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

                                   FORM 10-QSB
(Mark  One)

[ X ]     QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF  THE  SECURITIES
          EXCHANGE  ACT  OF  1934  FOR  THE QUARTERLY PERIOD ENDED JULY 31. 2000

                                       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 small business issuer as specified in its charter)

     NEVADA                                                  95-3538903
     (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) filed all reports required to
be  filed  by  Section 13 or 15(d) of the Exchange Act during the past 12 months
(or  for  such  shorter  period  that  the  registrant was required to file such
reports),  and  (2) has been subject to such filing requirements for the past 90
days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes  X  No
                                                                      ---    ---

Number  of  shares of Common Stock, par value $.01, outstanding as of August 29,
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15,914,189

Number  of  shares  of  Series  1-A  Convertible Preferred Stock, par value $.01
          outstanding  as  of  August  29,  2000 . . . . . . . . . . . 2,725,232

Transitional Small Business Disclosure Format (Check one): Yes [ ]  No [X]


<PAGE>
                                TABLE OF CONTENTS
                                -----------------

                                                                            Page
                                                                            ----
                         PART I - FINANCIAL INFORMATION

Item  1.   FINANCIAL  STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 1
Item  2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION  AND  RESULTS  OF  OPERATIONS . . . . . . . . . . . . .7

                           PART II - OTHER INFORMATION

Item  1.   LEGAL  PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . 20
Item  2.   CHANGES  IN  SECURITIES . . . . . . . . . . . . . . . . . . . . . .20
Item  3.   DEFAULTS  UPON  SENIOR  SECURITIES . . . . . . . . . . . . . . . . 21
Item  4.   SUBMISSION  OF  MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . .21
Item  5.   OTHER  INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 21
Item  6.   EXHIBITS,  REPORTS  ON  FORM  8-K . . . . . . . . . . . . . . . . .22
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22


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

                                              VSOURCE, INC.
                                       CONSOLIDATED BALANCE SHEETS

                                                  ASSETS


                                                           July 31, 2000    January 31, 2000
                                                            (unaudited)
                                                          ----------------  ----------------
<S>                                                       <C>               <C>
Current assets:
  Cash in bank                                            $       643,716   $     5,124,399
  Restricted cash                                                 109,709            82,768
                                                          ----------------  ----------------
  Total Cash                                                      753,425         5,207,167

  Accounts receivable                                              50,000                --
  Employee receivables                                            147,680           109,847
  Prepaid expenses                                                174,005                --
                                                          ----------------  ----------------
  Total current assets                                          1,125,110         5,317,014

Property and equipment
  Fixed assets                                                    590,582           240,208
  Less:  accumulated depreciation                                 (65,137)          (17,708)
                                                          ----------------  ----------------
  Property and equipment, net                                     525,445           222,500

Other assets                                                          976               881
                                                          ----------------  ----------------
                                                          $     1,651,531   $     5,540,395
                                                          ================  ================

                  LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)

Current liabilities:
  Accounts payable                                        $       633,377   $       247,472
  Accrued liabilities                                              40,983           100,937
  Convertible notes payable                                       150,000           150,000
  Liabilities related to private placement of
         preferred stock                                               --         6,002,500
                                                          ----------------  ----------------
  Total current liabilities                                       824,360         6,500,909

Shareholders' equity (deficit)
  Preferred stock ($0.01 par value, 5,000,000 shares
         authorized:  2,725,232 issued and outstanding)            27,252                --

  Common stock ($0.01 par value, 50,000,000 shares
         authorized: 15,914,189 issued and outstanding)           159,142           158,071

  Additional paid-in capital                                   46,731,057        10,645,934
  Deferred compensation                                       (16,538,686)       (1,780,817)
  Accumulated equity (deficit)                                (29,372,796)       (9,804,904)
         Less:  Notes receivable from the sale of stock          (178,798)         (178,798)
                                                          ----------------  ----------------
  Total shareholders' equity (deficit)                            827,171          (960,514)
                                                          ----------------  ----------------
                                                          $     1,651,531   $     5,540,395
                                                          ================  ================
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      - 1 -
<PAGE>
<TABLE>
<CAPTION>
                                  VSOURCE,  INC.
                    CONSOLIDATED  STATEMENTS  OF  OPERATIONS
                                   (UNAUDITED)

                                                        For the three months ended
                                                       July 31, 2000  July 31, 1999
                                                       -------------  -------------
<S>                                                    <C>            <C>
Revenue                                                $     62,500   $      3,925

Expenses
     General and administrative (excluding
 $2,695,516 of stock based compensation
 for the period ended July 31, 2000)                      1,384,923        239,350

     Research and development (excluding
1,219,560 of stock based compensation
for the period ended July 31, 2000)                       1,671,024      1,120,052
     Stock-based compensation                             3,915,076             --
                                                       -------------  -------------
                                                          6,971,023      1,359,402

Loss from operations                                     (6,908,523)    (1,355,477)

Other income/(expense)
     Interest income                                         17,161             --
     Other income                                             4,019             --
     Interest expense                                        (3,698)            --
                                                       -------------  -------------
Loss before income taxes                                 (6,891,041)    (1,355,477)

Provision for income taxes                                       --             --
                                                       -------------  -------------
Net loss                                               $ (6,891,041)  $ (1,355,477)
                                                       =============  =============
Basic loss available to
     common stockholders (Note 5)                      $ (6,891,041)  $ (1,355,477)
                                                       =============  =============

Basic weighted average number of
     common shares outstanding:                          15,844,809     12,231,402
                                                       =============  =============
Net loss per share available to common stockholders

     Basic                                             $      (0.43)  $      (0.11)
                                                       =============  =============

     Diluted                                           $      (0.43)  $      (0.11)
                                                       =============  =============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      - 2 -
<PAGE>
<TABLE>
<CAPTION>
                                          VSOURCE, INC.
                              CONSOLIDATED STATEMENTS OF OPERATIONS
                                           (UNAUDITED)

                                                         For the six months ended
                                                       July 31, 2000  July 31, 1999
                                                       -------------  -------------
<S>                                                    <C>            <C>
Revenue                                                $     62,500   $      7,985

Expenses
     General and administrative (excluding
 $5,448,406 of stock based compensation
 for the period ended July 31, 2000)                      2,280,833        576,996

     Research and development (excluding
1,821,008 of stock based compensation
for the period ended July 31, 2000)                       3,262,330      1,120,052
     Stock-based compensation                             7,269,414             --
                                                       -------------  -------------
                                                         12,812,577      1,697,048

Loss from operations                                    (12,750,077)    (1,689,063)

Other income/(expense)
     Interest income                                         55,560             --
     Other income                                             4,019             --
     Interest expense                                        (7,397)            --
                                                       -------------  -------------
Loss before income taxes                                (12,697,895)    (1,689,063)

Provision for income taxes                                    1,600             --
                                                       -------------  -------------
Net loss                                               $(12,699,495)  $ (1,689,063)
                                                       =============  =============
Basic loss available to
     common stockholders (Note 5)                      $(19,567,892)  $ (1,689,063)
                                                       =============  =============

Basic weighted average number of
     common shares outstanding:                          15,826,197     12,231,402
                                                       =============  =============
Net loss per share available to common stockholders

     Basic                                             $      (1.24)  $      (0.14)
                                                       =============  =============

     Diluted                                           $      (1.24)  $      (0.14)
                                                       =============  =============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      - 3 -
<PAGE>
<TABLE>
<CAPTION>
VSOURCE,  INC.
          CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS

(UNAUDITED)

                                             For the six months ended
                                                                  July 31, 2000  July 31, 1999
                                                                  -------------  -------------
<S>                                                               <C>            <C>
Cash flows from operating activities:
     Net loss                                                     $(12,699,495)  $ (1,689,063)
     Adjustments to reconcile net loss to net cash
     used in operating activities:
          Depreciation and amortization                                 47,869        219,730
          Compensation expense for stock option grants               2,447,448             --
          Compensation expense for warrant grants                    4,657,310             --
          Compensation expense for stock issued                        164,656             --
          Beneficial conversion feature                                               167,564
          Issuance of stock and debt for services, expense
                   reimbursements and accrued interest                      --        471,038
     Changes in assets and liabilities:
          (Increase)/decrease in accounts receivable                   (50,000)         3,590
          (Increase)/decrease in employee receivables                  (37,833)            --
          (Increase)/decrease in prepaid expenses                     (174,005)        22,500
          (Increase)/decrease in other assets                             (536)            --
          Increase/(decrease) in accounts payable                      385,905         71,266
          Increase/(decrease) in deferred revenue                           --         (2,317)
          Increase/(decrease) in accrued expenses                      (59,954)         9,942
                                                                  -------------  -------------
     Net cash used in operating activities                          (5,318,635)      (725,750)

Cash flows from investing activities:
     Purchase of capitalized software                                  (94,848)            --
     Purchase of property and equipment                               (255,526)       (90,959)
     Advances to related parties                                            --        (34,570)
                                                                  -------------  -------------
     Net cash used in investing activities                            (350,374)      (125,529)

Cash flows from financing activities:
     Proceeds from issuance of common stock                            321,350      1,199,942
     Proceeds from issuance of private placement-preferred stock       893,917             --
     Proceeds from borrowings                                               --         29,700
                                                                  -------------  -------------
     Net cash provided by financing activities                       1,215,267      1,229,642
                                                                  -------------  -------------
Net (decrease)/increase in cash                                     (4,453,742)       378,363
                                                                  -------------  -------------
Cash at beginning of period                                          5,207,167         59,937
                                                                  -------------  -------------
Cash at end of period                                             $    753,425   $    438,300
                                                                  =============  =============
Supplemental disclosure:
     Reclassification of liability to equity                      $  6,002,500   $         --
     Interest Paid                                                $          -   $         --
     Income Taxes                                                 $      1,600   $      1,600
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      - 4 -
<PAGE>
NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS

1.   SUMMARY  OF  SIGNIFICANT  ACCOUNTING  PRINCIPLES

     The interim consolidated financial statements as of July 31, 2000 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,  2000 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, 2001. 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
Registration  Statement  on  Form  10-SB  (formerly  Interactive  Buyers Network
International,  Ltd.) and Annual Report on Form 10-KSB for the fiscal year ended
January  31,  2000  (File  No.  000-030326).

USE  OF  ESTIMATES  IN  PREPARATION  OF  CONSOLIDATED  FINANCIAL  STATEMENTS

     Management  of  the  Company has made a number of estimates and assumptions
relating  to  the  reporting  of  assets,  liabilities,  revenue,  expenses  and
disclosure  of  contingent  assets  and  liabilities  to prepare these financial
statements  in  accordance  with  generally  accepted  accounting  principles.
Accordingly,  actual  results  may  differ  from  those  estimates.

LOSS  PER  SHARE

     Basic  and  diluted  loss per share of common stock is computed by dividing
the  loss  available  to  common  shareholders 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.  See  notes  to consolidated financial statements as of
January  31,  2000  and  Notes  4  and  5.

2.   NOTES  RECEIVABLE  FROM  THE  SALE  OF  STOCK

     The  Company  has  unsecured notes receivables from several officers, which
totaled  $178,798  as  of  July  31,  2000. The notes are due on demand and bear
interest  at an annual rate of 6%. The notes were granted in connection with the
exercise of 636,100 stock options on May 15, 1999. In addition, the Company also
has  issued  loans  and  other advances to employees that totaled $147,680 as of
July  31,  2000.

3.   CONVERTIBLE  NOTES  PAYABLE

     In  November 1999, the Company issued $150,000 of 10% convertible notes due
December  31,  2000 to certain investors.  The notes are convertible into shares
of  restricted  common stock at a per share price of $2.50.  None of these notes
were  converted  as  of  July  31,  2000.

     The  Company  allocated  a portion of the convertible notes to the embedded
beneficial  conversion  feature  in  the  convertible notes and credited paid-in
capital.  The portion allocated to the beneficial conversion feature was charged
to  interest  expense  at  the date of issuance.  The amount charged to interest
expense  related  to  convertible notes issued during the six month period ended
July  31,  2000  was  $7,397.


                                      - 5 -
<PAGE>
4.   SHAREHOLDERS'  EQUITY

     Common  Stock  -  On  July  31,  2000,  common stock totaled $159,142. This
reflects  the  issuance  of 107,018 shares of common stock during the six months
ended July 31, 2000, an increase of $1,071 from the value of common stock, $0.01
par  value,  on  January  31,  2000.

     Preferred  Stock  -  Effective February 24, 2000, the Company had 5,000,000
shares  of preferred stock authorized and had designated 2,900,000 shares of the
preferred  stock  "Series  1-A  Convertible  Preferred Stock" of which 2,802,000
shares  were  issued  at  a  conversion  price  of  $2.50 per share. The Company
allocated all of the net proceeds from the issuance of the preferred stock to an
embedded beneficial conversion feature. The recorded discount resulting from the
allocation  was  fully  amortized through retained earnings at issuance.  In the
event  of  any  liquidation or dissolution, either voluntary or involuntary, the
holders  of  the  series  1-A  Convertible  Preferred Stock shall be entitled to
receive,  prior  and  in  preference to any distribution of any of the assets or
surplus  funds,  to the holders of the Common Stock by reason of their ownership
thereof,  a preference amount per share consisting of the sum (A) $2.50 for each
outstanding  share  of  Series  1-A  Preferred Stock, and (B) an amount equal to
declared  but  unpaid dividends on such shares, if any. Each share of Series 1-A
Preferred  Stock  shall be convertible at any time after the date of issuance of
such  shares,  into  such  number  of  fully  paid  shares of Common Stock as is
determined  by  dividing  the  Original  Issue  Price  by  the  then  applicable
Conversion Price, in effect on the date the certificate evidencing such share is
surrendered for conversion.   Under certain circumstances, such as stock splits,
these  shares  are subject to stated Conversion Price Adjustments. Subsequent to
July  31,  2000,  the  remaining 2,100,000 shares were designated as "Series 2-A
Convertible  Preferred Stock", which will be issued with rights, preferences and
privileges  as  designated  by  the  board  of  directors.

     Each  share  of  Series 1-A Preferred Stock, subject to the surrendering of
the  certificates  of  the  Series  1-A  Preferred Stock, shall be automatically
converted  into  shares  of Common Stock at the then effective Conversion Price,
immediately upon closing of a public offering of the Company's Common Stock with
an  aggregate gross proceeds of at least $10,000,000 and a per share price of at
least  five  dollars,  or  at  the  election of the holders of a majority of the
outstanding  shares  of Series 1-A Preferred Stock.  The holder of each share of
Series 1-A Preferred Stock shall have the right to that number of votes equal to
the  number  of  shares of common stock issued upon conversion of the Series 1-A
Preferred  Stock.  (See  Note 6 - Subsequent Events for additional information.)

     On  July  31,  2000,  paid-in-capital  totaled  $46,731,057, an increase of
$36,085,123  from  $10,645,934 at January 31, 2000.  This primarily reflects the
recording  of  the  issuance  of  preferred stock of $6,868,397, and the related
beneficial  conversion feature and deemed dividend, the recording of $10,896,316
in compensation related to stock options granted to employees in accordance with
Accounting  Principles  Board  Opinion  No.  25, "Accounting for Stock Issued to
Employees",  the  recording of the issuance of common stock of $485,703, and the
recording  of  $10,966,310 in compensation for marketing, investor relations and
referral  services  in  accordance  with  the  Statement of Financial Accounting
Standards  #123,  "Accounting for Stock-based Compensation." Stockholders equity
is partially offset by deferred compensation of $16,538,686 as of July 31, 2000.

     In  conjunction  with  expenses relating to the issuance of the "Series 1-A
Convertible Preferred Stock", 235,985 warrants were granted at an exercise price
of  $6.00  per  share  and 150,706 warrants were granted at an exercise price of
$2.50  per  share.

     During  the  second  quarter  120,000  warrants were granted at an exercise
price  of $2.00 per share, as compensation for services rendered.  Ramin Kamfar,
who  subsequently  was  elected  as a director of the Company, is a partner in a
partnership  that  was awarded 60,000 warrants, of the 120,000 warrants granted,
at  an  exercise  price  of  $2.00  per  share.  As  of July 31, 2000, 1,376,691
warrants  and  1,977,784  options  had  been  granted  and  were  outstanding.

     In  February  2000,  the Company entered into a strategic relationship with
U.S.  West,  Inc. of Denver, Colorado, pursuant to which the two firms agreed to
make  VSN  available  to U.S. West's business customers. U.S. West (now known as
Qwest Communications) provides telecommunications and related services, wireless
services,  high-speed  data  and Internet services and directory services.  U.S.
West  also  agreed  to make a minority equity investment in Vsource. In exchange
for  services to be rendered, Vsource granted to U.S. West 600,000 warrants with
a  three-year term, at an exercise price of $5.00. The terms of the distribution


                                      - 6 -
<PAGE>
and  marketing  agreement  are  automatically  renewable each year unless either
party  notifies  the other of its intent to terminate the agreement, in writing,
sixty  calendar  days prior to February 14th of the potential renewal year. When
the  warrants  were granted, the Company's stock was valued at $17.50 per share,
resulting in a charge to the Company of $8,412,000. In the six months ended July
31,  2000,  the  Company  recognized  $2,103,000  of  this charge as a marketing
expense.  The  Company  plans  to recognize the remaining $6,309,000 evenly on a
quarterly  basis  as  a  marketing  expense  until  February  14,  2002.



5.   BASIC  LOSS  AVAILABLE  TO  SHAREHOLDERS

     The  Company  has  adopted  SFAS  No.  128,  "Earnings Per Share," which is
effective  for  financial  statements  issued  after  December 15, 1997. The new
standard  eliminates  primary  and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure of
how  the  per  share  amounts  were  computed.

     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. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were  exercised  and  converted into common stock or resulted in the issuance of
common  stock  that  then  shared  in  the  earnings  of  the  entity.
The loss available to common shareholders for the six months ended July 31, 2000
is  the  net  loss  for  the  period, adjusted for deemed dividends of preferred
stock.


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


     Net  loss                                            ($12,699,495)

     Less  -  discount  to  preferred  shareholders       (  6,868,397)
                                                          -------------

     Basic  loss  available  to  common  shareholders     ($19,567,892)
                                                          =============

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.

6.   SUBSEQUENT  EVENTS

     On August 29, 2000, the Company announced that it had received a commitment
from a unit of Mercantile Capital Group, LLC, Northbrook, Illinois, to invest in
and  lead a private placement of Vsource Series 2-A Convertible Preferred Stock.
The  Company  received  $1,450,000  in  August  2000,  primarily  from  Vsource
shareholders  that had invested in earlier equity offerings.  Additional funding
is  expected  to  close during the month of September 2000. Vsource will use the
funds  primarily  to  expand  its  operations,  including  capital  equipment,
technology  and  staffing.  In  addition,  the  funds  will  support new product
development to ensure continued leadership in eProcurement technology. A portion
of  the  funds  will  also  be  used  to  support  marketing  efforts.


                                      - 7 -
<PAGE>
Item  2.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

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

FORWARD  LOOKING  STATEMENTS

     This  Quarterly Report on Form 10-QSB and the documents incorporated herein
by  reference  contain forward-looking statements based on current expectations,
estimates and projections about the Company's industry, management's beliefs and
certain  assumptions  made  by management.  All statements, trends, analyses and
other  information  contained  in  this  report relative to trends in net sales,
gross margin, anticipated expense levels and liquidity and capital resources, as
well  as  other  statements  including,  but  not  limited  to,  words  such  as
"anticipate,"  "believe,"  "plan,"  "estimate,"  "expect," "seek," "intend," and
other  similar  expressions,  constitute  forward-looking  statements.  These
forward-looking  statements  are  not  guarantees  of future performance and are
subject  to  certain  risks  and  uncertainties  that  are difficult to predict.
Accordingly,  actual  results  may  differ  materially from those anticipated or
expressed  in such statements.  Potential risks and uncertainties include, among
others,  those  set forth in this Item 2. Particular attention should be paid to
the cautionary statements involving the Company's limited operating history, the
unpredictability  of  its  future  revenues,  the  Company's  need  for  and the
availability  of  capital  resources, the evolving nature of its business model,
the  intensely  competitive  market  for  business-to-business  electronic
procurement,  and  the  risks associated with systems development, management of
growth  and  business  expansion.  Except  as  required  by  law,  the  Company
undertakes  no  obligation to update any forward-looking statement, whether as a
result of new information, future events or otherwise.  Readers, however, should
carefully  review  the  factors set forth in other reports or documents that the
Company  files  from  time  to  time with the Securities and Exchange Commission
("SEC").

OVERVIEW

     The Company creates and markets "pure" Internet-based applications using an
Application  Service  Provider  (ASP)  model.  An ASP model is best described as
providing  the  ability  on  a rental basis for clients to access by an Internet
browser,  such  as Internet Explorer or Netscape Communicator, computer software
and  data that reside on a remote server on the Internet, rather than the user's
computer  or  a  server on the user's local area network. The Company intends to
generate  fees  by  charging  a  small  set-up  fee to use its software and then
charging  based  upon  time  or  transactions,  depending  upon  the  situation.
Currently,  the  Company  offers  one application, Virtual Source Network (VSN),
which  may  be  used by corporate clients to purchase goods and services via the
Internet.

     Currently  all  financial, technical and marketing resources of the Company
are  dedicated  to  VSN.  The  Company  plans to sell VSN through a direct sales
force,  through  independent  resellers,  and  through strategic partnerships in
which  VSN  will be offered to the partner's base of customers.  VSN is designed
to  be  sold initially through a pilot program for on-going transaction fees and
an  initial  set-up  fee  of  $25,000.  During  the pilot program, the client is
expected  to  test the functionality of VSN and determine how much customization
of  the  system,  if  any,  is  required  for  a  full  implementation.

     During  1997 and early 1998, the Company offered an earlier version of VSN,
which was a software application installed on client computers.  The Company has
discontinued  the  sale and use of this product.  The Company's Internet version
of VSN has just recently been made available for use by clients.  The Company is
presently  hiring  a  direct  sales  force  and  creating  relationships  with
independent  resellers  and  strategic  partners.

     The  Internet  version of VSN is now being used on a trial basis by initial
customers.  As  a  result, the limited operating history makes the prediction of
future  operating  results  very difficult.  In particular, the Company believes
that period-to-period comparisons of operating results should not be relied upon
as  predictive  of  future  performance.  Operating results are expected to vary
significantly  from  quarter  to  quarter  and  are  difficult  or impossible to
predict.  The  Company's  operating prospects must be considered in relationship
to  the  risks, expenses and difficulties encountered by any company at an early
stage  of  development,  particularly  companies  in  new  and  rapidly evolving
markets.  The  Company  may  not  be  successful  in  addressing  such risks and
difficulties.  For  more  information,  please  refer  to  "FORWARD  LOOKING
STATEMENTS"  and  "FACTORS  THAT  MAY  AFFECT  FUTURE  PERFORMANCE."


                                      - 8 -
<PAGE>
RECENT  EVENTS

     In  August 2000, the Company and IBM jointly announced an agreement between
IBM  Global  Services  and  Vsource,  Inc.  for localization services, including
language  translations.  The  Company  is  a  paying  client  of  IBM, which has
developed  the training program for VSN users. Clients of the Company retain the
services  of  IBM  in  order  to  train  their  staffs to use the VSN system. In
addition,  IBM  and  the  Company  have  each  agreed  informally  to make their
respective  clients  aware  of  the  other  firm's  services,  where  it  seems
appropriate  for  the  client  in  question.

     In  July  2000,  the  Company  signed an agreement with First Data Merchant
Services  Corporation  ("First  Data")  wherein  First Data will provide certain
electronic  payment  services  to  Vsource clients and their vendors through the
Vsource  VSN  e-Procurement  web  site.

     In  June 2000, Vsource, Inc. was the recipient of the Technology Leadership
Award  from  Frost  and  Sullivan,  being one of only three companies to receive
recognition.  Frost  and  Sullivan  is  a  long  established  global  leader  in
international  market  consulting  and  training.

     In  April  2000,  the  Company  signed  a  letter  of  intent  with  NeTune
Corporation  of  Los  Angeles,  California,  pursuant  to which the Company will
provide  its  electronic  purchasing  service  to  companies  in  the  film  and
television  production  industries  that  use  NeTune's  satellite  based
communications  services. NeTune allows film and television companies to perform
a  series  of  electronic  services directly from remote production locations by
using  two-way  satellite  communications.

     In  March  2000,  the  Company  formed  a strategic marketing and technical
alliance  with  Internet  Commerce  Corp.  (ICC)  of  New  York  City, New York,
pursuant  to  which  ICC  will  connect its Internet electronic data interchange
(EDI)  network  with  VSN.  The  interconnection  will  allow  VSN  customers to
exchange purchase-related documents with companies that accept such documents in
the EDI standard.  ICC estimates that more than 400,000 companies worldwide have
the  ability  to  accept  purchasing-related  documents  via  the  EDI standard.

     In  February  2000,  the Company entered into a strategic relationship with
U.S.  West,  Inc.  (now  known  as  Qwest  Communications)  of Denver, Colorado,
pursuant  to  which  the  two firms agreed to make VSN available to U.S.  West's
business  customers.  U.S.  West  also agreed to take a minority equity stake in
Vsource.  VSN  is  the first component of a comprehensive collection of services
that  Qwest  Communications  said  it  intends  to  launch  in  2000.  Qwest
Communications  provides  telecommunications  and  related  services,  wireless
services,  high-speed  data  and  Internet  services  and  directory  services
principally  to  customers  in  the  states  of  Arizona, Colorado, Idaho, Iowa,
Minnesota,  Montana,  Nebraska,  New Mexico, North Dakota, Oregon, South Dakota,
Utah,  Washington  and  Wyoming.

MANAGEMENT'S  DISCUSSION  &  ANALYSIS  OF  RESULTS OF OPERATIONS  - THREE MONTHS
ENDED  JULY  31,  2000,  COMPARED  TO  THE  THREE  MONTHS  ENDED  JULY 31, 1999:

REVENUE

     For the three months ended July 31, 2000, revenues were $62,500 compared to
$3,925  in  revenues during the three months ended July 31, 1999.  This increase
in  revenues results from the Company's implementation of the pilot phase of the
revenue generating process for the new Internet version of VSN.  The Company has
not  begun  to  generate  transaction  fees,  the  anticipated primary source of
revenue.

GENERAL  AND  ADMINISTRATIVE  EXPENSES

     For  the  three  months  ended  July  31,  2000, general and administrative
expenses were  $1,384,923 (excluding $2,695,516 of stock-based compensation), up
$1,145,573  or  479%, from $239,350 during the three months ended July 31, 1999.
This  increase  was  caused  primarily  by  increased  expenses  associated with
marketing,  advertising,  public  relations,  and  executive  staff.


                                      - 9 -
<PAGE>
RESEARCH  AND  DEVELOPMENT

     For the three months ended July 31, 2000, research and development expenses
were  $1,671,024 (excluding $1,219,560 of stock-based compensation), up $550,972
or  49.2%,  from  $1,120,052  during  the three months ended July 31, 1999. This
increase  was  caused  primarily  by  implementation  of  a  development  effort
associated  with the Company's Internet version of VSN. These costs included the
use  of  independent contractors, as well as the addition of technical employees
in  the  Company's  Seattle  office.   The  Company  does  no work that would be
considered  pure  research,  or  basic  research.

STOCK  BASED  COMPENSATION

     For  the  three  months  ended  July  31,  2000, recognition of stock based
compensation  was  $3,915,076  while  there  were  no expenditures for this area
during the three months ended July 31, 1999. This increase resulted primarily by
the  issuance  of  stock  options,  warrants  and  stock  for  employee  related
compensation  and  in  obtaining  services for marketing, investor relations and
referral  fees.

NET  LOSS

     For  the  three  months ended July 31, 2000, the net loss was $6,891,041 an
increase of $5,535,564 or 408%, from the net loss of $1,355,477 during the three
months  ended  July  31,  1999.  This  increase  is  a  result  of significantly
increased marketing and advertising expenses, as well as significantly increased
research  and  development  expense  and  stock based compensation, as described
above.

WEIGHTED  AVERAGE  COMMON  SHARES  OUTSTANDING  -  BASIC  AND  DILUTED

     For the three months ended July 31, 2000, the basic weighted average common
shares  outstanding  were  15,844,809 up 3,613,407 or 29.5%, from 12,231,402 for
the three months ended July 31, 1999.  This increase resulted primarily from the
issuance  of  2,210,201  shares upon conversion of convertible notes and accrued
interest, the issuance of 658,100 shares upon exercise of stock options, as well
as  the  issuance  of 757,720 shares in return for cash invested in the Company.
Weighted  average  common  shares  outstanding for dilution purposes do not take
into account the exercise of stock options or warrants because to do so would be
anti-dilutive.

NET  LOSS  PER  COMMON  SHARE  -  BASIC  AND  DILUTED

     The  basic  net  loss  per common share for the three months ended July 31,
2000  was $0.43 per share, up $0.32 per share from a net loss of $0.11 per share
for  the  three  months  ended  July  31,  1999.   This  increase  reflects  the
$5,535,564  increase  in  the  net  loss,  partially  offset  by the increase of
3,613,407  shares  in  the  basic  weighted  average  outstanding common shares.

MANAGEMENT'S DISCUSSION  & ANALYSIS OF RESULTS OF OPERATIONS  - SIX MONTHS ENDED
JULY  31,  2000,  COMPARED  TO  THE  SIX  MONTHS  ENDED  JULY  31,  1999:

REVENUE

     For  the  six months ended July 31, 2000, revenues were $62,500, up $54,515
or  682%  compared  to  $7,985  in revenues during the six months ended July 31,
1999.  This  increase  in  revenues results from the Company's implementation of
the  pilot  phase of the revenue generating process for the new Internet version
of VSN.  The Company has not begun to generate transaction fees, the anticipated
primary  source  of  revenue.

GENERAL  AND  ADMINISTRATIVE  EXPENSES

     For the six months ended July 31, 2000, general and administrative expenses
were  $2,280,833  (excluding  $5,448,406  of  stock-based  compensation),  up
$1,703,837,  or  295%,  from $576,996 during the six months ended July 31, 1999.
This  increase  was caused primarily by the increase of expenses associated with
marketing,  advertising,  public  relations,  and  executive  staff.


                                     - 10 -
<PAGE>
RESEARCH  AND  DEVELOPMENT

     For  the  six months ended July 31, 2000, research and development expenses
were  $3,262,330  (excluding  $1,821,008  of  stock-based  compensation),  up
$2,142,278  or  191%  from $1,120,052 during the six months ended July 31, 1999.
This  increase  was  caused  primarily by implementation of a development effort
associated  with the Company's Internet version of VSN. These costs included the
use  of  independent contractors, as well as the addition of technical employees
in  the  Company's  Seattle  office.   The  Company  does  no work that would be
considered  pure  research,  or  basic  research.

STOCK  BASED  COMPENSATION

     For  the  six  months  ended  July  31,  2000,  recognition  of stock based
compensation  was  $7,269,414  while  there  were  no expenditures for this area
during  the  six  months  ended  July  31, 1999. This increase was caused by the
issuance  of  options,  warrants  and  stock  primarily  for  employee  related
compensation,  and  in  obtaining services for marketing, investor relations and
referral  fees.

NET  LOSS

     For  the  six  months ended July 31, 2000, the net loss was $12,699,495, an
increase  of $11,010,432 or 652%, from the net loss of $1,689,063 during the six
months  ended  July  31,  1999.  This  increase  is  a  result  of significantly
increased marketing and advertising expenses, as well as significantly increased
research  and  development  expense  and  stock based compensation, as described
above.

WEIGHTED  AVERAGE  COMMON  SHARES  OUTSTANDING  -  BASIC  AND  DILUTED

     For  the  six months ended July 31, 2000, the basic weighted average common
shares  outstanding  were 15,826,197, up 3,594,795 or 29.4%, from 12,231,402 for
the  six  months ended July 31, 1999.  This increase resulted primarily from the
issuance  of  2,118,269  shares upon conversion of convertible notes and accrued
interest,  the issuance of 22,000 shares upon exercise of stock options, as well
as  the  issuance  of 612,344 shares in return for cash invested in the Company.
Weighted  average  common  shares  outstanding for dilution purposes do not take
into account the exercise of stock options or warrants because to do so would be
anti-dilutive.

NET  LOSS  PER  COMMON  SHARE  -  BASIC  AND  DILUTED

     The  basic net loss per common share for the six months ended July 31, 2000
was  $1.24  per share, up $1.10 per share from a net loss of $0.14 per share for
the  six  months  ended  July 31, 1999.   This increase reflects the $11,010,432
increase  in  the net loss and the return of equity to preferred stockholders of
$6,868,397,  created  by  the beneficial conversion feature, partially offset by
the  increase  of  3,594,795  shares  in  the basic weighted average outstanding
common  shares.


MANAGEMENT'S  DISCUSSION  &  ANALYSIS OF FINANCIAL CONDITION - AT JULY 31, 2000,
COMPARED  TO  JANUARY  31,  2000:

CASH

     On  July  31,  2000, cash totaled $753,425, down $4,453,742, or 85.5%, from
$5,207,167  at  January  31,  2000.   This  decrease reflects the funds used for
operations  during  the six months ended July 31, 2000, net of proceeds from the
sale  of  preferred  stock  in  private  transactions  during  that  period.

ACCOUNTS  RECEIVABLE

     On July 31, 2000, accounts receivable were $50,000 and on January 31, 2000,
there were no accounts receivable. This reflects that the Company is approaching
the  completion  of  development  of  its  main product, VSN, and has just begun
generating  revenues  and  receivables  from  the  product.

EMPLOYEE  RECEIVABLES
     On  July  31,  2000,  employee receivables totaled $147,680, up $37,833, or
34.4%  from  $109,847 at January 31, 2000.   This increase results from advances
to  employees,  net  of  partial  repayments.


                                     - 11 -
<PAGE>
PREPAID  EXPENSES

     On  July  31,  2000,  prepaid  expenses  totaled $174,005 as compared to no
balance  at  January 31, 2000.  This increase primarily reflects prepaid fees of
$174,005  that  will  be  expensed  in  the  current  year.

TOTAL  CURRENT  ASSETS

     On July 31, 2000, total current assets totaled $1,125,110, down $4,191,904,
or  78.8%, from  $5,317,014 at January 31, 2000.  This decrease reflects the use
of  cash  to  fund  operations  during  the  quarter.

FIXED  ASSETS

     On  July  31, 2000, fixed assets totaled $590,582, an increase of $350,374,
or  145.9%,  from  $240,208  at  January  31, 2000.   This increase reflects the
addition  of  equipment  and  software needed to accommodate the increase in the
development  and  marketing  of  VSN.

ACCUMULATED  DEPRECIATION

     On  July 31, 2000, accumulated depreciation totaled $65,137, up $47,429, or
267.8%,  from  $17,808 at January 31, 2000.  This increase reflects the addition
of  normal  depreciation  expense  for  the  six  months  ended  July  31, 2000.

PROPERTY  AND  EQUIPMENT,  NET

     On  July  31,  2000,  property  and  equipment,  net  totaled  $525,445, up
$302,945,  or 136.2%, from $222,500 at January 31, 2000. This increase primarily
reflects  the  addition  of  equipment  and  software  needed to accommodate the
increase  in  the  development and marketing of VSN, net of depreciation expense
recorded  for  the  period.

OTHER  ASSETS

     On  July 31, 2000, other assets totaled $976, up $95, or 10.8% from $881 at
January  31,  2000.    This  increase  reflects an additional rental deposit for
additional  space, net of normal amortization of organizational expenses for the
six  months  ended  July  31,  2000.

TOTAL  ASSETS

     On  July 31, 2000, total assets were $1,651,531, down $3,888,864, or 70.2%,
from $5,540,395 at January 31, 2000. This change primarily reflects cash used in
research  and  development  costs,  and  general  and  administrative  expenses
associated  with  the  development  and  marketing  of  VSN.

ACCOUNTS  PAYABLE

     On  July  31, 2000, accounts payable were $633,377, up $385,905, or 155.9%,
from  $247,472  at  January  31,  2000.  This  change  is  primarily a result of
increased  amounts  due  independent  contractors involved in development of the
Internet  version  of  VSN,  and also amounts due for marketing, advertising and
legal  expenses.

ACCRUED  LIABILITIES

     On July 31, 2000, accrued liabilities were $40,983, down $59,954, or 59.4%,
from  $100,937  at  January  31,  2000.  This change resulted primarily from the
decrease  in  accrued  wages  and  related  compensation  expenses.

CONVERTIBLE  NOTES  PAYABLE

     On  July  31,  2000, convertible notes payable were $150,000, remaining the
same  as  at January 31, 2000. Interest accrued on this liability is included in
accrued  liabilities.


                                     - 12 -
<PAGE>
LIABILITIES  RELATED  TO  THE  PRIVATE  PLACEMENT  OF  PREFERRED  STOCK

     On  July  31,  2000,  liabilities related to private placement of preferred
stock  were  zero, as compared to liabilities of $6,002,500 at January 31, 2000.
This  is  due to the reclassification to equity and issuance of 2,802,000 shares
of Series 1-A Preferred Stock in April 2000. As of January 31, 2000, the Company
had  received $6,002,500 in cash associated with the private placement, which it
treated  as  a  liability  until the transaction was completed and the preferred
stock  was  issued.


TOTAL  CURRENT  LIABILITIES

     On  July  31,  2000,  total  current  liabilities  totaled  $824,360,  down
$5,676,549,  or  87.3%,  from  $6,500,909  at  January  31, 2000. This reduction
reflects the reclassification of liabilities related to the private placement of
preferred  stock  in  the  amount  of  $6,002,500  to equity as preferred stock,
partially  offset by the increase in accounts payable of $385,905 and a decrease
in  accrued  liabilities  of  $59,954.

PREFERRED  STOCK,  $0.01  PAR  VALUE

     On July 31, 2000, preferred stock totaled $27,252 versus no preferred stock
at  January  31,  2000.  This  reflects  the issuance of 2,802,000 new preferred
shares less 76,768 shares converted to common shares during this period.  All of
the  shares  were  issued  in  return  for  cash  invested  in  the  Company.

COMMON  STOCK,  $0.01  PAR  VALUE

     On July 31, 2000, common stock totaled $159,142. This reflects the issuance
of  107,018 shares of common stock during the six months ended July 31, 2000, up
$1,071  from  the  value  of common stock, $0.01 par value, on January 31, 2000.


ADDITIONAL  PAID-IN-CAPITAL

     On  July  31,  2000, paid-in-capital totaled $46,731,057, up $36,085,123 or
339%,  from  $10,645,934  at January 31, 2000.  This increase reflects the value
(in  excess  of  par)  of  the new preferred shares issued during the period, of
which  2,725,232 preferred shares were issued in return for cash invested in the
Company,  and  107,018  common  shares  were  issued for cash and services. This
primarily  reflects  the  recording  of  additional  paid  in capital for common
stockholders'  of  $6,868,397  related  to  the beneficial conversion feature of
preferred stock, compensation of $10,896,316 related to stock options granted to
employees  in  accordance  with  the Statement of Financial Accounting Standards
#123,  accounting  for stock-based compensation, and $10,966,310 in compensation
for  marketing,  investor  relations  and  referral  services.

DEFERRED  COMPENSATION

     On July 31, 2000, deferred compensation was $16,538,686, up $14,757,869, or
828.7% from $ 1,780,817 at January 31, 2000. This change was due to the granting
of  stock  options  to  employees  as  employment  incentives  and  bonuses, and
compensation  for  marketing,  investor  relations  and  referral  services.

ACCUMULATED  DEFICIT

     On July 31, 2000, the accumulated deficit was $29,372,796 up $19,567,892 or
200%  from  $9,804,904  at  January 31, 2000.    This change resulted from a net
loss  of  $12,699,495  during  the  six  months  ended  July  31,  2000  and the
recognition  of  a  deemed  dividend  to  preferred  stockholders of $6,868,397.

NOTES  RECEIVABLE  FROM  THE  SALE  OF  STOCK

     On July 31, 2000, notes receivable from the sale of stock totaled $178,798.
This  amount is used to offset the balance in stockholders' equity.  These notes
are  receivable from officers who exercised stock options during a prior period.
The  Company's  stock  option  program  provides  several alternative methods of
paying  for  shares acquired through exercise of stock options, and one of those
alternatives  is  to provide a demand note payable to the Company, in the amount
of  the  purchase.


                                     - 13 -
<PAGE>
TOTAL  STOCKHOLDERS'  EQUITY/(DEFICIT)

     On  July  31, 2000, total stockholders' equity was $827,171, up $1,787,685,
or  186.1%, from a deficit of $960,514 at January 31, 2000. This change resulted
primarily  from  increases in preferred stock and paid-in-capital of $36,085,123
offset  by  an increase in deferred compensation of $14,757,869, the recognition
of  a  deemed dividend to preferred stockholders of $6,868,397, and the net loss
of  $12,699,495  during  the  six  months  ended  July  31,  2000.

LIQUIDITY  AND  CAPITAL  RESOURCES

     The  Company  had  $62,500  of revenue during the six months ended July 31,
2000, in addition to small amounts of interest income, and certain non-recurring
items.  While  the  Company  expects  to  generate  revenue in the future, it is
currently  entirely  dependent  on investor funds. At July 31, 2000, the Company
had  cash  balances  totaling  $753,425,  primarily  as  a result of its private
placement  of preferred stock during the first quarter of 2000 offset by current
operating  activity.  The  Company is currently expending approximately $800,000
per  month  of cash and cash equivalents.  The Company has received a commitment
from  a  unit  of  Mercantile Capital Group, L.L.C. to invest and lead a private
placement  of  Vsource  convertible preferred stock projected to raise up to $11
million  of  which the Company received $1,450,000 in August 2000. (See Note 6 -
Subsequent  Events)  With  the additional funding, with anticipated revenue from
current  clients only and at the current rate of expenditure, management expects
those  funds  to  last  through  October  2001.  Without  additional  capital or
revenues,  and at the current expenditure rate, management expects funds to last
through  October  2000.

     The  Company's  principal sources of cash and cash equivalents were derived
from private sales of the Company's equity and debt securities.  The main source
of funds for the Company from the date of inception through July 31, 2000, other
than  the sale of equity and debt securities, has been from sales of the earlier
software  products.  $12,500  was derived from such sales made in the six months
ended  July  31,  2000.

     The  Company  anticipates  client  revenues  to begin increasing during the
twelve-month  period  from  August  1, 2000 to July 31, 2001.  In July 2000, the
Company  initiated  a  private  equity  offering that is anticipated to complete
funding  during  the period ending October 31, 2000.  There can be no assurances
that  the  Company  will  raise  funds  as  anticipated,  beyond  the $1,450,000
described  above,  or  that the Company will begin generating additional revenue
from  clients.  If  client  revenues  or  the  private  equity  offering  do not
materialize  on schedule, the Company has a contingent plan of cash conservation
that  will  allow  it  to  operate through the remaining quarters of the current
year.  The  Company  has not begun to generate transaction fees, the anticipated
primary  source  of  revenue.

     The Consolidated Statements of Cash Flows for the six months ended July 31,
2000,  and  six months ended July 31, 1999 show that net losses were $12,699,495
and  $1,689,063,  respectively, with the issuance of preferred stock for cash of
$893,917,  partially offsetting the cash requirement.  A non-cash entry was made
for  the  period  ended July 31, 2000 to recognize the conversion of liabilities
related  to the private placement of preferred stock in the amount of $6,002,500
to  equity  as  preferred  stock.  In  addition,  a non-cash accounting entry of
$22,026,983  was made to increase additional paid-in capital, with an offsetting
entry  of  $7,269,414  for  compensation  expense,  and  $14,757,869 to deferred
compensation.  This  did not offset any cash requirement directly or indirectly,
and  there  was  no such cash or other consideration paid as compensation in the
period.

RESEARCH  AND  DEVELOPMENT  FOR  THE  FISCAL  YEAR  ENDING  JANUARY  31,  2001

     During  the  fiscal  year  ending  January  31,  2001,  it is expected that
approximately  $6,500,000,  excluding stock based compensation, will be spent on
product  development.  The  Company  does  not expect to expend any resources in
basic  research.  Additional  work  is being done to enhance the present system.
Developments  will  make  the system more flexible, and allow additional options
for the user to modify portions of the system to better meet the unique needs of
each  particular  user's business.  Other enhancements will add new capabilities
to  the  system  in the future.  No assurance can be given that the Company will
have  the  resources  necessary  to  conduct  this  product  development.

FACTORS  THAT  MAY  AFFECT  FUTURE  PERFORMANCE

RISKS  RELATED  TO  THE  COMPANY'S  BUSINESS


                                     - 14 -
<PAGE>
NEED  FOR  ADDITIONAL  CAPITAL:  The  Company has recorded substantial operating
losses  and,  as  of  July 31, 2000, has an accumulated deficit of approximately
$29.4 million.  If the Company is to sustain its current rate of development and
operating expenditures, it must generate additional capital in the third quarter
of the fiscal year ending January 31, 2001.  The Company currently has less than
10  clients  under  contract.  During  the second quarter three of these clients
together generated a small amount of revenue from the initial phases of contract
implementation.  It  is  expected  that  current  and  newly  added clients will
produce  significantly  increased  revenues  during the third quarter, primarily
from implementation fees.  However, in total, these revenues will not contribute
materially  to  the  Company's immediate capital requirement.  In recognition of
this capital need, in July 2000 the Company entered into a preliminary agreement
with  a  private  investment  firm wherein that firm would invest in and lead an
equity  offering  of  up  to  $11  million.  Approximately  $1.4  million of the
offering  was funded in August 2000.  The remaining funding is expected to close
in  September 2000. (See Note 6 - Subsequent Events for additional information.)

     LIMITED  OPERATING  HISTORY:  VSN,  the Company's primary service offering,
began  operations  in  October  1996 when the earlier version of VSN, a software
application  for  personal  computers  rather  than an Internet application, was
successfully installed and used at a private company in southern California. The
Company  has  had  a  limited  operating  history  since  then,  although it did
successfully install the earlier VSN version (personal computer application) for
several  clients, and was paid the annual subscription rate then in effect. This
limited  history  makes  an  evaluation  of  the Company's future prospects very
difficult.  The  new Internet version of VSN is now available for evaluation and
use  by  customers,  but  does  not yet have any fully operational customers. As
such,  because  of  the  limited  operational  history  of  VSN, there can be no
assurances  that  the product will meet the needs of potential customers or that
the  product  will  operate  correctly.

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

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

     LARGE  OPERATING  LOSSES  EXPECTED  TO  CONTINUE:  As  discussed above, the
Company  has  accumulated  substantial  net losses through July 31, 2000.  Since
inception,  the Company has not had material revenues, and has recognized only a
small  amount  of revenue from the Internet version of VSN.  The Company expects
to  derive  the majority of its revenues from VSN fees over the next five years.
In  addition,  provided  that  revenues  develop  more  or less as expected, the
Company  expects  to spend a substantial portion of revenues during the next two
or  three  years  on  marketing,  sales,  technology  development,  training and
administration.  There can be no assurance that the Company will be able to fund
these  expenses.


                                     - 15 -
<PAGE>
     FAILURE  TO  ACHIEVE  LISTING  ON  MAJOR  STOCK  MARKET: In March 2000, the
Company  applied  for  listing on the Nasdaq National Market System.  Management
believes  that  it  meets  the  stated  requirements  for  listing  on  Nasdaq.
Presently,  the Company's stock is traded on the over-the-counter bulletin board
system  under  the stock symbol, VSRC.  While the listing of the Company's stock
does  not  have a direct effect on the Company's operations, it has an effect on
the perception of the Company amongst potential investors and can have an effect
on the ability of the Company to raise additional funds.  It can also impact the
dilution  associated  with  any  financing.  There can be no assurances that the
Company's  application  will be accepted by Nasdaq or that the Company will have
its  shares  listed  on  a  major  exchange.

     Until  the  Company's  securities  are  listed  on  a  major  exchange, the
securities  of  the  Company are subject to a Securities and Exchange Commission
rule  that  imposes  special sales practice requirements upon broker-dealers who
sell  such  securities to persons other than established customers or accredited
investors.  For  purposes  of the rule, the phrase "accredited investors" means,
in  general  terms,  institutions  with  assets  in  excess  of  $5,000,000,  or
individuals  having  a  net  worth  in  excess of $1,000,000 or having an annual
income  that  exceeds  $200,000  (or that, when combined with a spouse's income,
exceeds $300,000).  For transactions covered by the rule, the broker-dealer must
make  a  special  suitability  determination  for  the purchaser and receive the
purchaser's  written  agreement  to  the  transaction  prior  to  the  sale.
Consequently,  the  rule  may  affect  the ability of broker-dealers to sell the
securities  of the Company and also may affect the ability of any shareholder to
sell  their  securities  in  any market that might develop for the common stock.

     EFFECT  OF  INCREASED  OPERATING EXPENSES ON OPERATIONS AND PRICE OF COMMON
STOCK:  The Company plans to increase operating expenses to expand its sales and
marketing  operations,  establish  new  strategic relationships, fund additional
systems  development,  and  increase  its  business  and technical staff.  These
planned  expenses will increase operating losses during reporting periods before
significant  revenues  develop.  These  increased  losses  could have a negative
effect  on  the  price  of  the  Company's  common  stock.

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

     DEPENDENCE  ON  ONE  PRODUCT:  At  the  present  time  all of the Company's
resources  are  being  devoted  to  the  development  and marketing of VSN.  The
Company expects to depend on VSN for substantially all of the Company's revenues
for the foreseeable future.  Accordingly, if VSN is not accepted by customers or
potential  customers,  or  does not generate the demand or revenues necessary to
the  Company,  the  Company  may  face  serious  or  irreparable  harm.

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

     THIRD  PARTY IMPLEMENTATION/INTEGRATION OF VIRTUAL SOURCE NETWORK; NEGATIVE
IMPACT  UPON  REVENUE  GOALS IF THIRD PARTIES UNAVAILABLE OR DO NOT PERFORM: The
Company  expects  to  rely,  to  a large degree, on a number of third parties to
propose  and  explain  VSN to prospective clients, to sell pilot projects to the


                                     - 16 -
<PAGE>
clients, and to integrate VSN with clients' existing systems, and to train users
when  VSN  is  rolled  out for general usage.  The Company itself is planning to
work  with  clients  and  third-parties  to  implement  the pilot projects.  The
Company's ability to support its strategic partners, in pursuit of large numbers
of  buyers  and  suppliers,  is  yet  to be proven.  If the Company is unable to
establish  and  maintain  effective,  long-term  relationships  with these third
parties, if these third parties are unable to meet the needs and expectations of
VSN  clients,  or  if  the Company cannot properly implement pilot projects, the
Company  will  likely  have  difficulty  achieving  its  revenue  goals.

     UNSUCCESSFUL  ACQUISITIONS  COULD  HARM OUR OPERATING RESULTS, BUSINESS AND
GROWTH:  The  Company  may  acquire  businesses,  products and technologies that
complement  or  augment  the  Company's  existing  businesses,  services  and
technologies.  The  inability  to  integrate  any  newly  acquired  entities  or
technologies  effectively  could  harm the Company's operating results, business
and  growth.  Integrating  any  newly acquired businesses or technologies may be
expensive and time consuming.  To finance any acquisitions, the Company may need
to  raise  additional funds through public or private financings.  Any equity or
debt  financings, if available at all, may be on terms that are not favorable to
the Company and, in the case of equity financings, may result in dilution to the
Company's  stockholders.  The  Company  may  not be able to operate any acquired
businesses  profitably  or  otherwise  implement the Company's business strategy
successfully.

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

     QUARTERLY  RESULTS MAY BE SUBJECT TO SIGNIFICANT FLUCTUATIONS; EXPECTATIONS
OF INVESTORS AND ANALYSTS MAY NOT BE MET: The Company expects that its quarterly
operating  results  will  fluctuate  significantly  due to many factors, many of
which  are  outside  the  control  of  the  Company.  Such  factors  include:

     .  demand  for  and  market  acceptance  of  VSN

     .  inconsistent  growth,  if  any,  of  the  Company's  client  base

     .  loss  of  key  customers  or  strategic  partners

     .  timing  of  the  recognition  of  revenue  for  large  contracts

     .  variations in the dollar volume of transactions effected through VSN

     .  intense  and  increased  competition

     .  introductions of new services or enhancements, or changes in pricing
        policies, by  the  Company  and  it's  competitors

     .  the  Company's  ability  to  control  costs

     .  reliable  continuity  of  VSN  availability

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


                                     - 17 -
<PAGE>
     COMPETITIVE  "BUSINESS-TO-BUSINESS"  INTERNET  COMMERCE  MARKET;  EFFECT ON
MARKET  SHARE AND BUSINESS: The market for VSN is very competitive, evolving and
subject  to  rapid  technological change.  Intensity of competition is likely to
increase in the future.  Increased competition from new competitors is likely to
result  in  loss  of  market  share, which could negatively impact the Company's
business.  Competitors  vary  in  size,  and  in  the  scope  and breadth of the
products  and  services  offered.  VSN  will  encounter  competition from Ariba,
Clarus,  Commerce  One,  GE  Information  Services,  i2 Technologies, Intelisys,
PurchasePro,  TRADE'ex  Electronic  Commerce  Systems  and  other  eProcurement
competitors.  VSN  may  also encounter competition from several major enterprise
software  developers,  such  as Oracle, PeopleSoft and SAP who are not presently
considered  to be direct competitors, but who have announced intentions to enter
into  the  market.  In  addition,  because  there are relatively low barriers to
entry in this market, additional competition from other established and emerging
companies  may  develop.

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

     VIRTUAL  SOURCE NETWORK REVENUES EXPECTED FROM A LIMITED NUMBER OF CLIENTS,
MEANING  INCREASED  POTENTIAL  IMPACT OF CUSTOMER LOSS: The Company expects that
VSN  revenues,  if  any,  during  the current fiscal year will come from a small
number  of  clients,  perhaps  as few as 20 or less.  The loss of customers or a
change  in  a  client's  budget  could have a substantial negative impact on the
business  of  the  Company.

     VENDORS ARE ESSENTIAL TO SUCCESS OF VIRTUAL SOURCE NETWORK; NEGATIVE IMPACT
OF  VENDORS' FAILURE TO JOIN THE NETWORK: In order to operate, VSN requires that
vendors (suppliers) be able to access the network and that client buyers be able
to communicate their requirements electronically to vendors.  Currently, vendors
can  access  VSN  even  if  they have not joined the network, but it is far more
efficient if a vendor does join the network and sets up a catalog online.  It is
necessary, furthermore, that a client's key vendors join the network in order to
achieve  the  full  benefits  of  the  system, such as buying from an electronic
catalog.  The  Company,  furthermore,  expects  that  vendors will join VSN upon
invitation from their respective buyers.  Network membership is now free for any
vendor.  Client  buyers  operating  on  VSN  make  direct  requests of their key
vendors  that  they  join.  When  a  large corporation requests that its vendors
adapt to a new purchasing process, and that change is free, the Company believes
that  there  is  a  strong  incentive  for  those vendors to make that change to
protect  their  customer  relationships.

     To  date there has been no significant vendor resistance to joining the new
Internet  version  of  VSN.  During  1996  and  1997, however, the Company found
significant vendor resistance to joining the PC version of VSN.  Vendors, at the
time,  viewed  VSN  as  increasing competitive price pressure.  They also saw an
increased  possibility  of losing customers to lower cost vendors not previously
competing  for  the  business.  Additionally,  the non-Internet version was more
difficult  for  vendors  to  operate.

     Since 1997 the Company believes that important changes have occurred in the
procurement  environment.  Electronic  commerce,  and  the  resultant  increased
competition,  has  become  more accepted by vendors.  It is management's opinion
that  most  vendors believe that they will eventually be required to do business
electronically,  if  they  have  not already started.  The Company also believes
that  the  Internet  version  of  VSN  is easier for vendors to use.  As a final
incentive,  the Company no longer charges subscription fees to vendors.  Despite
these  changes,  there  can  be  no  assurance  that  vendors  will  not  resist
participating  in  VSN.  Should  significant new vendor resistance develop, that
could  slow adoption of VSN by clients, and negatively impact potential revenues
of  the  Company.


                                     - 18 -
<PAGE>
     ABILITY  TO  ENHANCE  FEATURES AND FUNCTIONALITY OF PRODUCTS; CHANGE IN THE
MARKET:  The  success of the Company will depend on its ability to tailor VSN to
meet  the  requirements  of  its  clients,  not  only  as  such requirements are
presently  known  and understood by the Company and its client base, but also as
such  requirements  evolve.  Such  requirements  may  be  driven  by competitive
products or the changing preferences of the Company's client base.  An inability
to offer enhanced products or features that anticipate or meet such requirements
in  a timely and efficient manner may result in a loss of sales and revenues and
the  obsolescence of the Company's products.  There can be no assurance that the
Company  can make the changes and enhancements to its products necessary to meet
and  satisfy  the  demands  of  its  clients.

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

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

     DEFECTS  IN  SOFTWARE:  VSN  is  complex software.  Software often contains
defects,  particularly  when first introduced or when new versions are released.
The  Company's  testing procedures may not discover software defects that affect
new  or  current  services  or enhancements until after they are deployed.  Such
defects  could  cause  service  interruptions,  which could damage the Company's
reputation or increase its service costs, cause it to lose revenue, delay market
acceptance or divert development resources, any of which could severely harm the
Company's  business.

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

     NO  DISASTER  RECOVERY  PLAN: The Company does not have a disaster recovery
plan  and does not yet have redundant systems at an alternate site to permit the
company  to  continue  to  provide  services  on  the  event of a failure in its
computer  and communications systems.  Accordingly, any such failure would cause
severe  harm  to  the  Company's  business.

     SUBSTANTIAL  COSTS  OF  ANY  PRODUCT LIABILITY CLAIMS; NO PRODUCT LIABILITY
INSURANCE:  Errors,  defects or other performance problems with VSN could result
in  financial  or  other  damages  to our clients.  Management believes that the
contractual  limits  of liability, indemnification provisions and disclaimers of
warranties should minimize the exposure of the Company in the event of a product
liability  claim.  A  product  liability claim, however, even if not successful,
would  likely be time consuming and costly and could seriously harm the Company.
The  Company  presently does not maintain product liability insurance.  Although
the  terms  and  conditions  in  VSN  user agreements contain disclaimers of any
warranties  designed to limit exposure to these claims, existing or future laws,
or  unfavorable  judicial decisions, could weaken or negate these provisions and
have  materially  adverse  consequences  for  the  Company.


                                     - 19 -
<PAGE>
     LEGAL  LIABILITY  FOR COMMUNICATION ON PROCUREMENT NETWORK: The Company may
be  subject  to legal claims relating to the content in its procurement network,
or  the  downloading  and  distribution  of  such content.  Claims could involve
matters  such  as  fraud,  defamation,  invasion  of  privacy  and  copyright
infringement.  Providers of Internet products and services have been sued in the
past,  sometimes  successfully,  based  on the content of material.  Even if the
Company  was  ultimately  successful  in  its  defense of these claims, any such
litigation  is  costly  and these claims could harm the Company's reputation and
business.

     SUCCESS  DEPENDS  ON  KEY  PERSONNEL;  NO  "KEY MAN" LIFE INSURANCE: Future
performance  depends  on the continued service of key personnel, and the ability
to attract, train, and retain additional technical, marketing, customer support,
and  management  personnel.  The  loss  of  one  or  more  key  employees  could
negatively impact the Company, and there is no "key man" life insurance in force
at  this  time.  However,  the  Company  does  plan  to  obtain  this insurance.
Competition  for  qualified  personnel is intense, and there can be no assurance
that  the  Company will retain key employees, or attract and retain other needed
personnel.

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

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

     STRAIN ON LIMITED RESOURCES DUE TO NEED TO MANAGE GROWTH AND EXPANSION: The
Company  anticipates  a  period  of significant expansion and growth, which most
likely  will  place  significant strain upon management, employees, systems, and
resources.  Because  the  market  is  developing  rapidly,  furthermore,  it  is
difficult  to  project  the  rate of growth, if any.  Failure to properly manage
growth  and expansion, if and when it occurs, will jeopardize the ability of the
Company  sustain  its  third  party and customer relationships.  There can be no
assurances  that  the Company will properly be able to manage growth, especially
if  such  growth  is  more  rapid  than  anticipated.

     INABILITY  TO  ACCURATELY  PREDICT  USAGE  RATES AND DIFFICULTY IN ADAPTING
SYSTEMS  IN  A  TIMELY  MANNER: Traffic in the Company's procurement network may
increase  to  the  point  where  the Company must expand and upgrade some of its
transaction  processing  systems  and procurement network hardware and software.
While  the  Company's systems are scalable and can be expanded, that flexibility
is  limited.  The  Company  may  not  be  able to accurately predict the rate of
increase in the usage of its procurement network.  This may affect the Company's
timing  and  ability  to  expand and upgrade its systems and procurement network
hardware  and  software  capabilities  to  accommodate  increased  use  of  its
procurement  network.  If  the  Company  does  not  upgrade  its  systems  and
procurement  network  hardware and software in a timely fashion, the Company may
experience  downgraded  service,  interruptions  or delays that could damage its
business  reputation,  relationship  with clients and its operating results.  It
might  also be forced to delay bringing additional customers onto the VSN system
until  such  upgrades  are  completed

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

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

          -  difficulties  staffing  and  managing  foreign  operations

          -  political  instability


                                     - 20 -
<PAGE>
          -  the  burdens of compliance with a wide variety of foreign laws and
             legal regimes

          -  unexpected  changes  in  regulatory  requirements

          -  tariffs,  export  controls  and  other  barriers  to  trade

          -  potentially  adverse  tax  consequences

          -  fluctuations  in  currency  exchange  rates

          -  longer payment  cycles  and  difficulties  in  collecting  accounts
             receivables

          -  seasonal  fluctuations  in  business  activity

RISKS  RELATED  TO  THE  INTERNET  AND  ECOMMERCE

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

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

     SUBSTANTIAL  COSTS  OF  ANY  SECURITIES  LITIGATION  COULD  DIVERT  LIMITED
RESOURCES  OF  THE  COMPANY: In the past, securities class action litigation has
often  been  brought  against  a  company following periods of volatility in the
market  price  of  its securities.  The Company could become a target of similar
securities litigation based upon the volatility of its stock in the marketplace.
Litigation  of  this  type  could  result  in  substantial  costs  and  divert
management's  attention  and  resources.

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

     DEPENDENCE  UPON,  AND  RISKS  RELATED TO, THE INTERNET: The use of VSN and
other  ASP-based  products  depends  on  the increased acceptance and use of the
Internet  as  a medium of commerce and communication.  While management believes
that  acceptance and use of the Internet will continue to increase at very rapid
rates,  there  can be no assurances that such increase will continue to develop,
or  that  use of the Internet as a means of conducting business will continue or
increase.  If  growth  in the use of the Internet does not continue, clients may
not  adopt  or  use  these  new  Internet  technologies  at the rates or for the
purposes  management  has  assumed.  This  could,  in turn, adversely impact the
Company and the results of its business operations.  Further, even if acceptance
and use of the Internet does increase rapidly, but the technology underlying the
Internet  and  other  necessary  technology  and related infrastructure does not
effectively  support  that  growth,  the  Company's  future  would be negatively
impacted.


                                     - 21 -
<PAGE>
     POTENTIAL BREACHES OF THE COMPANY'S SECURITY SYSTEMS: A significant barrier
to  electronic  commerce  and  communications  is  the  secure  transmission  of
confidential  information  over  public  networks.  Advances  in  computer
capabilities,  new  discoveries  in the field of cryptography or other events or
developments  could  result in compromises or breaches of the Company's security
systems  or  those  of  other  web  sites  to  protect  the  Company's exclusive
information.  If  any  well-publicized compromises of security were to occur, it
could  have the effect of substantially reducing the use of the web for commerce
and  communications.  Anyone  who  circumvents  the  Company's security measures
could  misappropriate  its  exclusive  information  or  cause  interruptions  in
services or operations.  The Internet is a public network, and data is sent over
this  network  from  many  sources.  In  the  past,  computer  viruses, software
programs  that  disable  or  impair  computers,  have  been distributed and have
rapidly  spread  over  the  Internet.  Computer  viruses  could theoretically be
introduced into the Company's systems, or those of our clients or vendors, which
could  disrupt  VSN or another ASP-based product offered by the Company, or make
it  inaccessible to clients or vendors.  Although language in its user agreement
places  responsibility  with users to protect VSN from such threats, the Company
may  be  required  to  expend significant capital and other resources to protect
against  the  threat  of  security  breaches  or to alleviate problems caused by
breaches.  To  the  extent that the Company's activities may involve the storage
and transmission of exclusive information, such as credit card numbers, security
breaches  could  expose the Company to a risk of loss or litigation and possible
liability.  Despite  provisions  to  the  contrary  in  its user agreements, the
Company's  security measures may be inadequate to prevent security breaches, and
the  Company's  business  could be seriously impacted if they are not prevented.

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

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

                           PART II - OTHER INFORMATION

Item  1.     LEGAL  PROCEEDINGS

     There  are  currently  no legal proceedings involving the Company, and none
threatened. However, because of the rapidly changing environment surrounding the
Internet, and the rapid pace with which new businesses enter or attempt to enter
Internet  related  businesses,  it  is  possible that disagreements will develop
regarding  business  names,  relationships,  markets,  technologies,  and  other
subjects.  Any  future  disagreement  could  lead  to  legal  action.

Item  2.     CHANGES  IN  SECURITIES

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


                                     - 22 -
<PAGE>
     In connection with the sales of the Series 1-A Convertible Preferred Stock,
the  Company  has  issued  warrants  to  purchase an aggregate 506,691 shares of
common  stock  at  exercise  prices  ranging  from  $2.00 to $6.00 as additional
finder's  fees  and  commissions  and  for other services in connection with the
offering.  No  underwriters  were  used,  and  no  commissions  were  paid.  The
warrants  were  issued, or will be issued, to seven consultants and as a private
placement  exempt  from  registration  under Section 4(2) of the Securities Act.
The  warrant  holders  represented  their  intention to acquire the warrants for
investment  purposes  only,  and  not with a view to resale or distribution, and
appropriate  stop  transfer  instructions and restrictive legends indicating the
transfer  restrictions will be placed on each warrant and each stock certificate
when issued.  Each investor had ample access to the kind of information from the
Company  that  a  registration  statement  would  include.

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

Item  3.     DEFAULTS  UPON  SENIOR  SECURITIES

     There  were  no defaults upon senior securities during the six months ended
July  31,  2000.

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

During  the six months ended July 31, 2000, the following matters were submitted
to  a  vote  of  security  holders:

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

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

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

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

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

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

Item  5.     OTHER  INFORMATION

RECENT  SALE  OF  UNREGISTERED  SECURITIES

     During  the  period  November  1999  to  July  2000,  the Company issued or
committed  to  issuing  warrants to purchase an aggregate of 1,376,691 shares of
common stock at exercise prices which range from $2.00 to $25.00 in exchange for
financial  consulting  and distribution and marketing services.  No underwriters
were  used,  and  no commissions were paid.  The warrants were issued or will be
issued as a private placement exempt from registration under Section 4(2) of the
Securities  Act.  The warrant holders represented their intention to acquire the


                                     - 23 -
<PAGE>
warrants  for  investment  purposes  only,  and  not  with  a  view to resale or
distribution, and appropriate stop transfer instructions and restrictive legends
indicating  the  transfer  restrictions  will be placed on each warrant and each
stock certificate when issued.  Each warrant holder had ample access to the kind
of  information  from  the  Company that a registration statement would include.

AMENDMENT  OF  THE  ARTICLES  OF  INCORPORATION

     On  September  7, 2000, the Company filed a Certificate of Designation with
the  Nevada  Secretary  of State designating 2,100,000 shares of preferred stock
Series  2-A  Convertible  Preferred  Stock  in  anticipation of the closing of a
private  placement.  The  Certificate  of  Designation  sets  forth  the rights,
preferences  and  privileges  of  such  shares  of  preferred stock but does not
otherwise  amend  the  articles  of  incorporation.


Item  6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K

     (a)     EXHIBITS:

             3.1     Articles of Incorporation. Incorporated herein by reference
                     from Exhibit  2.1 to Registrant's Registration Statement on
                     Form  10-SB  filed  on  September  21,  1999  (SEC File No.
                     000-6563).

             3.2     Certificate  of  Designation.  Incorporated herein  by this
                     reference from Exhibit 3.2 to Registrant's Annual Report on
                     Form 10-KSB for the  fiscal year  ended  January  31,  2000
                     filed on May 11, 2000 (SEC File No. 000-30326).

             3.3     Certificate  of  Designation.

            27.1     Financial  Data  Schedule (1)

            99.1     Vsource,  Inc.  2000  Stock  Option  Plan

     (b)    REPORTS  ON  FORM  8-K

            None.



--------------------------
(1)     This  exhibit  is  being filed electronically  in  the electronic format
specified  by  EDGAR.


                                     - 24 -
<PAGE>
                                   SIGNATURES

     In accordance with 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/  Robert  C.  McShirley
   -----------------------------

     Robert  C.  McShirley
     President  and  Chief  Executive  Officer
     (Principal  Executive  Officer)

Date:  September  14,  2000


By:  /s/  Sandford  T.  Waddell
   -----------------------------

     Sandford  T.  Waddell
     Chief  Financial  Officer  and  Secretary
     (Principal  Accounting  Officer)

Date:  September  14,  2000


                                     - 25 -
<PAGE>
                                  EXHIBIT INDEX

EXHIBIT                                                             SEQUENTIALLY
NUMBER               DESCRIPTION                                   NUMBERED PAGE

     3.1     Articles  of  Incorporation.  Incorporated  herein  by
             reference from Exhibit 2.1 to Registrant's Registration
             Statement  on  Form 10-SB filed on September  21,  1999
             (SEC  File  No.  000-6563).

     3.2     Certificate of Designation. Incorporated herein by this
             reference  from  Exhibit  3.2  to  Registrant's  Annual
             Report on Form 10-KSB for the fiscal year ended January
             31,  2000  filed  on  May  11,  2000  (SEC  File  No.
             000-30326).

     3.3     Certificate  of  Designation.

    27.1     Financial  Data Schedule (2)

    99.1     Vsource,  Inc.  2000  Stock  Option  Plan




-------------------------
(2)    This exhibit  is  being filed  electronically in  the  electronic  format
specified  by  EDGAR.


                                     - 26 -
<PAGE>