##### 









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-Q/A



|  |                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------
|x | Quarterly Report Pursuant to Section 13
	or 15(d) of the Securities Exchange Act of 1934 
	 For the quarterly period ended June 30, 2001
| 
| 
|o | Transition Report Pursuant to Section 13
	or 15(d) of the Securities 
	 Exchange Act of 1934                                            



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Commission File Number: 0-29625



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High Speed Net Solutions, Inc.

(Exact Name of Registrant as Specified in
its Charter)

|                                                                       |  |                                                        |  |                                                   
|---------------------------------------------------------------------- |  | ------------------------------------------------------ |  | --------------------------------------------------
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Florida(State or other Jurisdiction of Incorporation or
	Organization) |  | 7389(Primary Standard Industrial Classification
	Code) |  | 65-0185306(I.R.S. Employer
	Identification Number)



---

434 Fayetteville Street Mall, Suite 600

Raleigh, North Carolina 27601


(919) 807-5600


(Address, Including Zip Code, and Telephone
Number, Including Area Code


of Registrants Principal Executive
Offices)




---

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 of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports),  
x Yes  
o No; and (2) has
been subject to such filing requirements for the past
90 days  
x Yes  
o No

Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date:

| |  |                               |  |                                  
| |  | ----------------------------- |  | ---------------------------------
| |  | Class                         |  | Outstanding as of August 31, 2001
| |  | Common stock, par value $.001 |  | 35,735,789                       
| |  | per share                     |  |                                  



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---



##### 



HIGH SPEED NET SOLUTIONS, INC.




FORM 10-Q/A




FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

TABLE OF CONTENTS




|         |  |                                                                             |                                                                                                      |            |    |   |    | 
|-------- |  | --------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ---------- | -- | - | -- | 
|         |  |                                                                             |                                                                                                      | Page No.  
|         |  |                                                                             |                                                                                                      |           
|PART I   |  | FINANCIAL INFORMATION                                                       |                                                                                                      |            | 1  |  
|        
|        
|        
|        
|Item  1. |  | Financial Statements (Unaudited)                                            |                                                                                                      |            | 1  |  
|        
|        
|        
|        
|         |  |                                                                             | Consolidated Balance Sheets as of June 30,
	2001 (Unaudited) and December 31, 2000                   |            |    | 1 |   
|        
|        
|        
|        
|         |  |                                                                             | Consolidated Statements of Operations for the
	Three Months Ended June 30, 2001 and 2000 (Unaudited) |            |    | 2 |   
|        
|        
|        
|        
|         |  |                                                                             | Consolidated Statements of Operations for the Six
	Months Ended June 30, 2001 and 2000 (Unaudited)   |            |    | 3 |   
|        
|        
|        
|        
|         |  |                                                                             | Consolidated Statements of Shareholders
	Equity as of June 30, 2001 (Unaudited)                     |            |    | 4 |   
|        
|        
|        
|        
|         |  |                                                                             | Consolidated Statements of Cash Flows for the Six
	Months Ended June 30, 2001 and 2000 (Unaudited)   |            |    | 5 |   
|        
|        
|        
|        
|         |  |                                                                             | Notes to Consolidated Financial Statements                                                           |            |    | 6 |   
|Item  2. |  | Managements Discussion and Analysis of
	Financial Condition and Results of |                                                                                                      |            |    |  
|        
|        
|        
|        
|         |  |                                                                             |                                                                                                      | Operations |    |   | 20 | 
|        
|        
|        
|        
|Item  3. |  | Quantitative and Qualitative Disclosures About
	Market Risk                 |                                                                                                      |            | 29 |  
|        
|        
|        
|        
|        
|PART II  |  | OTHER INFORMATION                                                           |                                                                                                      |            | 30 |  
|        
|        
|        
|        
|Item  1. |  | Legal Proceedings                                                           |                                                                                                      |            | 30 |  
|        
|        
|        
|        
|Item  2. |  | Changes in Securities and Use of Proceeds                                   |                                                                                                      |            | 31 |  
|        
|        
|        
|        
|Item  3. |  | Defaults Upon Senior Securities                                             |                                                                                                      |            | 32 |  
|        
|        
|        
|        
|Item  4. |  | Submission of Matters to a Vote of Security
	Holders                        |                                                                                                      |            | 32 |  
|        
|        
|        
|        
|Item  5. |  | Other Information                                                           |                                                                                                      |            | 32 |  
|        
|        
|        
|        
|Item  6. |  | Exhibits and Reports on Form 8-K                                            |                                                                                                      |            | 33 |  




i



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##### 



PART I.

FINANCIAL INFORMATION


Item  1.  Financial Statements

HIGH SPEED NET SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS




|                                                |                                                                                                                                                                                             |                                             |           |                   |            |   |           |             |            |  
|----------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | --------- | ----------------- | ---------- | - | --------- | ----------- | ---------- | -
|                                                |                                                                                                                                                                                             | June 30, 2001                               |           | December 31, 2000
|                                                |                                                                                                                                                                                             |                                             |           |                  
|                                                |                                                                                                                                                                                             | (Unaudited)                                 |           |                  
|                                                |                                                                                                                                                                                             | (Restated)                                  |           |                  
|                                               
|                                               
|                                               
|                                               
|Assets                                          |                                                                                                                                                                                             |                                             |           |                   |            |   |           |            
|                                               
|                                               
|                                               
|                                               
|Current assets:                                 |                                                                                                                                                                                             |                                             |           |                   |            |   |           |            
|                                               
|                                               
|                                               
|                                               
|                                                | Cash                                                                                                                                                                                        |                                             | $         | 143,567           |            |   | $         | 208,495     |           
|                                               
|                                               
|                                               
|                                               
|                                                | Accounts receivable                                                                                                                                                                         |                                             |           | 43,888            |            |   |           | 32,744      |           
|                                               
|                                               
|                                               
|                                               
|                                                | Other current assets                                                                                                                                                                        |                                             |           | 84,553            |            |   |           | 39,153      |           
|                                                |                                                                                                                                                                                             |                                             |           |                   |            |   |           |            
|                                                |                                                                                                                                                                                             | Total current assets                        |           |                   | 272,008    |   |           |             | 280,392    |  
|                                               
|                                               
|                                               
|                                               
|Receivable from related party                   |                                                                                                                                                                                             |                                             |          |                   |            |   | 134,677   |            
|                                               
|                                               
|                                               
|                                               
|Capitalized software development costs          |                                                                                                                                                                                             |                                             | 95,808    |                   |            |   |          |            
|                                               
|                                               
|                                               
|                                               
|Equipment, software and furniture, net          |                                                                                                                                                                                             |                                             | 1,096,503 |                   |            |   | 991,202   |            
|                                                |                                                                                                                                                                                             |                                             |           |                   |            |   |           |            
|                                                |                                                                                                                                                                                             | Total assets                                |           | $                 | 1,464,319  |   |           | $           | 1,406,271  |  
|                                                |                                                                                                                                                                                             |                                             |           |                   |            |   |           |            
|Liabilities and shareholders
	deficit          |                                                                                                                                                                                             |                                             |           |                   |            |   |           |            
|                                               
|                                               
|                                               
|                                               
|Accounts payable and accrued expenses           |                                                                                                                                                                                             | $                                           | 4,285,047 |                   |            | $ | 1,282,157 |            
|                                               
|                                               
|                                               
|                                               
|Accrued salaries and related costs              |                                                                                                                                                                                             |                                             | 261,867   |                   |            |   | 721,956   |            
|                                               
|                                               
|                                               
|                                               
|Preferred stock dividends payable               |                                                                                                                                                                                             |                                             | 223,441   |                   |            |   |          |            
|                                               
|                                               
|                                               
|                                               
|Notes payable, current portion                  |                                                                                                                                                                                             |                                             | 229,215   |                   |            |   | 229,215   |            
|                                               
|                                               
|                                               
|                                               
|Capital lease obligations, current portion      |                                                                                                                                                                                             |                                             | 385,156   |                   |            |   | 339,724   |            
|                                               
|                                               
|                                               
|                                               
|Loans payable to related party                  |                                                                                                                                                                                             |                                             |          |                   |            |   | 1,435,000 |            
|                                                |                                                                                                                                                                                             |                                             |           |                   |            |   |           |            
|                                                |                                                                                                                                                                                             | Total current liabilities                   |           |                   | 5,384,726  |   |           |             | 4,008,052  |  
|                                               
|                                               
|                                               
|                                               
|Capital lease obligations, less current portion |                                                                                                                                                                                             |                                             | 146,709   |                   |            |   | 117,966   |            
|                                               
|                                               
|                                               
|                                               
|Notes payable, less current portion             |                                                                                                                                                                                             |                                             | 100,000   |                   |            |   | 100,000   |            
|                                               
|                                               
|                                               
|                                               
|Deferred software royalty revenue               |                                                                                                                                                                                             |                                             |          |                   |            |   | 1,834,065 |            
|                                               
|                                               
|                                               
|                                               
|Redeemable common stock (87,498 shares)         |                                                                                                                                                                                             |                                             | 576,000   |                   |            |   |          |            
|                                               
|                                               
|                                               
|                                               
|Shareholders deficit:                          |                                                                                                                                                                                             |                                             |           |                   |            |   |           |            
|                                               
|                                               
|                                               
|                                               
|                                                | Preferred stock, Series A, $.001 par value;
	authorized 5,000,000 shares, 2,000 shares issued and outstanding
	(liquidation preference of $1,000 per share)                                 |                                             |           | 2,000,000         |            |   |           |            |           
|                                               
|                                               
|                                               
|                                               
|                                                | Preferred stock, Series B, $.001 par value;
	authorized 6,500 shares, 6,000 and 4,000 shares issued and
	outstanding, respectively                                                          |                                             |           | 6                 |            |   |           | 4           |           
|                                               
|                                               
|                                               
|                                               
|                                                | Common stock, $.001 par value; authorized
	50,000,000 shares; 34,837,282 shares issued and outstanding at
	June  30, 2001 and 9,584,938 shares issued and outstanding
	at December 31, 2000 |                                             |           | 34,837            |            |   |           | 9,585       |           
|                                               
|                                               
|                                               
|                                               
|                                                | Additional paid-in capital                                                                                                                                                                  |                                             |           | 22,304,510        |            |   |           | 19,729,222  |           
|                                               
|                                               
|                                               
|                                               
|                                                | Stock subscription receivable                                                                                                                                                               |                                             |           | (100,000          | )          |   |           |            |           
|                                               
|                                               
|                                               
|                                               
|                                                | Deferred compensation                                                                                                                                                                       |                                             |           | (753,120          | )          |   |           | (978,510    | )         
|                                               
|                                               
|                                               
|                                               
|                                                | Accumulated deficit                                                                                                                                                                         |                                             |           | (28,001,730       | )          |   |           | (23,414,113 | )         
|                                               
|                                               
|                                               
|                                               
|                                                | Treasury stock, at cost (38,500 shares)                                                                                                                                                     |                                             |           | (227,619          | )          |   |           |            |           
|                                                |                                                                                                                                                                                             |                                             |           |                   |            |   |           |            
|                                                |                                                                                                                                                                                             | Total shareholders deficit                 |           |                   | (4,743,116 | ) |           |             | (4,653,812 | )
|                                                |                                                                                                                                                                                             |                                             |           |                   |            |   |           |            
|                                                |                                                                                                                                                                                             | Total liabilities and shareholders deficit |           | $                 | 1,464,319  |   |           | $           | 1,406,271  |  
|                                                |                                                                                                                                                                                             |                                             |           |                   |            |   |           |            




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

1



---



##### 



HIGH SPEED NET SOLUTIONS, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)




|                                                                                           |                                                                      |                              |            |               |        |   |            |            |          |  
|------------------------------------------------------------------------------------------ | -------------------------------------------------------------------- | ---------------------------- | ---------- | ------------- | ------ | - | ---------- | ---------- | -------- | -
|                                                                                           |                                                                      |                             
|                                                                                           |                                                                      | Three Months Ended          
|                                                                                           |                                                                      |                             
|                                                                                           |                                                                      | June 30, 2001                |            | June 30, 2000
|                                                                                           |                                                                      |                              |            |              
|                                                                                           |                                                                      | (Restated)                   |            |              
|                                                                                           |                                                                      |                              |            |              
|Revenues:                                                                                  |                                                                      |                              |            |               |        |   |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Contracts and license fees                                           |                              | $          | 211,019       |        |   | $          | 390,571    |         
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Costs of revenues:                                                                         |                                                                      |                              |            |               |        |   |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Contracts and license fees                                           |                              |            | 102,484       |        |   |            | 157,210    |         
|                                                                                           |                                                                      |                              |            |               |        |   |            |           
|Gross Profit                                                                               |                                                                      |                              | 108,535    |               |        |   | 233,361    |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Selling, general and administrative expenses                                               |                                                                      |                              | 1,841,989  |               |        |   | 1,551,396  |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Non-cash compensation                                                                      |                                                                      |                              | 57,806     |               |        |   | 823,999    |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Research and development                                                                   |                                                                      |                              | 115,657    |               |        |   | 378,656    |           
|                                                                                           |                                                                      |                              |            |               |        |   |            |           
|Operating loss                                                                             |                                                                      |                              | (1,906,917 | )             |        |   | (2,520,690 | )         
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Other income (expense):                                                                    |                                                                      |                              |            |               |        |   |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Gain on sale of stock of equity investee                             |                              |            |              |        |   |            | 117,188    |         
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Participation in loss of equity investee                             |                              |            |              |        |   |            | (1,010,479 | )       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Interest income (expense), net                                       |                              |            | (8,708        | )      |   |            | 20,021     |         
|                                                                                           |                                                                      |                              |            |               |        |   |            |           
|                                                                                           |                                                                      | Total other income (expense) |            |               | (8,708 | ) |            |            | (873,270 | )
|                                                                                           |                                                                      |                              |            |               |        |   |            |           
|Loss from continuing operations                                                            |                                                                      |                              | (1,915,625 | )             |        |   | (3,393,960 | )         
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Loss from operations of discontinued Rich Media
	Direct business                           |                                                                      |                              | (14,670    | )             |        |   |           |           
|                                                                                           |                                                                      |                              |            |               |        |   |            |           
|Net loss                                                                                   |                                                                      | $                            | (1,930,295 | )             |        | $ | (3,393,960 | )         
|                                                                                           |                                                                      |                              |            |               |        |   |            |           
|Net loss applicable to common shareholders:                                                |                                                                      |                              |            |               |        |   |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Net loss                                                             |                              | $          | (1,930,295    | )      |   | $          | (3,393,960 | )       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Preferred stock dividends                                            |                              |            | (43,597       | )      |   |            |           |         
|                                                                                           |                                                                      |                              |            |               |        |   |            |           
|Net loss applicable to common shareholders                                                 |                                                                      | $                            | (1,973,892 | )             |        | $ | (3,393,960 | )         
|                                                                                           |                                                                      |                              |            |               |        |   |            |           
|Per share amounts (basic and diluted):                                                     |                                                                      |                              |            |               |        |   |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Loss applicable to common shareholders from
	continuing operations   |                              | $          | (0.06         | )      |   | $          | (0.10      | )       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Loss applicable to common shareholders from
	discontinued operations |                              |            | (0.00         | )      |   |            |           |         
|                                                                                           |                                                                      |                              |            |               |        |   |            |           
|Net loss                                                                                   |                                                                      | $                            | (0.06      | )             |        | $ | (0.10      | )         
|                                                                                           |                                                                      |                              |            |               |        |   |            |           
|Weighted average shares of common stock
	outstanding                                       |                                                                      |                              | 33,905,419 |               |        |   | 9,561,860  |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Recapitalization resulting from the Summus, Ltd.
	asset acquisition                        |                                                                      |                              |           |               |        |   | 23,392,035 |           
|                                                                                           |                                                                      |                              |            |               |        |   |            |           
|Weighted average shares of common stock
	outstanding giving effect to the recapitalization |                                                                      |                              | 33,905,419 |               |        |   | 32,953,895 |           
|                                                                                           |                                                                      |                              |            |               |        |   |            |           




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

2



---



##### 



HIGH SPEED NET SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)




|                                                                                           |                                                                      |                              |            |               |         |   |            |            |           | 
|------------------------------------------------------------------------------------------ | -------------------------------------------------------------------- | ---------------------------- | ---------- | ------------- | ------- | - | ---------- | ---------- | --------- | 
|                                                                                           |                                                                      |                             
|                                                                                           |                                                                      | ?Six Months Ended           
|                                                                                           |                                                                      |                             
|                                                                                           |                                                                      | June 30, 2001                |            | June 30, 2000
|                                                                                           |                                                                      |                              |            |              
|                                                                                           |                                                                      | (Restated)                   |            |              
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Revenues:                                                                                  |                                                                      |                              |            |               |         |   |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Contracts and license fees                                           |                              | $          | 507,179       |         |   | $          | 670,346    |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Costs of revenues:                                                                         |                                                                      |                              |            |               |         |   |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Contracts and license fees                                           |                              |            | 235,756       |         |   |            | 287,362    |          
|                                                                                           |                                                                      |                              |            |               |         |   |            |           
|Gross Profit                                                                               |                                                                      |                              | 271,423    |               |         |   | 382,984    |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Selling, general and administrative expenses                                               |                                                                      |                              | 3,524,977  |               |         |   | 2,893,056  |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Non-cash compensation                                                                      |                                                                      |                              | 772,262    |               |         |   | 823,999    |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Research and development                                                                   |                                                                      |                              | 217,386    |               |         |   | 773,913    |           
|                                                                                           |                                                                      |                              |            |               |         |   |            |           
|Operating loss                                                                             |                                                                      |                              | (4,243,202 | )             |         |   | (4,107,984 | )         
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Other income (expense):                                                                    |                                                                      |                              |            |               |         |   |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Gain on sale of stock of equity investee                             |                              |            |              |         |   |            | 3,244,767  |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Participation in loss of equity investee                             |                              |            |              |         |   |            | (2,082,693 | )        
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Interest income (expense), net                                       |                              |            | (12,073       | )       |   |            | 49,974     |          
|                                                                                           |                                                                      |                              |            |               |         |   |            |           
|                                                                                           |                                                                      | Total other income (expense) |            |               | (12,073 | ) |            |            | 1,212,048 | 
|                                                                                           |                                                                      |                              |            |               |         |   |            |           
|Loss from continuing operations                                                            |                                                                      |                              | (4,255,725 | )             |         |   | (2,895,936 | )         
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Loss from operations of discontinued Rich Media
	Direct business                           |                                                                      |                              | (49,988    | )             |         |   |           |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Loss on disposal of Rich Media Direct business                                             |                                                                      |                              | (215,500   | )             |         |   |           |           
|                                                                                           |                                                                      |                              |            |               |         |   |            |           
|Net loss                                                                                   |                                                                      | $                            | (4,520,763 | )             |         | $ | (2,895,936 | )         
|                                                                                           |                                                                      |                              |            |               |         |   |            |           
|Net loss applicable to common shareholders:                                                |                                                                      |                              |            |               |         |   |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Net loss                                                             |                              | $          | (4,520,763    | )       |   | $          | (2,895,936 | )        
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Preferred stock dividends                                            |                              |            | (66,854       | )       |   |            |           |          
|                                                                                           |                                                                      |                              |            |               |         |   |            |           
|Net loss applicable to common shareholders                                                 |                                                                      | $                            | (4,587,617 | )             |         | $ | (2,895,936 | )         
|                                                                                           |                                                                      |                              |            |               |         |   |            |           
|Per share amounts (basic and diluted):                                                     |                                                                      |                              |            |               |         |   |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Loss applicable to common shareholders from
	continuing operations   |                              | $          | (0.13         | )       |   | $          | (0.09      | )        
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Loss applicable to common shareholders from
	discontinued operations |                              |            | (0.01         | )       |   |            |           |          
|                                                                                           |                                                                      |                              |            |               |         |   |            |           
|Net loss                                                                                   |                                                                      | $                            | (0.14      | )             |         | $ | (0.09      | )         
|                                                                                           |                                                                      |                              |            |               |         |   |            |           
|Weighted average shares of common stock
	outstanding                                       |                                                                      |                              | 27,405,009 |               |         |   | 9,561,860  |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Recapitalization resulting from the Summus, Ltd.
	asset acquisition                        |                                                                      |                              | 6,074,175  |               |         |   | 23,392,035 |           
|                                                                                           |                                                                      |                              |            |               |         |   |            |           
|Weighted average shares of common stock
	outstanding giving effect to the recapitalization |                                                                      |                              | 33,479,184 |               |         |   | 32,953,895 |           
|                                                                                           |                                                                      |                              |            |               |         |   |            |           




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

3



---



##### 



HIGH SPEED NET SOLUTIONS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY




|                                             |                                                                                    |                 |       |          |  |              |           |            |  |              |       |          |  |                 |   |            |  |      |            |            |  |   |        |        |  |   |            |            |   |   |          |          |   |   |          |          |  
|-------------------------------------------- | ---------------------------------------------------------------------------------- | --------------- | ----- | -------- |  | ------------ | --------- | ---------- |  | ------------ | ----- | -------- |  | --------------- | - | ---------- |  | ---- | ---------- | ---------- |  | - | ------ | ------ |  | - | ---------- | ---------- | - | - | -------- | -------- | - | - | -------- | -------- | -
|                                             |                                                                                    |                 |       |          |  |              |           |            |  |              |       |         
|                                             |                                                                                    | Preferred Stock |       |          |  |              |           |            |  |              |       |         
|                                             |                                                                                    |                 |       |          |  |              |           |            |  |              |       |         
|                                             |                                                                                    |                 |       |          |  |              |           |            |  |              |       |         
|                                             |                                                                                    | Series A        |       | Series B |  | Common Stock |           |            |  | Stock        |       |         
|                                             |                                                                                    |                 |       |          |  |              |           | Additional |  | Subscription |       | Deferred
|                                             |                                                                                    | Shares          |       | Amount   |  | Shares       |           | Amount     |  | Shares       |       | Amount   |  | Paid-in Capital |   | Receivable |  | Comp
|                                             |                                                                                    |                 |       |          |  |              |           |            |  |              |       |          |  |                 |   |            |  |     
|                                            
|                                            
|                                            
|                                            
|Balance at December  31, 2000                |                                                                                    |                 |      |          |  | $            |          |            |  |              | 4,000 |          |  | $               | 4 |            |  |      | 9,584,938  |            |  | $ | 9,585  |        |  | $ | 19,729,222 |            |   | $ |         |          |   | $ | (978,510 | )       
|                                            
|                                            
|                                            
|                                            
|                                             | Recapitalization resulting from the Summus, Ltd.
	asset acquisition                |                 |       | 2,000    |  |              |           | 2,000,000  |  |              |       | 2,000    |  |                 |   | 2          |  |      |            | 23,392,035 |  |   |        | 23,392 |  |   |            | (3,734,020 | ) |   |          |         |   |   |          |         |  
|                                            
|                                            
|                                            
|                                            
|                                             | Elimination of deferred revenue                                                    |                 |       |         |  |              |           |           |  |              |       |         |  |                 |   |           |  |      |            |           |  |   |        |       |  |   |            | 1,834,065  |   |   |          |         |   |   |          |         |  
|                                             |                                                                                    |                 |       |          |  |              |           |            |  |              |       |          |  |                 |   |            |  |      |            |            |  |   |        |        |  |   |            |            |   |   |          |          |   |   |          |         
|                                             | Common stock options granted for services                                          |                 |       |         |  |              |           |           |  |              |       |         |  |                 |   |           |  |      |            |           |  |   |        |       |  |   |            | 866,533    |   |   |          |         |   |   |          |         |  
|                                            
|                                            
|                                            
|                                            
|                                             | Common stock sold for cash                                                         |                 |       |         |  |              |           |           |  |              |       |         |  |                 |   |           |  |      |            | 1,052,749  |  |   |        | 1,052  |  |   |            | 2,837,805  |   |   |          | (100,000 | ) |   |          |         |  
|                                            
|                                            
|                                            
|                                            
|                                             | Preferred stock dividends                                                          |                 |       |         |  |              |           |           |  |              |       |         |  |                 |   |           |  |      |            |           |  |   |        |       |  |   |            |           |   |   |          |         |   |   |          |         |  
|                                            
|                                            
|                                            
|                                            
|                                             | Common stock issued in partial settlement of loss
	contingency                     |                 |       |         |  |              |           |           |  |              |       |         |  |                 |   |           |  |      |            | 550,000    |  |   |        | 550    |  |   |            | 419,436    |   |   |          |         |   |   |          |         |  
|                                            
|                                            
|                                            
|                                            
|                                             | Deferred compensation recognized in connection
	with the issuance of stock options |                 |       |         |  |              |           |           |  |              |       |         |  |                 |   |           |  |      |            |           |  |   |        |       |  |   |            | 240,500    |   |   |          |         |   |   |          | (240,500 | )
|                                            
|                                            
|                                            
|                                            
|                                             | Amortization of deferred compensation                                              |                 |       |         |  |              |           |           |  |              |       |         |  |                 |   |           |  |      |            |           |  |   |        |       |  |   |            |           |   |   |          |         |   |   |          | 133,074  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Reversal of deferred compensation of forfeited
	options                            |                 |       |         |  |              |           |           |  |              |       |         |  |                 |   |           |  |      |            |           |  |   |        |       |  |   |            | (332,816   | ) |   |          |         |   |   |          | 332,816  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Common stock issued in settlement of amounts due
	to related parties               |                 |       |         |  |              |           |           |  |              |       |         |  |                 |   |           |  |      |            | 250,000    |  |   |        | 250    |  |   |            | 435,565    |   |   |          |         |   |   |          |         |  
|                                            
|                                            
|                                            
|                                            
|                                             | Common stock issued in partial settlement of
	vendor liability                     |                 |       |         |  |              |           |           |  |              |       |         |  |                 |   |           |  |      |            | 5,560      |  |   |        | 6      |  |   |            | 7,722      |   |   |          |         |   |   |          |         |  
|                                            
|                                            
|                                            
|                                            
|                                             | Stock option exercise                                                              |                 |       |         |  |              |           |           |  |              |       |         |  |                 |   |           |  |      |            | 2,000      |  |   |        | 2      |  |   |            | 498        |   |   |          |         |   |   |          |         |  
|                                            
|                                            
|                                            
|                                            
|                                             | Net loss for the period                                                            |                 |       |         |  |              |           |           |  |              |       |         |  |                 |   |           |  |      |            |           |  |   |        |       |  |   |            |           |   |   |          |         |   |   |          |         |  
|                                             |                                                                                    |                 |       |          |  |              |           |            |  |              |       |          |  |                 |   |            |  |      |            |            |  |   |        |        |  |   |            |            |   |   |          |          |   |   |          |         
|Balance June 30, 2001 (Unaudited) (Restated) |                                                                                    |                 | 2,000 |          |  | $            | 2,000,000 |            |  |              | 6,000 |          |  | $               | 6 |            |  |      | 34,837,282 |            |  | $ | 34,837 |        |  | $ | 22,304,510 |            |   | $ | (100,000 | )        |   | $ | (753,120 | )       
|                                             |                                                                                    |                 |       |          |  |              |           |            |  |              |       |          |  |                 |   |            |  |      |            |            |  |   |        |        |  |   |            |            |   |   |          |          |   |   |          |         

[Additional columns below]




[Continued from above table, first column(s) repeated]




|                                             |                                                                                    |             |             |            |   |               |          |          |   |   |            |            |  
|-------------------------------------------- | ---------------------------------------------------------------------------------- | ----------- | ----------- | ---------- | - | ------------- | -------- | -------- | - | - | ---------- | ---------- | -
|                                             |                                                                                    |             |             |            |   | Total        
|                                             |                                                                                    | Accumulated |             | Treasury   |   | Shareholders
|                                             |                                                                                    | Deficit     |             | Stock      |   | Equity       
|                                             |                                                                                    |             |             |            |   |              
|                                            
|                                            
|                                            
|                                            
|Balance at December  31, 2000                |                                                                                    | $           | (23,414,113 | )          |   | $             |         |          |   | $ | (4,653,812 | )         
|                                            
|                                            
|                                            
|                                            
|                                             | Recapitalization resulting from the Summus, Ltd.
	asset acquisition                |             |             |           |   |               |          | (227,619 | ) |   |            | (1,938,245 | )
|                                            
|                                            
|                                            
|                                            
|                                             | Elimination of deferred revenue                                                    |             |             |           |   |               |          |         |   |   |            | 1,834,065  |  
|                                             |                                                                                    |             |             |            |   |               |          |          |   |   |            |           
|                                             | Common stock options granted for services                                          |             |             |           |   |               |          |         |   |   |            | 866,533    |  
|                                            
|                                            
|                                            
|                                            
|                                             | Common stock sold for cash                                                         |             |             |           |   |               |          |         |   |   |            | 2,738,857  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Preferred stock dividends                                                          |             |             | (66,854    | ) |               |          |         |   |   |            | (66,854    | )
|                                            
|                                            
|                                            
|                                            
|                                             | Common stock issued in partial settlement of loss
	contingency                     |             |             |           |   |               |          |         |   |   |            | 419,986    |  
|                                            
|                                            
|                                            
|                                            
|                                             | Deferred compensation recognized in connection
	with the issuance of stock options |             |             |           |   |               |          |         |   |   |            |           |  
|                                            
|                                            
|                                            
|                                            
|                                             | Amortization of deferred compensation                                              |             |             |           |   |               |          |         |   |   |            | 133,074    |  
|                                            
|                                            
|                                            
|                                            
|                                             | Reversal of deferred compensation of forfeited
	options                            |             |             |           |   |               |          |         |   |   |            |           |  
|                                            
|                                            
|                                            
|                                            
|                                             | Common stock issued in settlement of amounts due
	to related parties               |             |             |           |   |               |          |         |   |   |            | 435,815    |  
|                                            
|                                            
|                                            
|                                            
|                                             | Common stock issued in partial settlement of
	vendor liability                     |             |             |           |   |               |          |         |   |   |            | 7,728      |  
|                                            
|                                            
|                                            
|                                            
|                                             | Stock option exercise                                                              |             |             |           |   |               |          |         |   |   |            | 500        |  
|                                            
|                                            
|                                            
|                                            
|                                             | Net loss for the period                                                            |             |             | (4,520,763 | ) |               |          |         |   |   |            | (4,520,763 | )
|                                             |                                                                                    |             |             |            |   |               |          |          |   |   |            |           
|Balance June 30, 2001 (Unaudited) (Restated) |                                                                                    | $           | (28,001,730 | )          |   | $             | (227,619 | )        |   | $ | (4,743,116 | )         
|                                             |                                                                                    |             |             |            |   |               |          |          |   |   |            |           




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

4



---



##### 



HIGH SPEED NET SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)




|                                                                                     |                                               |                  |            |               |   |   |            |            |  
|------------------------------------------------------------------------------------ | --------------------------------------------- | ---------------- | ---------- | ------------- | - | - | ---------- | ---------- | -
|                                                                                     |                                               |                 
|                                                                                     |                                               | Six Months Ended
|                                                                                     |                                               |                 
|                                                                                     |                                               | June 30, 2001    |            | June 30, 2000
|                                                                                     |                                               |                  |            |              
|                                                                                     |                                               | (Restated)       |            |              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Operating activities                                                                 |                                               |                  |            |               |   |   |            |           
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Loss from continuing operations                                                      |                                               | $                | (4,255,275 | )             |   | $ | (2,895,936 | )         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Adjustments to reconcile loss to net cash used in
	operating activities:             |                                               |                  |            |               |   |   |            |           
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Gain on sale of investment in equity investee |                  |            |              |   |   |            | (3,244,767 | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Loss on investment in equity investee         |                  |            |              |   |   |            | 2,082,693  |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Non-cash compensation                         |                  |            | 772,262       |   |   |            | 823,999    |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Common stock issued for services              |                  |            | 7,728         |   |   |            |           |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Depreciation                                  |                  |            | 289,848       |   |   |            | 175,756    |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Changes in operating assets and liabilities, net
	of Summus, Ltd. asset acquisition: |                                               |                  |            |               |   |   |            |           
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Accounts receivable                           |                  |            | 600           |   |   |            | (280,164   | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Other current assets                          |                  |            | (41,405       | ) |   |            | 20,815     |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Accounts payable and accrued expenses         |                  |            | 115,455       |   |   |            | 433,839    |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Accrued salaries and related costs            |                  |            | 94,467        |   |   |            | 74,889     |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Deferred software royalty revenue             |                  |            |              |   |   |            | (658,331   | )
|                                                                                     |                                               |                  |            |               |   |   |            |           
|Net cash used in continuing operations                                               |                                               |                  | (3,016,320 | )             |   |   | (3,467,207 | )         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Net cash used in discontinued operations                                             |                                               |                  | (10,623    | )             |   |   |           |           
|                                                                                     |                                               |                  |            |               |   |   |            |           
|Net cash used in operating activities                                                |                                               |                  | (3,026,943 | )             |   |   | (3,467,207 | )         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Investing activities                                                                 |                                               |                  |            |               |   |   |            |           
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Proceeds from sale of investment in equity
	investee                                 |                                               |                  |           |               |   |   | 4,057,500  |           
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Capitalized software development costs                                               |                                               |                  | (95,808    | )             |   |   |           |           
|                                                                                     |                                               |                  |            |               |   |   |            |           
|Net cash (used in) provided by investing
	activities                                 |                                               |                  | (95,808    | )             |   |   | 4,057,500  |           
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Financing activities                                                                 |                                               |                  |            |               |   |   |            |           
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Proceeds from sale of common stock                                                   |                                               |                  | 2,739,357  |               |   |   |           |           
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Proceeds from loan with related party                                                |                                               |                  | 540,000    |               |   |   |           |           
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Principal payments on capital lease obligations
	and notes                           |                                               |                  | (121,534   | )             |   |   | (139,562   | )         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Cash payments on loss contingency accrual                                            |                                               |                  | (100,000   | )             |   |   |           |           
|                                                                                     |                                               |                  |            |               |   |   |            |           
|Net cash provided by (used in) financing
	activities                                 |                                               |                  | 3,057,823  |               |   |   | (139,562   | )         
|                                                                                     |                                               |                  |            |               |   |   |            |           
|Net (decrease) increase in cash                                                      |                                               |                  | (64,928    | )             |   |   | 450,731    |           
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Cash at beginning of period                                                          |                                               |                  | 208,495    |               |   |   | 647,704    |           
|                                                                                     |                                               |                  |            |               |   |   |            |           
|Cash at end of period                                                                |                                               | $                | 143,567    |               |   | $ | 1,098,435  |           
|                                                                                     |                                               |                  |            |               |   |   |            |           
|Supplemental disclosures of cash flow
	information                                   |                                               |                  |            |               |   |   |            |           
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Cash paid for interest                                                               |                                               | $                | 12,703     |               |   | $ | 4,646      |           
|                                                                                     |                                               |                  |            |               |   |   |            |           




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

5



---



##### 



High Speed Net Solutions, Inc.

Notes to Consolidated Financial Statements

1.  Basis of Presentation




The condensed consolidated financial statements of High Speed
Net Solutions, Inc. (HSNS or the
Company) and its subsidiaries included in this
registration statement on Form 10 are unaudited. In the
opinion of management, such financial statements contain all
adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position of HSNS and
its subsidiaries as of June 30, 2001, the results of
operations for the six month periods ended June 30, 2000
and 2001, shareholders equity as of June 30, 2001, and
cash flows for the six month periods ended June 30, 2000
and 2001.







As disclosed in Note 2 below, effective February 16, 2001,
HSNS acquired all the assets and operations of Summus, Ltd.
under the terms of an asset purchase agreement, dated
October 30, 2000, as amended (the Asset Purchase
Agreement). In legal form, the transaction was effected by
HSNS issuing shares of its common and Series B preferred
stock, and other equity interests, in exchange for the net
assets of Summus, Ltd. As explained more fully in Note 2,
the transaction has been accounted for as a capital transaction,
accompanied by a recapitalization. In view of the accounting
associated with the transaction, the accompanying comparative
financial statements as of December 31, 2000, and for the
six months ended June 30, 2000, reflect the financial
position, results of operations and cash flows of Summus, Ltd.
rather than the previously reported financial information of
HSNS. The condensed consolidated balance sheet of the Company as
of December 31, 2000 has been derived from the audited
balance sheet of Summus, Ltd. as of that date.







The accompanying unaudited condensed consolidated financial
statements as of and for the six months ended June 30,
2001, have been restated to reflect a change in the accounting
for HSNSs acquisition of the assets and operations of
Summus, Ltd. Initially, the transaction was recorded as a
reverse acquisition in which Summus, Ltd. was treated as the
accounting acquirer; HSNS, the acquired corporation. The initial
accounting for the transaction as a reverse acquisition resulted
in the recording of goodwill in the amount of
$27.5 million, as well as amortization of the goodwill in
the approximate amount of $3.4 million during the six month
period ended June 30, 2001. Upon further analysis, the
Company has determined that it is more appropriate to account
for the transaction as a capital transaction, accompanied by a
recapitalization. See Note 2 to the financial statements for a
further discussion of the transaction.







In connection with the reissuance of the Companys
unaudited condensed consolidated financial statements for the
three month period ended March 31, 2001, the Company will
record the estimated loss on disposal of its Rich Media Direct
business of $215,500 as part of its discontinued operations
accounting. The Company initially provided for this loss in the
three month period ended June 30, 2001.







In connection with accounting for the Summus, Ltd. asset
acquisition as a capital transaction, the Company has charged to
equity (i.e., additional paid-in capital) transaction costs to
the extent of HSNSs cash at the time of the transaction.
Initially, these costs were charged to expense.




6



---



##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)



1.  Basis of Presentation (continued)





The following table summarizes the effect of the restatement
adjustments on the Companys balance sheet and statement of
operations as of and for the six month period ended
June 30, 2001:







|                                    |  |               |             |  
|----------------------------------- |  | ------------- | ----------- | -
|                                    |  | Balance Sheet
|                                   
|                                   
|                                   
|                                   
|Total assets as previously reported |  | $             | 25,524,217  |  
|                                   
|                                   
|                                   
|                                   
|Elimination of net goodwill         |  |               | (24,059,898 | )
|                                   
|                                   
|                                   
|                                   
|Total assets as restated            |  | $             | 1,464,319   |  







|                                                               |  |                         |            |                  |  |   |            |  
|-------------------------------------------------------------- |  | ----------------------- | ---------- | ---------------- |  | - | ---------- | -
|                                                               |  |                        
|                                                               |  | Statement of Operations
|                                                               |  |                        
|                                                               |  | Three Months Ended      |            | Six Months Ended
|                                                               |  | June 30, 2001           |            | June 30, 2001   
|                                                               |  |                         |            |                 
|Net loss as previously reported                                |  | $                       | (4,437,126 | )                |  | $ | (8,039,146 | )
|                                                              
|                                                              
|                                                              
|                                                              
|Elimination of goodwill amortization                           |  |                         | 2,291,331  |                  |  |   | 3,436,072  |  
|                                                              
|                                                              
|                                                              
|                                                              
|Elimination of loss on disposal of Rich Media
	Direct business |  |                         | 215,500    |                  |  |   |           |  
|                                                              
|                                                              
|                                                              
|                                                              
|Transaction costs reclassified to Additional
	Paid-in Capital  |  |                         |           |                  |  |   | 82,311     |  
|                                                               |  |                         |            |                  |  |   |            |  
|Net loss as restated                                           |  | $                       | (1,930,295 | )                |  | $ | (4,520,763 | )
|                                                               |  |                         |            |                  |  |   |            |  
|Net loss per share as previously reported                      |  | $                       | (0.13      | )                |  | $ | (0.30      | )
|                                                               |  |                         |            |                  |  |   |            |  
|Net loss per share as restated                                 |  | $                       | (0.06      | )                |  | $ | (0.14      | )
|                                                               |  |                         |            |                  |  |   |            |  







The accompanying unaudited condensed consolidated financial
statements as of and for the six months ended June 30, 2001
have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial
information and with Article 10 of Regulation S-X.
Certain information and note disclosures normally included in
the Companys annual financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted. These unaudited condensed
consolidated financial statements should be read in conjunction
with a reading of the financial statements and accompanying
notes included in Summus, Ltd.s audited financial
statements for the year ended December 31, 2000, which were
filed with the Securities and Exchange Commission in the
Companys annual report on Form 10-K for the fiscal
year ended December 31, 2000, as amended. The
Form 10-K, as amended, is available through the Internet in
the SECs EDGAR database at www.sec.gov or from the Company
upon request.







The accompanying unaudited condensed consolidated financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the
financial statements at June 30, 2001, the Company had an
accumulated deficit of $28,001,730 and a deficiency in working
capital. Additionally, for the six months ended June 30,
2001, the Company incurred a significant net loss and
experienced negative cash flows from operations. These factors,
among others, indicate the Company may be unable to continue as
a going concern for a reasonable period of time. As a result of
these matters, the Companys auditors have issued their
opinion on the December 31, 2000 financial statements
including a going concern explanatory paragraph. The financial
statements presented herein do not include any adjustments
relating to the recoverability of assets and classification of
liabilities that might be necessary should the Company be unable
to continue as a going concern.




The Companys continuation as a going concern is dependent
on its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain additional financing or
refinancing as required, and ultimately to attain profitability.
Management anticipates that it will be able to attract
additional capital to

7



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##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)



1.  Basis of Presentation (continued)


continue to fund operations. However, there can be no assurance
that managements plans will be executed as anticipated.

Operating results for the six months ended June 30, 2001,
are not necessarily indicative of the results that may be
expected for the year ended December 31, 2001.




2.  Asset Acquisition/Recapitalization







On February 16, 2001, HSNS acquired all the assets and
operations of Summus, Ltd. under the terms of the Asset Purchase
Agreement.







From Summus, Ltd.s perspective, the primary business
purpose of entering into the transaction with HSNS was to
provide a vehicle for raising capital. Summus, Ltd. was at a
stage in its development where it required additional financing
or needed to combine with another entity in order to finance its
business and realize its other objectives. Entering into the
Asset Purchase Agreement became the most logical course of
action to provide financing to Summus, Ltd. and accomplish other
key objectives in view of, among other things, the following:






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Summus, Ltd. already had a substantial equity interest in HSNS.
	In fact, the transaction contemplated by the Asset Purchase
	Agreement provided both companies the opportunity to capitalize
	on investments they previously made in each other. Prior to the
	closing of the transaction, Summus, Ltd. owned approximately
	27.6% of HSNS on a fully-diluted basis and HSNS owned
	approximately 14% of Summus, Ltd.
|
|
|
| |  | HSNS had success in raising equity capital through private
	placements or other types of fund-raising, notwithstanding its
	own limited financial resources and unprofitable operations.
	This caused Summus, Ltd.s management to believe that the
	Company, following the closing of the transaction, would be able
	to continue to have success in raising capital.                                                
|
|
|
| |  | HSNS was in the process of seeking to register its common stock
	under Section  12 of the Securities Exchange Act of 1934
	and then seeking to have such stock made eligible for quotation
	on the OTC Bulletin Board. This offered potential for future
	liquidity in such stock.                                                                                                                                    
|
|
|
| |  | The transaction offered the potential to create more growth
	opportunities for the Company based on the expected enhanced
	access to capital resources.                                                                                                                                                                                                                                                               
|




Prior to the closing of the transaction, Summus, Ltd. was the
largest shareholder of HSNS. It owned 8,217,781 shares (33.2%)
of HSNSs common stock, approximately 27.6% on a fully
diluted basis. Immediately after the closing, Summus,
Ltd.s ownership interest in the Company increased to
20,593,352 shares (55.5%) of the Companys common stock on
an as-converted basis, approximately 53.1% on a fully-diluted
basis.







The Asset Purchase Agreement contemplates that Summus, Ltd. will
liquidate following the completion of its distribution of the
Companys securities received in the transaction to the
shareholders of Summus, Ltd. On March 13, 2001, Summus,
Ltd. distributed certain of the shares of the Companys
common stock received in the transaction to the shareholders of
Summus, Ltd. in accordance with their pro rata interests; the
balance of such shares was distributed in mid-July 2001.




8



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##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)






2.  Asset Acquisition/Recapitalization
(continued)








In legal form, the transaction was effected by HSNS issuing
shares of its common and Series B preferred stock, and
other equity interests, in exchange for the net assets of
Summus, Ltd. The consideration paid by HSNS to acquire the
assets of Summus, Ltd. is described below:






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | HSNS issued to Summus, Ltd. for distribution to the shareholders
	of Summus, Ltd. a total of 20,218,733 shares of HSNS common
	stock and 6,000 shares of Series B preferred stock. As a
	shareholder of Summus, Ltd., HSNS was entitled to receive
	3,604,445 of the total number of shares of common stock issued
	in the transaction. However, under the terms of the Asset
	Purchase Agreement these shares were canceled, resulting in a
	net issuance of 16,614,288 shares of HSNS common stock. In
	addition, the Asset Purchase Agreement provided for the
	cancellation of 8,217,781 shares of HSNS common stock owned by
	Summus, Ltd. prior to the parties execution of the
	agreement.
|
|
|
| |  | HSNS issued to Summus, Ltd. 6,000 shares of newly created
	Series B preferred stock, of which 2,000 shares were
	deposited with an escrow agent as security for any
	indemnification obligations of Summus, Ltd. and its shareholders
	under the Asset Purchase Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                        
|
|
|
| |  | HSNS issued to Summus, Ltd. warrants to purchase a total of 500
	shares of its Series B preferred stock, exercisable for a
	period of 5 years from February 16, 2001. The exercise
	price of the warrants is $5,500.00 per share of Series B
	preferred stock ($5.50 per share of the Companys common
	stock on an as-converted basis).                                                                                                                                                                                                                                                                                                                                                          
|




In addition to the items described above, the terms of the Asset
Purchase Agreement provided for HSNSs assumption of
approximately $2.8 million of liabilities of Summus, Ltd.
to third parties. All amounts owed by and between HSNS and
Summus, Ltd. were cancelled upon the closing of the transaction.







Initially, the transaction was recorded as a business
combination under the guidance of Accounting Principles Board
Opinion No. 16 (APB 16), Business Combinations
because, among other reasons:






| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  | HSNS acquired all the operating assets and liabilities of
	Summus, Ltd.;                                                             
|
|
|
| |  | each of HSNS and Summus, Ltd. were operating entities at the
	time of the closing of the transaction; and                            
|
|
|
| |  | Summus, Ltd. was (and is) to be liquidated following its
	distribution of the equity securities of HSNS received in the
	transaction.
|




Under APB 16, the transaction was also accounted for as a
reverse acquisition in which Summus, Ltd. was
treated as the accounting acquirer; HSNS, the acquired
corporation. Summus, Ltd. was considered the accounting acquirer
in the transaction because Summus, Ltd. received shares of
HSNSs common stock and other equity securities, to be
distributed to the Summus, Ltd. shareholders, representing the
largest portion of the voting interests in HSNS.







At the time the determination was made to account for the
transaction as a business combination, the Company considered an
alternative accounting treatment: accounting for the transaction
as a capital transaction, accompanied by a recapitalization. The
more typical type of transaction for which this accounting
treatment is deemed appropriate is the merger of a private
operating company into a non-operating public shell corporation
with nominal net assets, with the owners and management of the
private company having actual or effective operating control of
the combined company after the transaction. The Company did not
believe this was the most appropriate accounting treatment
because HSNS (including its wholly-owned subsidiary, Douglas
May & Co.) was an operating company, not a
non-operating public shell corporation.




9



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##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)






2.  Asset Acquisition/Recapitalization
(continued)








The Company has since reassessed the appropriateness of
accounting for the transaction as a capital transaction,
accompanied by a recapitalization, in view of the particular
facts and circumstances of this transaction, including:






| |   |                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Summus, Ltd.s management evaluated the operating
	activities of HSNS, which, at the time the Asset Purchase
	Agreement was entered into, were primarily conducted through
	HSNSs wholly-owned subsidiary, Douglas May & Co.
	However, the operating activities of HSNS, from Summus,
	Ltd.s perspective, were an incidental consideration in its
	decision to enter into and consummate the transaction.
|
|
|
| |  | As noted above, Summus, Ltd.s primary purpose in entering
	into the transaction was to provide a vehicle for raising
	additional capital through the acquisition of a majority
	interest in an entity (i.e., HSNS) whose common stock is
	publicly traded.                                                                                                                                                
|




Considering these factors and the result of discussions with the
staff of Securities and Exchange Commission, the Company has
concluded that HSNSs status as an operating company does
not preclude accounting for the transaction as a capital
transaction, accompanied by a recapitalization. Accordingly, the
Company has determined that it is more appropriate to account
for the transaction in this manner.







By accounting for the transaction as a capital transaction, the
transaction is effectively viewed as the issuance of stock by
Summus, Ltd. in exchange for the net monetary assets of HSNS,
accompanied by a recapitalization of Summus, Ltd. The accounting
for the transaction is quite similar to that resulting from a
reverse acquisition, except that no goodwill or other intangible
assets are recorded.







As a result of the transaction, the historical financial
statements of Summus, Ltd., for accounting purposes, are deemed
to be those of the Company. The equity accounts of Summus, Ltd.
have been adjusted for a recapitalization to reflect the equity
structure of HSNS, the legal acquirer. Specifically:






| |   |                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | the historical shareholders equity of Summus, Ltd. prior
	to the transaction has been restated for the equivalent number
	of shares of HSNS common and Series B preferred stock, and
	other equity interests, received in the transaction after giving
	effect to any difference in par value of HSNSs and Summus,
	Ltd.s common stock, with an offset to additional paid-in
	capital;
|
|
|
| |  | the accumulated deficit of Summus, Ltd. has been carried forward
	after the transaction; and                                                                                                                                                                                                                                                                                             
|
|
|
| |  | loss per share for periods prior to the transaction have been
	restated to reflect the number of equivalent shares received by
	Summus, Ltd. in the transaction.                                                                                                                                                                                                                         
|




In connection with the transaction, the Company entered into a
three-year employment agreement with Dr. Bjorn Jawerth.
Under this employment agreement, in exchange for
Dr. Jawerths covenant not to compete with the Company
for a period of 18 months from and after the termination of
his employment with the Company, the Company issued options to
Dr. Jawerth to purchase 166,667 shares of common stock at
$0.50 per share and 333,333 shares of common stock at $3.75 per
share. Non-cash compensation expense of $541,688 was recorded
upon the issuance of these options as of February 16, 2001,
the closing date of the transaction. The issuance of these
options was in lieu of a $500,000 cash payment provided for in
Dr. Jawerths employment agreement.







Under the Asset Purchase Agreement, HSNS agreed to use
reasonable commercial efforts to assist Dr. Jawerth in the
private sale of up to 1,666,667 shares of HSNS common stock held
by Dr. Jawerth (representing $2.5 million in value) at
a per share price of not less than $1.50 per share. The Asset
Purchase Agreement does not stipulate a date or time period by
which such sale is to occur. Under the terms of
Dr. Jawerths employment agreement, the Company is
obligated to issue to Dr. Jawerth options, with an




10



---



##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)






2.  Asset Acquisition/Recapitalization
(continued)





exercise price of $1.50 per share, exercisable for three times
the number of shares of common stock sold in the private sale.
The options will be exercisable during the second through the
fifth year after the options are issued. Non-cash compensation
will be recorded upon the issuance of these options. The
non-cash compensation will be determined under the provisions of
APB 25, pursuant to which the compensation cost will be based on
the difference between the stock option exercise price of $1.50
per share and the traded value of the HSNS common stock on the
date the options are issued.




During the term of the employment agreement, Dr. Jawerth
will receive a base salary of $350,000 (which is subject to an
annual increase of at least 10%) plus other benefits including
severance benefits.




3.  Significant Accounting Policies

Principles of
Consolidation

The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Douglas May &
Company, Inc. Significant intercompany accounts and transactions
have been eliminated in consolidation. The results of operations
of Douglas May & Company, Inc. have been presented as
discontinued operations for the six months ended June 30,
2001 (see Note 8).

Use of Estimates

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

Equipment and
Furniture

Equipment and furniture are stated at cost. Depreciation is
computed using the straight-line method over the estimated
useful lives of the assets (generally three to seven years)
beginning when the assets are placed in service.

Stock-Based
Compensation

The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based
Compensation. As permitted by the provisions of SFAS
No. 123, the Company continues to follow Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and
related interpretations for its stock-based awards.

In accordance with APB 25, the Company has valued employee stock
awards and stock issued to employees for services performed
based on the traded value of the Companys common stock, or
its estimated fair value prior to it becoming traded, at the
measurement date of the stock options and awards.

Non-cash compensation related to the issuance of fully-vested
stock options with exercise prices below the fair market value
of the underlying stock plus the amortization of deferred
compensation arising from stock option issuances totaled
$772,262 in the six months ended June 30, 2001.

The Company accounts for stock-based amounts issued to
non-employees of the Company, primarily consultants, at fair
value in accordance with the provisions of SFAS No. 123.

11



---



##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)



3.  Significant Accounting Policies (continued)


Income Taxes

Income taxes are accounted for using the liability method in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income
Taxes. Under SFAS 109, deferred tax assets or
liabilities are computed based upon the difference between the
financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when
the related asset or liability is expected to be realized or
settled. Deferred income tax expenses or benefits are based on
the changes in the asset or liability from period to period. If
available evidence suggests that it is more likely than not that
some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the
deferred tax assets to the amount that is more likely than not
to be realized. Future changes in such valuation allowance would
be included in the provision for deferred income taxes in the
period of change.

Revenue Recognition

The Company recognizes revenue on time and materials consulting
projects at the time services are rendered based upon the terms
of individual contracts.

The Company follows the provisions of AICPA Statement of
Position 97-2, Software Revenue Recognition,
as amended by AICPA Statement of Position 98-9
Modification of SOP No. 97-2 Software Revenue
Recognition with Respect to Certain Transactions.

Revenues from software license fees and hardware sales are
generally recognized upon delivery provided that a contract has
been executed, the vendor fee is fixed or determinable, no
significant vendor obligations or uncertainties surrounding
customer acceptance remain, and collection of the resulting
receivable is deemed probable.

Deferred revenue is recorded for amounts received for which the
Company has not yet completed its contractual obligations.
Deferred revenue related to software agreements is used to
offset capitalized software costs related to the software
agreements.




Management has structured the Companys internal
organization as one business segment from which all operating
decisions and operating results are made and evaluated.




Loss Per Share

Loss per share has been calculated in accordance with Statement
of Financial Accounting Standards (SFAS)
No. 128, Earnings Per Share. Basic loss
per share was computed by dividing the net loss for each period
presented by the weighted average number of shares of common
stock outstanding for such period. Although the Company has
potential common stock equivalents related to its outstanding
stock options, warrants and preferred stock, these potential
common stock equivalents were not included in diluted loss per
share for each period presented because the effect would have
been antidilutive.

Software Development
Costs

Capitalization of software development costs begins with the
establishment of technological feasibility of new or enhanced
software products. Technological feasibility of a computer
software product is established when the Company has completed
all planning, designing, coding and testing that is necessary to
establish that the software product can be produced to meet
design specifications including functions, features and
technical performance requirements. All costs incurred prior to
establishing technological feasibility of a software product are
charged to research and development expense as incurred.

12



---



##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)



3.  Significant Accounting Policies (continued)


Valuation of Long-Lived
Assets




The Company periodically reviews its long-lived assets to
determine if events or changes in circumstances indicate that
the carrying amount of an asset may be impaired and not
recoverable. Adjustments will be made if the sum of the expected
future undiscounted cash flows is less than the carrying value
of the asset.




New Accounting
Pronouncements

In June 1998, the Financial Accounting Standards Board
issued Statement No. 133 Accounting for Derivative
Instruments and Hedging Activities (SFAS
133), which is required to be adopted for fiscal years
beginning after June 15, 2000. SFAS 133 establishes
accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other
contracts and for hedging activities. The Company adopted this
statement in the first quarter of 2001. Because of the
Companys minimal use of derivatives, management does not
anticipate that the adoption of this statement will have a
significant effect on the operations or financial position of
the Company.




On June 29, 2001, the Financial Accounting Standards Board
(FASB) unanimously approved the issuance of
Statements of Financial Accounting Standards (SFAS)
No. 141, Business Combinations and
No. 142, Goodwill and Other Intangible
Assets, SFAS 141 eliminates the pooling-of-interests
method of accounting for business combinations except for
qualifying business combinations that were initiated prior to
July 1, 2001. SFAS 141 also includes new criteria to
recognize intangible assets separately from goodwill. The
requirements of SFAS 141 are effective for any business
combination accounted for by the purchase method that is
completed after June 30, 2001. Under SFAS 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
that are not deemed to have an indefinite life will continue to
be amortized over their useful lives. The amortization
provisions of SFAS 142 requiring non-amortization of goodwill
and indefinite-lived intangible assets apply to goodwill and
indefinite-lived intangible assets acquired after June 30,
2001. The Company will adopt SFAS 142 in the fiscal year
beginning January 1, 2002. The effect of adopting SFAS 142
by the Company beginning January 1, 2002 is not expected to
have a significant effect on the operating results or financial
position of the Company.




4.  Deferred Software Royalty Revenue

In February 1999, Summus, Ltd. entered into a Marketing
License Agreement (MLA) with HSNS. In consideration
for its grant to HSNS of the right to resell certain stand-alone
software products specified in the MLA over the three-year term
of the agreement, Summus, Ltd. received prepaid software royalty
payments in the aggregate amount of $3,000,000, consisting of
cash payments of $2,250,000 and 1,500,000 shares of HSNS common
stock valued at $750,000. The value assigned to the 1,500,000
common shares was based on a discounted value of HSNSs
common stock taking into consideration the restricted nature of
these shares. This amount was classified as deferred revenue in
Summus, Ltd.s balance sheet.

In mid-February 2000, Summus, Ltd. and HSNS entered into
several agreements (i.e., a master agreement, software license
agreement, software maintenance agreement, revenue sharing
agreement and software escrow agreement) that superseded the MLA
in its entirety. Under these agreements, Summus, Ltd. granted to
HSNS a non-exclusive license to use a suite of software products
referred to as MaxxSystem. The terms of the software
license agreement provided for HSNSs payment of a one-time
license fee of $1 million (against which HSNS received a
credit of $1 million, under the terms of the master
agreement, in recognition of payments HSNS had made under the
MLA), and a revenue-based fee of the greater of (i) 10% of
the gross revenues generated by HSNS with MaxxSystem, or (ii)
$.03 multiplied by the number of rich media messages delivered
to recipients (against which HSNS also received a credit of
$1 million, under the

13



---



##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)



4.  Deferred Software Royalty Revenue
(continued)


terms of the master agreement, in recognition of payments made
under the MLA). HSNS received an additional credit of
approximately $200,000 for other fees due Summus, Ltd. under the
software license agreement and/or the software maintenance
agreement.

The payments received by Summus, Ltd. under the MLA, in the
aggregate amount of $3 million, were credited against the
capitalized software development costs of the software covered
by the MLA and the software license agreement. Summus, Ltd.
applied $507,604 and $658,332 of its deferred revenue balance
against such costs during 1999 and 2000, respectively.




On February 16, 2001, HSNS acquired all the assets and
operations of Summus, Ltd. under the terms of the Asset Purchase
Agreement. See Note 2. As of the closing date of the
transaction, Summus, Ltd. had not delivered to HSNS all of the
MaxxSystem suite of software products specified in the software
license agreement and, therefore, was not able to recognize any
revenue associated with such agreement. Upon the closing of the
transaction, the agreements between Summus, Ltd. and HSNS
entered into in mid-February 2000 were made null and void.
As a result, the deferred revenue associated with the
mid-February 2000 agreements was reclassified to additional
paid-in capital as of the closing of the transaction.




5.  Common Stock




Subsequent to HSNSs acquisition of the assets and
operations of Summus, Ltd. (see Note 2), HSNS has issued
1,052,749 shares of its unregistered common stock and warrants
to purchase an additional 2,132,632 shares of common stock
for gross proceeds of $2,738,857. The warrants have exercise
prices ranging from $3.50 to $5.25 per share, a term of five
years and cannot be exercised within five months of the date of
issuance.




6.  Preferred Stock

Series A Preferred
Stock

The Company has 2,000 shares of Series A preferred stock
outstanding at June 30, 2001. The holders of the Series A
preferred stock are entitled to receive cumulative cash
dividends at a rate of 8% per annum of the initial liquidation
preference of $1,000 per share (the Liquidation
Preference). The Company, at its election, can provide for
the payment of dividends on the Series A preferred stock
through the issuance of additional shares of Series A
preferred stock having an aggregate initial liquidation
preference equal to the amount of cash dividends otherwise
payable. Dividends are cumulative from the date of issuance and
are payable, when, as and if declared by the Board of Directors,
on March 31 and September 30 of each year, commencing
on September 30, 2000. As of June 30, 2001 cumulative
dividends accrued were $223,441.

The holders of the outstanding shares of Series A preferred
stock are not entitled to vote on matters submitted to the
Companys shareholders for voting. However, approval of
holders of a majority of the outstanding shares of Series A
preferred stock is required prior to the issuance of a new
series of preferred stock that ranks senior to the Series A
preferred stock.

Each share of the Series A preferred stock is convertible
at the option of the holder, at any time after the date of
issuance, into shares of common stock equal to the Liquidation
Preference divided by the initial conversion price of $14.24.
The conversion price is subject to adjustment in accordance with
the Companys articles of incorporation.

14



---



##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)

6.  Preferred Stock (continued)

Series B Preferred
Stock

During February 2001, HSNS amended it bylaws to provide for
the authorization of 6,500 shares of Series B preferred
stock. HSNS issued 6,000 shares of Series B preferred stock
(2,000 of which are being held in escrow) in connection with the
Summus, Ltd. asset acquisition. See Note 2. Each share of
Series B preferred stock:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | will be automatically converted into 1,000 shares of common
	stock, subject to adjustment for stock dividends, stock splits
	and the like, after the Companys charter is amended to
	increase the number of authorized shares of common stock to at
	least 60 million shares. Until then, the Series B
	preferred stock will not be convertible. Under the terms of the
	Asset Purchase Agreement, HSNS is required to seek shareholder
	approval to amend its charter to increase the number of
	authorized shares of common stock so that there will be
	sufficient shares of common stock available and reserved for
	issuance upon conversion of the Series B preferred stock.
|
| |  | is entitled to receive dividends and participate in
	distributions upon liquidation, pro rata, with the common stock
	on an as-converted basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | will vote equally with the common stock on an as-converted basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

The above rights apply even if there are insufficient authorized
shares of common stock to permit conversion of the shares of
Series B preferred stock. There are no other preferences or
privileges associated with the Series B preferred stock.

7.  Settlements of Contractual Disputes and
Litigation

In June 2001, the Company entered into an agreement of
settlement and compromise whereby it issued 250,000 shares of
its restricted common stock in full satisfaction of a $435,815
payable to entities affiliated with a related party. Under the
terms of the agreement, the Company agreed to register the
resale of the shares issued upon the Companys filing of a
registration statement under the Securities Act of 1933.

On June 29, 2001, the Company entered into a settlement
agreement and voting agreement with William R. Dunavant and his
counsel. Under the terms of such agreements:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the Company issued an aggregate of 475,000 shares of common
	stock to Mr.  Dunavant and his counsel which were valued at
	$352,688. Such amount was determined by applying a discount to
	the traded value of the Companys stock on the date of the
	revised settlement;                                                                                                                                                                                                                                                                                                                         
|
| |  | Mr. Dunavant agreed to certain resale restrictions with
	respect to all but 350,000 shares of common stock held by him
	(an aggregate of 2,275,000 shares), specifically, to limit his
	public resale of such shares to 30,000 shares per calendar month
	until February 15, 2002;                                                                                                                                                                                                                                                                                                                
|
| |  | the Company agreed to prepare and proceed diligently to complete
	and file a registration statement with the SEC registering the
	resale of all of the shares held by Mr. Dunavant, his
	spouse and his counsel, with Mr. Dunavant and his counsel
	having a right to seek an immediate hearing for emergency
	injunctive relief if such registration statement is not filed
	before July 31, 2001, unless counsel to the Company advised
	the Company (as counsel has) that it is in the best interests of
	the Company and its shareholders to delay the filing of such
	registration statement;
|
| |  | Mr. Dunavant, his spouse and his counsel agreed, for a
	two-year period from the date of the agreements, to vote the
	shares held by them in favor of and for the election of Board
	nominees by the Company and to vote such shares in a manner
	consistent with the recommendation of the Board with                                                                                                                                                                                                                                                                                            

15



---



##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)



| |  |                                                                    
| |  | -------------------------------------------------------------------
| |  | 7.  Settlements of Contractual Disputes and
	Litigation (continued)

respect to certain extraordinary transactions (such as a tender
offer, an exchange offer, merger or other business combination);
and



| |   |                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the Company, on the one hand, and Mr. Dunavant and his
	counsel, on the other, executed mutual general releases with
	respect to any and all claims against each other, except with
	respect to the obligations and liabilities under such agreements.

At the meeting of the Companys Board of Directors held on
July 20, 2001, counsel to the Company advised the Board
that, in counsels opinion, it was in the best interests of
the Company and its shareholders to delay the filing of a
registration statement with the SEC to register the resale of
all the shares of common stock held by Mr. Dunavant, his
spouse and his attorney. Counsels views on this subject
took cognizance of, among other things, the critical importance
to the Company of:



| |   |                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | becoming timely in its reporting obligations under the
	Securities Exchange Act of 1934, as amended (at the time the
	Companys quarterly report on Form 10-Q for the first
	quarter of 2001, to have been filed on or before May 15,
	2001, had not yet been filed); and                                 
|
| |  | clearing its Form 10 at the earliest opportunity possible,
	since the clearance of the Form 10 is a prerequisite to
	having the Companys common stock made eligible for
	quotation on the OTC Bulletin Board and thereby potentially
	opening up greater opportunities for the Company to raise
	capital.

The Company and its counsel, in accordance with the
June 29, 2001 settlement agreement, have kept
Mr. Dunavant, through his counsel, apprised of the
Companys contemplated timing with respect to the filing of
the registration statement in view of these considerations.
Further, the Company has initiated the process by which all of
its shareholders with registration rights, including
Mr. Dunavant, have been sent a notice seeking an indication
from such shareholders of their desire to have their shares
subject to such registration rights covered by the registration
statement, the number of such shares and their intended plan of
distribution. The Company currently anticipates that it will
file the registration statement with the SEC within a matter of
days after clearing the Form 10.

8.  Subsequent Events

The AIC Litigation

On March 30, 2001, Analysts International Corporation
(AIC) filed a civil summons and complaint in General
Court of Justice, District Court Division, County of Wake, North
Carolina, against High Speed Net Solutions, Inc. The complaint
alleged that the Company breached certain contracts with AIC,
dated December 9, 1999, February 11, 2000,
April 25, 2000, May 9, 2000, and May 23, 2000,
under which AIC provided the Company with computer programming
services. AIC requested that the court enter judgment in its
favor for $358,426, plus pre-judgment interest from
September 26, 2000, on certain invoices at the rate of 18%
per annum, post-judgment interest at the rate of 8% per annum,
reasonable costs of AIC and other relief the court deems
equitable.

The Company and AIC entered into a settlement agreement and
release, dated August 7, 2001, under which the Company has
agreed to pay the sum of $358,426, plus interest accruing at the
rate of 8% per annum from March 31, 2000 (the
Indebtedness) according to the following payment
schedule: (i) $20,000 upon execution of the settlement
agreement, (ii) $5,000 per month for a period of six months,
commencing one month after execution of the settlement
agreement, and (iii) $10,000 per month until the balance of the
Indebtedness is paid in full. The Company also executed a
consent order in favor of AIC providing for AICs entry of
a judgment by consent in the amount of the Indebtedness, less
any payments made under the settlement agreement, in the event
the Company defaults on its obligations under the settlement
agreement.

16



---



##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)



8.  Subsequent Events (continued)





The ENELF Litigation







On March 15, 2001, ENELF, LLC filed a civil lawsuit in the
United States District Court for the Eastern District of Texas
alleging patent infringement by Microsoft Corporation, Texas
Instruments, Incorporated Aware, Inc. and Summus, Ltd. ENELF
alleged that certain modules of MaxxSystem and PhotoID SDK
infringed upon ENELFs U.S. Patent Number 4,599,567
entitled Signal Representation Generator. ENELF
sought to enjoin Summus, Ltd. from making, selling, offering for
sale, using, or importing its wavelet-based video and image
processing technology. In addition, ENELF sought an unspecified
amount of monetary damages. We have filed an answer denying
ENELFs allegations, and seeking a declaratory judgment of
non-infringement, invalidity, and unenforceability. We have
recently entered into settlement discussions with ENELF, but are
prepared to provide a vigorous defense to this lawsuit.
Mediation has been scheduled for November 2001. The Company
has not recorded a loss contingency relating to this complaint
because, in managements opinion, it is not probable that a
loss contingency exists and an amount cannot reasonably be
estimated.




Divestiture of Rich
Media Direct (RMD) Business, including Douglas May
& Co., Inc.




Upon the closing of the Summus, Ltd. asset acquisition, the
Company determined to focus primarily on Summus, Ltd.s
business operations immediately prior to the transaction. The
Company chose to focus primarily on Summus, Ltd.s business
plan because management perceived it had the potential to create
greater shareholder value compared to the scope of HSNSs
business operations. In addition, the Company did not expect to
have the fund-raising capacity to continue to fund the business
plans of both Summus, Ltd. and HSNS, as previously envisioned.
The Company did not establish a plan to divest itself of its
rich media direct (RMD) business (including
Douglas May & Co.s operations) but began to undertake
a management review to determine the appropriate course of
action for this portion of its business given the existing and
anticipated funding constraints.




On September 19, 2001, the Company and Douglas May entered
into a stock purchase agreement under which the Company sold and
transferred to Mr. May all of the Companys equity
interest in Douglas May & Co. and related rich media
direct assets. Under the terms of a share acquisition agreement,
the Company acquired all of the issued and outstanding shares of
capital stock of Douglas May & Co. from Mr. May in
June 2000. The date of the transaction, September 19,
2001, represents the measurement date, as defined by Accounting
Principles Board Opinion No. 30 (APB 30), for
the disposition of the Companys rich media direct
business. Although the measurement date of the disposition
occurred in the third quarter of 2001, the results of operations
of Douglas May & Co. have been presented as
discontinued operations in the Companys statement of
operations for the six months ended June 30, 2001 in
accordance with the guidance of APB 30. For the period
February 16, 2001 through June 30, 2001, the
operations of Douglas May & Co. reflected approximately
$267,000 in revenues and a net loss of $49,988. The carrying
value of the assets of Douglas May & Co. was
approximately $81,000 at June 30, 2001. The Company has
recorded a loss of $215,500 on this disposition for the six
months ended June 30, 2001.

As partial consideration for the sale, the Company has been
released from its obligations with respect to two allotments of
shares of the Companys common stock issued to Mr. May
under the terms of the June 2000 share acquisition
agreement, specifically:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | the obligation to repurchase one allotment of 87,498 shares of
	the Companys common stock for $576,000; and

17



---



##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)



8.  Subsequent Events (continued)




| |   |                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the obligation to issue to Mr. May additional shares of the
	Companys common stock, which when combined with an
	original 50,000 share allotment, would provide a value of
	$500,000 as of the first anniversary of the date the Company
	acquired Douglas May & Co.

The release is expressly made conditional upon the Company not
filing (or having filed against it) a petition in bankruptcy for
a period of one year from the closing of the sale of Douglas May
& Co. to Mr. May.

Under the terms of the stock purchase agreement, Mr. May
retains his option, issued under his now terminated employment
agreement with the Company, to purchase 150,000 shares of the
Companys common stock at an exercise price of $2.50 per
share, such options being exercisable over a ten-year term.

In connection with the sale of the Companys entire equity
interest in Douglas May & Co., the Company transferred
certain technology to Douglas May & Co., including specific
applications of the Companys MaxxSystem suite of software
products developed in connection with the Companys
previously planned rich media direct service
offering.




The Company also entered into a technology license agreement
(and a related source code escrow agreement) with a newly formed
corporation and wholly-owned subsidiary of Douglas May & Co.
Under the technology license agreement, the Company has granted
to this company a perpetual, non-exclusive, non-transferable
license with respect to some of the Companys core software
technology for image, video compression and video streaming. The
technology license agreement provides for the licensees
payment to the Company of royalties, payable on a quarterly
basis, equal to the greater of: (1) a percentage of the
net revenues derived from the sale or license of end
user products using or incorporating the licensed technology or
(2) specified minimum amounts This royalty payment plan
will remain in effect each year the agreement remains in effect.
The agreement can be terminated by the licensee at any time
following the first to occur: (1) payment of $400,000 in
royalty payments to the Company or (2) ninety days prior to
the second anniversary of the agreement, provided that $400,000
in royalty payments have been earned by the Company.







Settlement of Claims of Van
Ernst Jakobs N.V.







On August 21, 2001, the Company commenced negotiations with
Van Ernst Jakobs N.V. (VEJ) regarding the settlement
of disputed amounts claimed by VEJ.







VEJ asserted a claim for services rendered in connection with
the fund raising activities it coordinated and for services as a
finder in the Summus, Ltd. asset acquisition. VEJ
asserted that certain amounts were due and payable by the
Company to VEJ, in the form of cash and equity securities of the
Company. The Companys management was of the view that
payment of any amounts to VEJ (beyond consideration previously
paid in connection with its capital-raising efforts on behalf of
the Company, consisting of a cash payment of $100,000 and the
issuance of 32,501 shares of the Companys common stock)
was conditioned on VEJ raising additional capital for the
Company.







Upon consultation with the Companys outside counsel, the
Company was advised of the strengths and weaknesses of
VEJs claims and the uncertain outcome of potential
litigation. After considering the facts and circumstances, the
Companys management agreed to settle the claim (for a
significantly lower amount than originally claimed and with no
disbursement of cash) in order to:






| |     |                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (1) | maintain a good relationship with VEJ, as a shareholder of HSNS
	and as a representative of other significant HSNS shareholders;                                                                             
|
|
|
| | (2) | further induce VEJ to assist with or participate in future
	capital raising activities (recognizing that VEJ has been
	involved in significant capital raising transactions on behalf
	of HSNS that have been
|

18



---



##### 



High Speed Net Solutions, Inc.


Notes to Consolidated Financial Statements (continued)



8.  Subsequent Events (continued)




| |     |                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | critical to the financing of its operations and HSNS continues
	to depend upon sales of its equity securities to finance its
	operations); and
|
|
|
| | (3) | avoid costly litigation in connection with the settlement of the
	asserted claim.                                                             
|




In October 2001, the Company and VEJ reached an agreement
in principle which contemplates that the Company will issue to
VEJ:






| |     |                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (1) | 80,000 shares of its common stock (in lieu of a cash payment of
	$143,415);                                                                                      
|
|
|
| | (2) | a warrant to purchase 250,000 shares of HSNS common stock with
	an exercise price of $4.00 per share, valued using the
	Black-Scholes pricing model, at $400,000;
|
|
|
| | (3) | a warrant to purchase 150,000 of HSNS common stock with an
	exercise price of 2.50 per share, valued, using the
	Black-Scholes pricing model, at $256,500; and   
|
|
|
| | (4) | a warrant to purchase 150,000 of HSNS common stock with an
	exercise price of 4.50 per share, valued, using the
	Black-Scholes pricing model, at $252,000.       
|




The Company will expense the aggregate value of these
securities, $1.1 million, in the third quarter ending
September 30, 2001.




19



---



##### 





|         |                                                                                       
|-------- | --------------------------------------------------------------------------------------
|Item  2. | Managements Discussion and Analysis of Financial
	Condition and Results of Operations

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements
that we believe are within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be
covered by the safe harbors created by such acts. For this
purpose, any statements that are not statements of historical
fact may be deemed to be forward-looking statements, including
the statements under Managements Discussion and
Analysis of Financial Condition and Results of Operations
regarding our strategy, future operations, future expectations
or future estimates, financial position and objectives of
management. Those statements in this Form 10-Q containing
the words believes, anticipates,
plans, expects and similar expressions
constitute forward-looking statements, although not all
forward-looking statements contain such identifying words. These
forward-looking statements are based on our current expectations
and are subject to a number of risks, uncertainties and
assumptions relating to our operations, results of operations,
competitive factors, shifts in market demand and other risks and
uncertainties. The most important factors that could prevent us
from achieving our stated goals include, but are not limited to,
the following:



| |   |                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a lack of sufficient financial resources to implement the
	Companys business plan, which has resulted in the
	Companys receiving a going concern opinion
	from its independent auditors with respect to its audited
	financial statements as of and for the year ended December 
	31, 2000;
|
| |  | our ability to generate sufficient working capital to meet our
	operating requirements;                                                                                                                                                                                                        
|
| |  | our ability to develop and enter into strategic relationships
	with wireless service providers, semiconductor and device
	designers, wireless device manufacturers and content providers;                                                                                                      
|
| |  | timely deployment by wireless service providers, semiconductor
	and device designers, and wireless device manufacturers of our
	software in their networks and mobile information devices;                                                                                                     
|
| |  | the continued growth in demand for wireless and mobile usage;                                                                                                                                                                                                                                  
|
| |  | new product development and acceleration of commercial
	deployment of such products;                                                                                                                                                                                                           
|
| |  | technological competition, which creates the risk of the
	Companys technology being rendered obsolete or
	noncompetitive;                                                                                                                                                                     
|
| |  | the lack of patent protection with respect to the Companys
	technology; and                                                                                                                                                                                                                   
|
| |  | potential infringement of the patent rights of third parties.                                                                                                                                                                                                                                  

Although we believe that the assumptions underlying our
forward-looking statements are reasonable, any of the
assumptions could be inaccurate and actual results may differ
from those indicated by the forward-looking statements included
in this Form 10-Q. In light of the significant
uncertainties inherent in the forward-looking statements
included in this Form 10-Q, you should not consider the
inclusion of such information as a representation by us or
anyone else that we will achieve such results. Moreover, we
assume no obligation to update these forward-looking statements
to reflect actual results, changes in assumptions or changes in
other factors affecting such forward-looking statements.

Overview




On February 16, 2001, High Speed Net Solutions, Inc. d/b/a
Summus (HSNS or the Company) acquired
all the assets and operations of Summus, Ltd. under the terms of
an asset purchase agreement, dated October 30, 2000, as
amended. In legal form, the transaction was effected by HSNS
issuing shares of its common and Series B preferred stock,
and other equity interests, in exchange for the net assets of
Summus, Ltd.







We initially accounted for the transaction as a business
combination and a reverse acquisition under the
guidance of Accounting Principles Board Opinion No. 16
Business Combinations. Because the transaction was
accounted for as a reverse acquisition, Summus, Ltd. was
considered the accounting acquirer




20



---



##### 














The HSNS Acquisition of
Summus, Ltd.s Assets and Operations







On February 16, 2001, HSNS acquired all of the assets and
operations of Summus, Ltd. under the terms of an asset purchase
agreement, dated October 30, 2000, as amended (the
Asset Purchase Agreement).







From Summus, Ltd.s perspective, the primary business
purpose of entering into the transaction with HSNS was to
provide a vehicle for raising capital. Summus, Ltd. was at a
stage in its development where it required additional financing
or needed to combine with another entity in order to finance its
business and realize its other objectives. Entering into the
Asset Purchase Agreement became the most logical course of
action to provide financing to Summus, Ltd. and accomplish other
key objectives in view of, among other things, the following:






| |   |                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Summus, Ltd. already had a substantial equity interest in HSNS.
	In fact, the transaction provided both companies the opportunity
	to capitalize on investments they previously made in each other.
	Prior to the combination, Summus, Ltd. owned approximately 27.6%
	of HSNS and HSNS owned approximately 14% of Summus, Ltd.                                        
|
|
|
| |  | HSNS had had success in raising equity capital through private
	placements or other types of fund-raising, notwithstanding its
	own limited financial resources and unprofitable operations.
	This caused Summus, Ltd.s management to believe that the
	Company (that is, the post-transaction company) would be able to
	continue to have success in raising capital.
|
|
| |  | HSNS was in the process of seeking to register its common stock
	under Section  12 of the Securities Exchange Act of 1934
	for purposes of having its stock made eligible for quotation on
	the OTC Bulletin Board. This offered the potential for future
	liquidity in such stock.                                                                                    
|
|
| |  | The consideration to be received in connection with the
	transaction was deemed to represent the highest value among the
	options considered and, thus, in the best interests of Summus,
	Ltd. and its shareholders, and allowed Summus, Ltd. to maintain
	continuity in management and strategic direction.                                                           
|
|
|
| |  | The transaction offered the potential to create more growth
	opportunities for the Company based on the expected enhanced
	access to capital resources.                                                                                                                                                                                                                
|




In addition, Summus, Ltd. evaluated potential financing
alternatives other than a transaction with HSNS. Nearly every
institutional investor contacted declined to make an investment
in Summus, Ltd. due to its significant ownership interest in
HSNS, a publicly-held company.




Based on the foregoing, Summus, Ltd. concluded that the
transaction with HSNS was the most practical solution to its
financing and growth needs.




Prior to the closing of the transaction, Summus, Ltd. was the
largest shareholder of HSNS. It owned 8,217,781 shares (33.2%)
of HSNSs common stock, approximately 27.6% on a fully
diluted basis. Immediately after the closing, Summus,
Ltd.s ownership interest in HSNS increased to
20,593,352 shares (55.5%) of HSNSs common stock on an
as-converted basis, approximately 53.1% on a fully-diluted basis.







The Asset Purchase Agreement contemplates that Summus, Ltd. will
liquidate following the completion of its distribution of
HSNSs securities received in the transaction to the
shareholders of Summus, Ltd. On March 13, 2001, Summus,
Ltd. distributed certain of the shares of HSNSs common
stock received in the transaction to the shareholders of Summus,
Ltd. in accordance with their pro rata interests; the balance of
such shares was distributed in mid-July 2001.




21



---



##### 






In legal form, the transaction was effected by HSNS issuing
shares of its common stock and Series B preferred stock,
and other equity interests, in exchange for the net assets of
Summus, Ltd. The consideration paid by HSNS to acquire the
assets of Summus, Ltd. is described below:






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | HSNS issued to Summus, Ltd. for distribution to the shareholders
	of Summus, Ltd. a total of 20,218,733 shares of HSNS common
	stock and 6,000 shares of Series B preferred stock. As a
	shareholder of Summus, Ltd., HSNS was entitled to receive
	3,604,445 of the total number of shares of common stock issued
	in the transaction. However, under the terms of the Asset
	Purchase Agreement these shares were canceled, resulting in a
	net issuance of 16,614,288 shares of HSNS common stock. In
	addition, the Asset Purchase Agreement provided for the
	cancellation of 8,217,781 shares of HSNS common stock owned by
	Summus, Ltd. prior to the parties execution of the
	agreement.
|
| |  | HSNS issued to Summus, Ltd. 6,000 shares of newly created
	Series B preferred stock, of which 2,000 shares were
	deposited with an escrow agent as security for any
	indemnification obligations of Summus, Ltd. and its shareholders
	under the Asset Purchase Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | HSNS issued to Summus, Ltd. warrants to purchase a total of 500
	shares of its Series B preferred stock, exercisable for a
	period of 5 years from February 16, 2001. The exercise
	price of the warrants is $5,500.00 per share of Series B
	preferred stock ($5.50 per share of the Companys common
	stock on an as-converted basis).                                                                                                                                                                                                                                                                                                                                                          




In addition to the items described above, the terms of the Asset
Purchase Agreement provided for HSNSs assumption of
approximately $2.8 million of liabilities of Summus, Ltd.
to third parties. All amounts owed by and between HSNS and
Summus, Ltd. were cancelled upon the closing of the transaction.







Initially, the transaction was recorded as a business
combination under the guidance of Accounting Principles Board
Opinion No. 16 (APB 16), Business Combinations
because, among other reasons:






| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  | HSNS acquired all the operating assets and liabilities of
	Summus, Ltd.;                                                             
|
|
|
| |  | each of HSNS and Summus, Ltd. were operating entities at the
	time of the closing of the transaction; and                            
|
|
|
| |  | Summus, Ltd. was (and is) to be liquidated following its
	distribution of the equity securities of HSNS received in the
	transaction.
|




Under APB 16, the transaction was also accounted for as a
reverse acquisition in which Summus, Ltd. was
treated as the accounting acquirer; HSNS, the acquired
corporation. Summus, Ltd. was considered the accounting acquirer
in the transaction because Summus, Ltd. received shares of
HSNSs common stock and other equity securities, to be
distributed to the Summus, Ltd. shareholders, representing the
largest portion of the voting interests in HSNS.







At the time the determination was made to account for the
transaction as a business combination, we considered an
alternative accounting treatment: accounting for the transaction
as a capital transaction, accompanied by a recapitalization. The
more typical type of transaction for which this accounting
treatment is deemed appropriate is the merger of a private
operating company into a non-operating public shell corporation
with nominal net assets, with the owners and management of the
private company having actual or effective operating control of
the combined company after the transaction. We did not believe
this was the most appropriate accounting treatment because HSNS
(including its wholly-owned subsidiary, Douglas May & Co.)
was an operating company, not a non-operating public shell
corporation.







We have since reassessed the appropriateness of accounting for
the transaction as a capital transaction, accompanied by a
recapitalization, in view of the particular facts and
circumstances of this transaction, including:









| |   |                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Summus, Ltd.s management evaluated the operating
	activities of HSNS, which, at the time the Asset Purchase
	Agreement was entered into, were primarily conducted through
	HSNSs wholly-owned subsidiary, Douglas May & Co.
	However, the operating activities of HSNS,




22



---



##### 



| |   |                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   | from Summus, Ltd.s perspective, were an incidental
	consideration in its decision to enter into and consummate the
	transaction.                                                                                                                          
|
|
|
| |  | As noted above, Summus, Ltd.s primary purpose in entering
	into the transaction was to provide a vehicle for raising
	additional capital through the acquisition of a majority
	interest in an entity (i.e., HSNS) whose common stock is
	publicly traded.
|




Considering these factors and the result of discussions with the
staff of Securities and Exchange Commission, we have concluded
that HSNSs status as an operating company does not
preclude accounting for the transaction as a capital
transaction, accompanied by a recapitalization. Accordingly, we
have determined that it is more appropriate to account for the
transaction in this manner.







By accounting for the transaction as a capital transaction, the
transaction is effectively viewed as the issuance of stock by
Summus, Ltd. in exchange for the cash of HSNS, accompanied by a
recapitalization of Summus, Ltd. The accounting for the
transaction is quite similar to that resulting from a reverse
acquisition, except that no goodwill or other intangible assets
are recorded.







Our change in the accounting for the transaction dictates a
restatement of our financial statements as of and for the three
month periods ended March 31, and June 30, 2001, as
well as for the six month period ended June 30, 2001, to
eliminate both the goodwill originally recorded in the
transaction (in the amount of $27.5 million), and the
amortization of the goodwill during the six months ended
June 30, 2001 (in the amount of $3.4 million).







As a result of the transaction, the historical financial
statements of Summus, Ltd., for accounting purposes, are deemed
to be those of the Company. The equity accounts of Summus, Ltd.
have been adjusted for a recapitalization to reflect the equity
structure of HSNS, the legal acquirer. Specifically:






| |   |                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | the historical shareholders equity of Summus, Ltd. prior
	to the transaction has been restated for the equivalent number
	of shares of HSNS common and Series B preferred stock, and
	other equity interests, received in the transaction after giving
	effect to any difference in par value of HSNSs and Summus,
	Ltd.s common stock, with an offset to additional paid-in
	capital;
|
|
|
| |  | the accumulated deficit of Summus, Ltd. has been carried forward
	after the transaction; and                                                                                                                                                                                                                                                                                             
|
|
|
| |  | loss per share for periods prior to the transaction have been
	restated to reflect the number of equivalent shares received by
	Summus, Ltd. in the transaction.                                                                                                                                                                                                                         
|

Divestiture of Rich Media
Direct Business




Upon the consummation of the Summus, Ltd. asset acquisition on
February 16, 2001, HSNS chose to focus primarily on Summus,
Ltd.s business plan at the time of the transaction because
management perceived it had the potential to create greater
shareholder value compared to the scope of HSNSs business
operations prior to the transaction. In addition, the Company
did not expect to have the fund-raising capacity to continue to
fund the business plans of both Summus, Ltd. and HSNS, as
previously envisioned. The Companys management began a
review to determine the appropriate course of action for its
rich media direct business (including the operations
of Douglas May & Co.) in light of the existing and
anticipated funding constraints, but did not establish a plan to
divest itself of this business.







On September 19, 2001, the Company and Douglas May entered
into a stock purchase agreement under which the Company sold and
transferred to Mr. May all of the Companys equity
interest in Douglas May & Co. and related rich media
direct assets. The date of the transaction, September 19,
2001, represents the measurement date, as defined by Accounting
Principles Board Opinion No. 30 (APB 30), for
the disposition of the Companys rich media direct
business. Although the measurement date of the disposition
occurred in the third quarter of 2001, the results of operations
of Douglas May & Co. have been presented as
discontinued operations in the Companys statement of
operations for the six months ended June 30, 2001 in
accordance with the guidance of APB 30. For the period
February 16, 2001 through June 30, 2001, the
operations of Douglas May & Co. reflected approximately
$267,000 in revenues and a net loss of $49,988. The carrying
value of the assets of Douglas May & Co. was
approximately $81,000 on June 30, 2001. The




23



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##### 














Under the terms of the June 2000 share acquisition
agreement, HSNS acquired all of the issued and outstanding
shares of capital stock of Douglas May & Co. from
Mr. May on July 10, 2000. As partial consideration for
the sale of Douglas May & Co. back to Mr. May, the
Company has been released from its obligations with respect to
two allotments of shares of HSNSs common stock issued to
Mr. May under the terms of the share acquisition agreement,
specifically:






| |   |                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the obligation to repurchase one allotment of 87,498 shares of
	HSNSs common stock for $576,000; and                                                                                                                                                  
|
|
| |  | the obligation to issue to Mr. May additional shares of
	HSNSs common stock, which when combined with an original
	50,000 share allotment, would provide a value of $500,000 as of
	the first anniversary of the date HSNS acquired Douglas
	May & Co.
|




The release is expressly made conditional upon the Company not
filing (or having filed against it) a petition in bankruptcy for
a period of one year from the closing of the sale of Douglas
May & Co. to Mr. May.







Under the terms of the stock purchase agreement, Mr. May
retains his option, issued under his now terminated employment
agreement with HSNS, to purchase 150,000 shares of the
Companys common stock at an exercise price of $2.50 per
share, such options being exercisable over a ten-year term.







In connection with the sale of the Companys entire equity
interest in Douglas May & Co., the Company transferred
certain technology to Douglas May & Co., including
specific applications of the Companys MaxxSystem suite of
software products developed in connection with the
Companys previously planned rich media direct
service offering.







The Company also entered into a technology license agreement
(and a related source code escrow agreement) with a newly formed
corporation and wholly-owned subsidiary of Douglas
May & Co. Under the technology license agreement, the
Company has granted to this company a perpetual, non-exclusive,
non-transferable license with respect to some of the
Companys core software technology for image, video
compression and video streaming. The technology license
agreement provides for the licensees payment to the
Company of royalties, payable on a quarterly basis, equal to the
greater of: (1) a percentage of the net
revenues derived from the sale or license of end-user
products using or incorporating the licensed technology or
(2) specified minimum amounts. This royalty payment plan
will remain in effect each year the agreement remains in effect.
The agreement can be terminated by the licensee at any time
following the first to occur of: (1) payment of $400,000 in
royalty payments to the Company or (2) ninety days prior to
the second anniversary of the agreement, provided that $400,000
in royalty payments have been received by the Company.




The Companys Current
Business Focus

The core of the Companys business plan is to focus on the
emerging wireless and mobile market. We are in the process of
developing multimedia technology to address the bandwidth, error
constraints, contention with voice and data traffic, and power
challenges associated with multimedia content transmission over
existing and future wireless networks. Our technology is based
on certain key mathematical theories and tools, using advances
and results from the fields of wavelets, non-linear partial
differential equations and dynamical systems, and graph theory
and topology. We use these tools to create highly efficient
algorithms for different types of information processing with
low computational complexity and low memory usage.

Our strategy is to continue to work toward commercial release of
our BlueFuel product line currently under development and
to enter into business relationships and alliances with device
manufacturers, content providers and cellular carriers to extend
the reach of multimedia applications to wireless and mobile
devices. It is our intent to license our technology and provide
a framework to those with whom we enter into such relationships
and alliances that will increase usage, sell devices and
increase their customer base. A specific area of focus will be
to identify targeted applications to drive market
pull for our products. This will entail

24



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##### 





Although we are in the process of building relationships with
wireless and mobile device manufacturers, content providers and
cellular carriers, we have not, as yet, entered into any
revenue-generating contractual agreements with these parties,
and have not, to date, executed any product orders for the
BlueFuel product line currently under development. We
recognize that a concern for our corporate viability and the
related concerns regarding our lack of financial resources and
ability to meet specific applications demands and provide
product support may hamper our efforts to forge such business
relationships and alliances. Nevertheless, management believes
that the attributes of our technology will provide opportunities
to enhance our product awareness and profile through such
relationships and alliances.




We are currently focusing our product development resources on
adapting or porting BlueFuel to the Qualcomm
BREW wireless platform. This effort is expected to consume a
significant amount of the Companys technical and business
development resources through the remainder of 2001. In parallel
with this effort, we are dedicating additional resources to
define, develop and execute a beta/field trial for
BlueFuel Video (our video compression software for
multimedia applications) to support our internal development
efforts and begin to develop market awareness for
BlueFuel. This beta/field trial is planned for the fourth
quarter of 2001.







The initial porting effort to Qualcomms BREW platform
should provide the foundation for future ports, with the
knowledge gained by porting our technology to the BREW platform
providing an increased knowledge base that can be used across
multiple wireless operating systems. The experience gained
should help reduce the time to market when porting to the
platforms of other industry participants. Regardless of our
porting efforts, however, we will still have to secure contracts
with carriers, content providers and device manufacturers to
generate revenue.




We anticipate that the first version of the BlueFuel
Efficiency Engine (a multimedia operating system designed
to efficiently route, store and monitor multimedia traffic in a
network) will be available during the fourth quarter of 2001. We
are targeting commercial release of the BlueFuel Video
solution, including BlueFuel Player (player software),
BlueFuel Create (a content creation tool) and
BlueFuel Server (the server-side engine) in the first
quarter of 2002.

We anticipate that the various components of the
BlueFuelproduct line will be licensed separately or in
combination with one another, with pricing dependent on the
number of components licensed. Our present revenue model
contemplates that wireless carriers or service providers
licensing the BlueFuel product line would be assessed a
base fee plus a royalty for each subscriber that signs up to use
the service (e.g., by downloading BlueFuel Player or
accessing BlueFuelServer). A further charge would be
assessed if the service provider requires additional servers. In
some cases, we may effectively subsidize the rollout of the
BlueFuel product line through a revenue sharing
arrangement entered into with a handset manufacturer, content
creator and service provider.




Management has structured the Companys internal
organization as one business segment from which all operating
decisions and operating results are made and evaluated.




Results of Operations

Three Months ended June 30, 2001 compared to
Three Months ended June 30, 2000

Revenues. Total revenues decreased $179,552 to $211,019
in the three months ended June 30, 2001, down 46.0% from
$390,571 in the three months ended June 30, 2000. The
decrease in these revenues was primarily due to a decrease in
providing contract services.

Costs of Revenues. Total costs of revenues decreased
$54,726 to $102,484 in the three months ended June 30,
2001, down 34.8% from $157,210 in the corresponding period of
the prior year. Costs of contracts and

25



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##### 





Total gross profit decreased $124,826, or 53.5%, to $108,535 for
the three months ended June 30, 2001, compared with
$233,361 for the three months ended June 30, 2000. The
decrease was primarily attributable to less license fee income
in the three months ended June 30, 2001 compared to the
corresponding period of the prior year. License fee income
generates a higher gross profit percentage compared to contract
revenues.

Selling, General and Administrative Expenses. Selling,
general and administrative expenses consist primarily of
salaries, consulting fees, office operations, administrative and
general management activities, including legal, accounting and
other professional fees. Selling, general and administrative
expenses for the three months ended June 30, 2001, were
$1,841,989, compared to $1,551,396 for three months ended
June 30, 2000. The increase in selling, general and
administrative expenses resulted primarily from the business
combination between HSNS and Summus, Ltd.




Non-Cash Compensation. Non-cash compensation for the
three months ended June 30, 2001 was $57,806 compared to
$823,999 for the three months ended June 30, 2000. During
the three months ended June 30, 2001, stock options were
granted to employees at prices below the fair value of the
underlying common stock resulting in total compensation of
$240,500, of which $25,250 was charged to expense during the
three months ended June 30, 2001. The remaining amount,
$215,250, has been classified as deferred compensation and will
be charged to expense as future vesting of the stock options
occurs. The remaining amount of non-cash compensation for the
three months ended June 30, 2001 of $32,556, reflects the
amortization for three months of deferred compensation resulting
from stock options granted during the year ended
December 31, 2000, at prices below the fair value of the
underlying common stock. For the three months ended
June 30, 2000, amortization of the deferred compensation
was $823,999. The decrease in amortization of deferred
compensation recorded in the three months ended June 30,
2001 as compared to the corresponding period in the prior year
from options granted in year 2000 is a result of the reversal of
deferred compensation from forfeited stock options during 2001,
plus a large number of fully vested options granted during the
three months ended June 30, 2000.




Research and Development. Research and development costs
for the three months ended June 30, 2001, were $115,657
compared to $378,656 for the three months ended June 30,
2000. The decrease in these costs was due primarily to the
reduced staffing level in the first quarter of 2001 compared
with that during the comparable period in the prior year.

Gain on Sale of Stock of Equity Investee. Gain on the
sale of stock of equity investee for the three months ended
June 30, 2000 was $117,188. In 1999, Summus, Ltd. acquired
shares of HSNS common stock which it later sold to third
parties. During the three months ended June 30 2000,
Summus, Ltd. sold 100,000 shares of HSNS common stock for gross
proceeds of $200,000, resulting in a gain on sale of $117,188.

Participation in loss of Equity Investee. Participation
in loss of equity investee for the three months ended
June 30, 2000, was $1,010,479. In 1999, Summus, Ltd.
acquired a majority ownership interest in HSNS. Summus, Ltd.
accounted for its investment in HSNS using the equity method of
accounting. Under the equity method of accounting, Summus, Ltd.
adjusted its investment in HSNS for its share of HSNSs
losses subsequent to the date of Summus, Ltd.s initial
investment. During 2000, Summus, Ltd.s investment in HSNS
was reduced to zero as a result of Summus, Ltd.s sales of
shares of HSNS common stock and through Summus, Ltd.s
share of the losses of HSNS.

Net Interest Income (Expense). Net interest expense for
the three months ended June 30 2001, was $8,708, compared
to net interest income of $20,021 for the corresponding period
of the prior year. Net interest expense for the three months
ended June 30, 2001 related to interest costs associated
with capital lease obligations and note payable agreements. The
net interest income in the three months ended June 30,
2000, resulted from earnings on cash balances generated from the
sale of shares of HSNS common stock, net of interest costs on
capital lease obligations and note payable agreements.

26



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##### 



Six Months ended June 30, 2001 compared to
Six Months ended June 30, 2000

Revenues. Total revenues decreased $163,167 to $507,179
in the six months ended June 30, 2001, down 24.3% from
$670,346 in the six months ended June 30, 2000. The
decrease in these revenues was primarily due to a decrease in
providing contract services.

Costs of Revenues. Total costs of revenues decreased
$51,606 to $235,756 in the six months ended June 30, 2001,
down 18.0% from $287,362 in the corresponding period of the
prior year. Costs of contracts and license fees for the six
months ended June 30, 2001 and 2000 were comprised
primarily of salaries and related costs of providing such
services.

Total gross profit decreased $111,561, or 29.1%, to $271,423 for
the six months ended June 30, 2001, compared with $382,984
for the six months ended June 30, 2000. The decrease was
primarily attributable to less license fee income in the six
months ended June 30, 2001 compared to the corresponding
period of the prior year. License fee income generates a higher
gross profit percentage compared to contract revenues.




Selling, General and Administrative Expenses. Selling,
general and administrative expenses consist primarily of
salaries, consulting fees, office operations, administrative and
general management activities, including legal, accounting and
other professional fees. Selling, general and administrative
expenses for the six months ended June 30, 2001, were
$3,524,977, compared to $2,893,056 for six months ended
June 30, 2000. The increase in selling, general and
administrative expenses resulted primarily from the business
combination between HSNS and Summus, Ltd.







Non-Cash Compensation. Non-cash compensation for the six
months ended June 30, 2001 was $772,262 compared to
$823,999 for the six months ended June 30, 2000. During the
six months ended June 30, 2001, stock options were granted
to employees at prices below the fair value of the underlying
common stock resulting in total compensation of $879,688, of
which $664,438 was charged to expense during the six months
ended June 30, 2001. The remaining amount, $215,250, has
been classified as deferred compensation and will be charged to
expense as future vesting of the stock options occurs. The
remaining amount of non-cash compensation for the six months
ended June 30, 2001 of $107,824, reflects the amortization
for six months of deferred compensation resulting from stock
options granted during the year ended December 31, 2000, at
prices below the fair value of the underlying common stock. For
the six months ended June 30, 2000, amortization of
deferred compensation, resulting from the issuance of stock
options at prices below the fair value of the underlying common
stock, was $823,999. The decrease in amortization of deferred
compensation recorded in the six months ended June 30, 2001
as compared to the corresponding period in the prior year from
options granted in year 2000 is a result of the reversal of
deferred compensation from forfeited stock options during 2001,
plus a large number of fully vested options granted during the
six months ended June 30, 2000.




Research and Development. Research and development costs
for the six months ended June 30, 2001, were $217,386
compared to $773,913 for the six months ended June 30,
2000. The decrease in these costs was due primarily to the
reduced staffing level in the first half of 2001 compared to
that during the comparable period of the prior year.

Gain on Sale of Stock of Equity Investee. Gain on the
sale of stock of equity investee for the six months ended
June 30, 2000 was $3,244,767. In 1999, Summus, Ltd.
acquired shares of HSNS common stock which it later sold to
third parties. During the six months ended June 30 2000,
Summus, Ltd. sold 915,000 shares of HSNS common stock for gross
proceeds of $4,057,500, resulting in a gain on sale of
$3,244,767.

Participation in loss of Equity Investee. Participation
in loss of equity investee for the six months ended
June 30, 2000, was $2,082,693. In 1999, Summus, Ltd.
acquired a majority ownership interest in HSNS. Summus, Ltd.
accounted for its investment in HSNS using the equity method of
accounting. Under the equity method of accounting, Summus, Ltd.
adjusted its investment in HSNS for its share of HSNSs
losses subsequent to the date of Summus, Ltd.s initial
investment. During 2000, Summus, Ltd.s investment in HSNS
was reduced to zero as a result of Summus, Ltd.s sales of
shares of HSNS common stock and through Summus, Ltd.s
share of the losses of HSNS.

Net Interest Income (Expense). Net interest expense for
the six months ended June 30 2001, was $12,073, compared to
net interest income of $49,974 for the corresponding period of
the prior year. Net

27



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Loss from Discontinued Rich Media Direct Operations.The
Company recorded a loss from operations of its rich media
direct business of $49,988, as well as a loss on disposal
of this business segment of $215,500, for the six months ended
June 30, 2001. The Companys divestiture of this
business includes the sale of Douglas May & Co. to
Mr. May on September 19, 2001.

Liquidity and Capital Resources




As of June 30, 2001, the Company had $143,567 of cash on
hand and negative working capital of approximately
$5.1 million. As of such date, the Company had
approximately $5.2 million of accounts payable, accrued
expenses, notes payable and capital lease obligations and was in
default in the aggregate amount of $1.1 million with
several of its vendors. As of September 30, 2001, the
Company had entered into settlement agreements or arrangements
with approximately 30 of its vendors, to which the Company owed
roughly $1.5 million, under which such vendors have agreed
to the Companys payment of less than the amounts due, the
extension of payment terms by between 9-18 months and/or the
satisfaction of the amounts due through a combination of cash
and stock. The vendor to which the Company owed the largest
amount is Analysts International Corporation (AIC),
which provided the Company with computer programming services
during the 1999-2000 period. The Company entered into a
settlement agreement and release, dated August 7, 2001,
with AIC. Under the terms of the settlement agreement, the
Company has agreed to pay the sum of $358,426, plus interest
accruing at the rate of 8% per annum from March 31, 2000
(the Indebtedness) according to the following
payment schedule: (i) $20,000 upon execution of the
settlement agreement, (ii) $5,000 per month for a period of
six months, commencing one month after execution of the
agreement, and (iii) $10,000 per month until the balance of
the Indebtedness is paid in full.







The Companys principal sources of liquidity for operating
activities and capital expenditures for the past three years and
through June 30, 2001, has consisted of capital contributed
and borrowings from certain principal shareholders and their
affiliates, the sale of shares of common stock of its equity
investee, HSNS, the licensing of software products to HSNS under
the February 1999 Marketing License Agreement and loans
from HSNS under the Asset Purchase Agreement.




As of June 30, 2001, the Company anticipated that the sale
of its equity securities would represent the primary source of
the Companys funding, as the Company has no credit
facilities. We cannot guarantee that we will continue to be able
to raise capital or that if we do so it will be on favorable
terms. We may have to sell equity at below market rates, and any
future sales of our capital stock to finance our business plan
will dilute our existing shareholders ownership. The
Companys continuation as a going concern depends on its
ability to generate sufficient cash flow to meet its obligations
on a timely basis, to obtain additional financing as may be
required and ultimately to attain profitability.




The success and growth of the Companys business, following
the Summus, Ltd. asset acquisition, is dependent in large part
on our ability to partner and develop relationships within the
wireless industry. In order for the Company to execute on its
business plan, the Company anticipates that it will require
approximately $15 million in working capital within the next
twelve months, in part to expand its operations to Europe and
Asia, where the wireless network infrastructure is currently
more developed than it is in North America. It is imperative
that the Company market and sell or license its products where
the infrastructure is capable of supporting our technology. This
will represent a significant cost to the Company but is critical
to its future success. By establishing operations in targeted
areas around the world, supported by the necessary marketing
resources, the Company will be able to work with local carriers,
device manufacturers and content providers and seek to shorten
sales cycles established with its targeted customer base.







Cash Flow used in Operating Activities. Net cash used in
operating activities was $3,026,943 in the six months ended
June 30, 2001, compared to $3,467,207 in the corresponding
period of the prior year. The decrease in net cash used in
operating activities was due primarily to the reduced staffing
level in the first half of 2001 compared with that during the
comparable period in the prior year.




28



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Cash Flow from Investing Activities. Net cash used in
investing activities was $95,808 in the six months ended
June 30, 2001, compared to net cash provided by investing
activities of $4,057,500 in the corresponding period of the
prior year, representing the proceeds from Summus, Ltd.s
sale of 915,000 shares of common stock in HSNS, its equity
investee.




Cash Flow from Financing Activities. Net cash provided by
financing activities was $3,057,823 in the six months ended
June 30, 2001 compared to net cash used in financing
activities of $139,562 in the corresponding period of the prior
year. Net cash provided by financing activities in the six
months ended June 30, 2001 related to:



| |   |                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the sale of 1,052,749 share of the Companys common stock,
	along with warrants to purchase an additional 2,131,198 shares
	of common stock, at exercises prices ranging from $3.50 to $5.25
	per share (all such securities being restricted
	securities as defined in Rule 144) to accredited
	investors, generating aggregate proceeds of $2,738,857;
|
| |  | $500, representing proceeds from the exercise of stock options
	for 2,000 shares of common stock;                                                                                                                                                                                                                                                         
|
| |  | $540,000 representing the proceeds of a loan from HSNS extended
	under the terms of the Asset Purchase Agreement. Upon the
	closing the HSNS-Summus, Ltd. business combination, the
	indebtedness was cancelled in its entirety;                                                                                                                          
|
| |  | $121,534 in principal payments on capital lease obligations; and                                                                                                                                                                                                                                                                                          
|
| |  | $100,000 in cash payments in partial settlement of the Dunavant
	loss contingency.                                                                                                                                                                                                                                                                        

Net cash flow used in financing activities of $139,562 in the
six months ended June 30, 2000, represented cash payments
on capital lease and note agreements.

New Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 requires that derivative instruments
be recognized as either assets or liabilities in the
consolidated balance sheet based on their fair values. Changes
in the fair values of such derivative instruments will be
recorded either in results of operations or in other
comprehensive income, depending on the intended use of the
derivative instrument. The initial application of SFAS 133 will
be reported as the effect of a change in accounting principle.
SFAS 133 is effective for all fiscal years beginning after
June 15, 2000. Because the Company has not historically
used derivative financial instruments, the Company does not
anticipate that SFAS 133 will have a material impact on its
consolidated financial statements.




On June 29, 2001, the Financial Accounting Standards Board
(FASB) unanimously approved the issuance of
Statements of Financial Accounting Standards (SFAS)
No. 141, Business Combinations and
No. 142, Goodwill and Other Intangible
Assets. SFAS 141 eliminates the pooling-of-interests
method of accounting for business combinations except for
qualifying business combinations that were initiated prior to
July 1, 2001. SFAS 141 also includes new criteria to
recognize intangible assets separately from goodwill. The
requirements of SFAS 141 are effective for any business
combination accounted for by the purchase method that is
completed after June 30, 2001. Under SFAS 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
that are not deemed to have an indefinite life will continue to
be amortized over their useful lives. The amortization
provisions of SFAS 142 requiring non-amortization of goodwill
and indefinite-lived intangible assets apply to goodwill and
indefinite-lived intangible assets acquired after June 30,
2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, the Company will adopt SFAS 142 in
the fiscal year beginning January 1, 2002, and therefore
cease all amortization of goodwill as of January 1, 2002. The
effect of adopting SFAS 142 by the Company beginning
January 1, 2002 is not expected to have a significant
effect on the operating results or financial position of the
Company.




Item  3.  Quantitative and Qualitative
Disclosures About Market Risk

We do not use any derivative financial instruments for hedging,
speculative or trading purposes. Our exposure to market risk is
currently immaterial.

29



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PART II.

OTHER INFORMATION


Item  1.  Legal Proceedings

The Analysts International Corporation
Litigation

On March 30, 2001, Analysts International Corporation
(AIC) filed a civil summons and complaint in General
Court of Justice, District Court Division, County of Wake, North
Carolina, against High Speed Net Solutions, Inc. The complaint
alleged that we breached certain contracts with AIC, dated
December 9, 1999, February 11, 2000, April 25,
2000, May 9, 2000, and May 23, 2000, under which AIC
provided us with computer programming services. AIC requested
that the court enter judgment in its favor for $358,426, plus
pre-judgment interest from September 26, 2000 on certain
invoices at the rate of 18% per annum, post-judgment interest at
the rate of 8% per annum, reasonable costs of AIC and other
relief the court deemed equitable.

The Company and AIC entered into a settlement agreement and
release, dated August 7, 2001, under which we agreed to pay
the sum of $358,426, plus interest accruing at the rate of 8%
per annum from March 31, 2000 (the
Indebtedness) according to the following payment
schedule: (i) $20,000 upon execution of the settlement
agreement, (ii) $5,000 per month for a period of six
months, commencing one month after execution of the agreement,
and (iii) $10,000 per month until the balance of the
Indebtedness is paid in full. We also executed a consent order
in favor of AIC providing for AICs entry of a judgment by
consent in the amount of the Indebtedness, less any payments
made under the settlement agreement, in the event we default on
our obligations under the settlement agreement.

The Cale Yarborough Litigation

On April 25, 2001, Cale Yarborough, a Company shareholder,
filed a summons and complaint against High Speed Net Solutions,
Inc., David Gordon, Bear Stearns Securities Corp., MidSouth
Capital, Inc., and Interwest Stock Transfer Co. in the United
States District Court, District of South Carolina, Florence
Division, alleging, among other things, (i) breach of an
agreement Mr. Yarborough entered into with David Gordon under
which Mr. Gordon was to provide an opinion letter as to
Mr. Yarboroughs ability to resell shares of our
common stock in accordance with Rule 144 promulgated under
the Securities Act of 1933, (ii) violation of
Rule 144, (iii) professional negligence and breach of
fiduciary duty, and (iv) violation of federal and state
securities laws. All of the causes of action in the complaint
stem from the alleged failure to properly advise
Mr. Yarborough as to when the shares of our common stock
held by Mr. Yarborough could properly be resold under
Rule 144.

On May 17, 2001, the complaint was dismissed without
prejudice. As such, it is subject to being reopened upon the
showing of good cause within the 60-day period following the
issuance of the dismissal order. A check of the court docket has
revealed that nothing was filed during this 60-day period. We
believe that Mr. Yarborough and Mr. Gordon are in the
process of reaching or have reached a settlement of this matter.
The Company has not recorded a loss contingency relating to this
complaint because; in managements opinion, it is not
probable that a loss contingency exists and an amount cannot be
reasonably estimated.

The ENELF Litigation




On March 15, 2001, ENELF, LLC filed a civil lawsuit in the
United States District Court for the Eastern District of Texas
alleging patent infringement by Microsoft Corporation, Texas
Instruments, Incorporated, Aware, Inc. and Summus, Ltd. ENELF
alleged that certain modules of MaxxSystem and PhotoID SDK
infringed upon ENELFs U.S. Patent Number 4,599,567
entitled Signal Representation Generator. ENELF
sought to enjoin Summus, Ltd. from making, selling, offering for
sale, using, or importing its wavelet-based video and image
processing technology. In addition, ENELF sought an unspecified
amount of monetary damages. We have filed an answer denying
ENELFs allegations, and seeking a declaratory judgment of
non-infringement, invalidity and unenforceability. We have
recently entered into settlement discussions with ENELF, but are
prepared to provide a vigorous defense to this lawsuit.
Mediation has been scheduled for November 2001. The Company has
not recorded a loss contingency relating to this lawsuit
because, in managements opinion, it is not probable that a
loss contingency exists and an amount cannot be reasonably
estimated.




30



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##### 



The Pin High Company Litigation

In February, 2001, the Pin High Company, Inc. filed suit against
Summus, Ltd. and us in the Superior Court of Wake County, North
Carolina, for non-payment of consulting services rendered. On
April 30, 2001, we, Summus, Ltd. and Pin High entered into
a Release and Settlement Agreement. Under the terms of the
agreement, Summus, Ltd. agreed to pay an aggregate amount of
$20,145.08 in eight installments, the last of which will be due
in December, 2001. The agreement stipulates that if Summus, Ltd.
defaults in its payment obligations, Pin High will have the
right to file a confession of judgment previously executed by
both the Company and Summus, Ltd. making us jointly and
severally liable for the amounts due under the agreement, plus
costs and attorneys fees.

Item  2.  Changes in Securities and Use of
Proceeds

During the three months ended June 30, 2001, the Company
issued an aggregate of 1,396,615 shares of its common stock to
48 persons and entities. These securities were not registered
under the Securities Act of 1933. Except as noted below, the
securities described below were issued in transactions deemed to
be exempt from registration under Section 4(2) of the
Securities Act as transactions by an issuer not involving any
public offering. All of such securities are deemed to be
restricted securities as defined in
Rule 144(a)(3) under the Securities Act. Except as noted
below, no commissions were paid in connection with any of the
issuances.

Stock Issuances for Cash

From April 1, 2001 to June 30, 2001, the Company
issued an aggregate of 636,421 shares of common stock to
40 accredited investors (all of whom were unaffiliated with
the Company) for a price per share ranging from $2.00 to $4.25,
and issued warrants to purchase, at an exercise price of $3.50
to $5.25 per share, an additional 1,314,930 shares of common
stock, for aggregate consideration of $1,711,630. In connection
with the issuance of these shares, the Company issued 8,194
shares of its restricted common stock, as commissions, to the
placement agents involved in such sales. The shares and warrants
were issued in transactions deemed to be exempt from
registration under the Securities Act in reliance upon the
exemption provided by Rule 506 of Regulation D.

In May 2001, the Company issued 2,000 shares of its common
stock upon the exercise of an outstanding stock option. The
Company received $500 in proceeds from the exercise of the stock
option.

Stock Issuances in Settlement of Litigation

Under the terms of a second amended and restated settlement
agreement, dated October 26, 2000, the Company issued
25,000 shares of its common stock to Mr. William R.
Dunavant in the month of April 2001. Under the terms of a
settlement agreement, dated June 29, 2000, the Company
agreed to issue 475,000 shares of its common stock to
Mr. Dunavant and his counsel.

Stock Issuances in Settlement of Liabilities

Under the terms of an agreement of settlement and compromise,
dated June 25, 2001, the Company agreed to issue 250,000
shares of its common stock to Mr. Brad Richdale in full
satisfaction of indebtedness, in the aggregate amount of
$435,815, payable to Mr. Richdale or entities controlled by
him.

Under the terms of a settlement agreement, dated May 18,
2001, the Company issued 5,560 shares of its common stock as
partial payment on amounts owed to Avenel Financial Group.

Stock/ Option Issuances to Directors, Officers
and Employees

During the three months ended June 30, 2001, the Company
granted options to purchase an aggregate of 219,500 shares of
common stock to employees under the Companys 2000 Equity
Compensation Plan. These options were issued with exercise
prices below the fair market value at the time of issuance, and
we recorded total deferred compensation expense of $240,500
related to the option issuances.

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##### 



Options exercisable for 210,000 shares of common stock were
issued to Barry Johnson upon his execution of an employment
agreement with the Company. These options are subject to a
three-year vesting schedule and conditioned upon his continued
employment with the Company.

Options exercisable for 4,000 shares of common stock were issued
to four Summus employees for services rendered to the Company.
These options were fully vested upon issuance.

Options exercisable for 5,500 shares of common stock were issued
to a consultant on June 15, 2001, and vested one month
after issuance.

Item  3.  Defaults Upon Senior
Securities

None.

Item  4.  Submission of Matters to a Vote
of Security Holders

During the quarterly period ended June 30, 2001, no matter
was submitted to a vote of the security holders of the Company.
However, shareholders representing a majority of the outstanding
shares of the Companys voting securities, in accordance
with the provisions of the Florida Business Corporation Act, by
written consent, dated June 13, 2001, adopted and approved
an amendment to the Companys 2000 Equity Compensation Plan
to increase the number of shares of common stock available for
issuance pursuant to awards under the Plan from 2,000,000 to
6,500,000 shares.

Item  5.  Other Information

As previously reported, Messrs. Stuart Diamond and
Christopher W. Gaertner, and Ms. Wendi Tush, each resigned
as a member of (or, in the case of Mr. Gaertner, as an
advisor to) the Companys Board of Directors in mid-July
2001. Dr. Bjorn Jawerth has since been appointed as the
Chairman of the Board.

By letter, dated August 1, 2001, Stuart Diamond confirmed
his resignation as trustee under the Voting Trust Agreement,
dated as of February 16, 2001, among Dr. Bjorn
Jawerth, the Company and Mr. Diamond. The Voting Trust
Agreement was entered into at the time of the closing of the
Companys acquisition of Summus, Ltd.s assets,
primarily to provide for the orderly governance of the Company.
In view of Dr. Jawerths substantial equity interest
in the Company following the asset acquisition, the Company
deemed it prudent to provide for Dr. Jawerths
transfer of shares of the Companys common stock held by
him to Mr. Diamond, in his capacity as the trustee (the
Trustee). The Voting Trust Agreement provides for
the Trustee to vote the shares in the manner directed by the
majority of the Companys Board of Directors. By its terms,
one-twelfth of the shares subject to the Voting Trust Agreement
are to be released to Dr. Jawerth on a monthly basis over
the one-year period following the closing of the asset
acquisition. Accordingly, by August 16, 2001, 50% of the
shares originally subject to the Voting Trust Agreement will
have been released to Dr. Jawerth. The Voting Trust
Agreement provides that the Board of Directors may select a
successor trustee upon the resignation of the Trustee. The Board
has not yet determined whether it will appoint a successor
trustee and, if so, who will serve in such capacity.

32



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##### 



Item 6.  Exhibits and Reports on
Form 8-K

(a) Exhibits

|        |       |             |  |                                                                                                                                                                                                                                                                                                                                
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       | Exhibit    
|Number  |       | Description
|        |       |            
|        | 10.1  |             |  | Settlement Agreement and General Release of all
	Claims, effective April 25, 2001, by and among High Speed
	Net Solutions, Inc., RPC International L.C. and Ronald P.
	Cropper (incorporated by reference to Exhibit 10.21 of our
	Annual Report on Form 10-K for the fiscal year ended
	December 31, 2000, filed July 5, 2001)
|        | 10.2  |             |  | Release and Settlement Agreement, dated
	April 30, 2001, between Pin High Company, Inc. and Summus,
	Ltd. (incorporated by reference to Exhibit 10.24 of our
	Annual Report on Form 10-K for the fiscal year ended
	December  31, 2000, filed July 5, 2001)                                                                    
|        | 10.3  |             |  | Settlement Agreement and Release, dated
	August 7, 2001, between Analysts International Corporation
	and High Speed Net Solutions, Inc.                                                                                                                                                                                        
|        | 10.4  |             |  | Master Porting Agreement, dated as of
	July 27, 2001, between High Speed Net Solutions, Inc. d/b/a
	Summus, Ltd. and Samsung Electronics America                                                                                                                                                                               
|        | 10.5* |             |  | Letter of Employment, dated June 7, 2001,
	between High Speed Net Solutions, Inc. and Barry J. Johnson                                                                                                                                                                                                                         
|        | 10.6  |             |  | Consulting Agreement, dated June 15, 2001,
	between High Speed Net Solutions, Inc. and John Maxwell                                                                                                                                                                                                                            
|        | 10.7* |             |  | Letter of Employment, dated August 9, 2001,
	between High Speed Net Solutions, Inc. and John Maxwell                                                                                                                                                                                                                           
|        | 10.8  |             |  | Consulting Agreement, dated July 9, 2001,
	between High Speed Net Solutions, Inc. d/b/a Summus and Chris
	Kremer                                                                                                                                                                                                               




|  |                                              
|- | ---------------------------------------------
|* | Executive compensation plans and arrangements

(b)  Reports on Form 8-K

During the quarterly period ended June 30, 2001, the
Company filed with the Securities and Exchange Commission the
following Current Reports on Form 8-K:



| |    |                                                                                                                                                                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | On April 16, 2001, the Company filed a Current Report on
	Form 8-K advising as to the expected timing of filing with
	the SEC of its annual report on Form 10-K for the fiscal
	year ended December 31, 2000.                                                                                                                                            
|
| | 2. | On May 16, 2001, the Company filed a Current Report on
	Form 8-K which consisted of a letter to the Companys
	shareholders advising as to, among other things, the resolution
	of certain accounting issues with the staff of the Securities
	and Exchange Commission, technology developments, certain
	operating results, and capital raising efforts.
|
| | 3. | On June 28, 2001, the Company filed a Current Report on
	Form 8-K providing an update on the status and timing of
	filing with the SEC of its annual report on Form 10-K for
	the fiscal year ended December  31, 2000, and its quarterly
	report on Form 10-Q for the first quarter of 2001.                                                            

33



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##### 



SIGNATURES

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



| |                               
| | ------------------------------
| | HIGH SPEED NET SOLUTIONS, INC.




Date: October 31, 2001




| |     |                                                                              
| | --- | -----------------------------------------------------------------------------
| | By: | /s/ BJORN JAWERTH 
	 _______________________________________ 
	 Bjorn Jawerth

| |                           
| | --------------------------
| | Co-Chief Executive Officer




Date: October 31, 2001




| |     |                                                                                    
| | --- | -----------------------------------------------------------------------------------
| | By: | /s/ ROBERT S. LOWREY 
	 _______________________________________ 
	 Robert S. Lowrey

| |                        
| | -----------------------
| | Chief Financial Officer

34



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##### 



EXHIBIT INDEX

| |      |   |  |                                                                                                                                                                                                                                                                                                                                
| | ---- | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.1 |   |  | Settlement Agreement and General Release of all
	Claims, effective April 25, 2001, by and among High Speed
	Net Solutions, Inc., RPC International L.C. and Ronald P.
	Cropper (incorporated by reference to Exhibit 10.21 of our
	Annual Report on Form 10-K for the fiscal year ended
	December 31, 2000, filed July 5, 2001)
|
| | 10.2 |   |  | Release and Settlement Agreement, dated
	April 30, 2001, between Pin High Company, Inc. and Summus,
	Ltd. (incorporated by reference to Exhibit 10.24 of our
	Annual Report on Form 10-K for the fiscal year ended
	December  31, 2000, filed July 5, 2001)                                                                    
|
| | 10.3 |   |  | Settlement Agreement and Release, dated
	August 7, 2001, between Analysts International Corporation
	and High Speed Net Solutions, Inc.                                                                                                                                                                                        
|
| | 10.4 |   |  | Master Porting Agreement, dated as of
	July 27, 2001, between High Speed Net Solutions, Inc. d/b/a
	Summus, Ltd. and Samsung Electronics America                                                                                                                                                                               
|
| | 10.5 | * |  | Letter of Employment, dated June 7, 2001,
	between High Speed Net Solutions, Inc. and Barry J. Johnson                                                                                                                                                                                                                         
|
| | 10.6 |   |  | Consulting Agreement, dated June 15, 2001,
	between High Speed Net Solutions, Inc. and John Maxwell                                                                                                                                                                                                                            
|
| | 10.7 | * |  | Letter of Employment, dated August 9, 2001,
	between High Speed Net Solutions, Inc. and John Maxwell                                                                                                                                                                                                                           
|
| | 10.8 |   |  | Consulting Agreement, dated July 9, 2001,
	between High Speed Net Solutions, Inc. d/b/a Summus and Chris
	Kremer                                                                                                                                                                                                               




|  |                                              
|- | ---------------------------------------------
|* | Executive compensation plans and arrangements

35