed, there are risks of localized telecommunications, Internet
and  systems  failure.

Volatility  in  social,  political  and  economic conditions in the Asia-Pacific
--------------------------------------------------------------------------------
region  may  adversely  affect  our  business.
---------------------------------------------


                                       46
<PAGE>
     We  derive  and  expect  to  continue  to  derive  substantially all of our
revenues  from  services  conducted  in  or relating to the Asia-Pacific region.
Volatility  in  social,  political  and  economic  conditions  in the region may
interrupt,  limit  or  otherwise affect our operations and services by affecting
our  physical  operations,  creating uncertainty regarding our operating climate
and  adversely  affecting  our  ability  to  provide  services.

     A  downturn in general economic conditions in the Asia-Pacific region could
materially  adversely  affect  our  business, financial condition and results of
operations.  Beginning  in  mid-1997,  many  countries in the region experienced
significant  economic  problems. Recently, the economies in those countries have
experienced  some  degrees of recovery, although there are now signs that growth
rates  are  declining or turning negative. We cannot assure you that the current
economic  conditions  in any of these countries can or will be sustained or that
economic  growth  will  continue.

We  may  become  subject  to  burdensome  government  regulations  and  legal
-----------------------------------------------------------------------------
uncertainties,  and  to  claims  involving  foreign  laws  and  regulations.
---------------------------------------------------------------------------

     We currently have employees, facilities and business operations established
in  Hong  Kong,  Singapore,  Malaysia,  Japan  and  the  United States.  We also
anticipate  having  employees,  facilities and operations in other countries and
territories  in  the  Asia-Pacific  region,  and  offering  services in numerous
countries  in  the  region  regardless of whether we have a physical presence in
such countries.  As a result we are subject to the laws and the court systems of
many  jurisdictions.  We  may  become  subject to claims from private parties or
foreign  government  agencies  based  in foreign jurisdictions for violations of
their  laws.  International  litigation  is  often expensive, time consuming and
distracting.  These  claims  could  be  particularly disruptive to our business.

     In  addition, laws in these jurisdictions may be changed or new laws may be
enacted  in  the  future.  Uncertainty  and  new  laws  and regulations in these
jurisdictions  could  prevent  or limit our ability to operate in certain of our
markets,  increase our costs of doing business and prevent us from providing our
e-business  services.  Any  restrictions could have a material adverse effect on
our  business, financial condition and results of operations. In addition, there
are  risks  inherent  in  conducting  business  in  multiple  jurisdictions  and
internationally.  These  include:

     -    unexpected  changes  in  regulatory  requirements;

     -    challenges  in  staffing  and  managing  foreign  operations;

     -    differing  technological  standards;

     -    currency  fluctuations;

     -    employment  laws  and  practices  in  different  countries;

     -    imposition  of  currency  exchange  controls;  and

     -    potentially  adverse  tax  consequences.


                                       47
<PAGE>
     In  addition,  there  can be no assurance that new laws and regulations, or
interpretations  of existing laws and regulations, will not restrict our ability
to  provide  our  services in the countries in which we operate or into which we
intend  to  offer  our  services.  Any  such  restrictions could have a material
adverse  effect  on our business, financial condition and results of operations.

Currency  fluctuations  could decrease our revenue or increase costs relative to
--------------------------------------------------------------------------------
our  revenue.
------------

     Historically,  most  of  our  revenue  has  been earned in U.S. dollars and
significant  portions  of  our expenses and liabilities have been denominated in
local  foreign  currencies.  As  a  result, we will be subject to the effects of
exchange  rate  fluctuations with respect to any of these currencies.  We do not
currently  engage  in  currency  hedging  activities.  Some  of the countries or
territories  in  which  we currently operate or may operate in the future impose
exchange  controls.  As  a  result,  we  may  not  be able to freely convert the
relevant  local  currencies in the countries and territories in the Asia-Pacific
region  into U.S. dollars or freely convert U.S. dollars into the relevant local
currencies  in  the  countries  and  territories in the Asia-Pacific region. Any
substantial  currency fluctuation could adversely affect our business, financial
condition  and  results  of  operations.

Our  corporate  charter  contains  anti-takeover  provisions.
------------------------------------------------------------

     In connection with our reincorporation in Delaware, we increased the number
of  shares  of  common  stock  authorized  for  issuance  to  100,000,000.  Our
stockholders have approved proposals that would permit us to increase the number
to  as  many  as  500,000,000  or  a  smaller  amount of authorized common stock
combined  with  a reverse split of our outstanding common stock. The issuance of
additional  shares  of common stock could have the effect of delaying, deferring
or  preventing  a  change  in  control,  even if such change in control would be
beneficial  to  our  stockholders.

     The  terms  of  certain  provisions of our Certificate of Incorporation and
Bylaws may have the effect of discouraging a change in control.  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.

We  have  incurred  significant  amounts  of  debt.
--------------------------------------------------

     We have incurred significant amounts of debt to finance our operations.  We
have  assumed  $2.25  million  of NetCel360's debt (the "Bridge Loan"), which is
repayable on December 31, 2001.  This debt is secured by our assets in Malaysia.
In  addition,  we  have  issued  $4.56  million  in principal amount of Series A
Convertible  Notes  (the  "Series  A  Notes")  and  $4.25  million  of  Series B
Exchangeable  Notes  (the  "Series B Notes"), all of which are repayable on June
30,  2003.  Series  B  Notes are exchangeable, if not paid by February 15, 2002,
into  Series  A  Convertible  Notes.

     We  intend  to discharge the Bridge Loan by causing it to be converted into
our  common  stock  on  December  18,  2001 and have notified the holders of the
Bridge  Loan  accordingly.


                                       48
<PAGE>
     The  proceeds  of  the  Series  B  Notes are being used to secure a standby
letter  of credit in favor of Gateway and may not be used for any other purpose.
The Reseller Agreement with Gateway was terminated as of November 1, 2001.  Upon
payment  in  full  of all remaining accounts payable owed by us to Gateway under
the  Reseller  Agreement,  the  letter of credit for Gateway will be terminated,
which  would  result  in  the release of the cash deposit securing the letter of
credit  for  repayment  to  holders  of  the  Series  B  Exchangeable  Notes.

     We  have  received  an  advance payment from Gateway in connection with our
engagement  as  Gateway's  exclusive  provider  of warranty support services for
their  products  in the Asia-Pacific region. We believe these funds will provide
operating  capital  until a rights offering to shareholders or fund raising from
third  party  investors can be implemented in late 2001 or early 2002. There is,
however,  no  assurance  that  we  can raise significant additional capital in a
rights  offering  to  shareholders  or  fund raising from third party investors.

The  market  for  our  Common  Stock  may  be  illiquid.
-------------------------------------------------------

     The  average  daily  volume  of  our  registered common stock on the Nasdaq
National  Market  System  is currently less than 50,000 shares.  There can be no
assurance  that  volumes  will  increase  to a consistently higher level or that
holders of the shares will be able to sell their shares in a timely manner or at
all.

We  may  not  be  able  to  maintain  our  listing  on  a  major  stock  market.
-------------------------------------------------------------------------------

     Although  our  common  stock  began  trading  on the Nasdaq National Market
System  on  October  30, 2000, there is no assurance that we will continue to be
listed  on  the  Nasdaq  National  Market System.  Our common stock is currently
trading  below  $1.00  per share.  We received a letter of delisting on July 24,
2001  for  failing  to  maintain a trading price at or above $1.00 per share. We
were  granted  an  oral  hearing  on September 13, 2001 (the "Hearing") before a
Nasdaq  Listing  Qualification  Panel  (the  "Panel")  to  appeal  Nasdaq's
determination,  which  was  subsequently  rescheduled by Nasdaq to September 28,
2001. Pending the Panel's decision, there will be a stay on the delisting of our
Common  Stock.  On  August  9, 2001, we received a letter from Nasdaq requesting
that  at the Hearing, we also address Nasdaq's determinations that (i) we failed
to  meet  Nasdaq's  minimum  stockholders'  equity  and  net  tangible  assets
requirements,  and  (ii)  our  acquisition of substantially all of the assets of
NetCel360 constitutes a reverse merger.  We disagree with Nasdaq's determination
that  our  acquisition  of  NetCel360 constitutes a reverse merger and have made
submissions to Nasdaq refuting this determination.  If the Panel determines that
we  are  in  violation  of  Nasdaq's  rules, we will be required to submit a new
listing  application  and  meet  all  initial  Nasdaq  national  market  listing
criteria.  If  we were required to reapply for Nasdaq national market listing as
of  today, we could not currently meet all of these listing requirements.  While
the listing of our stock does not have a direct effect on our operations, it has
an  effect  on  the  perception  of us among potential investors and can have an
effect  on  our  ability  to  raise  additional  funds.

Technology-related  companies  may  experience  volatility  in  stock  prices.
-----------------------------------------------------------------------------

     The  stock  market  and especially the stock prices of technology 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 our stock without regard to our operating


                                       49
<PAGE>
performance.  The  market price of our 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  our  stock.

Substantial  costs  of  any  securities  litigation  could  divert  our  limited
--------------------------------------------------------------------------------
resources.
---------

     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.  We  could  become  a  target of similar securities litigation based
upon  the  volatility  of our stock in the marketplace.  Litigation of this type
could  result  in  substantial  costs  and  divert  management's  attention  and
resources.

Outstanding  convertible  preferred stock, convertible debt securities, warrants
--------------------------------------------------------------------------------
and  options  could  result  in  potential  dilution  and  an  adverse impact on
--------------------------------------------------------------------------------
additional  financing.
---------------------

     As  of  October  31,  2001,  if  all  of  our outstanding convertible debt,
warrants  and  options  were  converted  into common stock, and if all currently
outstanding  convertible  preferred  stock  were  converted  in  accordance with
anti-dilution  features  of those securities, we estimate that approximately 160
million  shares  of common stock would be outstanding.  This amount includes the
Bridge  Loan,  Series  A Notes, Series B Notes and warrants issued in connection
with the Series B Notes. The issuance of common stock pursuant to the conversion
or  exercise  of  these  securities  have been approved by our stockholders.  In
addition,  our  stockholders  have  approved  a stock option/stock issuance plan
under  which we may issue a number of shares of common stock equal to 20% of the
total  shares  of  common  stock outstanding at the time the calculation is made
(including,  on  an  as-converted  basis,  all  convertible  preferred  stock,
convertible  debt securities, warrants, options and other convertible securities
that  are  exercisable) and an employee stock purchase plan pursuant to which we
can  issue  up  to  7,000,000  shares.

     To  the  extent  that  such  convertible preferred stock, convertible debt,
options and warrants are exercised, substantial dilution of the interests of our
stockholders  could  result  and  the  market  price  of the Common Stock may be
materially  adversely affected. For the life of the convertible preferred stock,
convertible debt, warrants and options, the holders will have the opportunity to
profit  from  a  rise  in  the  price  of the Common Stock. The existence of the
convertible preferred stock, convertible debt, warrants and options is likely to
affect  materially  and  adversely  the  terms on which we can obtain additional
financing  and the holders of the convertible preferred stock, convertible debt,
warrants  and  options  can be expected to exercise them at a time when we would
otherwise,  in  all  likelihood,  be  able  to  obtain  additional capital by an
offering  of our unissued capital stock on terms more favorable to us than those
provided  by  the  convertible  preferred  stock, convertible debt, warrants and
options.

Additional  shares  may  be  eligible  for  future  sale  in  the public market.
--------------------------------------------------------------------------------

     We  may make sales of substantial amounts of our Common Stock in the public
market  from time to time, which could adversely affect prevailing market prices
for  the  Common  Stock.


                                       50
<PAGE>
Item  3.   QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

     None.


                           PART II - OTHER INFORMATION

Item  1.     LEGAL  PROCEEDINGS

     On  or  about  October  10,  2001,  two  lawsuits  were filed against us by
purported  holders  of  Series 2-A Convertible Preferred Stock before the United
States  District  Court for the Northern District of Illinois entitled Crestview
                                                                       ---------
Capital Fund, LLP v. Vsource, Inc., Case No. 01 C 7833, and Abrahams v. Vsource,
 ---------------------------------                          --------------------
Inc.,  Case  No.  01 C 7831. Both lawsuits allege that we failed to register the
----
underlying  common  stock  under  the  Securities  Act  of  1933,  an obligation
allegedly  undertaken  in connection with the original sale of those securities.
Plaintiffs  seek  to  recover at least $850,000 and $200,000, respectively, plus
attorney's  fees  and  costs.  A  response  to these complaints is not due until
December  14,  2001.  At this early stage of the proceedings, it is difficult to
determine  the  outcome of this litigation or the range of a potential loss with
any  degree  of  certainty; however, we deny any and all liability and intend to
vigorously  defend  against  these  charges.

Item  2.     CHANGES  IN  SECURITIES  AND  USE  OF  PROCEEDS

     During  the  nine months ended October 31, 2001, we purchased substantially
all the assets of NetCel360 in exchange for up to 3,709,699 shares of our common
stock.  Of  this  amount,  2,774,213  shares  were issued at the closing and the
remaining  935,486  shares  will be issued to NetCel360 six months following the
closing, subject to hold back to satisfy NetCel360's indemnification obligations
under the Acquisition Agreement. Also, 300,000 shares were cancelled in exchange
for  the  cancellation of notes receivable from the sale of stock, warrants were
converted  to  87,912  shares  of  common  stock  of  Vsource, 759,352 shares of
preferred  stock were converted to common stock of the Company and 15,000 shares
were  issued  for  purchase  of  domain  name.

Item  3.     DEFAULTS  UPON  SENIOR  SECURITIES

     None.

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

     None.

Item  5.     OTHER  INFORMATION

          In  our  Proxy  Statement  sent  to  our  stockholders  on October 18,
2001,  we  stated  that  we  intended  to  hold  our  2002  Annual  Meeting  of
Stockholders  in October  2002 and that proposals of stockholders intended to be
presented  at  the 2002 Annual Meeting of Stockholders and included in the proxy
statement  and  form of  proxy  relating  to  that  meeting  must be received by
us  by  June  18,  2002.


                                       51
<PAGE>
     Our intention is now to hold our 2002 Annual Meeting of Stockholders in May
2002  and  to  mail  proxy  statements  relating  to  the meeting in April 2002.
Proposals of stockholders intended to be presented at the 2002 Annual Meeting of
Stockholders  and  included in the proxy statement and form of proxy relating to
that  meeting  must  be  received  by  us  by  January  31,  2002.

     After  the  January 31, 2002 deadline, a stockholder may present a proposal
at  the  2002  annual  meeting  if it is submitted to the Company's Secretary no
later  than March 15, 2002. If timely submitted, the stockholder may present the
proposal  at the 2002 meeting, but we are not obligated to present the matter in
our  proxy  materials.


Item  6.  EXHIBIT  AND  REPORTS  ON  FORM  8-K

     (a)  EXHIBITS:

10.26(a)  Support Services Agreement dated October 24, 2001 between Vsource (CI)
          Ltd,  Vsource,  Inc.  and  Gateway  Japan  Inc.

10.27     Lease Agreement dated October 31, 2001 between Vsource (Japan) Limited
          and  Kintetsu  Properties  Co.  Ltd.
______________
(a)  Confidential  treatment  requested



     (b)  REPORTS  ON  FORM  8-K

          1.   On August 3, 2001 we filed a Current Report on Form 8-K reporting
               that we had engaged PricewaterhouseCoopers as our new independent
               accountants  and  reporting  that  we had been notified by Nasdaq
               that  we  had  failed  to  comply  with  its  minimum  bid  price
               requirements  and  was  therefore  subject  to delisting from the
               Nasdaq  National  Market  System
          2.   On  August  8,  2001  we  filed  a  Current Report on Form 8-K/A,
               amending  our  Current Report on Form 8-K filed on July 17, 2001,
               reporting  that  our  client-auditor  relationship  with  Grant
               Thornton  LLP  had  ceased.
          3.   On  August  24,  2001  we  filed  a  Current  Report  on Form 8-K
               attaching  a  letter  that  we  had  sent  to  our  shareholders
               explaining  the  impact  of our acquisition of NetCel360 Holdings
               Limited.
          4.   On  September 28, 2001, we filed a Current Report on Form 8-K (i)
               reporting  that  we  had entered into a non-binding memorandum of
               understanding pursuant to which Gateway had appointed us as their
               exclusive  service  and  support  provider  for  existing Gateway
               customers  in  the  Asia-Pacific  region,  and (ii) reporting our
               earnings  results  for  the quarter and the six months ended July
               31,  2001.
          5.   On  October  24,  2001,  we  filed  a  Current Report on Form 8-K
               reporting  that on October 18, 2001, Nasdaq had resumed "VSRC" as
               our  trading  symbol.


                                       52
<PAGE>
                                   SIGNATURES

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


VSOURCE,  INC.





By:  /s/  Phillip  E. Kelly
  --------------------------

     Phillip  E.  Kelly
     Chief Executive Officer
     (Principal Executive Officer)



By:  /s/  Dennis  M. Smith
  -------------------------

     Dennis M. Smith
     Chief Financial Officer
     (Principal Financial Officer)


Date:  May 8, 2002




                                       53
<PAGE>
                                  EXHIBIT INDEX


10.26(a)  Support  Services  Agreement  dated  October  24, 2001 between Vsource
          (CI)  Ltd,  Vsource,  Inc.  and  Gateway  Japan  Inc.
10.27     Lease Agreement dated October 31, 2001 between Vsource (Japan) Limited
          and  Kintetsu  Properties  Co.  Ltd.
---------------
(a)  Confidential  treatment  requested


                                       54
<PAGE>