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

                                    FORM 10-Q/A


(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,  2001

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 or 15(d) OF THE SECURITIES
     EXCHANGE  ACT  OF  1934  FOR  THE  TRANSITION  PERIOD  FROM  _____ TO _____


                         COMMISSION FILE NO.: 000-30326

                                  VSOURCE, INC.
             (Exact name of registrant as specified in its charter)

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

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

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

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

Number of shares of common stock outstanding as of
September 5, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 21,275,389
Number of shares of Series 1-A Convertible Preferred
Stock outstanding as of September  5,  2001 . . . . . . . . . . . . .  1,703,741
Number of shares of Series 2-A Convertible Preferred
Stock outstanding as of September  5,  2001 . . . . . . . . . . . . .  1,330,675

Explanatory Note

In  the  Company's  Form  10-Q for the quarterly period ended July 31, 2001, the
Company  accounted for the acquisition of NetCel360 as an acquisition and not as
a  reverse  merger.  In this Amendment to the Form 10-Q the Company continues to
account  for  the acquisition in this manner. Accordingly, all references to the
following  in  the  Company's  Form 10-Q for the quarterly period ended July 31,
2001, have been deleted: (i) PricewaterhouseCoopers has not completed its review
of  the  Company's  financial  statements  as of and for the three and six month
periods  ended  July  31,  2001,  (ii)  the  Company has prepared such financial
statements  as  if  the  acquisition  of NetCel360 were an acquisition and not a
reverse  merger  and  (iii)  it  is highly likely that the Company would need to
restate  its  financial statements in respect of its acquisition of Netcel360 to
account  for  it  as  a  reverse merger if a Nasdaq Listing Qualifications Panel
determines  that that the acquisition of Netcel360 constituted a reverse merger.
In  addition,  descriptions  of the oral hearing to be held in front of a Nasdaq
Listing  Qualifications  Panel  and the Company's arrangements with Gateway have
been  updated.



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

                                                                     Page
                                                                     ----

                         PART I - FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS (See Note Below). . . . . . . . . . .     3
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . .    22
Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    42

                          PART II - OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . .    42
Item 2.  CHANGES IN SECURITIES. . . . . . . . . . . . . . . . . . .    43
Item 3.  DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . .    43
Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . .    43
Item 5.  OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . .    43
Item 6.  EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . .    43
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .    43





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

                                     VSOURCE, INC.
                              CONSOLIDATED BALANCE SHEETS

                                        ASSETS


                                                    July 31, 2001    January 31, 2001
                                                   ---------------  ------------------
CURRENT ASSETS                                       (Unaudited)        (Audited)
<S>                                                <C>              <C>
  Cash                                             $    2,774,075   $       5,360,525
  Restricted cash                                          49,011              47,737
  Restricted cash, letter of credit                     4,000,000                  --
  Cash held in escrow-Vitria                              275,000                  --
  Accounts receivable                                   1,105,975               4,200
  Notes receivable-related parties                              -             150,000
  Other receivables                                        13,251
  Prepaid expenses                                      1,108,363             103,687
                                                   ---------------  ------------------
          Total current assets                          9,325,675           5,666,149

PROPERTY AND EQUIPMENT
  Equipment and fixtures                                8,906,375           1,099,628
       Less:  accumulated depreciation                   (387,091)           (167,283)
                                                   ---------------  ------------------
            Property and Equipment, net                 8,519,284             932,345

OTHER ASSETS
  Goodwill                                                     --           4,592,863
  Notes receivable-related parties                             --              50,000
  Other assets                                             33,463              19,559
                                                   ---------------  ------------------

                                                   $   17,878,422   $      11,260,916
                                                   ===============  ==================


             LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
  Accounts payable                                 $    1,852,057   $         598,717
  Accrued expenses                                      3,610,608             311,686
  Convertible notes payable                             8,809,556                  --
  Accrued contingent interest on convertible debt      (8,602,806)                 --
  Notes payable                                         2,250,000                  --
                                                   ---------------  ------------------

          Total Current Liabilities                     7,919,415             910,403
</TABLE>


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


                                        3
<PAGE>
<TABLE>
<CAPTION>
                                       VSOURCE, INC.
                                CONSOLIDATED BALANCE SHEETS


                                                          July 31, 2001    January 31,2001
                                                         ---------------  -----------------
                                                           (Unaudited)        (Audited)
<S>                                                      <C>              <C>
COMMITMENTS AND CONTINGENCIES                                         -                  -

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

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

        Total Preferred Stock                                12,223,365         14,228,828

SHAREHOLDERS' DEFICIT
Common stock ($0.01 par value, 100,000,000
shares authorized; 21,260,389 and 17,938,912 shares
issued and outstanding as of July 31, 2001 and
January 31, 2001, respectively)                                 212,604            179,389

Common stock additional paid-in-capital                      64,033,191         54,073,495
Deferred compensation                                          (690,432)        (5,804,851)
Accumulated deficit                                         (65,611,530)       (51,899,550)
Other comprehensive income                                       26,443                 --
Less:  Note receivable from sale of stock                      (234,634)          (426,798)
                                                         ---------------  -----------------

        Total Shareholders' Deficit                          (2,264,358)        (3,878,315)
                                                         ---------------  -----------------

                                                         $   17,878,422   $     11,260,916
                                                         ===============  =================
</TABLE>


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


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


                                                             For the three months ended
                                                           July 31, 2001    July 31, 2000
                                                          ---------------  ---------------
<S>                                                       <C>              <C>
Revenue                                                   $    1,135,306   $       62,500
Cost of sales                                                  1,382,795               --
                                                          ---------------  ---------------

Gross (loss) profit                                             (247,489)          62,500

Selling, general and administrative expenses
  (including $29,655 and $2,695,516 of stock-based             2,791,123        4,080,439
  compensation for the three months ended July 31, 2001
  and 2000, respectively)

Research and development expenses
  (including $299,844 and $1,219,560 of stock-based              729,387        2,890,584
  compensation for the three months ended July 31, 2001
  and 2000, respectively)

Impairment of goodwill                                         1,940,853               --
                                                          ---------------  ---------------

Loss from operations                                          (5,708,852)      (6,908,523)

Interest expense                                                (802,112)          (3,698)
Other income                                                      40,201           21,180
                                                          ---------------  ---------------

Loss before income taxes                                      (6,470,763)      (6,891,041)
Provision for (write back on) income taxes                          (863)              --
                                                          ---------------  ---------------

Net loss                                                  $   (6,469,900)  $   (6,891,041)
                                                          ===============  ===============

Net loss available to
        common shareholders                               $   (8,565,328)  $   (6,891,041)
                                                          ===============  ===============

Basic and diluted weighted average number of
        common shares outstanding                             19,576,287       15,844,809
                                                          ===============  ===============

Basic and diluted net loss per share                               (0.44)           (0.43)
                                                          ===============  ===============
        available to common shareholders
</TABLE>


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


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


                                                            For the six months ended
                                                         July 31, 2001    July 31, 2000
                                                        ---------------  ---------------
<S>                                                     <C>              <C>
Revenue                                                 $    1,148,026   $       62,500
Cost of sales                                                1,382,795               --
                                                        ---------------  ---------------
Gross (loss) profit                                           (234,769)          62,500

Selling, general and administrative expenses
  (including $79,048 and $5,448,406 of stock-based           3,530,743        7,729,239
  compensation for the six months ended July 31, 2001
  and 2000, respectively)

Research and development expenses
  (including $799,264 and $1,821,008 of stock-based          3,041,665        5,083,338
  compensation for the six months ended July 31, 2001
  and 2000, respectively)

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

Loss from operations                                       (10,886,049)     (12,750,077)

Interest expense                                              (802,492)          (7,397)
Other income                                                    75,648           59,579
                                                        ---------------  ---------------

Loss before income taxes                                   (11,612,893)     (12,697,895)
Provision for (write back on) income taxes                       3,659            1,600
                                                        ---------------  ---------------

Net loss                                                $  (11,616,552)  $  (12,699,495)
                                                        ===============  ===============

Basic loss available to
        common shareholders (Note 8)                    $  (13,711,980)  $  (19,567,892)
                                                        ===============  ===============

Basic and diluted weighted average number of
        common shares outstanding                           18,979,959       15,826,197
                                                        ===============  ===============

Basic and diluted net loss per share                             (0.72)           (1.24)
                                                        ===============  ===============
        available to common shareholders
</TABLE>


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


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



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

Balance at January 31, 2001           17,938,912    179,389         54,073,495      (5,804,851)     (426,798)   (51,899,550)
(Audited)

Translation adjustments
Net loss                                                                                                        (11,616,552)
Beneficial conversion feature for
     preferred stockholders                                          2,095,428                                   (2,095,428)
Beneficial conversion feature on
     convertible debt                                                9,221,162
Conversion of preferred stock            759,352      7,594          1,991,434
Return of shares related to notes
     receivable-shareholder             (300,000)    (3,000)           (96,000)                      192,164
Acquisition of NetCel360               2,774,213     27,742            984,658
Compensation related to:
     options granted for services                                                      878,312
Expired and forfeited options                                       (4,236,107)      4,236,107
Exercise of warrants                      87,912        879               (879)
                                      -----------  ---------  -----------------  --------------  ------------  -------------

Balance at July 31, 2001 (Unaudited)  21,260,389   $212,604   $     64,033,191   $    (690,432)  $ (234,634))  $(65,611,530)
                                      ===========  =========  =================  ==============  ============  =============


                                          Other            Total
                                      Comprehensive    Shareholders'
                                          Income          Deficit
                                      --------------  ---------------
<S>                                   <C>             <C>
Balance at January 31, 2000                       --  $     (960,514)
(Audited)
Issuance of notes related to
       issuance of stock                                    (248,000)
Conversion of preferred stock                              2,811,609
Acquisition of OTT                                         4,058,254
Issuance of common stock upon
     conversion of demand notes                              164,137
Deemed non-cash dividend and
     beneficial conversion feature                                --
Compensation related to:
     options granted for services                          5,258,263
     warrants issued for services                         10,966,310
Issuance of stock for services                               319,299
Expired and forfeited options                                     --
Exercise of stock options                                  1,351,089
Exercise of warrants                                              --
Net loss                                          --     (27,598,762)
                                      --------------  ---------------

Balance at January 31, 2001                       --      (3,878,315)
(Audited)

Translation adjustments               $       26,443          26,443
Net loss                                                 (11,616,552)
     Comprehensive loss                                  (11,590,109)
                                                      ---------------
Beneficial conversion feature for
     preferred stockholders                                       --
Beneficial conversion feature on
     convertible debt                                      9,221,162
Conversion of preferred stock                              1,999,028
Return of shares related to notes
     receivable-shareholder                                   93,164
Acquisition of NetCel360                                   1,012,400
Compensation related to:
     options granted for services                            878,312
Expired and forfeited options                                     --
Exercise of warrants                                              --
                                      --------------  ---------------

Balance at July 31, 2001 (Unaudited)  $       26,443  $   (2,264,358)
                                      ==============  ===============
</TABLE>


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


                                        7
<PAGE>
<TABLE>
<CAPTION>

                                     VSOURCE, INC.
                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (Unaudited)


                                                           For the six months ended
                                                        July 31, 2001    July 31, 2000
                                                       ---------------  ---------------
<S>                                                    <C>              <C>
  Increase (decrease) in cash:
Cash flows from operating activities:
    Net loss                                           $  (11,616,552)  $  (12,699,495)
    Adjustments to reconcile net loss to
        net cash used by operating activities:
    Depreciation and amortization                             924,289           47,869
    Impairment of fixed assets                                495,671               --
    Impairment of goodwill                                  4,078,872               --
    Compensation expense on stock options granted             878,312        2,447,447
    Compensation expense stock issued                              --          164,656
    Compensation expense for warrants granted                      --        4,657,310
     Changes in assets and liabilities:
Funds held in escrow                                         (275,000)              --
Accounts receivable                                          (550,580)         (50,000)
Employee receivables                                               --          (37,833)
Other receivables                                             (13,251)              --
Prepaid expenses                                             (540,521)        (174,005)
Other assets                                                  (32,927)            (535)
Accounts payable                                             (159,970)         385,905
Accrued expenses                                            1,338,688          (59,954)
                                                       ---------------  ---------------
            Net cash used in operating activities          (5,472,969)      (5,318,635)

Cash flows from investing activities:
    Acquisition of capitalized software                            --          (94,848)
    Acquisition of property and equipment                    (287,895)        (255,526)
    Expenses on acquisition of NetCel360                      (54,760)              --
    Letter of credit                                       (4,000,000)              --
                                                       ---------------  ---------------
            Net cash used in investing activities          (4,342,655)        (350,374)

Cash flows from financing activities:
    Proceeds from issuance stock                                   --        1,215,267
    Proceeds from borrowings and convertible debt           7,447,761               --
    Repayment of borrowings                                  (200,000)              --
                                                       ---------------  ---------------

            Net cash provided by financing activities       7,247,761        1,215,267

Effect of exchange rates on cash                              (17,313)              --
                                                       ---------------  ---------------

Net decrease in cash                                       (2,585,176)      (4,453,742)
                                                       ---------------  ---------------


Cash at beginning of period                                 5,408,262        5,207,167
                                                       ---------------  ---------------

Cash at end of period                                  $    2,823,086   $      753,425
                                                       ===============  ===============
</TABLE>


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


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



1.     NATURE  OF  BUSINESS  AND  SUMMARY  OF  SIGNIFICANT ACCOUNTING PRINCIPLES

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

     The  Company  has  received  letters  from  Nasdaq  stating that Nasdaq has
determined  that  the  Company's  acquisition of Netcel360 constituted a reverse
merger.  The  Company  disagrees  with  Nasdaq's  determination  and  has made a
submission  to  Nasdaq  refuting  this determination. The Company's oral hearing
before a Nasdaq Listing Qualifications Panel (the "Panel") was held on September
28,  2001  to,  inter  alia, appeal this determination. The Company was informed
that the Panel will render its decision within 30 days after the hearing.


FUTURE  FUNDING

     The Company's major source of funds from the date of inception through July
31,  2001,  has  been  from  sale  of equity and debt securities.  Its principal
sources  of  cash  and  cash equivalents for the six months ended July 31, 2001,
other than from investor funds, were from funds received from approximately $1.1
million  of revenues related to the resale of Gateway products, Business Process
Outsourcing  service contracts, and LiquidMarketplace  contracts, in addition to
small amounts of interest income, and certain non-recurring items, however,  the
Company  also incurred substantial expenses which resulted in a net loss for the
six  months  ended  July  31,  2001.  While the Company expects to generate more
significant  revenues  in  the  future,  it  is currently dependent primarily on
investor  funds.

     At  August  31,  2001,  the  Company  had  cash  balances  of approximately
$1,967,000,  not  including $4,000,000 of cash on deposit in support of a letter
of  credit.

     There  can  be  no  assurances  that  the  Company will continue generating
additional  revenue from clients.  The Company has implemented cash conservation
measures.  Without  additional  capital or revenues, the Company believes it can
continue  operations,  with  minimum  cash reserves, through November 2001.  The
Company  is  in  negotiations with investors and certain current and prospective
clients  for cash funding during October 2001 in the amount of $2 to $4 million.
These  funds  will  provide  operating  capital  until  a  rights  offering  to
shareholders  can be implemented in late 2001 or early 2002.  There is, however,
no  assurance  that  the client funding will occur in the projected amount or in
any  amount,  nor  is there any assurance that the Company can raise significant
additional  capital  in  a  rights  offering  to  its  shareholders.

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


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

USE  OF  ESTIMATES

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

PRINCIPLES  OF  CONSOLIDATION

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

RECENT  PRONOUNCEMENTS

     Effective  January  1,  2001,  the  company  adopted Statement of Financial
Accounting  Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, ("FAS No. 133").  This statement establishes a new model
for  accounting  for derivatives and hedging activities.  Under FAS No. 133, all
derivatives  must  be  recognized as assets and liabilities and measured at fair
value.  The  impact  of  the  adoption will be based on factors such as specific
derivative  and  hedging  activities,  market  conditions  and  contractual
arrangements  at the date of adoption.  The effect of the adoption will not have
significant  impact on the company's financial position or results of operations
in  2001.

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

REVENUE  RECOGNITION

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

     Revenues  provided  by  Web  based  auction  services  are accounted for in
accordance  with the Financial Accounting Standards Board issued EITF00-3, which
provides  guidance  on  applying  generally  accepted  accounting principles for
recognizing  revenues.  The  Company  provides  Web  based  auction services and
presently  has  one  client  operating  month-to-month under an expired services
agreement.  A  monthly  maintenance fee is charged which is recognized currently
in  the  month  during  which  the  services  are  performed.


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

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

     Revenue  under  the  Reseller  Agreement  dated  as  of  July  1, 2001 (the
"Reseller  Agreement") between Vsource (CI) Ltd (formerly NetCel360.com Ltd) and
Gateway  Manufacturing,  Inc.  is  recorded  under  the  guidance  of EITF 99-19
"Reporting  Revenue  Gross  as  a Principal versus net as an Agent". The Company
recognizes  this  revenue  on  a  gross  basis as the Company is responsible for
fulfillment including taking and accepting orders, the Company sets the price of
the  products  to  the  ultimate  customers, and the Company bears inventory and
credit  risk.  Thus,  the  Company  recognizes  revenue  from product sales upon
delivery  of  the  product  to  its  customers.

Network  Appliance  e-business  Service  Provider  Agreement
------------------------------------------------------------

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

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

OTHER  COMPREHENSIVE  INCOME  (LOSS)

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

SEGMENT  DATA

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

RESEARCH  AND  DEVELOPMENT

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

SOFTWARE  DEVELOPMENT  COSTS

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


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

CASH  AND  CASH  EQUIVALENT

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

RESTRICTED  CASH

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

PROPERTY  AND  EQUIPMENT

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

IMPAIRMENT  OF  LONG-LIVED  ASSETS

     The  Company  evaluates  its  long-lived  assets  by measuring the carrying
amount  of  the  assets  against  the  estimated  undiscounted future cash flows
associated  with them. If such evaluations indicate that the future undiscounted
cash  flows  of  certain  long-lived  assets  are  not sufficient to recover the
carrying  value  of  such  assets, the assets are adjusted to their fair values.

     During  the six months ended July 31, 2001, the Company reviewed long-lived
assets  and  other intangibles and made estimates of expected future cash flows,
based  on  management's  best  estimates and based on reasonable and supportable
assumptions and projections. All available evidence was considered in developing
these  estimates  of  expected  future cash flows. A range was estimated for the
amount  and  timing  of  possible  cash  flows,  and the probability of possible
outcomes  was  considered in determining the best estimate of future cash flows.

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

     While  the  Company  continues  to  evaluate  opportunities  for  raising
additional  capital,  the Company is limiting development and marketing expenses
of  LiquidMarketplace  products.  The Company is also evaluating other prospects
with  compatible  technology  companies.  There is no guarantee that the Company
will  generate  significant  revenue  from  LiquidMarketplace  products,  and
therefore,  there  is  an  uncertainty  of  the  continuing  value  of goodwill.

     The  Company  incurred  a  $495,671  impairment  of fixed assets in the six
months  ended July 31, 2001. The Company closed its Washington facilities during
the  six  months  ended  July  31,  2001,  and  determined that the property and
equipment  did  not  continue  to  carry the value originally anticipated.  As a
result, and in accordance with Statement of Financial Accounting Standard (SFAS)
No.  121,  the  assets were reduced to their net realizable value, less costs of
disposal.  The  related  expense  is  included  in  research  and  development.

INTANGIBLE  ASSETS

     Intangible assets, principally goodwill, are amortized on the straight-line
method  over  a  period  of  three  years. Goodwill represents the excess of the
purchase  price paid over the fair value of tangible and identifiable intangible
net  assets  acquired.  The  Company  regularly assesses the carrying amounts of
intangible  assets  for impairment when operating profit (loss) from the related
business  indicates  the  carrying amounts of the assets may not be recoverable.
Carrying  values  are  reviewed  for  impairment  whenever  events or changes in
circumstances indicate that the carrying amounts of intangible assets may not be
recoverable.  As  such,  an  adjustment  of  $4,078,872  was made to goodwill to
recognize  the  loss  on impairment of goodwill during the six months ended July
31,  2001.


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


STOCK-BASED  COMPENSATION

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

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

2.   ACQUISITION  OF  CERTAIN  ASSETS  OF  NETCEL360

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

     The  NetCel360  Corporations  are  pan-Asian  providers of Business Process
Outsourcing  (BPO)  and  distribution  services,  including BPO services such as
payroll  and  financial  services,  customer  relationship  management (CRM) and
supply  chain  management  (SCM),  and  distribution  services such as sales and
marketing  services,  market  research  and  operations  solutions.  The Company
intends  to  continue the NetCel360 Corporations' business activities. (See Note
3.  -  Convertible  Notes  Payable  and  Note  4.  Investor  Warrants)

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


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

<TABLE>
<CAPTION>
                                                        July 31, 2001         July 31, 2000
                                                     --------------------  --------------------
                                                        (in thousands, except per share data)
                                                     --------------------  --------------------
<S>                                                  <C>                   <C>
Net revenue                                          $           2,589.6   $           3,546.5

Net loss                                             $         (21,003.9)  $         (17,722.4)

Net loss available to common shareholders            $         (23,099.3)  $         (24,590.8)

Weighted shares used in computing per share amounts           21,296,884            18,600,410

Net loss per share                                   $             (1.08)  $             (1.32)
</TABLE>



3.   CONVERTIBLE  NOTES  PAYABLE

Bridge  Loan  Financing

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

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

Series  A  Convertible  Notes

Under  the  Convertible  Note  Purchase Agreement, the Company issued a total of
$4.56  million of Series A Convertible Notes, consisting of  $3.3 million of new
funding  and  approximately  $1.26  million  of  principal  and accrued interest
converted from the Bridge Loan (see above).  For a period of 120 days after June
25,  2001,  the  Company  may issue up to an additional $6.8 million of Series A
Convertible  Notes.  The  Series  A Convertible Notes bear interest at 10.0% per
annum  and  mature,  unless otherwise paid or discharged, on June 30, 2003.  The
Series  A  Convertible Notes may not be repaid until all amounts owing under the
Bridge  Loan  have  been  repaid  in  full.  The  Series A Convertible Notes are
convertible,  at  the  holder's  option,  into  a number of shares of Series 3-A
Convertible  Preferred  Stock  equal  to  the  outstanding principal and accrued
interest  of  the  Series  A  Convertible  Notes divided by $60.  The Series 3-A
Convertible  Preferred  Stock will be junior to the Company's outstanding Series
1-A  and  Series 2-A Convertible Preferred Stock in liquidation preference.  The
foregoing  description  of  the  Series  A Convertible Notes is qualified in its
entirety by (a) the Convertible Note Purchase Agreement dated June 25, 2001 (the
"Convertible  Note  Purchase  Agreement")  among the Company, NetCel360.com Ltd,
NetCel360 Sdn Bhd., and the Purchasers named therein, and (b) the Certificate of
Designation  of  the  Company's  Series 3-A Convertible Preferred Stock, each of
which  have  been  filed  as  Exhibits  to  a  Current  Report  on  Form  8-K.


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

Series  B  Exchangeable  Notes

     On  July  12,  2001,  the  Company  issued  approximately  $4.25 million in
principal amount of Series B Exchangeable Notes pursuant to an Exchangeable Note
and  Warrant  Purchase Agreement.  The Series B Exchangeable Notes bear interest
at  10%  per  annum and mature, unless otherwise paid or discharged, on June 30,
2003.  The  Company  may  only  use  the proceeds from the Series B Exchangeable
Notes  to  post  a  deposit  (the  "Deposit")  with a commercial bank which will
support  a  letter of credit (the "Letter of Credit") for Gateway Manufacturing,
Inc.  ("Gateway")  under  the  Reseller  Agreement, to otherwise provide certain
types  of credit support for the benefit of Gateway under the Reseller Agreement
or  to  pay  fees  and  expenses relating to the Series B Exchangeable Notes and
warrants,  the letter of credit for Gateway or other credit support.  The Series
B  Exchangeable Notes must be repaid if and to the extent that: (i) the proceeds
from  the  sale  of  the  Series B Exchangeable Notes and warrants are no longer
needed  for  credit support under the Reseller Agreement with Gateway (including
if  the  Deposit  is  no  longer  required  as  a  result  of the termination or
expiration  of  the Reseller Agreement); or (ii) the Company raises more than $6
million  as  a result of (x) the issuance and sale of Series A Convertible Notes
for  cash  or (y) the offering by the Company of common stock by way of a rights
offering  to  its  stockholders or sales of Series A Convertible Notes, in which
case  the  amount  in  excess  of  $6 million will be used to repay the Series B
Exchangeable Notes. The Company has signed a memorandum of understanding with an
affiliate  of  Gateway  which  provides  for, inter alia, the termination of the
Reseller  Agreement upon execution of a definitive agreement to provide warranty
support  services to Gateway and its affiliates. Under the terms of the Reseller
Agreement,  termination thereof would result in the termination of the letter of
credit  for  Gateway,  which  would  result  in  the  release of the Deposit for
repayment  to  holders  of  the  Series  B  Exchangeable  Notes  (See Note 10. -
Subsequent  Events).


     If a Series B Exchangeable Note is not paid in full on or prior to February
15,  2002,  then,  at any time thereafter, the holder may at its option exchange
the  note,  in  whole  or in part, for a Series A Convertible Note. In the event
that  the  issuer  of  the  Letter of Credit withdraws funds from the Deposit to
reimburse  a  draw  on the Letter of Credit, and those funds are not replaced by
the Company within three business days, then a portion of each holder's Series B
Exchangeable  Note  equal  to  the  holder's  pro  rata  portion of unreimbursed
withdrawal  will  be  automatically exchanged for a Series A Convertible Note of
equal  principal  amount.  The  exchanged  portion  of  the  holder's  Series  B
Exchangeable  Note  will  then  be  cancelled.  The foregoing description of the
Series B Exchangeable Notes is qualified in its entirety by (1) the Exchangeable
Note  and  Warrant  Purchase  Agreement,  dated July 12, 2001 among the Company,
NetCel360.com  Ltd., NetCel360 Sdn Bhd., and the Purchasers named therein, which
has  been  filed  as  an Exhibit to the Quarterly Report on Form 10-Q containing
these  Notes,  and  (b)  the  Certificate  of  Designation  of  the  Series  3-A
Convertible Preferred Stock and the Convertible Note Purchase Agreement, each of
which  have  been  filed  as  Exhibits  to  a  Current  Report  on  Form  8-K.

     In  connection  with  the sales of Series A Convertible Notes, the Series B
Exchangeable  Notes  and  the  warrants,  the  Company  agreed to use reasonable
efforts  to  obtain  stockholder  approval  of  the  issuance  of  shares of the
Company's  common  stock upon conversion of the Series 3-A Convertible Preferred
Stock.  The Company intends to ask its shareholders to approve issuance of these
shares  to  the  holders  of  Series 3-A Convertible Preferred Stock that may be
issued  pursuant  to the conversion of Series A Convertible Notes, including any
Series  A  Convertible Notes issued in exchange for Series B Exchangeable Notes,
at  the  Company's  annual  meeting of shareholders to be held in November 2001.

     After  obtaining  any  necessary  shareholder  approvals,  the  Series  3-A
Convertible  Preferred  Stock  will be convertible, at the holder's option, into
shares  of  common  stock  of  the Company. The number of shares of common stock
issued  upon conversion is determined by dividing the sum of $60 and all accrued
and  unpaid dividends on the Series 3-A Convertible Preferred Stock by $0.10. If
the necessary steps are not taken to allow such conversion by February 15, 2002,
then  the  Series  3-A  Convertible  Preferred  Stock will be redeemable, at the
option  of the holder or the Company, for a price per share equal to the greater
of  (i) three times the sum of $60 plus all accrued and unpaid dividends on each
share  and  (ii)  the  fair  market value, not to exceed $0.35 per share, of the
common  stock  into  which  the  Series  3-A  Convertible  Preferred  Stock  is
convertible.

     In  conjunction  with  the  assumption of the Bridge Loan, the sales of the
Series A Convertible Notes and the Series B Exchangeable Notes, and the issuance
of  warrants  under  the  Exchangeable  Note  and  Warrant  Purchase  Agreement
(described below), the Company recorded a beneficial conversion feature totaling
$9,221,162  as  additional  paid in capital as related to preferred stock during
the  three  months  ended  July  31, 2001.  Of this amount $618,356 was expensed
during  the  period  and  $8,602,806  was  recorded  as  an  offset to the debt.


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

4.   INVESTOR  WARRANTS

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

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

     In  connection  with  the  sales of the Series B Exchangeable Notes and the
warrants, the Company agreed to use its reasonable efforts to obtain stockholder
approval  of  the  issuance  of common stock upon exercise of the warrants.  The
Company  intends  to ask its shareholders to approve issuance of these shares to
the  holders  of the warrants at the Company's annual meeting of shareholders to
be  held  in  November  2001.

     The  foregoing  description of the warrants is qualified in its entirety by
the Exchangeable Note and Warrant Purchase Agreement, which has been filed as an
Exhibit  to  the  Quarterly  Report  on  Form  10-Q  containing  these  Notes.


5.   NOTES  RECEIVABLE  -  RELATED  PARTIES

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

     Certain  of  these  notes,  with an aggregate principal amount of $178,798,
were  issued  to  the  Company  in connection with the exercise of 636,100 stock
options  in  May 1999 by Robert McShirley, Richard McShirley and Mr. Bradt, each
of  whom  resigned  from  the Company in February or March 2001.  As of July 31,
2001,  unsecured  notes  of  Richard McShirley and Mr. Bradt, totaling $110,634,
remained  outstanding.  These  notes,  which  bear  interest at a rate of 6% per
annum,  are  due  on  demand.

     Additional  notes,  with  an  aggregate principal amount of  $248,000, were
issued  to  the  Company  in  September  2000 in connection with the issuance of
19,501  shares  of  Series  2-A  Convertible Preferred Stock to each of Sandford
Waddell,  the  Company's  Chief  Financial  Officer,  and  P.  Scott Turner, the
Company's former Chief Operating Officer.  These notes are secured by the shares
of related stock and, when originally issued, bore interest at an annual rate of
8%.  The  total  outstanding  principal balance of Mr. Waddell's note at January
31,  2001,  was  $124,000,  and  the  total outstanding principal balance of Mr.
Turner's  note  at  January 31, 2001, was $124,000.   These notes were accounted
for  as  options,  with  a  total  of $154,642 non-cash compensation recorded as
expense  in  the  three  months  ended  October  31,  2000.


                                       16
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2001

     On March 8, 2001, in connection with Mr. Turner's resignation, the terms of
Mr.  Turner's  note  were revised to change the maturity date from September 18,
2003,  to  90  days  from  his last day of employment and to limit the Company's
recourse  solely  to  the  shares  of Series 2-A Convertible Preferred Stock and
related  warrants securing Mr. Turner's obligations under his note. In addition,
this  note  was  combined  with  another  note  in  principal  amount of $50,000
representing  amounts  borrowed  from the Company in October 2000 and originally
subject  to  a  two-year  promissory  note due on October 12, 2002, also bearing
interest  at  a  rate  of  8%  per annum. On June 28, 2001, the Company demanded
payment  in  full  on  the  combined note, and, thereafter, exercised its rights
against  the collateral securing Mr. Turner's obligations and took possession of
the  Series 2-A Convertible Preferred Stock and warrants which secured the note.
As  of July 31, 2001, there was no remaining balance on the combined note of Mr.
Turner.

     On July 6, 2001, the terms of Mr. Waddell's note were revised to change the
maturity  date  from  September  18,  2003,  to  July  6, 2002, and to limit the
Company's  recourse  solely  to  the  shares of Series 2-A Convertible Preferred
Stock securing Mr. Waddell's obligations under his note. As of July 31, 2001 the
outstanding  balance  of  Mr.  Waddell's  note  was  $124,000.

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


6.   PREFERRED  STOCK

     As  noted  in  Note 1, the Company's Series 1-A Convertible Preferred Stock
and  Series 2-A Convertible Preferred Stock were reclassified from shareholders'
deficit  to  a  separate  equity  category between liabilities and shareholders'
deficit as of July 31, 2001.  All paid-in capital from the beneficial conversion
feature related to these securities was also reclassified to the preferred stock
category.  Preferred  stock  and  associated  additional  paid-in  capital as of
January  31,  2001  was  shown  on  a  similar  reclassified  basis.

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

     In  conjunction  with  the  sale of Series A Convertible Notes and Series B
Exchangeable  Notes,  and  with  the issuance of warrants under the Exchangeable
Note and Warrant Purchase Agreement, all of which are convertible or exercisable
at  less  than  the  conversion  or exercise price of the Series 2-A Convertible
Preferred Stock, a beneficial conversion feature charge was taken, in the amount
of  the net proceeds of Series 2-A financing, the maximum amount of a beneficial
conversion  feature  charge.


                                       17
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2001

7.   SHAREHOLDERS'  DEFICIT

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

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

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

     As  of  July  31,  2001  there  were  21,260,389 common shares outstanding,
including  the yet unconverted common shares of Online Transaction Technologies,
Inc.  There were also 1,703,741 shares of Series 1-A Convertible Preferred Stock
and 1,330,675 shares of Series 2-A Convertible Preferred Stock outstanding as of
this  date.  If  all  outstanding  convertible  debt,  warrants, and options are
converted  to  common  stock,  and  if  all  currently  outstanding  convertible
preferred  stock  is  converted in accordance with the anti-dilution features of
those securities, the Company estimates that approximately 160 million shares of
common  stock  would  be  outstanding.  Although this number exceeds the current
authorized  limit  of  100 million shares of common stock, most of the potential
increase is based on convertible note conversions and warrant exercises that are
contingent  upon  shareholder  approval  of  either  (i) a 1:15 reverse split of
outstanding  common  stock  and  a  subsequent  increase of authorized shares of
common stock to 200 million or (ii) no reverse split of outstanding common stock
and  a  subsequent increase of authorized shares of common stock to 500 million.


8.     NET  LOSS  AVAILABLE  TO  SHAREHOLDERS

     Basic  earnings  per  share  excludes  dilution and is computed by dividing
income  available  to  common shareholders by the weighted average common shares
outstanding  for  the  period. The loss available to common shareholders for the
six months ended July 31, 2001 and 2000 is the net loss for the period, adjusted
for  deemed  non-cash  dividends  on  preferred  stock.

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

<TABLE>
<CAPTION>
                                                                2001           2000
                                                           --------------  -------------
<S>                                                        <C>             <C>
Net loss                                                   $ (11,616,552)  $(12,699,495)

Less - deemed non-cash dividend to preferred shareholders
                                                            (  2,095,428)    (6,868,397)
                                                           --------------  -------------

Net loss available to common shareholders                  $ (13,711,980)  $(19,567,892)
                                                           ==============  =============
</TABLE>


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


                                       18
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2001

9.   COMMITMENTS  AND  CONTINGENCIES

     -    LEASES

     The  Company  leases  its  main  office  facilities  under a noncancellable
operating  lease  agreement expiring March 31, 2002. The Company leases a second
facility in Bothell, Washington, under a noncancellable operating lease expiring
October  31,  2002  and  a  third  facility  in Los Angeles, California, under a
noncancellable  operating  lease expiring April 6, 2002. Although the Company is
in  the  process  of  finding a sub-lessee to assume its obligations under these
leases,  the  estimated  liability  for  the  full  terms  is  included  below.

     Upon  the  acquisition of the NetCel360 Corporations, the Company also took
over  noncancellable  operating  leases  in  Kuala Lumpur, Malaysia (expiring on
March  9,  2003), San Diego, California (expiring on January 13, 2004), and Hong
Kong  (expiring  on  August  31,  2002).  NetCel360  (Singapore)  Pte  Ltd,  the
Company's  wholly  owned  subsidiary  in Singapore, leases its office facilities
under  a month-to-month lease.  The Company also took over an operating lease in
Tokyo,  Japan,  as to which the Company has notified the landlord, in accordance
with  the  terms of the lease agreement, of its intention to terminate the lease
agreement  effective  November  12,  2001.

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

                         2001       $  538,020
                         2002          816,873
                         2003          146,703
                                    ----------
                                    $1,501,596
                                    ==========

     -    LEGAL

     None.


10.  SUBSEQUENT  EVENTS


     The  Company  received earlier correspondence from the Nasdaq Stock Market,
Inc.  ("Nasdaq") of its determination that Vsource had failed to comply with the
requirement  that  its  minimum bid price be higher than $1.00 for the continued
listing  of  its  shares  of  Common  Stock on the Nasdaq National Market System
("Nasdaq  NMS")  and was subject to delisting from the Nasdaq NMS at the opening
of business on August 1, 2001. The Company's oral hearing (the "Hearing") before
a  Nasdaq  Listing  Qualifications  Panel  (the  "Panel")  to  appeal  Nasdaq's
determination  was held on September 28, 2001. The Company was informed that the
Panel  will  render  its  decision within 30 days after the hearing. Pending the
Panel's  decision, there will be a stay on the delisting of the Common Stock. On
August 9, 2001, the Company received a letter from Nasdaq requesting that at the
Hearing,  the  Company also address Nasdaq's determinations that (i) the Company
failed  to  meet  Nasdaq's  minimum stockholders' equity and net tangible assets
requirements,  and  (ii)  the  Acquisition  constituted a reverse merger and the
Company  had  therefore  failed to submit an application for listing and to meet
all initial inclusion requirements for a listing on the Nasdaq NMS. (See Note 1)

     At the Hearing, the Company presented a plan for addressing the minimum bid
price  requirement,  which may include a reverse split of the outstanding shares
of  common  stock of the Company, subject to approval of its stockholders at the
upcoming  annual stockholders meeting in November 2001. In addition, the Company
addressed  the  other points raised by Nasdaq in their letter of August 9, 2001.
There  can  be no assurance that the Company will be successful in any or all of
these  matters.  See "Risks Related to the Company's Business-We may not be able
to  maintain  our  listing  on  a  major  stock  market."


                                       19
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2001

     On  September  26,  2001,  the  Company  announced  that  it  had entered a
non-binding  memorandum  of understanding with an affiliate of Gateway Inc. that
appoints  the Company as the exclusive service and support provider for existing
Gateway  customers  in  Hong  Kong,  Malaysia,  Singapore, Japan, Australia, New
Zealand,  and other Asia-Pacific countries. Gateway had announced in August 2001
that  it would close all of its company-owned operations in these countries. The
services, which are expected to begin on Nov. 1, 2001, will have a term of three
years.  In  addition, following Gateway's announcements regarding the closure of
its  operations  in  the  Asia-Pacific  region, the Company, which was Gateway's
exclusive  reseller  in  Hong  Kong  and  Singapore, halted all sales of Gateway
products  in  those  markets. Along with closing Gateway stores in Hong Kong and
Singapore,  the  Company  has  reassigned  or  reduced staff associated with its
reseller  operations.  Gateway  has  notified  the  Company  that  it  wishes to
terminate their reseller agreement. The Company and Gateway have agreed in their
memorandum  of  understanding that upon executing the definitive agreement, they
will  terminate  the  reseller  agreement and release each other from all claims
arising  from  the  termination  of  the  reseller  agreement. The memorandum of
understanding is subject to negotiation and execution of a definitive agreement.
There  can  be  no assurance that such definitive agreement will be successfully
negotiated  or executed, or that if executed will have terms consistent with the
memorandum  of  understanding  or  will  be favorable to the Company. See "Risks
Related  to  the Company's Business--We expect to generate a substantial part of
our  revenues  from  one  client."

     The  Company  has  received  letters  from Nasdaq stating, inter alia, that
Nasdaq  has determined that the Company's acquisition of Netcel360 constituted a
reverse merger. The Company disagrees with Nasdaq's determination and has made a
submission  to  Nasdaq  refuting  this determination. The Company's oral hearing
before a Nasdaq Listing Qualifications Panel (the "Panel") was held on September
28,  2001  to,  inter  alia, appeal this determination. The Company was informed
that the Panel will render its decision within 30 days after the hearing.


11.  SEGMENT  DATA

     Prior  to the second quarter of this year, the Company did not have segment
reporting  as  they were in the process of developing and selling one technology
product.  Subsequent  to  the  first  quarter  filing,  the  Company  acquired
Netcel360,  which has reportable segments.  All of the Company's material assets
reside  in Asia and primarily all of the revenues of the Company were derived in
Asia.

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

The  following  table  sets  forth summary information by segment (in thousands)

<TABLE>
<CAPTION>
                             Three months to    Six months to
                              July 31,2001      July 31,2001
                            -----------------  ---------------
<S>                         <C>                <C>
Revenue
    Financial Services      $           20.6   $         20.6
    CRM                     $          128.5   $        128.5
    SCM                     $           28.2   $         28.2
    Professional Services   $          104.5   $        104.5
    Distribution Services   $          864.2   $        864.2
     Other                            ($10.7)  $          2.0
                            -----------------  ---------------
Total                       $        1,135.3   $      1,148.0
                            =================  ===============


                                       20
<PAGE>
Net Loss before Taxes
    Financial Services               ($436.5)         ($436.5)
    CRM                              ($202.3)         ($202.3)
    SCM                               ($72.4)          ($72.4)
    Professional Services            ($292.6)         ($292.6)
    Distribution Services            ($212.8)         ($212.8)
    Corporate  Expenses            ($3,313.4)       ($6,317.4)
    Impairment of goodwill         ($1,940.8)       ($4,078.9)
                            -----------------  ---------------
Total                              ($6,470.8)      ($11,612.9)
                            =================  ===============
</TABLE>


                                       21
<PAGE>
                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2001

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

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

FORWARD  LOOKING  STATEMENTS

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

OVERVIEW

     We are a provider of business process outsourcing and distribution services
to  companies,  including Fortune 500 and Global 500 companies, operating across
multiple  markets in the Asia-Pacific region. We offer sophisticated outsourcing
systems  and  solutions,  along with core administrative, sales and distribution
functions.  We  help our clients to minimize the costs and complexities of doing
business  in  Asia-Pacific  across  the  multiplicity of cultural and regulatory
factors  that  exist  in  these  markets.

          Our  suite  of  services  includes:

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

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

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

RECENT  EVENTS

     On  June  22,  2001,  we  purchased  substantially  all  of the assets (the
"Acquisition")  of  NetCel360 Holdings Limited (the "Seller"), including 100% of
the  capital  stock  of Vsource (CI) Ltd (formerly NetCel360.com Ltd), NetCel360
Hong  Kong  Limited, NetCel360 Sdn Bhd., NetCel360 (Singapore) Pte Ltd (formerly
known  as  Yalry  Investments  Pte  Ltd),  Vsource (USA) Inc. (formerly known as
NetCel360  (USA)  Inc.)  and Vsource (Japan) Limited (formerly NetCel360 (Japan)
Limited), in exchange for up to 3,709,699 shares of common stock of the Company.
Of  this  amount,  2,774,213 shares were issued at the closing and the remaining


                                       22
<PAGE>
935,486  shares  will  be issued to the Seller six months following the closing,
subject  to  hold  back  of  shares  to  satisfy  the  Seller's  indemnification
obligations  under  the  Acquisition Agreement dated May 24, 2001 between us and
the Seller, as amended by the Amendment to Acquisition Agreement, dated June 22,
2001  (the "Acquisition Agreement").  The purchase was completed pursuant to the
Acquisition  Agreement.  The purchase price was based on negotiations between us
and  the  Seller.  The  foregoing description of the Acquisition is qualified in
its entirety by the Acquisition Agreement, which has been filed as an Exhibit to
a Current Report on Form 8-K.

     On  July  24,  2001,  we  announced  that we had received a notice from the
Nasdaq Stock Market, Inc. ("Nasdaq'') of its determination that we had failed to
comply  with the requirement that our minimum bid price be higher than $1.00 for
the  continued  listing  of  its  shares  of Common Stock on the Nasdaq National
Market  System  ("Nasdaq  NMS"),  as  set forth in Nasdaq's Marketplace Rule No.
4450(a)(5).  Pursuant  to  Marketplace  Rule No. 4310(c)(8)(B). We were notified
that  our  common stock would be subject to delisting from the Nasdaq NMS at the
opening  of  business  on  August  1, 2001. (See Notes to Consolidated Financial
Statements  -  Note  10  Subsequent  Events)

     In  accordance  with Nasdaq's Marketplace Rule No. 4815(b), we requested an
oral  hearing  before  a  Nasdaq Listing Qualifications Panel to appeal Nasdaq's
determination.  Such  hearing  was  held on September 28, 2001. We were informed
that the Panel will render its decision within 30 days after the hearing. Nasdaq
advised  us  that,  pending  the  Panel's  decision, there will be a stay on the
delisting  of  our  Common  Stock.

     On  August 9, 2001, we received a letter from Nasdaq requesting that at the
hearing,  we  also  address  Nasdaq's  determinations that we had failed to meet
Nasdaq's  minimum stockholders' equity and net tangible assets requirements, and
that our acquisition of the assets of NetCel360 constituted a reverse merger and
we  had  therefore  failed  to submit an application for listing and to meet all
initial  inclusion  requirements  for  a  listing on the Nasdaq NMS. At the oral
hearing,  we  presented a plan for addressing the minimum bid price requirement,
which may include a reverse split of the outstanding shares of our common stock,
subject  to  approval  of  our  stockholders at the upcoming annual stockholders
meeting  in  November 2001. In addition, we addressed the other points raised by
Nasdaq.  There  can  be no assurance that we will be successful in any or all of
these  matters.  See "Risks Related to the Company's Business-We may not be able
to  maintain  our  listing  on  a  major  stock  market."


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

      Revenues  for the three months ended July 31, 2001 increased to $1,135,306
from  $62,500  for  the  three  months  ended  July  31,  2000,  an  increase of
$1,072,806,  or 1716.5%. Revenues increased primarily because of the acquisition
of  assets of NetCel360 Holdings Limited ("NetCel360") on June 22, 2001, and the
resultant  revenues  generated from its operations. There was little revenue for
the  three  months  ended  July  31, 2000, because in the year ended January 31,
2000,  we  had ceased our sales of subscriptions to the software version of VSN.

COST  OF  SALES

     Cost  of  sales  for  the  three  months  ended  July 31, 2001 increased to
$1,382,795  from no cost of sales for the three months ended July 31, 2000. This
increase  was due primarily because of the acquisition of assets of NetCel360 on
June  22,  2001,  and  the  resultant  costs incurred in relation to sales. This
expense  was  high  due  to the start-up phase of operations of the subsidiaries
acquired  from  NetCel360.

SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES

     Selling,  general  and  administrative expenses decreased to $2,791,123 for
the  three months ended July 31, 2001 from $4,080,439 for the three months ended
July  31,  2000,  a  decrease  of  $1,289,316, or 31.6%. The decrease was due to
decreases  in  advertising,  marketing,  personnel, payroll, rent and travel and
decreases  in  the  expenses  related to the product implementation of VSN. Also
included  is  a  substantial  decrease  in  the  recognition  of  stock-based
compensation.


                                       23
<PAGE>
RESEARCH  AND  DEVELOPMENT

     Research  and  development  expenses  decreased  to  $729,387 for the three
months  ended  July 31, 2001 from $2,890,584 for the three months ended July 31,
2000,  a  decrease  of  $2,161,197  or  74.8%. The decrease was primarily due to
decreased  costs  associated with the development of the Internet version of VSN
electronic  purchasing  system. Such decreased costs include decreased personnel
and  personnel-related  expenses,  decreased  overhead,  as  well  as  decreased
licensing  fees  for  development-related  tools  and  systems and a substantial
decrease  in  the  recognition  of  stock-based  compensation.

LOSS  ON  IMPAIRMENT  OF  GOODWILL

     A  loss  on  impairment of goodwill of $1,940,853 was incurred in the three
months ended July 31, 2001. No such impairment was incurred for the three months
ended  July  31,  2000.  During  the  three month period ended July 31, 2001, we
evaluated  its  long-lived assets by measuring the carrying amount of the assets
against  the  estimated  undiscounted future cash flows associated with them. We
determined  that  goodwill  did  not  continue  to  carry  the  value originally
anticipated.  As  a  result,  and  in  accordance  with  Statement  of Financial
Accounting  Standard  (SFAS)  No.  121,  the  assets  were  reduced to their net
realizable  value.

LOSS  FROM  OPERATIONS

     The  loss from operations of $5,708,852 for the three months ended July 31,
2001  decreased  from  a  loss of $6,908,523 for the three months ended July 31,
2000,  a  decrease  of  $1,199,671,  or 17.4%. The loss decreased because of the
acquisition  of  assets  of NetCel360 Holdings Limited ("NetCel360") on June 22,
2001, and the resultant revenues generated from its operations. Also, because of
decreased  costs  by  limiting  development  and  marketing  expenses related to
LiquidMarketplace  and  the  Internet  version  of VSN, and due to a substantial
decrease  in  the  recognition  of  stock-based  compensation.

INTEREST  EXPENSE

     Interest  expense increased to $802,112 for the three months ended July 31,
2001  from  $3,698  for  the  three  months  ended July 31, 2000, an increase of
$798,414,  or  21590.4%.  The  increase  was  due  primarily  to the increase in
interest  expenses  related  to the convertible notes payable. Of this increase,
$618,356  was  in  conjunction with the recognition of the beneficial conversion
feature  on  convertible  debt.

OTHER  INCOME

     Other  income increased to $40,201 for the three months ended July 31, 2001
from  $21,180  for the three months ended July 31, 2000, an increase of $19,021,
or  89.8%.  The  increase  was due primarily to the increase in cash in interest
bearing  accounts.

NET  LOSS  BEFORE  TAXES

     The net loss before taxes of $6,470,763 for the three months ended July 31,
2001  decreased  from  $6,891,041  for  the  three months ended July 31, 2000, a
decrease  of $420,278, or 6.1%. This decrease was a result of the acquisition of
assets  of  NetCel360  Holdings  Limited ("NetCel360") on June 22, 2001, and the
resultant  revenues generated from its operations, the decrease in both research
and  development  and  selling, general and administrative expenses, including a
substantial  decrease  in  the  recognition of stock-based compensation, and the
recognition  of  the  loss  on  impairment  of  goodwill  of  $1,940,853.


                                       24
<PAGE>
PROVISION  FOR  INCOME  TAXES

     There  was  a  write back on the provision for income taxes of $863 for the
three  months  ended  July  31,  2001 compared to no tax provision for the three
months  ended July 31, 2000. The change to the provision was due to a refund due
on  income  taxes.

NET  LOSS

     The  net  loss  of  $6,469,900  for  the  three  months ended July 31, 2001
decreased  from  $6,891,041 for the three months ended July 31, 2000, a decrease
of $421,141, or 6.1%. This decrease was a result of the acquisition of assets of
NetCel360  Holdings  Limited  ("NetCel360")  on June 22, 2001, and the resultant
revenues  generated  from  its  operations,  the  decrease  in both research and
development  and  selling,  general  and  administrative  expenses,  including a
substantial  decrease  in  the  recognition  of stock-based compensation and the
recognition  of  impairment  of  goodwill.

BASIC  WEIGHTED  AVERAGE  NUMBER  OF  COMMON  SHARES  OUTSTANDING

     The  weighted  average  number of common shares of 19,576,287 for the three
months  ended July 31, 2001 increased from 15,844,809 for the three months ended
July  31, 2000, an increase of 3,731,478 shares, or 23.6%. The increase resulted
primarily  from  issuing  695,303  shares  upon  exercise  of  stock options and
warrants,  65,654 shares upon conversion of convertible demand notes, the return
of  300,000  shares  from  shareholders,  the  conversion of 1,420,409 shares of
preferred  stock  and  the  issuance  of  1,089,389  shares  in  relation to the
acquisition  of  OTT  and  the  issuance  of 2,774,213 shares in relation to the
acquisition  of  the  assets  of  NetCel360.

NET  LOSS  PER  COMMON  SHARE-BASIC  AND  DILUTED

     The  net  loss  per common share of ($0.44) for the three months ended July
31,  2001  remained  even  with the net loss per common share of ($0.44) for the
three  months  ended July 31, 2000. This unchanged condition was a result of the
acquisition  of  assets  of NetCel360 Holdings Limited ("NetCel360") on June 22,
2001,  and  the  resultant revenues generated from its operations, the decreased
net  loss  for  the  quarter,  and  the  $2,095,428  non-cash deemed dividend to
preferred  shareholders,  (see  Notes to Consolidated Financial Statements- Note
8),  partially  offset  by  the  increase in the weighted average of outstanding
common  shares  of  3,731,478,  as  noted  above.

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

      Revenues  for  the  six months ended July 31, 2001 increased to $1,148,026
from  $62,500 for the six months ended July 31, 2000, an increase of $1,085,526,
or 1736.8%. Revenues increased primarily because of the acquisition of assets of
NetCel360  Holdings  Limited  ("NetCel360")  on June 22, 2001, and the resultant
revenues  generated  from  its  operations. There was little revenue for the six
months  ended  July 31, 2000, because in the year ended January 31, 2000, we had
ceased  our  sales  of  subscriptions  to  the  software  version  of  VSN.

COST  OF  SALES

     Cost  of  sales  for  the  six  months  ended  July  31,  2001 increased to
$1,382,795  from  no  cost of sales for the six months ended July 31, 2000. This
increase  was due primarily because of the acquisition of assets of NetCel360 on
June  22,  2001,  and  the  resultant  costs incurred in relation to sales. This
expense  was  high  due  to the start-up phase of operations of the subsidiaries
acquired  from  NetCel360.

SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES

     Selling,  general  and  administrative expenses decreased to $3,530,743 for
the six months ended July 31, 2001 from $7,729,239 for the six months ended July
31,  2000, a decrease of $4,198,496, or 54.3%. The decrease was due to decreases
in  advertising, marketing, personnel, payroll, rent and travel and decreases in
the expenses related to the product implementation of VSN. Also, the included is
a  substantial  decrease  in  the  recognition  of  stock-based  compensation.


                                       25
<PAGE>
RESEARCH  AND  DEVELOPMENT

     Research  and  development  expenses  decreased  to  $3,041,665 for the six
months  ended  July  31,  2001 from $5,083,338 for the six months ended July 31,
2000,  a  decrease  of  $2,041,673  or  40.2%. The decrease was primarily due to
decreased  costs  associated with the development of the Internet version of VSN
electronic  purchasing  system. Such decreased costs include decreased personnel
and  personnel-related  expenses,  decreased  overhead,  as  well  as  decreased
licensing  fees  for  development-related  tools  and  systems and a substantial
decrease  in  the  recognition  of  stock-based  compensation.

LOSS  ON  IMPAIRMENT  OF  GOODWILL

     A  loss  on  impairment  of  goodwill of $4,078,872 was incurred in the six
months  ended  July 31, 2001. No such impairment was incurred for the six months
ended  July  31,  2000.  During  the  six  month  period ended July 31, 2001, we
evaluated  its  goodwill  by measuring the carrying amount of the assets against
the estimated undiscounted future cash flows associated with them. We determined
that  goodwill did not continue to carry the value originally anticipated.  As a
result, and in accordance with Statement of Financial Accounting Standard (SFAS)
No.  121,  the  assets  were  reduced  to  their  net  realizable  value.

LOSS  FROM  OPERATIONS

     The  loss  from operations of $10,886,049 for the six months ended July 31,
2001  decreased  from  a  loss  of $12,750,077 for the six months ended July 31,
2000,  a  decrease  of  $1,864,028,  or 14.6%. The loss decreased because of the
acquisition  of  assets  of NetCel360 Holdings Limited ("NetCel360") on June 22,
2001, and the resultant revenues generated from its operations. Also, because of
decreased  costs  by  limiting  development  and  marketing  expenses related to
LiquidMarketplace  and  the  Internet  version of VSN, a substantial decrease in
the  recognition  of  stock-based  compensation.

OTHER  INCOME

     Other  income  increased  to $75,648 for the six months ended July 31, 2001
from  $59,579 for the six months ended July 31, 2000, an increase of $16,069, or
27.0%.  The  increase  was  due  primarily  to  the increase in cash in interest
bearing  accounts.

INTEREST  EXPENSE

     Interest  expense  increased  to $802,492 for the six months ended July 31,
2001  from  $7,397  for  the  six  months  ended  July  31, 2000, an increase of
$795,095,  or  10748.9%.  The  increase  was  due  primarily  to the increase in
interest  expenses  related to the convertible notes payable.  Of this increase,
$618,356  was  in  conjunction with the recognition of the beneficial conversion
feature  on  convertible  debt.

NET  LOSS  BEFORE  TAXES

     The  net loss before taxes of $11,612,893 for the six months ended July 31,
2001  decreased  from  $12,697,895  for  the  six  months ended July 31, 2000, a
decrease  of  $1,085,002, or 8.5%. This decrease was a result of the acquisition
of  assets of NetCel360 Holdings Limited ("NetCel360") on June 22, 2001, and the
resultant  revenues generated from its operations, the decrease in both research
and  development  and  selling, general and administrative expenses, including a
substantial  decrease  in  the  recognition of stock-based compensation, and the
recognition  of  the  loss  on  impairment  of  goodwill  of  $4,078,872.


                                       26
<PAGE>
PROVISION  FOR  INCOME  TAXES

     The  provision for income taxes of $3,659 for the six months ended July 31,
2001  increased  from $1,600 for the six months ended July 31, 2000, an increase
of  $2,059,  or  128.7%. The increase to the provision was due to an increase in
incorporation  taxes.

NET  LOSS

     The  net  loss  of  $11,616,552  for  the  six  months  ended July 31, 2001
decreased from $12,699,495 for the six months ended July 31, 2000, a decrease of
$1,082,943,  or 8.5%. This decrease was a result of the acquisition of assets of
NetCel360  Holdings  Limited  ("NetCel360")  on June 22, 2001, and the resultant
revenues  generated  from  its  operations,  the  decrease  in both research and
development  and  selling,  general  and  administrative  expenses,  including a
substantial  decrease  in  the  recognition  of  stock-based  compensation,  the
revenues  generated  resulting  from  the  acquisition  of  NetCel360  and  the
recognition  of  the  loss  on  impairment  of  goodwill  of  $4,078,872.

BASIC  WEIGHTED  AVERAGE  NUMBER  OF  COMMON  SHARES  OUTSTANDING

     The  weighted  average  number  of  common shares of 18,979,959 for the six
months  ended  July  31, 2001 increased from 15,826,197 for the six months ended
July  31, 2000, an increase of 3,153,762 shares, or 19.9%. The increase resulted
primarily  from  issuing  695,303  shares  upon  exercise  of  stock options and
warrants,  65,654 shares upon conversion of convertible demand notes, the return
of  300,000  shares  from  shareholders,  the  conversion of 1,420,409 shares of
preferred  stock  and  the  issuance  of  1,089,389  shares  in  relation to the
acquisition  of  OTT  and  the  issuance  of 2,774,213 shares in relation to the
acquisition  of  the  assets  of  NetCel360.

NET  LOSS  PER  COMMON  SHARE  -  BASIC  AND  DILUTED

     The  net loss per common share of ($0.72) for the six months ended July 31,
2001  decreased  from  net  loss  per common share of ($1.24) for the six months
ended July 31, 2000, a decrease of ($0.52), or 42.0%. This decrease was a result
of the acquisition of assets of NetCel360 Holdings Limited ("NetCel360") on June
22,  2001,  and  the  resultant  revenues  generated from its operations, of the
decreased  net  loss  for the six months ended July 31, 2001, the recognition of
impairment  of  goodwill and the decreased non-cash deemed dividend to preferred
shareholders  (see  Notes  to  Consolidated  Financial  Statements  -  Note  8),
partially  offset  by the increase in the weighted average of outstanding common
shares  of  3,153,762,  as  noted  above.

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

CASH

     On  July  31, 2001, cash totaled $2,823,086, down $2,585,176 or 48.0%, from
$5,408,262 at January 31, 2001. This decrease reflects funds used for operations
and  investing  activities,  partially offset by increased financing, during the
six  months  ended  July 31, 2001. The cash has been released from escrow and is
expected  to  be  available  to  the  Company  by  the  end  of  September 2001.

LETTER  OF  CREDIT

     On  July  31,  2001,  a letter of credit was outstanding for $4,000,000, up
from no balance at January 31, 2001. This reflects the posting of a deposit with
a  commercial  bank  for  the  purpose  of opening a standby letter of credit as
required  under  the  reseller  agreement  we  entered  into  with  Gateway
Manufacturing,  Inc.  as  of  July  1,  2001.

CASH  HELD  IN  ESCROW  -  VITRIA

     On  July 31, 2001, cash was held in escrow for $275,000, up from no balance
at  January 31, 2001. The court ordered the cash was to be held for a ninety-day
period  ending  August  31,  2001.  This  was  regarding  a  claim  with  Vitria
Technology,  Inc.,  which was settled during the six months ended July 31, 2001.


                                       27
<PAGE>

ACCOUNTS  RECEIVABLE

     On  July 31, 2001, accounts receivable totaled $1,105,975, up $1,202,033 or
28,619.8%,  from  $4,200  at  January  31, 2001. This reflects that we had begun
generating  revenues  and  receivables through NetCel360 in the six months ended
July  31,  2001.

NOTES  RECEIVABLE  -  RELATED  PARTIES

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

OTHER  RECEIVABLES

     On  July 31, 2001, other receivables totaled $13,251, up from no balance at
January  31,  2001.  This  reflects  miscellaneous  refund and receivable due to
cancellation  of  duplicate  coverage of insurance and other expenses in the six
months  ended  July  31,  2001.

PREPAID  EXPENSES

     On  July  31,  2001,  prepaid expenses totaled $1,108,363, up $1,004,676 or
969.0%,  from  $103,687  at  January 31, 2001.  This increase primarily reflects
accrued  insurance  and other prepaid deposits and fees that will be expensed in
the  next  twelve  months.

TOTAL  CURRENT  ASSETS

     On July 31, 2001, total current assets totaled $9,325,675, up $3,659,526 or
64.6%,  from  $5,666,149  at January 31, 2001.  This increase primarily reflects
the  funds  provided  by borrowing and used for operations during the six months
ended  July  31,  2001.

PROPERTY  AND  EQUIPMENT

     On  July  31,  2001,  fixed  assets  totaled  $ 8,906,375, an increase of $
7,806,747,  or  709.9%,  from  $1,099,628  at  January 31, 2001.   This increase
reflects  the  acquisition  of  assets  from  NetCel360, partially offset by the
adjustment to fixed assets for negative goodwill on the acquisition of NetCel360
and the recognition of loss on equipment and software from the closed facilities
in  Washington  during  the  six  months  ended  July  31,  2001

ACCUMULATED  DEPRECIATION

     On  July  31, 2001, accumulated depreciation totaled $387,091, up $219,808,
or  131.4%,  from  $167,283  at January 31, 2001.  This increase reflects normal
depreciation  expense primarily of the acquired assets from NetCel360, partially
offset  by the write off of equipment and software from the closed facilities in
Washington  for  the  six  months  ended  July  31,  2001.

PROPERTY  AND  EQUIPMENT,  NET

     On  July  31,  2001,  property and equipment, net totaled $ 8,519,284, up $
7,586,939, or  813.7%, from $932,345 at January 31, 2001. This increase reflects
the acquisition of assets from NetCel360, partially offset by the recognition of
loss  on  equipment and software from the closed facilities in Washington during
the  six  months  ended  July  31,  2001.

GOODWILL

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


                                       28
<PAGE>
OTHER  ASSETS

     On  July 31, 2001, other assets totaled $33,463, up $13,904, or 71.1%, from
$19,559  at  January  31, 2001.  This increase reflects an increase in deposits,
partially  offset  by  normal  amortization  expense  and the write off of other
assets  during  the  six  months  ended  July  31,  2001.

TOTAL  ASSETS

     On  July  31,  2001,  total  assets  were  $ 17,878,422, up $ 6,617,506, or
58.8%,  from  $11,260,916  at January 31, 2001. This increase primarily reflects
the letter of credit, the acquisition of assets from NetCel360, partially offset
by  normal depreciation and amortization expenses and funds used for operations,
the  write off of property and equipment, as well as the recognition of the loss
in  impairment  of  goodwill,  during  the  six  months  ended  July  31,  2001.

ACCOUNTS  PAYABLE

     On  July  31,  2001,  accounts  payable  were $1,852,057, up $1,253,340, or
209.3%, from $598,717 at January 31, 2001. This change is primarily a result the
acquisition  of  assets from NetCel360 and the related liabilities for operating
expenses.

ACCRUED  EXPENSES

     On  July 31, 2001, accrued liabilities were $ 3,610,608, up $ 3,298,922, or
1,058.4%,  from  $311,686 at January 31, 2001. This change is primarily a result
the acquisition of assets from NetCel360 and the related liabilities for expense
relating  to  operations.

CONVERTIBLE  NOTES  PAYABLE

     On  July 31, 2001, convertible notes payable were $8,809,556, up $8,809,556
from  no  balance  as of January 31, 2001.  The increase was attributable to the
sales  of  $4,558,056  Series  A  Convertible  Notes in June 2001 and $4,251,500
Series  B  Exchangeable  Notes  in  July  2001.

ACCRUED  CONTINGENT  INTEREST  ON  CONVERTIBLE  DEBT

     On  July  31,  2001,  accrued  contingent  interest on convertible debt was
$8,602,806,  up $8,602,806 from no balance as of January 31, 2001.  The increase
was  attributable to the sale of convertible notes convertible into common stock
at  less  than  market  price  in  the  current  quarter.

NOTES  PAYABLE

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

TOTAL  CURRENT  LIABILITIES

     On  July  31,  2001,  total  current  liabilities totaled $ 7,919,415, up $
7,009,012,  or  769.9%,  from  $910,403  at  January  31,  2001.  This change is
primarily the result of an increase in accounts payable, accrued liabilities and
notes  payable  acquired  in  relation  to  the  acquisition  of  NetCel360  of
$2,250,000,  the  increase  in convertible notes payable of $8,809,556 used as a
source  of  operating funds, partially offset by the accrued contingent interest
on convertible debt of $8,602.806. The funds used for operating expenses was for
marketing,  advertising, legal expenses, wages and related compensation expenses
for  the  six  months  ended  July  31,  2001.


                                       29
<PAGE>
PREFERRED  STOCK  -  SERIES  1-A

     On  July  31,  2001, preferred stock for Series 1-A totaled $4,150,774 down
$1,834,028,  or  30.6%,  from $5,984,802 at January 31, 2001.  This reflects the
exercise  of  the  conversion  feature  of  733,613 shares of preferred stock to
common  stock  for  $1,834,028,  during  the  six  months  ended  July 31, 2001.

PREFERRED  STOCK  -  SERIES  2-A

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

COMMON  STOCK,  $0.01  PAR  VALUE

     On July 31, 2001, common stock totaled $212,604, up $33,215, or 18.5%, from
$179,389 at January 31, 2001. This primarily reflects the issuance of $27,742 of
stock  in  relation to the acquisition of assets of NetCel360, the conversion of
preferred stock to common stock for $7,594 and the exercise of warrants for $879
of common stock, $0.01 par value, partially offset by the cancellation of $3,000
of  common  stock,  during  the  six  months  ended  July  31,  2001.

COMMON  STOCK  ADDITIONAL  PAID-IN-CAPITAL

     On  July  31,  2001, paid-in-capital totaled $64,033,191, up $9,959,696, or
18.4%,  from  $54,073,495  at  January  31,  2001.  This  increase  reflects the
issuance of stock related to the acquisition of assets of NetCel360 of $984,658,
and  the  related beneficial conversion feature of $9,221,162 of the convertible
notes  payable,  as  well  as  the exercise of the conversion feature of 759,352
shares  of  preferred  to  common stock for $1,991,434, and the recognition of a
beneficial conversion feature related to the anti-dilution feature of the Series
2-A preferred stock of $2,095,428.  This is partially offset by the cancellation
of  300,000  shares  for  $96,000,  the  reduction  of  stock  based  deferred
compensation  of  $4,236,107  due  to  expired and forfeited options, and by the
exercise  of warrants for $879 of common stock, during the six months ended July
31,  2001.

DEFERRED  COMPENSATION

     On  July  31, 2001, deferred compensation was $690,432, down $5,114,419, or
88.1%  from $5,804,851 at January 31, 2001. This decrease reflects the reduction
of stock based deferred compensation of $4,236,107, due to expired and forfeited
options,  and  $878,312  of  expense  recognized  for  stock based compensation.

ACCUMULATED  DEFICIT

     On  July  31, 2001, the accumulated deficit was $65,611,530, up $13,711,980
or  22.4% from $51,899,550 at January 31, 2001.    This change resulted from the
net  loss  of $11,516,294 and the recognition of a beneficial conversion feature
related  to  the  anti-dilution  feature of the Series 2-A Convertible Preferred
Stock  of  $2,095,428  during  the  six  months  ended  July  31,  2001.

NOTES  RECEIVABLE  FROM  THE  SALE  OF  STOCK

     On July 31, 2001, notes receivable from the sale of stock totaled $234,634,
down  $192,164  or 45.0%, from $426,798 at January 31, 2001. This amount is used
to  offset  the  balance  in  stockholders' deficit.  Notes received in the year
ended January 31, 2001 for $248,000 were granted in connection with the issuance
of  39,002  shares  of Series 2-A Convertible Preferred Stock, of which $124,000
was  repaid  during  the three months ended July 31, 2001. The note remaining is
secured  by the 19,501 shares of related stock, bears interest at an annual rate
of  8%  and  is  due  on  July  31,  2002.


                                       30
<PAGE>

     Notes  received  prior  to the year ended January 31, 2000 for $110,634 are
receivable  from officers who exercised stock options during a prior period. Our
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  us,  in  the  amount  of  the  purchase.

TOTAL  SHAREHOLDERS'  DEFICIT

     On  July  31,  2001,  total  shareholders'  deficit  was  $2,264,358,  down
$1,613,957, or 41.6%, from  $3,878,315 at January 31, 2001. This change resulted
primarily  from  the  issuance  of stock related to the acquisition of assets of
NetCel360,  including  the  beneficial conversion feature of $9,221,162, and the
exercise  of  the  conversion  feature  of 759,352 shares of preferred to common
stock  for  $1,999,028,  the  cancellation  of 300,000 shares, net against notes
receivable  from  sale  of  stock  for  $93,164, the recognition of a beneficial
conversion  feature  related  to  the  anti-dilution  feature  of the Series 2-A
Convertible  Preferred  Stock  of  $2,095,428  and  a  decrease  in  deferred
compensation  due  to  stock  based  compensation of $878,312. This is partially
offset by the net loss of $11,616,552 during the six months ended July 31, 2001.

LIQUIDITY  AND  CAPITAL  RESOURCES

     Our major source of funds from the date of inception through July 31, 2001,
has  been from sale of equity and debt securities. Our principal sources of cash
and  cash  equivalents  for  the six months ended July 31, 2001, other than from
investor  funds,  were  from  funds  received from approximately $1.1 million of
revenues related to the resale of Gateway products, Business Process Outsourcing
service  contracts,  and  other small contracts, in addition to small amounts of
interest  income,  and  certain  non-recurring  items, however, we also incurred
substantial  expenses which resulted in a net loss for the six months ended July
31, 2001.While we expect to generate more significant revenues in the future, we
are  currently  dependent  primarily  on  investor  funds.

     At  August  31, 2001, we had cash balances of approximately $1,967,000, not
including  $4,000,000  of  cash  on deposit in support of a letter of credit. We
have signed a memorandum of understanding with Gateway which provides for, inter
alia, the termination of our reseller agreement with Gateway upon execution of a
definitive  agreement to provide warranty support services to Gateway. Under the
terms  of  the  reseller  agreement,  termination  thereof  would  result in the
termination  of  the letter of credit, which would result in the release of such
deposit for repayment to holders of our Series B Exchangeable Notes (See Note 3,
Convertible  Notes  Payable.  The  $4,000,000 of cash on deposit is repayable to
holders  of  Series  B  Exchangeable  Notes if the Gateway reseller agreement is
terminated.)  There  can  be  no  assurances  that  we  will continue generating
additional revenue from clients. We have implemented cash conservation measures.
Without  additional  capital or revenues, we believe we can continue operations,
with  minimum  cash reserves, through November 2001. We are in negotiations with
investors  and  certain  current and prospective clients for cash funding during
October  2001  in  the  amount  of  $2  to  $4 million. These funds will provide
operating  capital  until  a rights offering to shareholders or fundraising from
third  party  investors can be implemented in late 2001 or early 2002. There is,
however, no assurance that the client funding will occur in the projected amount
or  in  any  amount,  nor  is  there any assurance that we can raise significant
additional  capital in a rights offering to our shareholders or fundraising from
third  party  investors.

      The  Consolidated  Statements  of Cash Flows for the six months ended July
31,  2001,  and  2000  show  that  net  losses were $11,616,552 and $12,699,495,
respectively.  We  used $5,472,969 in cash from operations during the six months
ended  July  31,  2001.  A  significant  non-cash  entry  was  made to operating
activities  for  stock  based compensation expense for the six months ended July
31, 2001, and 2000 of $878,312 and $7,269,413 respectively. This expense did not
offset  any  cash requirement directly or indirectly, and there was no such cash
or other consideration paid as stock based compensation. In addition, a non-cash
entry was made to operating activities for recognition of the loss on impairment
fixed assets of $495,671 and a loss on impairment of goodwill of $4,078,872, for
the  six  months  ended  July  31,  2001.

     We  used  $4,342,655  of cash in investing activities, primarily from using
$4,000,000  in  cash  for  cash  on deposit in support of a letter of credit and
$287,895  in  the  acquisition  of property and equipment, during the six months
ended  July  31,  2001.  We  were  provided  $7,247,761  in  cash from financing
activities,  primarily  from the proceeds of convertible notes in the six months
ended July 31, 2001 and the effect of foreign exchange adjustments of cash was a
loss  of  $17,313.


                                       31
<PAGE>
RISKS  RELATED  TO  OUR  BUSINESS

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

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

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

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

     -    maintain  and  enhance  our  network  and  technology  infrastructure;

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

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

     -    increase  and  expand  our  sales  and  marketing  activities;

     -    expand  our  business  through  acquisitions  and  alliances;  and

     -    expand  our  operations  in  Asia-Pacific.

     In  addition, we have not had material revenues, and have recognized only a
small  amount of revenue from the Internet version of our prior product, Virtual
Source  Network  ("VSN")  and  very  limited  revenue from the LiquidMarketplace
product  acquired  in January 2001.  In March 2001, we announced our decision to
stop  marketing  our  VSN product due to slow rate of customer acceptance of the
VSN  product,  and  in  July  2001,  we  decided to discontinue marketing of the
LiquidMarketplace  products.  There  is  no  assurance  that  we  will  achieve
positive  cash  flow  and  operating  profitability  within  the  limits  of our
available  capital.

     Accordingly,  we  expect  to  continue  to  incur  significant  losses  and
experience  negative  cash  flows  in  the  foreseeable  future. We will need to
generate  significant revenues to achieve profitability. In our current business
model,  we have never been profitable and we may not, under our current business
model,  be able to become profitable or to sustain profitability. As of July 31,
2001, we recorded substantial operating losses and had an accumulated deficit of
approximately  $65.6  million.

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

     Our major source of funds from the date of inception through July 31, 2001,
has  been from sale of equity and debt securities. Our principal sources of cash
and  cash  equivalents  for  the six months ended July 31, 2001, other than from
investor  funds,  were  from revenues related primarily to the resale of Gateway
products, however, we also incurred substantial expenses which resulted in a net
loss  for  the  six  months  ended  July  31, 2001. In connection with Gateway's
closing  down  of  its operations in the Asia-Pacific region, we have halted all
sales  of  Gateway  products  in  Hong  Kong and Singapore and do not anticipate
revenue  in the future from the sale of Gateway products (see "We may generate a
                                                             -------------------
substantial  part  of  our  revenues  from  one  client").
--------------------------------------------------------

     At  August  31, 2001, we had cash balances of approximately $1,967,000, not
including  $4,000,000  of  cash  on deposit in support of a letter of credit. We
have  implemented  cash  conservation  measures.  Without  additional capital or
revenues,  we  believe  we  can continue operations, with minimum cash reserves,


                                       32
<PAGE>
through  November  2001.  We  are  in  negotiations  with  certain  current  and
prospective  clients for cash funding during October 2001 in the amount of $2 to
$4  million.  These funds will provide operating capital until a rights offering
to shareholders or fund raising from third party investors can be implemented in
late 2001 or early 2002. There is, however, no assurance that the client funding
will  occur in the projected amount or in any amount, nor is there any assurance
that  we  can  raise  significant  additional  capital  in  a rights offering to
shareholders  or  fund  raising  from  third  party  investors.

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

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

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

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

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

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

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

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

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

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

     -    not  being  able  to  respond  effectively  to  competitive pressures;

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

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

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

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

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


                                       33
<PAGE>
Complex  implementation  and integration of our services and products may impede
--------------------------------------------------------------------------------
market  penetration.
-------------------

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

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

     Because our revenues are small, any one client could generate a substantial
part of our revenues.  We would then be vulnerable to any ability of that client
to  terminate  its  service  agreement with us.  We would also be subject to the
health  of  that  client's  underlying  business.

     Since  July 1, 2001, we have derived a substantial majority of our revenues
from  our  relationship  with  one  client, Gateway. On August 28, 2001, Gateway
announced that it was immediately closing all of its company-owned operations in
Malaysia,  Singapore  and  other  countries  in the Asia-Pacific region. Gateway
subsequently  informed  us  that  it  could  not  guarantee a supply of computer
products  under  our reseller agreement with Gateway. Accordingly, we halted all
sales  of  Gateway  products  in Hong Kong and Singapore. In addition to closing
Gateway  stores in those markets, we reassigned or reduced staff associated with
our  Gateway  reseller  operations.

     On  September  26,  2001,  we  announced  that we had entered a non-binding
memorandum  of  understanding  with  Gateway  that  appoints us as the exclusive
service  and  support  provider  for  existing  Gateway  customers in Hong Kong,
Malaysia,  Singapore,  Japan,  Australia,  New  Zealand,  and other Asia-Pacific
countries.  We  expect  that  the  revenues  generated  from  such services will
constitute  a  significant  majority  of  our  revenues.  The  memorandum  of
understanding is subject to negotiation and execution of a definitive agreement.
There  can  be  no assurance that such definitive agreement will be successfully
negotiated  or executed, or that if executed will have terms consistent with the
memorandum  of  understanding  or  will  be  favorable  to  us.


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

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

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

     -    product  supply  constraints;

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

     -    changes  in  the  level  of  operating  expenses;

     -    demand  for  and  market  acceptance  of  services  and  products;

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

     -    loss  of  key  customers  or  strategic  partners;

     -    timing  of  the  recognition  of  revenue  for  large  contracts;


                                       34
<PAGE>
     -    interest  rate  fluctuations;  and

     -    general  economic  conditions.

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

     Revenues  derived  from  distribution  clients  will be closely tied to the
economic  cycles  relating  to such clients' underlying business, as well as the
state  of  the  economy in the markets in which such clients' products are sold.
We  expect  to derive our BPO revenues in large part from transaction-based fees
for  the BPO services we provide.  The use of each BPO service and the number of
transactions  effected  by  our clients will vary in volume, scope and duration.
In  addition, some of our BPO client contracts provide that the contracts can be
terminated  by  such  clients  on  relatively  short notice without cause.  As a
result,  our  revenues  may  not be recurring from period to period, which makes
them  more  difficult  to  predict.

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

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

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

We are dependent on a number of vendors and service providers and the failure to
--------------------------------------------------------------------------------
maintain  those relationships would materially adversely affect our revenues and
--------------------------------------------------------------------------------
business  growth.
----------------

     We  are  dependent  on  vendors  and  service  providers  in delivering BPO
services  such  as  financial  and payroll services and supply chain management.
Such  services are integral parts of our suite of services.  Failure to maintain
our  relationships  with any one or more of the vendors and service providers on
which  we rely for these services would significantly reduce or limit the growth
of  our  revenues,  could  limit the attractiveness of our services platform and
could  materially  and  adversely  affect  our business, financial condition and
results  of  operations.

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

     On  June 22, 2001, we completed our acquisition of substantially all of the
assets  of NetCel360.  The acquisition increased the number of employees from 13
to  over  150,  added  new offices and facilities and significantly expanded our
geographic  focus.  This  growth and the integration process has placed and will
continue to place a significant strain and demand on our managerial, operational
and  financial  resources.  Moreover,  members  of  our senior management may be
required  to  devote considerable amounts of time to this growth and integration
process, which will decrease the time they will have to service current clients,
attract  new  clients  and  develop  new  services  and  products.

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

     As  part  of  our  overall  business  strategy,  we  may  pursue  strategic
acquisitions  or  investments  as  appropriate  opportunities  arise.  Such
acquisitions  or  investments  would  be in businesses, products or technologies
that  would  provide,  supplement  or  complement  our  services, and/or provide


                                       35
<PAGE>
additional  industry  expertise, a broader client base or an expanded geographic
presence.  We  may  not  be  successful  in  identifying  suitable  acquisition,
investment or strategic partnership candidates.  Even if we do identify suitable
candidates,  we  may  not complete those transactions on commercially acceptable
terms  or  on  a  timely  basis,  or at all.  We may incur indebtedness or issue
equity  securities  to  pay  for any acquisition or investment that could have a
dilutive  effect  on  existing  shareholders.  Such acquisitions and investments
involve  other  risks,  such  as:

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

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

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

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

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

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

     -    the  potential  for  claims  asserted  against  the acquired business.

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

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

     We  operate  in  a highly competitive environment.  The intense competition
that  characterizes  the  computer  distribution industry is based primarily on:

     -    breadth,  availability  and  quality  of  product  lines and services;

     -    price;

     -    terms  and  conditions  of  sale;

     -    credit  terms  and  availability;

     -    speed  and  accuracy  of  delivery;

     -    effectiveness  of  sales  and  marketing  programs;  and

     -    availability  of  technical  and  product  information.

     Our  competitors  include well-established and better capitalized national,
regional  and international distributors, as well as computer manufacturers that
sell  directly  to end-users.  We cannot assure you that we will not lose market
share,  or  that  we  will  not  be forced in the future to reduce our prices in
response  to  the  actions  of  our competitors and thereby experience a further
reduction  in  our  gross  margins.
Increasing  numbers  of  companies  are  entering  the  BPO  industry  in  the
Asia-Pacific  region.  This  industry is relatively new and, as it develops, our
competitors  may  better position themselves to compete in our lines of business
and  markets.  We  face  competition  from  local, regional and global companies
that:

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

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


                                       36
<PAGE>
     -    are  increasing  their  activities  in  our  markets.

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

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

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

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

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

     -    Phillip  Kelly,  our  Co-Chairman  and  CEO;

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

     -    Sandford  Waddell,  our  Chief  Financial  Officer;

     -    James  Root  and  John  Cantillon,  our  Senior  Vice Presidents; and.

     -    Michael  Shirman,  our  Chief  Technology  Officer.

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

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

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

     Portions  of  our business are substantially dependent upon technology that
we  license  from  third  parties.  In  particular,  we  rely  upon  third-party
technologies  and  software  for our BPO services, such as financial and payroll
services,  customer relationship management and supply chain management. We also


                                       37
<PAGE>
expect  to  need  new licenses in the future as our business grows, the existing
products  we  license become obsolete, and technology evolves. We cannot be sure
that  we  will  be  able to obtain necessary licenses on commercially reasonable
terms,  or  at  all,  which  could  result  in  a material adverse effect on our
business,  financial  condition  and  results  of  operations.

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

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

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

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

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

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

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

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

     -    computer  viruses.

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

     A  significant  barrier  to  electronic  commerce and communications is the
secure  transmission of confidential information over public networks.  Advances
in  computer capabilities, new discoveries in the field of cryptography or other
events  or  developments could result in compromises or breaches of our security
systems  and  client  data  stored  in  our  information  systems.  If  any
well-publicized  compromises of security were to occur, it could have the effect
of  substantially reducing the willingness of clients to entrust their data to a
third  party  outsourced  service provider.  Anyone who circumvents our security
measures  could  misappropriate our exclusive information or cause interruptions
in  services  or operations.  The Internet is a public network, and data is sent
over  this  network  from many sources.  In the past, computer viruses, software
programs  that  disable  or  impair  computers,  have  been distributed and have
rapidly  spread  over  the  Internet.  Computer  viruses  could theoretically be


                                       38
<PAGE>
introduced  into  our  systems,  or those of our clients or vendors, which could
disrupt our products or services, or make our systems inaccessible to clients or
vendors.  We  may  be required to expend significant capital and other resources
to  protect  against  the  threat  of security breaches or to alleviate problems
caused  by  breaches.  To the extent that our activities may involve the storage
and transmission of exclusive information, such as personal data and credit card
numbers,  security  breaches could expose us to a risk of loss or litigation and
possible liability.  Our security measures may be inadequate to prevent security
breaches,  and  our  business  could  be  seriously  impacted  if  they  are not
prevented.

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

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

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

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

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

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

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

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

     -    unexpected  changes  in  regulatory  requirements;

     -    challenges  in  staffing  and  managing  foreign  operations;

     -    differing  technological  standards;

     -    currency  fluctuations;

     -    employment  laws  and  practices  in  different  countries;


                                       39
<PAGE>
     -    imposition  of  currency  exchange  controls;  and

     -    potentially  adverse  tax  consequences.

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

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

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

We  could  have  legal  liability  for communication on our procurement network.
-------------------------------------------------------------------------------

     We  may  be  subject  to  legal  claims  relating  to  the  content  in our
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  we were ultimately successful in our defense of these claims, any such
litigation  is  costly  and these claims could harm our reputation and business.

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

     In connection with our reincorporation in Delaware, we increased the number
of shares of common stock authorized for issuance to 100,000,000.  A proposal is
currently before our stockholders that would increase the number to 200,000,000.
The  issuance  of  additional  shares  of  common stock could have the effect of
delaying,  deferring  or  preventing a change in control, even if such change in
control  would  be  beneficial  to  our  stockholders.

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

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

     We have incurred significant amounts of debt to finance our operations.  We
have  assumed  $2.25  million  of NetCel360's debt (the "Bridge Loan"), which is
repayable  on  December  31, 2001.  Our assets in Malaysia secure this debt.  In
addition,  we  have  issued  $4.56  million  in  principal  amount  of  Series A
Convertible  Notes (the "Series A Notes"), convertible at the holders' option to
Series  3-A  Convertible  Preferred  stock redeemable at 3 to 3.5 times par, and
$4.25  million  of  Series  B  Exchangeable Notes (the "Series B Notes"), all of
which  are  repayable  on June 30, 2003.  Series B notes are convertible, if not
paid  by  February  15,  2002,  into  Series  A  Convertible  Notes.

     Although  we  intend  to  discharge  the  Bridge  Loan  by causing it to be
converted  into our common stock, we believe it would be prudent for us to first
obtain  stockholder  approval  of the issuance of shares to discharge the Bridge
Loan  and  of  an  amendment to our charter to increase the number of authorized
shares.  There  can  be  no  assurance  that  such  approval  will  be obtained.


                                       40
<PAGE>

     The  proceeds  of  the  Series  B  Notes are being used to secure a standby
letter  of credit in favor of Gateway and may not be used for any other purpose.
We  have  signed  a memorandum of understanding with Gateway which provides for,
inter  alia,  the  termination  of  our  reseller  agreement  with  Gateway upon
execution  of  a  definitive  agreement  to provide warranty support services to
Gateway.  Under  the  terms of the reseller agreement, termination thereof would
result  in  the  termination  of the letter of credit, which would result in the
release  of such deposit for repayment to holders of our Series B Notes. If such
letter  of credit is not terminated, then we intend to do a rights offering at a
price of US$0.10 per common share or fund raising from third party investors, in
the  fourth  quarter  of  2001  to  raise sufficient funds to repay the Series B
Notes, but there can be no assurance that we will raise sufficient funds, or any
funds,  in  such  rights  offering.

     We  are  in  negotiations  with certain current and prospective clients for
cash  funding  during  October  2001  in the amount of  $2 to $4 million.  These
funds  will provide operating capital until a rights offering to shareholders or
fund raising from third party investors can be implemented in late 2001 or early
2002.  There is, however, no assurance that the client funding will occur in the
projected  amount or in any amount, nor is there any assurance that we can raise
significant  additional  capital  in  a  rights offering to shareholders or fund
raising  from  third  party  investors.

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

     The  average  daily  volume  of  our  registered common stock on the Nasdaq
National  Market  System is currently less than 100,000 shares.  There can be no
assurance  that volumes will increase or that holders of the shares will be able
to  sell  their  shares  in  a  timely  manner  or  at  all.

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

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

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

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


                                       41
<PAGE>

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

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

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

     As  of  July  31,  2001,  we  had  outstanding convertible debt securities,
options  and  warrants  to  purchase  an  aggregate of approximately 124 million
shares  of  Common Stock.  This amount includes the Bridge Loan, Series A Notes,
Series B Notes and warrants issued in connection with the Series B Notes, all of
which  are  subject  to  stockholder  approval before they may be exercised.  In
addition,  we  intend  to  propose for stockholder approval a stock option/stock
issuance  plan under which we may issue a number of shares of common stock equal
to  20%  of  the  total  shares  of  common  stock  outstanding  at the time the
calculation  is  made  (including,  on  an  as-converted  basis, all convertible
preferred  stock,  convertible  debt  securities,  warrants,  options  and other
convertible  securities  that  are  exercisable).

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

Item 3.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

     None.

                           PART II - OTHER INFORMATION

Item  1.     LEGAL  PROCEEDINGS

     There  are currently no legal proceedings involving us, and none threatened
against us. However, because of the rapidly changing environment surrounding our
business,  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  AND  USE  OF  PROCEEDS

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


                                       42
<PAGE>
Item 3.  DEFAULTS  UPON  SENIOR  SECURITIES

         None.

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

         None.

Item 5.  OTHER  INFORMATION

         None.

Item 6.  EXHIBIT  AND  REPORTS  ON  FORM  8-K

         (a)  EXHIBITS:

<TABLE>
<CAPTION>
<C>       <S>
  2.1(*)  Acquisition Agreement by and among Vsource, Inc. and NetCel360 Holdings Limited dated as of
          May 24, 2001.
  3.1(*)  Certificate of Incorporation incorporated herein by reference to Exhibit 3.1 to Registrant's Form 8-K
          for the period ended October 30, 2000 (SEC File No. 000-30326)
  3.2(*)  Bylaws incorporated herein by reference to Exhibit 3.2 to Registrant's Form 8-K for the period
          ended October 30, 2000 (SEC File No. 000-30326)
  4.1(*)  Certificate of Designation of Series 2-A Convertible Preferred Stock incorporated herein by
          reference to Exhibit 4.1 to Registrant's Form 8-K for the period ended October 30, 2000 (SEC File
          No. 000-30326)
  4.2(*)  Certificate of Merger incorporated herein by reference to Exhibit 4.2 to Registrant's Form 8-K for
          the period ended October 30, 2000 (SEC File No. 000-30326)
  4.3(*)  Form of Series 3 Convertible Demand Note incorporated herein by reference to Exhibit 3.2 to
          Registrant's Registration Statement on Form 10-SB filed on September 21, 1999 (SEC File No. 000-
          26563)
  4.4(*)  Form of Series 2 Convertible Demand Note incorporated herein by reference to Exhibit 3.3 to
          Registrant's Registration Statement on Form 10-SB filed on September 21, 1999 (SEC File No. 000-
          26563)
  4.5(*)  Form of Common Stock Purchase Warrant incorporated herein by reference to Registrant's Form 8-
          K filed September 26, 2000 (SEC File No. 000-30326)
  4.6(*)  Form of Registration Rights Agreement incorporated herein by reference to Registrant's Form 8-K
          filed September 26, 2000 (SEC File No. 000-30326)
     4.7  Exchangeable Note and Warrant Purchase Agreement, dated as of July 12, 2001, by and among
          Vsource, Inc., NetCel360.com Ltd., NetCel360 Sdn Bhd and Purchasers named therein and form of
          Exchangeable Promissory Note
 10.1(*)  Ventura Professional Center First Amendment to Lease between Virtual Source, Inc. and Security
          National Properties, LLC, dated October 27, 1998 incorporated herein by reference to Exhibit 10.2
          to Registrants Form 10-KSB filed May 11, 2000 (SEC File No. 000-30326)
 10.2(*)  Lease - Razore Land Company, Landlord and Interactive Buyers Network International, Tenant,
          dated October 11, 1999 incorporated herein by reference to Exhibit 10.3 to Registrants Form 10-
          KSB filed May 11, 2000 (SEC File No. 000-30326)
 10.3(*)  Promissory Note by Robert C. McShirley dated October 11, 2000 incorporated herein by reference
          to Exhibit 10.4 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
 10.4(*)  Pledge and Security Agreement with Robert C. McShirley dated October 11, 2000 incorporated
          herein by reference to Exhibit 10.5 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File
          No. 000-30326)
 10.5(*)  Promissory Note by P. Scott Turner dated October 13, 2000 incorporated herein by reference to
          Exhibit 10.6 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)


                                       43
<PAGE>
 10.6(*)  Promissory Note by Sandford T. Waddell dated September 18, 2000 incorporated herein by
          reference to Exhibit 10.7 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File
          No. 000-30326)
 10.7(*)  Pledge and Security Agreement with Sandford T. Waddell dated September 18, 2000 incorporated
          herein by reference to Exhibit 10.8 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File
          No. 000-30326)
 10.8(*)  Promissory Note by P. Scott Turner dated September 18, 2000 incorporated herein by reference to
          Exhibit 10.9 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
 10.9(*)  Pledge and Security Agreement with P. Scott Turner dated September 18, 2000 incorporated herein
          by reference to Exhibit 10.10 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File
          No. 000-30326)
10.10(*)  Agreement and Plan of Merger dated as of December 14, 2000 incorporated herein by reference to
          Exhibit 10.11 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
10.11(*)  Supplement to merger agreement with Colin Kruger and Michael Shirman dated December 14, 2000
10.12(*)  Form of Warrant Holder Agreement with OTT Shareholders
10.13(*)  Form of Registration Rights Agreement with OTT Shareholders
10.14(*)  At Will Employment Agreement with Colin P. Kruger
10.15(*)  At Will Employment Agreement with Michael Shirman
10.16(*)  Office Lease between L.A.T. Investment Corporation and Online Transaction Technologies, Inc.
          dated March 7, 1999
10.17(*)  First Amendment to Lease between L.A.T. Investment Corporation dated February 1, 2000
10.18(*)  Alliance Agreement between Registrant and IBM dated September 18, 2000
10.19(*)  IBM PartnerWorld Agreement - International Basic General Terms between OTT and IBM
   10.20  Redacted Gateway Reseller Agreement
   10.21  Employment Agreements of Phillip Kelly
   10.22  Employment Agreements of Dennis Smith
   10.23  Employment Agreements of Jack Cantillon
   10.24  Employment Agreements of James Root
   10.25  Network Appliance Master Services Agreement dated December 19, 2000
 21.1(*)  Subsidiaries of the Registrant
 99.1(*)  Vsource, Inc. 2000 Stock Option Plan incorporated herein by reference to Exhibit 99.1 to
          Registrant's Form 10-QSB/A filed September 25, 2000 (SEC File No. 000-30326)
<FN>
______________
*     Previously  filed  with  Securities  and  Exchange  Commission.
</TABLE>


     (b)  REPORTS  ON  FORM  8-K

          1.   Report  on  Form  8-K  dated  June  27,  2001.
          2.   Report  on  Form  8-K  dated  July  13,  2001.
          3.   Report  on  Form  8-K  dated  July  17,  2001.
          4.   Report  on  Form  8-K  dated  August  13,  2001.
          5.   Report  on  Form  8-K  dated  August  24,  2001.
          6.   Report  on  Form  8-K  dated  September  28,  2001.




                                       44
<PAGE>
                                   SIGNATURES

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


VSOURCE,  INC.






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

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



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

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


Date:  October 4,  2001




                                       45
<PAGE>
<TABLE>
<CAPTION>
                                                  EXHIBIT INDEX



<C>       <S>
  2.1(*)  Acquisition Agreement by and among Vsource, Inc. and NetCel360 Holdings Limited dated as of
          May 24, 2001.
  3.1(*)  Certificate of Incorporation incorporated herein by reference to Exhibit 3.1 to Registrant's Form 8-K
          for the period ended October 30, 2000 (SEC File No. 000-30326)
  3.2(*)  Bylaws incorporated herein by reference to Exhibit 3.2 to Registrant's Form 8-K for the period
          ended October 30, 2000 (SEC File No. 000-30326)
  4.1(*)  Certificate of Designation of Series 2-A Convertible Preferred Stock incorporated herein by
          reference to Exhibit 4.1 to Registrant's Form 8-K for the period ended October 30, 2000 (SEC File
          No. 000-30326)
  4.2(*)  Certificate of Merger incorporated herein by reference to Exhibit 4.2 to Registrant's Form 8-K for
          the period ended October 30, 2000 (SEC File No. 000-30326)
  4.3(*)  Form of Series 3 Convertible Demand Note incorporated herein by reference to Exhibit 3.2 to
          Registrant's Registration Statement on Form 10-SB filed on September 21, 1999 (SEC File No. 000-
          26563)
  4.4(*)  Form of Series 2 Convertible Demand Note incorporated herein by reference to Exhibit 3.3 to
          Registrant's Registration Statement on Form 10-SB filed on September 21, 1999 (SEC File No. 000-
          26563)
  4.5(*)  Form of Common Stock Purchase Warrant incorporated herein by reference to Registrant's Form 8-
          K filed September 26, 2000 (SEC File No. 000-30326)
  4.6(*)  Form of Registration Rights Agreement incorporated herein by reference to Registrant's Form 8-K
          filed September 26, 2000 (SEC File No. 000-30326)
     4.7  Exchangeable Note and Warrant Purchase Agreement, dated as of July 12, 2001, by and among
          Vsource, Inc., NetCel360.com Ltd., NetCel360 Sdn Bhd and Purchasers named therein and form of
          Exchangeable Promissory Note
 10.1(*)  Ventura Professional Center First Amendment to Lease between Virtual Source, Inc. and Security
          National Properties, LLC, dated October 27, 1998 incorporated herein by reference to Exhibit 10.2
          to Registrants Form 10-KSB filed May 11, 2000 (SEC File No. 000-30326)
 10.2(*)  Lease - Razore Land Company, Landlord and Interactive Buyers Network International, Tenant,
          dated October 11, 1999 incorporated herein by reference to Exhibit 10.3 to Registrants Form 10-
          KSB filed May 11, 2000 (SEC File No. 000-30326)
 10.3(*)  Promissory Note by Robert C. McShirley dated October 11, 2000 incorporated herein by reference
          to Exhibit 10.4 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
 10.4(*)  Pledge and Security Agreement with Robert C. McShirley dated October 11, 2000 incorporated
          herein by reference to Exhibit 10.5 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File
          No. 000-30326)
 10.5(*)  Promissory Note by P. Scott Turner dated October 13, 2000 incorporated herein by reference to
          Exhibit 10.6 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
 10.6(*)  Promissory Note by Sandford T. Waddell dated September 18, 2000 incorporated herein by
          reference to Exhibit 10.7 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File
          No. 000-30326)
 10.7(*)  Pledge and Security Agreement with Sandford T. Waddell dated September 18, 2000 incorporated
          herein by reference to Exhibit 10.8 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File
          No. 000-30326)
 10.8(*)  Promissory Note by P. Scott Turner dated September 18, 2000 incorporated herein by reference to
          Exhibit 10.9 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
 10.9(*)  Pledge and Security Agreement with P. Scott Turner dated September 18, 2000 incorporated herein
          by reference to Exhibit 10.10 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File
          No. 000-30326)
10.10(*)  Agreement and Plan of Merger dated as of December 14, 2000 incorporated herein by reference to
          Exhibit 10.11 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
10.11(*)  Supplement to merger agreement with Colin Kruger and Michael Shirman dated December 14, 2000
10.12(*)  Form of Warrant Holder Agreement with OTT Shareholders


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<PAGE>
10.13(*)  Form of Registration Rights Agreement with OTT Shareholders
10.14(*)  At Will Employment Agreement with Colin P. Kruger
10.15(*)  At Will Employment Agreement with Michael Shirman
10.16(*)  Office Lease between L.A.T. Investment Corporation and Online Transaction Technologies, Inc.
          dated March 7, 1999
10.17(*)  First Amendment to Lease between L.A.T. Investment Corporation dated February 1, 2000
10.18(*)  Alliance Agreement between Registrant and IBM dated September 18, 2000
10.19(*)  IBM PartnerWorld Agreement - International Basic General Terms between OTT and IBM
   10.20  Redacted Gateway Reseller Agreement
   10.21  Employment Agreements of Phillip Kelly
   10.22  Employment Agreements of Dennis Smith
   10.23  Employment Agreements of Jack Cantillon
   10.24  Employment Agreements of James Root
   10.25  Network Appliance Master Services Agreement--December 19, 2000
 21.1(*)  Subsidiaries of the Registrant
 99.1(*)  Vsource, Inc. 2000 Stock Option Plan incorporated herein by reference to Exhibit 99.1 to
          Registrant's Form 10-QSB/A filed September 25, 2000 (SEC File No. 000-30326)
<FN>

______________
*     Previously  filed  with  Securities  and  Exchange  Commission.
</TABLE>


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