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

                                    FORM 10-K


               [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001


                         COMMISSION FILE NUMBER: 0-26109
                                _________________

                                   NETTAXI.COM
             (Exact name of registrant as specified in its charter)
                                _________________


                     NEVADA                               82-0486102
      (State or other jurisdiction                    (I.R.S. Employer
     of incorporation or organization)               Identification No.)

               1875 S. Bascom Avenue; No. 116, Campbell, CA 95008
           (Address of Principal Executive Offices Including Zip Code)

                                 (408) 879-9880
              (Registrant's telephone number, including area code)
                                _________________

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                          Common Stock, $.001 par value

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), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the


<PAGE>
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

As of February 12, 2002, the approximate aggregate market value of voting stock
held by non-affiliates of the registrant was $7,584,917 (based upon the closing
price for shares of the registrant's common stock as reported by the O-T-C
Bulletin Board on that date). Shares of common stock held by each officer,
director, and holder of 5% or more of the outstanding common stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.

As of February 12, 2002, the registrant had 43,124,586 shares of common stock,
$.001 par value per share, outstanding.


<PAGE>
                                  NETTAXI.COM
                                    FORM 10-K
                                TABLE OF CONTENTS

PART I
------

ITEM 1.   Description of Business                                     4
ITEM 1A.  Risk Factors                                                15
ITEM 2.   Properties                                                  22
ITEM 3.   Legal Proceedings                                           22
ITEM 4.   Submission Of Matters To A Vote Of Security Holders         23

PART II
-------

ITEM 5.   Market For The Registrant's Common Stock
          And Related Stockholder Matters                             24
ITEM 6.   Selected Consolidated Financial Data                        26
ITEM 7.   Management's Discussion And Analysis Of
          Financial Condition And Results Of Operations               26
ITEM 7A.  Quantitative And Qualitative Disclosures
          About Market Risk                                           37
ITEM 8.   Financial Statements And Supplementary Data                 37
ITEM 9.   Changes In And Disagreements With Accountants
          On Accounting And Financial Disclosure                      37

PART III
--------

ITEM 10.  Directors And Executive Officers Of The Registrant         38
ITEM 11.  Executive Compensation                                     42
ITEM 12.  Security Ownership Of Certain Beneficial Owners
          And Management                                             48
ITEM 13.  Certain Relationships And Related Transactions             49


PART IV
-------

ITEM 14.  Exhibits, Financial Statement Schedules,
          And Reports On Form 8-K                                    51


                                        3
<PAGE>
                                     PART I


     This Form 10-K contains forward-looking statements. These forward-looking
statements are subject to significant risks and uncertainties, including
information included under Items 1 and 1A of this Form 10-K, which may cause
actual results to differ materially from those discussed in such forward-looking
statements. The forward-looking statements within this Form 10-K are identified
by words such as "believes," "anticipates," "expects," "intends," "may," "will"
and other similar expressions regarding our intent, belief and current
expectations. However, these words are not the exclusive means of identifying
such statements. In addition, any statements that refer to expectations,
projections or other characterizations of future events or circumstances and
statements made in the future tense are forward-looking statements. Readers are
cautioned that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors, many of which are
beyond our control. We undertake no obligation to publicly release the results
of any revisions to these forward-looking statements which may be made to
reflect events or circumstances occurring subsequent to the filing of this Form
10-K with the Securities and Exchange Commission. Readers are urged to carefully
review and consider the various disclosures made by us in this Form 10-K,
including those set forth under "Risk Factors" in Item 1A.

ITEM 1.  DESCRIPTION OF BUSINESS


OUR BUSINESS

     Nettaxi.com is an Internet marketing portal that provides content and
Internet based services for consumers and businesses.  Our web site at
www.nettaxi.com serves as a gathering place for people with shared topics of
interest, as well as an entry point, referred to as a portal, to the Internet.
Through our web site, we provide content addressing a number of targeted
affinity categories such as news, sports, entertainment, health, politics,
finances, lifestyle, and other areas of interest.  Visitors to our web site are
provided with this content. Subscribers to our web site are also provided with
access to enhanced content such as broadband video clips, email accounts and
personal web pages.  Our original revenue model included access to web site
hosting services and a broad range of content for our individual subscribers, or
"citizens", and access to a population of Internet users for affiliated
businesses for advertising and promotional purposes.

     During 2000, we focused our efforts on improving the quality of content
available on our web site, implementing our web site hosting services and
reducing our operating costs by eliminating unprofitable services . We devoted
significant resources to developing our content and our services, including
developing an infrastructure and building a management team. We also focused on
developing consumer loyalty and increasing our overall level of traffic and
citizenship.

     In 2001, we faced the challenges of an overall downturn in the Internet
industry and the economy in general. The bankruptcy and liquidation of many of
our Internet-based customers and suppliers caused us to re-evaluate our business
model. Since the Internet infrastructure is unstable and customer base


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financially weak, we first took corrective action to significantly decrease our
cash burn. Beginning in May 2001, we reduced the salaries of our employees and
the number of personnel, marketing expenses and costs associated with our
hosting activities.

     At the same time, we re-evaluated the viability of our web site hosting and
Internet connectivity services.  Prior to June 2001, we provided these services
to corporate customers through a state-of-the-art Internet data center located
in Southern California using a high-performance Internet backbone network.
Customers paid monthly fees for the professional services utilized, one-time
installation fees, and  connectivity charges. These "hosting" revenues were
recognized in the period the services were provided. Hosting revenues were
variable, based upon bandwidth usage and services used, and resulted in
operating losses from time to time. As a result of our evaluation, we terminated
our significant co-hosting customer contracts effective July 7, 2001.   We also
discontinued the purchase of bandwidth and premium services from our third party
provider, further reducing monthly expenditures.  Beginning in the third quarter
of 2001, the terminations have reduced our operating expenses, but have also
materially affected our revenues.  As of December 31, 2001 we had incurred
losses of approximately $36.2 million.  In spite of our cost cutting measures,
there can be no assurance that our operating losses will not increase in the
future.

     We continue to operate our website, however, we have focused our energies
on our acquisition strategy and therefore have not pursued any revenue
generating activities in the last six months of 2001.

     While curtailing operations in 2001, we also undertook an analysis to
determine the best course of action to maintain and enhance the value of our
company.  Given the challenges facing Internet-based business models, including
but not limited to the decline in advertising, we decided that our then-current
business model would not support future growth.  We implemented an acquisition
strategy pursuant to which we sought to identify an appropriate entity with
which to merge, acquire or restructure our current business.  Since the
announcement of our acquisition strategy in May 2001, we have evaluated a number
of potential merger candidates in a wide variety of industries.

RECENT DEVELOPMENTS

     On January 9, 2002 we entered into a merger agreement under which we agreed
to merge with RAE Systems Inc., a California corporation that designs and
manufactures portable gas detection instruments and wireless monitoring and
communications equipment.  If the merger is consummated, we will abandon our
business model and adopt the business model of RAE Systems.  The merger is
subject to the approval of our stockholders.  Further information regarding the
merger will be filed with the Securities and Exchange Commission relating to our
solicitation of proxies from our stockholders with respect to the merger.

     Mergers carry numerous risks and uncertainties and we cannot guarantee that
we will be able to successfully integrate any businesses, products, technologies
or personnel that might be acquired in the future.


                                        5
<PAGE>
INDUSTRY BACKGROUND

     The Internet has been a significant medium for global communications.
Millions of people around the world use the Internet to send and receive
information, for entertainment, current events and to purchase products and
services. Nevertheless, companies in the Internet industry struggled in 2001.
"The Internet downturn casts a wide arc mowing down the strong, the weak and the
in-between." The Industry Standard, Layoffs, Losses and Closures Continue in
Telecom Sector August 2, 2001.  The downturn in the industry particularly hurt
companies that advertise on the Internet. The Industry Standard, At Online Ad
Conference, More Questions Than Answers August 10, 2001.

     PORTALS.  Portal web sites, such as ours, provide a single online location
where users can interact and find and share pertinent information, products and
services related to their particular interests or needs. Portal sites generally
offer free services including access to e-mail accounts, chat rooms, message
boards, news and entertainment. These features tend to increase user loyalty
towards particular portal web sites. Users with an email account with a
particular web site are likely to repeat visits to the web site on a regular
basis to check email and gather other information.

     ADVERTISING. Prior to 2001, the Internet  was an attractive medium for
advertisers. The Internet has allowed advertisers to demographically target
their messages to groups of Internet users with particular interests, in a
manner not available through the means of traditional media. The Internet has
also provided to advertisers a unique level of interactivity and measurability.
Advertisers can use the Internet to display messages on certain web pages. These
messages are referred to as impressions. Consumers wishing for more information
on the advertised topic can use their computers to click, or click-through, on
those impressions and move through to other web pages which provide the
information sought. Using the Internet, advertisers can change their
advertisements frequently in response to market factors, current events and
consumer feedback. Advertisers can also track the effectiveness of their
advertising messages by receiving reports of the number of advertising
impressions delivered to consumers and the corresponding number of times that
consumers click on those impressions and move through to the advertised web
page.

     CONTENT. The Internet offers content providers mechanisms that combine cost
advantages with practices designed to generate revenue.  The Internet provides
information dissemination at a materially lower cost than do other forms of
media, notably, both printed paper and private networks. The Internet also
offers the potential for easier access to content, which can expand market
coverage.

MARKETING PLANS & PROGRAMS

     Prior to May 2001, we focused our efforts on marketing, improving the
quality of content and hosting services available on our web site, and reducing
our operating costs by eliminating many of the services which were not
profitable.  In this regard, we developed a number of new promotions designed to
generate new sources of revenue and build customer loyalty.  These tools and
services included:


                                        6
<PAGE>
     BROADBAND CONTENT.  We developed relationships with content publishers to
assist in generating revenue through distribution, branding, awareness, and
promotions.  In 2000 we added sources of new content that allow users to view
videos covering music, sports and other subjects.  Users are required to
register as subscribers to our web site prior to viewing the content.
Advertisements are also displayed to users while progressing through the
registration process.  Although we continue to offer these services to
subscribers to our web site, the revenues generated from these services in 2001
were not significant.

     TARGETED AFFINITY CATEGORIES. We have organized information on our web site
into an extensive network of communities with a wide variety of themes,
including entertainment, government, home living, sports, finance, society and
culture. Users interested in particular themes can access those themes quickly
and easily. This creates marketing opportunities for media companies, Internet
service providers, and Internet content companies.

     IMPROVED SEARCH METHODOLOGY.  We had developed a metasearch engine that
enabled users to search multiple sites simultaneously and return the results to
one web page. This feature drove users to our web site, but did not generate
sufficient revenue. We have revised our search methodology to provide context
driven searches where advertisers purchase their placement in the search engine.
For example, a user of our web site may choose the subject "music" to search.
After the choice is made, the results of the search are presented in a list on a
new web page.  Advertisers pay for premium placement at the top of the list.
This allows advertisers to bid for product placement on our web site and
increases revenue generated from our search services. Although we continue to
offer these services, the revenues generated from these services in 2001 were
not significant.

     SEASONAL PROMOTIONS. During 2000, we implemented seasonal promotions
designed to drive Internet users to our e-commerce affiliates. For example, in
December 2000 we launched a promotion for Storerunner Network, Inc.
Storerunner.com placed advertisements for products it was selling as part of a
holiday sale on our web site.  Users of our web site could click on the
Storerunner advertisements and move to the Storerunner.com web site and purchase
the products.  Our agreement provided that we receive revenue for each user that
accessed the Storerunner.com site from our web site.  Although this promotion
successfully increased the amount of traffic on our site, we discontinued
further services with Storerunner.com after they filed for protection under
Chapter 11 of the United States Bankruptcy Code in February 2001.

     SUBSCRIBER SERVICES. During 2000, we revised the scope of services offered
to users of our web site to eliminate many of the free services which were
available. Currently, users are offered access to free services such as email
accounts and a limited variety of content such as video clips and information.
Users desiring additional services such as video clips may become subscribers.

Despite the implementation of these tools and services, our revenues failed to
keep pace with the costs associated with their implementation.  We believe this
was the result of a downturn in the Internet industry and the economy in
general.  As a result, in May 2001, in connection with the adoption of our
acquisition strategy, we reduced our marketing efforts significantly.


                                        7
<PAGE>
BUSINESS SERVICES

OUR WEB SITE

     Information on our web site at www.nettaxi.com is divided into topic areas
which we refer to as  affinity groups. We refer the registered users of our web
site as citizens. Our web site provides access to information on news, sports,
entertainment and other areas of interest. Citizens also have access to Internet
related services such as chat services and free e-mail accounts.

     When users first arrive at www.nettaxi.com, they find hyperlinks to the
information categories we provide, such as:

     -     Member services and registration;
     -     Information sorted by topical areas of interest; and
     -     Content such as movies, sports clips and other broadband content.

     Upon selecting one of the links, for example entertainment, a web page
containing articles and information about entertainment appears along with an
extensive list of categories, or more specific search topics, such as music and
television. Choosing the more specific search topic will further focus your
search to uncover more specific information.

APPLICATIONS AND FEATURES

     We offer a range of applications and features to our citizens through our
web site, including the following:

     OUR SEARCH ENGINE. Users of our web site can access our specially
configured search engine, which we refer to as our taxi, located in all areas
and levels of our web site. Users may use the search engine by typing in a
search topic such as sports, and they are quickly presented with a list of
hyperlinks to web pages carrying sports related information.  Advertisers on our
site compete for placement in the search results by paying fees to us.  The
advertisers that pay the highest fees are brought to the top of the list of
search results.  Although we continue to offer these services on a limited
basis, the revenues generated from these services in 2001 were not significant.

     E-MAIL SERVICES. Our e-mail services allow users to access their accounts,
through both Post Office Protocol, POP, and the Internet, IMAP. POP e-mail is
the type most commonly used by Internet service providers. Its primary advantage
for users is that messages are sent and received quickly and with more privacy,
because they do not stay resident on a server for any length of time. Its
greatest disadvantage is that e-mail messages, once delivered to a user, are
generally no longer available for download again, so that a user who downloads
e-mail to a home computer, for example, will generally not be able to download
the same mail at a later time to another computer, such as one at work. IMAP, or
web-based e-mail, most commonly used by portal services, allows users to


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<PAGE>
retrieve e-mail messages from any location that offers access to the Internet
and a specific web site. Sending and receiving messages may be a bit slower than
POP services, but messages are stored on a server, can be retrieved multiple
times, and remain available until they are either specifically deleted by the
user, or a set amount of time has passed.

     CONTENT.  Prior to May 2001, we developed relationships with providers of
premium content in a variety of categories. The purpose of these relationships
was not to directly generate revenue, but rather to enhance the quantity and
quality of information and content on our web site so that visitors would be
drawn to our web site. During 2001, we had formal relationships with the three
premium content providers described below and they provided substantially all of
the content on our web site that is provided by outside parties. The providers
are listed in order by the amount of content they provided to us.

     -     SCREAMINGMEDIA.  In April 2000, we entered into a license agreement
with ScreamingMedia, an aggregator of a broad range of content such as current
events, daily horoscopes, world news, travel, medicine and health for
syndication to Internet portals and destination sites.  The license agreement
has a one year term and automatically renews for successive one-year periods
unless terminated.  We paid a monthly license fee of $5,000 for use of
ScreamingMedia's content, which constituted the majority of our outside party
content. In connection with our acquisition strategy, we terminated our
agreement with ScreamingMedia, effective in February 2002.

     -     ACTIVEWORLDS. In March 2001, we launched a new area within our web
site pursuant to an agreement we entered into in August 2000 with
ActiveWorlds.com, Inc., a Delaware corporation.  Users that visited our web
site, downloaded the appropriate software and paid a monthly fee could access a
series of web pages complete with three dimensional graphics.  The graphics were
designed so that the area had the look and feel of an urban environment.  In
connection with our acquisition strategy, we have terminated our agreement with
ActiveWorlds.  Although we were to receive a portion of the fees collected by
ActiveWorlds from users of our site that subscribed to the service, revenues
from this agreement were not significant in 2001.

     -     STORERUNNER.COM. In September 2000, we entered into an agreement with
StoreRunner Network, Inc. under which we placed Storerunner advertisements on
our web site and were to be compensated based on the number of visitors to our
site that visited the Storerunner site.  Although this agreement resulted in
increased traffic on our web site, we discontinued further services with
Storerunner.com after it filed for protection under Chapter 11 of the United
States Bankruptcy Code in February 2001.

WEB SITE HOSTING SERVICES

     Prior to the adoption of our acquisition strategy in May 2001, we offered
our registered users web site hosting services.  Using these services, we hosted
the web sites of over 300 individuals or businesses.  These services generally
fell into two categories.

     First, we hosted web pages for subscribers to our web site for a monthly
fee. The minimum fee for the services was $19.95 per month. Subscribers to these
services were provided with storage space and bandwidth to support their web


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sites. The fee increased depending on the amount of bandwidth and storage space
used by the subscriber. At times, hosting revenues failed to keep pace with the
costs of bandwidth and other related costs. We terminated these hosting services
following the adoption of our acquisition strategy in May 2001.

     Second, we provided Internet hosting and connectivity for larger corporate
customers. These services involved our maintenance of the servers which hosted
the web sites of these customers. For example, we had an agreement with White
Sand Communications, Inc. pursuant to which we hosted its web site servers and
provided support for the overall operation of the servers. Our services were
delivered through Alchemy Communications at its Internet data center located in
Los Angeles, California. Customers paid monthly fees for the professional
services utilized, one-time installation fees, and monthly connectivity charges.
These hosting revenues were recognized in the period the services were provided.
Hosting revenues were variable, based upon bandwidth usage and services used,
and resulted in operating losses from time to time. In connection with our
acquisition strategy, we terminated our significant co-hosting customer
contracts effective July 7, 2001.

     In connection with this, we also discontinued the purchase of bandwidth and
premium services from our third party provider. The terminations have reduced
our operating expenses, and materially affected our revenues beginning in the
third quarter of 2001.

SUBSCRIBER SERVICE PLANS AND ASSISTANCE

     Prior to the adoption of our acquisition strategy in May 2001, we offered
both free and premium accounts, on a tiered basis: (i) free citizen accounts,
which provided e-mail service for one personal account and access to chat
sessions, message boards, shopping and premium content; and (ii) premium
account, which allowed subscribers to build premium accounts from a menu of
options including unlimited e-mail accounts, disk space for web page hosting and
access to promotional opportunities.  We ceased offering premium accounts to
users following the adoption of our acquisition strategy in May 2001.  If we
consummate the merger with RAE Systems, the free account services will be
terminated.

CUSTOMERS

     ADVERTISING CUSTOMERS.  In 2000 we attracted both mass market consumer
product companies and technology-related businesses advertising on the Internet.
However, due to a variety of factors including the downturn in the Internet
industry and the economy in general, we failed to generate substantial revenues
from the sale of advertising. In May 2001, in connection with our acquisition
strategy, we ceased aggressively marketing our advertising services.  Although
we continue to operate our web site and to sell advertising on our web site,
advertising revenues have declined substantially. No advertising customer
accounted for more than ten percent of our revenues in 2001.

     Advertisers and advertising agencies enter into short-term agreements, on
average one to two months with us, pursuant to which they receive a guaranteed
number of impressions for a fixed fee. If the guaranteed number of impressions
is not delivered, the term of the agreements are extended until the impressions
can be delivered. Advertising on our site currently consists of banner-style


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advertisements that are prominently displayed at the top of pages on a rotating
basis throughout the web pages in our web site.  From each banner advertisement,
viewers can hyperlink directly to the advertiser's own web site, thus providing
the advertiser an opportunity to directly interact with an interested customer.
Our standard cost per thousand impressions depends upon a number of factors
including the location of the advertisement, its size and the extent to which it
is targeted for a particular audience.  Discounts from standard cost per
thousand impressions rates may be provided for higher volume, longer-term
advertising contracts.

     We also received advertising revenue as a result of the adoption of our
revised search methodology.  Our search methodology uses context driven searches
where advertisers purchase their placement in the search engine. For example, a
user of our web site may choose the subject "music" to search.  After the choice
is made, the results of the search are presented in a list on a new web page.
Advertisers pay for premium placement at the top of the list.  This allows
advertisers to bid for product placement on our web site.

     WEB SITE HOSTING CUSTOMERS. Prior to the adoption of our acquisition
strategy in May 2001, we offered our registered users web site hosting services.
Using these services, we hosted the web sites of over 300 individuals or
businesses.  These services generally fell into two categories.  First, we
hosted web pages for subscribers to our web site for a monthly fee.  The minimum
fee for these services was $19.95 per month. We also provided Internet hosting
and connectivity for larger corporate customers.  These services involved our
maintenance of the servers which host the web sites of these customers.  For the
twelve months ended December 31, 2001, web hosting revenues accounted for
approximately 90% of total revenues.  We terminated all of our web site hosting
services following the adoption of our acquisition strategy in May 2001 and
revenues declined substantially.

     In August 1999, we entered into a Data Center Service Agreement with White
Sand Communications, Inc.   We provided White Sand Communications with space in
our Data Center and provided support for the overall operation of the their web
servers.  The fee for this agreement was a monthly recurring fee which included
charges for use and occupancy of the Data Center, connectively fee, power
charges, and where applicable, technical support and system administration fees.
The term of the agreement was one year.  This agreement accounted for 19% of our
revenues in 2001, 11% of our revenue in 2000 and 17% of our revenue in 1999.  We
terminated this agreement as of July 7, 2001.

     In July 1999, we entered into a Data Center Service Agreement with Babenet,
Ltd, a California corporation.  We provided Babenet with space in our Data
Center for their web servers and provide support for the overall operation of
the their web servers.  The fee for this agreement was a monthly recurring fee
which included charges for use and occupancy of the Data Center, connectively
fee, power charges, and where applicable, technical support and system
administration fees.  The term of this agreement was one year and continued on a
monthly basis thereafter.  This agreement accounted for 47% of our revenues in
2001 and 20% of our revenue in 2000.  We terminated this agreement as of July 7,
2001.

     In July 1999, we entered into a Data Center Service Agreement with
Whitehorn Ventures , Ltd, a California corporation.  We provided Whitehorn
Ventures with space in our Data Center for their web servers and provide support
for the overall operation of the their web servers.  The fee for this agreement
was a monthly recurring fee which included charges for use and occupancy of the
Data Center, connectively fee, power charges, and where applicable, technical
support and system administration fees.  The term of this agreement was one year
and continued on a monthly basis thereafter.  This agreement accounted for 25%
of our revenues in 2001 and 8% of our revenue in 2000.  We terminated this
agreement as of July 7, 2001.


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<PAGE>
ADVERTISING SALES AND DESIGN

     Prior to May 2001, we focused our efforts on creating advertising
opportunities designed to build brand loyalty for our corporate sponsors by
seamlessly integrating their advertising messages into our content.  Following
the adoption of our acquisition strategy in May 2001, we terminated
substantially all of our efforts in this regard.

SALES AND MARKETING

     Prior to the adoption of our acquisition strategy in May 2001, we committed
substantial resources to sales and marketing activities, including offline and
online media advertising.  Our sales and marketing efforts were focused on:

     -     Generating additional traffic to our site;

     -     Building and defining a desirable online destination for consumers
and businesses; and

     -     Creating and enhancing our brand within the Internet and online
industries.

These efforts were costly and not consistent with our acquisition strategy
adopted in May 2001.  As a result we terminated substantially all of our efforts
in this regard.

OPERATING INFRASTRUCTURE

     At this time, the basic components of our technology infrastructure are in
place and operational.  Our UNIX-based electronic network for Nettaxi.com
operates on a one terabyte Ethernet backbone, with two Cisco Systems Ethernet
switches that prevent collisions on the network.  Traffic direction for the web
servers is handled by Arrowpoint's CS-100, which tracks server load conditions
in real time and sends traffic to the most appropriate server to spread around
and balance the load.  The network is comprised primarily of Sun Microsystems
high-capacity servers, and include a mix of Enterprise 450s, Ultra 1, and Ultra
5 models, all running the newest version of Sun's Solaris operating environment
for network systems.  These servers collectively provide approximately 1.6
terabytes of hard drive space for subscriber capacities.

     In addition, the network currently includes NT servers to handle
registration and selected other database functions, using Microsoft's SQL
database software.


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<PAGE>
     Our electronic network was located at Alchemy Communications in Los
Angeles, California.  We had a Gigabit Data Services Agreement with Alchemy
Communications pursuant to which  they provided us with a secure location for
our network servers, multiple high-speed Internet connections, and access to
24-hour-a-day, 7-day-a-week technical support personnel and services.  Alchemy
Communications also provided routing, redundancy, streaming media and
maintenance services for the network and its Internet connections, as well as a
back-up power supply capable of continuing network operations for up to a week
in the event of a power failure.  We paid monthly fees for these services.  In
2002, in connection with the adoption of our acquisition strategy and the
termination of our web hosting services, we terminated our agreement with
Alchemy.

COMPETITION

     The markets in which our web site is engaged are new, rapidly evolving and
intensely competitive, and we expect competition to intensify further in the
future.  Barriers to entry are relatively low, and current and new competitors
can launch new sites at a relatively low cost using commercially-available
software.  Our web site competes with a number of other companies for users,
advertisers and electronic commerce marketers, including a number of large
online communities and services that have expertise in developing online
commerce, and a number of other small services, including those that serve
specialty markets.

     Other companies that offer web site hosting, email, and content services
include MegaGo.com, theglobe.com, Yahoo!, Homestead.com, Angelfire, Fortune
City, Lycos, and Talk City and, in the future, Internet communities may be
developed or acquired by companies currently operating Internet directories,
search engines, shareware archives, content sites, Internet Service Providers
and other entities, which may have more resources than ours. In addition, our
web site faces competition from traditional media companies, a number of which,
including CBS, Fox and NBC, have made significant acquisitions or investments in
Internet companies.  Furthermore, we compete for users and advertisers with
other content providers and with thousands of web sites operated by individuals,
the government and educational institutions.  Such providers and sites include
AOL, Angelfire, CNET, CNN/Time Warner, Excite, Hotmail, Infoseek, Lycos,
Microsoft, Netscape, Switchboard, ESPN.com, ZDNet.com and Yahoo!

     Many of our competitors have longer operating histories, larger customer
bases, greater brand recognition in other business and Internet markets and
significantly greater financial, marketing, technical and other resources than
us.  In addition, other online services may be acquired by, receive investments
from or enter into other commercial relationships with larger, well-established
and well-financed companies as use of the Internet and other online services
increases.  Many of our competitors have continued to devote substantial
resources to marketing and promotional campaigns, adopting more aggressive
pricing policies and enhancing web site and systems development.  These
competitors may have gained a significant advantage over us while we have
limited our similar expenditures in connection with the adoption of our
acquisition strategy.  This advantage may prevent our web site's ability to
attract users in the future.


                                       13
<PAGE>
INTELLECTUAL PROPERTY

     We currently have pending applications before the United States Patent and
Trademark Office for trademark and service mark protection for "Nettaxi" and
"NetroNews".  If these applications are approved, protection will be available
for the periods prescribed by law. The protection of our copyrights, service
marks, trademarks, trade dress and trade secrets are were important to the
success of our web site, but are not necessarily important in connection with
our acquisition strategy. We have entered into confidentiality and invention
assignment agreements with our employees and contractors in order to limit
access to and disclosure of our proprietary information.  There can be no
assurance that these contractual arrangements or the other steps taken by us to
protect our intellectual property will prove sufficient to prevent
misappropriation of our technology or to deter independent third-party
development of similar technologies.

     Our web site also relies upon on technologies that we license from third
parties, such as the suppliers of key database technology, the operating system
and specific hardware components for our products and services.  These licenses
extend for terms ranging from one year to perpetuity and are subject to
satisfaction of conditions laid out in the specific licensing agreements.  There
can be no assurance that these third-party technology licenses will continue to
be available to us on commercially reasonable terms.

     Although we do not believe that we infringe the proprietary rights of third
parties, there can be no assurance that third parties will not claim
infringement by us with respect to past, current or future technologies. We
expect that participants in our markets will be increasingly subject to
infringement claims as the number of services and competitors in our industry
segment grows. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation and could prevent our ability to
enter into an acquisition. As a result, any such claim could have a material
adverse effect upon our business, results of operations and financial condition.

GOVERNMENT REGULATION

     Our company, operations and products and services are all subject to
regulations set forth by various federal, state and local regulatory agencies.
We take measures to ensure our compliance with all such regulations as
promulgated by these agencies from time to time.  The Federal Communications
Commission sets standards and regulations regarding communications and related
equipment.

     There are currently few laws and regulations directly applicable to the
Internet.  It is possible that a number of laws and regulations may be adopted
with respect to the Internet covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality of
products and services.  The growth of the market for online commerce may prompt
calls for more stringent consumer protection laws that may impose additional
burdens on those companies conducting business online.  Tax authorities in a
number of states are currently reviewing the appropriate tax treatment of
companies engaged in online commerce, and new state tax regulations may subject
us to additional state sales and income taxes.


                                       14
<PAGE>
     In addition, because our web site is accessible worldwide, other
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in a particular state or foreign country.  Our failure to
qualify as a foreign corporation in a jurisdiction where it is required to do so
could subject us to taxes and penalties for the failure to qualify and could
result in our inability to enforce contracts in such jurisdictions.  Any such
new legislation or regulation, or the application of laws or regulations from
jurisdictions whose laws do not currently apply to our business, could have a
material adverse effect on our business, results of operations and financial
condition.

EMPLOYEES

     As of December 31, 2001, we had four employees, all of whom were involved
in administration and finance.  Technical assistance with our limited web site
operations have been provided by consultants.  We have never had a work
stoppage, and no employees are represented under collective bargaining
agreements.  We consider our relations with our employees to be good.

ITEM 1A.   RISK FACTORS

     Our business, financial condition or results of operations could be
materially and adversely affected by any of the following risks.

WE HAVE INCURRED LOSSES SINCE OUR INCEPTION, AND EXPECT LOSSES FOR THE
FORESEEABLE FUTURE.

     Since our inception, we have incurred net losses, resulting primarily from
costs related to developing our web site, attracting users to our web site and
establishing the Nettaxi.com brand. At December 31, 2001, we had an accumulated
deficit of $36,238,200.  Losses have continued to grow faster than our revenues
during our limited operating history. Because of the bankruptcy and liquidation
of many of our Internet based customers and suppliers and because of the
reduction of our operating activities and expenditures in connection with our
acquisition strategy, we expect to incur significant net losses for the
foreseeable future. We may never achieve profitability.

ACQUISITIONS IN CONNECTION WITH OUR ACQUISITION STRATEGY MAY DISRUPT OR
OTHERWISE HAVE A NEGATIVE IMPACT ON THE VALUE OF OUR BUSINESS.

     We are seeking to acquire a businesses that we believe will enhance the
value of our company. In this regard, we have agreed to merger with RAE Systems
Inc. The merger remains subject to certain conditions to closing as well as the
approval of our shareholders.  If the Merger is consummated, Nettaxi's current
business model will be terminated and the company will implement the current
business model of RAE Systems.  There can be no assurance that the business
model of RAE Systems will be profitable or successful.  There can be no
assurance that the business model of RAE Systems will enhance the value of the
combined company or that the business model of RAE Systems will be any more
successful than the business model currently employed by Nettaxi. Additionally,
there can be no assurance that the Internet industry will not improve in the
future.


                                       15
<PAGE>
     If the merger with RAE Systems does not take place, we may be unable to
identify any other business which could potentially enhance the value of our
company. Additionally, we may be unable to negotiate terms for an acquisition
which would be favorable to our shareholders. If we were to acquire a company,
the amount of time and level of resources required to successfully transition
our operations could be substantial. There can be no assurance that new
management would be able to successfully operate the business going forward.
Furthermore, in making an acquisition, we may have to incur debt or issue equity
securities to finance the acquisition, the issuance of which could dilute the
holdings of our existing shareholders.

WE CURRENTLY HAVE NO REVENUES, WHICH MAY CAUSE THE TRADING PRICE OF OUR COMMON
STOCK TO DECLINE.

     We had revenues of approximately $2,069,500, $9,418,400 and $5,032,800 for
the years ended December 31, 2001, 2000 and 1999, respectively. While our growth
rate in prior years has been strong, revenues have substantially declined in
2001. We expect current market conditions and the adoption of our acquisition
strategy to have a continued material adverse effect on our revenues. We
continue to operate our website, however, we have focused our energies on our
acquisition strategy and therefore have not pursued any revenue generating
activities in the last six months of 2001.  We terminated our significant
co-hosting customer contracts on`` July 7, 2001, which materially decreased our
revenues beginning in the third quarter of 2001.

     Approximately $1.28 million of the revenues for the year ended December 31,
1999 were derived from credit card transaction processing fees, a revenue stream
that has declined significantly and that we do not believe will be material in
future periods. In the year 2000, we generated approximately $2.22 million in
revenue from reciprocal advertising transactions. These transactions were
terminated in year 2000.

     If our operating results fall below the expectations of investors in future
periods, then our stock price may decline.

OUR ADVERTISERS ARE EMERGING INTERNET COMPANIES THAT REPRESENT CREDIT RISKS.

     Some of our advertisers have limited operating histories, are operating at
a loss, have limited cash reserves or have limited access to capital. If any
significant part of our customer base experiences financial difficulties, is not
commercially successful or is unable to pay our advertising fees for any reason,
our business, operating results and financial condition may be materially and
adversely affected.

SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE.

     As of December 31, 2001, approximately 28 million shares of our common
stock were immediately eligible for sale in the public market without
restriction or further restriction under the Securities Act of 1933, unless
purchased by or issued to any "affiliate" of ours, as that term is defined in


                                       16
<PAGE>
Rule 144 promulgated under that Act. Additionally, approximately 14 million
shares of common stock were eligible for sale under Rule 144.  If our
stockholders sell substantial amounts of our common stock, the market price of
our common stock could be adversely affected and our ability to raise additional
capital at that time through the sale of our securities could be impaired.

WE MAY NEED TO UPDATE OUR REGISTRATION STATEMENTS

     We have filed a registration statement on Form S-1 (File No. 333-36826),
declared effective by the Securities and Exchange Commission on June 12, 2000,
registering 32,730,849 shares issued and issuable pursuant to recent private
placement transactions.  Additionally, we have filed a registration statement on
Form S-1 (File No. 333-38538), declared effective by the Securities and Exchange
Commission on September 21, 2000, registering 4,219,692 shares of common stock
issued and issuable pursuant to recent private placement transactions. These
registration statements may need to be updated in order to maintain their
effectiveness.  Although we anticipate updating these registration statements in
the near future, we may face liability from shareholders who are unable to sell
their shares under the registration statements before they are updated.

FUTURE EXERCISE OF WARRANTS OR ISSUANCES OF SECURITIES MAY SIGNIFICANTLY DILUTE
YOUR HOLDINGS.

     There are currently warrants to purchase 18,525,816 shares of our common
stock outstanding and exercisable over the next four to five years having
exercise prices ranging from $1.50 to $12.38, subject to adjustment. The shares
underlying these warrants have been included in the registration statements
referenced above.  There are also warrants to purchase 1,850,000 shares of our
common stock outstanding having exercise prices ranging from of $0.13 to $0.35
per share. Additionally, there are options to purchase 5,578,000 shares of our
common stock outstanding under our 1998 and 1999 Stock Option Plans.  These
shares have been registered pursuant to our registration statement on Form S-8
(File No. 333-32678).  As a result, shares issued upon exercise of stock options
are eligible for resale in the public market without restriction. If the holders
of our outstanding options, warrants and other convertible securities were to
exercise their rights, holders of our common stock could experience substantial
dilution of their investment.

     It is possible that we will need to raise additional funds in the future in
order to execute a transaction pursuant to our acquisition strategy or if we are
to execute our strategic growth plan. If additional funds are raised through the
issuance of equity or convertible debt securities, the percentage ownership of
our stockholders will be reduced, stockholders may experience additional
dilution and such securities may have rights, preferences and privileges senior
to those of our common stock. This may make an investment in our common stock
less attractive to other investors, thereby weakening the trading market for our
common stock.

WE MAY FACE THE INTERRUPTION OF OUR SERVICES AND THE DELAY IN THE IMPLEMENTATION
OF OUR ACQUISITION STRATEGY DUE TO INCREASED SECURITY MEASURES IN RESPONSE TO
TERRORISM.


                                       17
<PAGE>
     Our business depends on the free flow of products and services through the
channels of commerce. Recently, in response to terrorists' activities and
threats aimed at the United States, transportation, mail, financial and other
services have been slowed or stopped altogether. Further delays or stoppages in
transportation, mail, financial or other services could have a material adverse
effect on our business, results of operations and financial condition and our
ability to complete an acquisition consistent with our acquisition strategy.
Furthermore, we may experience an increase in operating costs, such as costs for
transportation, insurance and security as a result of the activities and
potential activities. We may also experience delays in receiving payments from
payers that have been affected by the terrorist activities and potential
activities. The U.S. economy in general is being adversely affected by the
terrorist activities and potential activities and any economic downturn could
adversely impact our results of operations, impair our ability to raise capital
or otherwise adversely affect our ability to operate our business and pursue our
acquisition strategy.

OUR PROJECTED BROADBAND SERVICES AND ENHANCED CONTENT MAY NOT BE LAUNCHED ON A
TIMELY BASIS AND MAY NOT GENERATE THE ANTICIPATED LEVEL OF REVENUES.

     During the first half of 2001, our strategic growth plan called for the
development and implementation of broadband services and enhanced content for
our subscribers. We have put our strategic growth plan on hold so that we may
attempt to execute our acquisition strategy. Should we choose to implement our
strategic growth plan in the future, the availability of many of these broadband
services will be dependent on our ability to enter into satisfactory contractual
relationships with parties offering related content and services which can be
made available to our subscribers, as well as relationships with parties seeking
to make online sales to our subscribers and other visitors to our web site. To
date, our revenues from broadband services and enhanced content have not been
material. In light of the reduction of our operating activities and expenditures
in connection with our acquisition strategy, we may not be able to commence
those services on a timely basis, and there can be no assurance that the
services will generate the anticipated amount of revenues.

WE RELY HEAVILY ON THIRD PARTIES FOR DEVELOPMENT OF SOFTWARE AND CONTENT AND FOR
ESSENTIAL BUSINESS OPERATIONS AND MAY BE ADVERSELY AFFECTED BY OUR FAILURE TO
MAINTAIN SATISFACTORY RELATIONSHIPS WITH SUCH PARTIES.

     We depend on third parties for important aspects of our business, including
the development of software and access to the Internet.  We have limited control
over these third parties, and we are not their only client. We may not be able
to maintain satisfactory relationships with any of them on acceptable commercial
terms, and there is no guarantee that we will be able to renew these agreements
at all. Further, we cannot be sure that the quality of products and services
that they provide may remain at the levels needed to enable us to conduct our
business effectively.

WE ARE VULNERABLE TO POSSIBLE DAMAGE TO OUR OPERATING SYSTEMS.

     Our web site is dependent in part on our ability to protect our operating
systems against physical damage from fire, floods, earthquakes, power loss,
telecommunications failures, break-ins or other similar events. Our servers are


                                       18
<PAGE>
vulnerable to computer viruses, break-ins and similar disruptive problems. The
occurrence of any of these events could result in interruptions, delays or
cessations in service to our users and result in a decrease in the number of
visitors to our site. Sustained or repeated system failures or interruptions of
our web site connection services would reduce the attractiveness of our web site
to customers and advertisers, and could therefore have a material and adverse
effect on our business due to the loss of membership and advertising revenues.

WE DEPEND ON OUR KEY PERSONNEL TO OPERATE OUR BUSINESS AND CARRY OUT OUR
ACQUISITION STRATEGY.

     Our performance is substantially dependent on the continued services and on
the performance of our executive officers. The loss of the services of any of
our executive officers could materially and adversely affect our business due to
their ability to help identify appropriate acquisition target companies, their
experience with our business plan and the disruption in the conduct of our
day-to-day operations.

INTENSE COMPETITION FROM OTHER INTERNET-BASED BUSINESSES MAY REDUCE OUR MARGINS
AND MARKET SHARE AND CAUSE OUR STOCK PRICE TO DECLINE.

     The markets in which our web site operates are new, rapidly evolving and
intensely competitive. Barriers to entry are relatively low, and current and new
competitors can launch new sites at a relatively low cost using commercially
available software. Competition could result in price reductions for our
products and services, reduced margins or loss of market share. Consolidation
within the online commerce industry may also increase competition.

     We currently or potentially compete with a number of other companies
including a number of large online communities and services that have expertise
in developing online commerce, and a number of other small services, including
those that serve specialty markets. Many of our potential competitors have
longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing, technical and other resources than
us.

WE MAY FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER WEB
SITES TO INCREASE NUMBERS OF WEB SITE USERS AND INCREASE OUR REVENUES.

     We have attempted to establish numerous strategic relationships with
popular web sites to increase the number of visitors to our web site. These
efforts have been substantially slowed by the reduction of our operating
activities and expenditures in connection with our acquisition strategy. There
is intense competition for placements on these sites, and we may not be able to
enter into these relationships on commercially reasonable terms or at all. Even
if we enter into relationships with other web sites, they themselves may not
attract significant numbers of users. Therefore, our site may not receive
additional users from these relationships. Moreover, we may have to pay
significant fees to establish these relationships. Our inability to enter into
new distribution relationships and expand our existing ones could have a
material and adverse effect on our business due to our inability to increase the
number of users of our site.


                                       19
<PAGE>
WE ARE VULNERABLE TO ADDITIONAL TAX OBLIGATIONS THAT COULD BE IMPOSED ON ONLINE
COMMERCE TRANSACTIONS.

     We do not expect to collect sales or other similar taxes in respect of
transactions engaged in by customers on our web site. However, various states or
foreign countries may seek to impose sales tax obligations on us and other
e-commerce and direct marketing companies. A number of proposals have been made
at the state and local levels that would impose additional taxes on the sale of
goods and services through the Internet. A successful assertion by one or more
states that we should have collected or be collecting sales taxes on the sale of
products could have a material and adverse effect on our business due to the
imposition of fines or penalties or the requirement that we pay for the
uncollected taxes.

WE MAY NOT BE ABLE TO TAKE FULL ADVANTAGE OF POTENTIAL TAX BENEFITS FROM OUR NET
OPERATING LOSS CARRYFORWARDS.

     At December 31, 2001 we had Federal net operating loss carryforwards
available to reduce future Federal taxable income that aggregated approximately
$26.7 million for Federal income tax purposes. These benefits will begin to
expire in 2017. Our ability to utilize the net operating loss carryforwards are
dependent upon our ability to generate taxable income in future periods and may
be limited due to restrictions imposed under Federal and state laws upon change
in ownership.  If we complete an acquisition consistent with our acquisition
strategy, we may be unable to apply these net operating loss carryforwards at
all.

WE COULD FACE LIABILITY FOR INFORMATION DISPLAYED ON AND COMMUNICATIONS THROUGH
OUR WEB SITE.

     We may be subjected to claims for defamation, negligence, copyright or
trademark infringement or based on other theories relating to the information we
publish on our web site. These types of claims have been brought, sometimes
successfully, against Internet companies as well as print publications in the
past. Based on links we provide to other web sites, we could also be subjected
to claims based upon online content we do not control that is accessible from
our web site. Claims may also be based on statements made and actions taken as a
result of participation in our chat rooms or as a result of materials posted by
members on bulletin boards at our web site. We also offer e-mail services, which
may subject us to potential risks, such as:

  -  liabilities or claims resulting from unsolicited e-mail;
  -  lost or misdirected messages;
  -  illegal or fraudulent use of e-mail; or
  -  interruptions or delays in e-mail service.

These claims could result in substantial costs and a diversion of our
management's attention and resources.

WE COULD FACE ADDITIONAL BURDENS ASSOCIATED WITH GOVERNMENT REGULATION OF AND
LEGAL UNCERTAINTIES SURROUNDING THE INTERNET.


                                       20
<PAGE>
     Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could have a material and adverse effect on our
business, results of operations and financial condition due to increased costs
of doing business. Laws and regulations directly applicable to Internet
communications, commerce and advertising are becoming more prevalent. The law
governing the Internet, however, remains largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws governing intellectual property, copyright, privacy,
obscenity, libel and taxation apply to the Internet. In addition, the growth and
development of e-commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad. We also may be subject to
future regulation not specifically related to the Internet, including laws
affecting direct marketers.

WE COULD INCUR MONETARY DAMAGES FROM LITIGATION ARISING OUT OF OUR BUSINESS
ACTIVITIES.

     On May 1, 2001 seven shareholders of Nettaxi filed an action against
Nettaxi in the United States District Court for the Central District of
California (Case No. SACV 01-459 AHS). The complaint also names Robert Rositano,
Jr. its Chief Executive Officer, Dean Rositano, its President, and Glenn Goelz
its former Chief Financial Officer as additional defendants. The complaint
alleged that Nettaxi violated securities laws in connection with its February
2000 private placement. Six of the plaintiffs purchased shares of Nettaxi common
stock in the February 2000 private placement. Prior to filing the complaint, the
plaintiffs demanded the refund of all of the money invested in Nettaxi and
demanded that the exercise price of the warrants issued in the private placement
be reduced from $4.00 to $0.25 per share. Additionally, prior to the filing the
complaint, Nettaxi was asked to invest capital in a company affiliated with one
of the plaintiffs. In the complaint, the plaintiffs seek compensatory damages,
injunctive relief and fees and interest. Due to factual misrepresentations in
the complaint, Nettaxi anticipated that an amended complaint would be filed. The
complaint was amended on May 23, 2001. The amendment added three new plaintiffs
to the lawsuit. Shortly after filing the amended complaint, Nettaxi, pursuant to
the rules of the District Court, met with plaintiffs and pointed out further
factual inaccuracies and deficiencies. Plaintiffs then chose to attempt to amend
their complaint for a second time. On October 1, 2001 Nettaxi filed a motion to
dismiss the complaint filed by Plaintiffs. In response, Plaintiffs have filed an
opposition to Nettaxi's motion to dismiss and have sought leave to amend their
complaint for a third time. The District Court has informed the parties that it
will rule on the papers, and there will be no hearing.

     Although we believe the allegations made in the complaint are without merit
and will defend the action vigorously, there can be no assurance that we will
prevail in this dispute. If the plaintiffs successfully prosecute any of their
claims against us, the resulting monetary damages and reduction in our working
capital could significantly harm our business.

ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD PARTY ACQUISITION OF US DIFFICULT.

     We are a Nevada corporation. Anti-takeover provisions of Nevada law could
make it more difficult for a third party to acquire control of us, even if such
change in control would be beneficial to stockholders. Our articles of


                                       21
<PAGE>
incorporation provide that our board of directors may issue preferred stock
without stockholder approval. The issuance of preferred stock could make it more
difficult for a third party to acquire us. All of the foregoing could adversely
affect prevailing market prices for our common stock.

OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AS IS TYPICAL OF INTERNET
COMPANIES.

     The market price of our common stock has been, and is likely to continue to
be, highly volatile as the stock market in general, and the market for
Internet-related and technology companies in particular, has been highly
volatile. Investors may not be able to resell their shares of our common stock
following periods of volatility because of the market's adverse reaction to
volatility. The trading prices of many technology and Internet-related
companies' stocks have decreased substantially within the last 18 months. The
market downturn and adjustment for the high valuations for internet companies
may not return to the levels of late 1999 and early 2000. We cannot assure you
that our stock will trade at the same levels of other Internet stocks or that
Internet stocks in general will regain their prior market prices. The per share
closing price of Nettaxi's common stock in 2001 ranged from a high of $0.46 as
of June 11, 2001 to a low of $0.085 as of September 21, 2001. In addition, an
active public market for our common stock may not continue.


ITEM 2.  PROPERTIES

     Our headquarters are currently located in a leased facility in Campbell,
California, consisting of approximately 1,790 square feet of office space to
accommodate management, operations, and research and development functions,
which is under a lease that expires at the end of May 2002.  We believe that our
current facilities are appropriate to carry out our acquisition strategy and
maintain our limited operations.

ITEM 3.  LEGAL PROCEEDINGS

     We previously announced that, on May 1, 2001 seven shareholders of Nettaxi
filed an action against Nettaxi in the United States District Court for the
Central District of California (Case No. SACV 01-459 AHS). The complaint also
names Robert Rositano, Jr. our Chief Executive Officer, Dean Rositano, our
President, and Glenn Goelz our former Chief Financial Officer as additional
defendants. The complaint alleged that we violated securities laws in connection
with our February 2000 private placement. Six of the plaintiffs purchased shares
of Nettaxi common stock in the February 2000 private placement. Prior to filing
the complaint, the plaintiffs demanded the refund of all of the money invested
in Nettaxi and demanded that the exercise price of the warrants issued in the
private placement be reduced from $4.00 to $0.25 per share. Additionally, prior
to the filing the complaint, Nettaxi was asked to invest capital in a company
affiliated with one of the plaintiffs. In the complaint, the plaintiffs seek
compensatory damages, injunctive relief and fees and interest. Due to factual
misrepresentations in the complaint, we anticipated that an amended complaint
would be filed. The complaint was amended on May 23, 2001. The amended complaint
added three new plaintiffs to the lawsuit. Shortly after filing the amended
complaint, we, pursuant to the rules of the District Court, met with plaintiffs
and pointed out further factual inaccuracies and deficiencies. Plaintiffs then
chose to attempt to amend their complaint for a second time. On October 1, 2001


                                       22
<PAGE>
we filed a motion to dismiss the complaint filed by Plaintiffs. In response,
Plaintiffs have filed an opposition to Nettaxi's motion to dismiss and have
sought leave to amend their complaint for a third time. The District Court has
informed the parties that it will rule on the papers, and there will be no
hearing on the motion.

     We believe that the allegations made in the complaint are completely
without merit and that this law suit reflects shareholder frustration over the
recent downturn in the stock market. We will defend the action vigorously.

     On July 31, 2001 Envision Media filed suit against Nettaxi in the Superior
Court of California, Santa Cruz County (Case No. CV-141408).  The complaint
alleges breach of contract and misrepresentation in connection with a Stock
Option and Release Agreement entered into between the parties on January 31,
2000. Under the Stock Option and Release Agreement, Envision Media was given the
option to convert approximately $900,000 in receivables due from Nettaxi into
stock valued at $2.00 per share and also to receive warrants to purchase stock
having an exercise price of $2.76.  The agreement provided that Nettaxi was to
file a registration statement registering the shares issuable under the
agreement within 15 days of the execution of the agreement.  The agreement also
provided that each party would release the other from any claims arising out of
or in connection with the conversion of Nettaxi's debt and that the portion of
the debt converted was to be deemed paid in full.  Nettaxi was unable to file
the registration statement before February 15, 2000.  Nevertheless, on March 31,
2000 Envision Media converted the entire balance of the amount due into shares
and warrants.  On May 12, 2000 Nettaxi filed a registration statement on Form
S-1 (File No. 333-36826) which included shares and warrants held by Envision
Media. On June 8, 2000 the SEC declared the registration statement Form S-1
effective.  Nettaxi filed its answer to the complaint on September 17, 2001.
Nettaxi believes that the allegations made in the complaint are completely
without merit and intends to defend its position vigorously.

     From time to time, we are involved in legal proceedings incidental to our
business. We believe that these pending actions, individually and in the
aggregate, will not have a material adverse effect on our financial condition,
and that adequate provision has been made for the resolution of such actions and
proceedings.


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


None.


                                       23
<PAGE>
                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

     Our common stock has been traded on the NASD O-T-C Market Bulletin Board
under the trading symbol "NTXY" since October 12, 1998.  Prior to that date, our
common stock was not actively traded in the public market.  After consummation
of the merger, we anticipate that such common stock will continue to trade in
the over-the-counter market.  The following table sets forth, for the periods
indicated, the high and low bid prices for our common stock as reported by
various Bulletin Board market makers.  The quotations do not reflect adjustments
for retail mark-ups, mark-downs, or commissions and may not necessarily
represent actual transactions.

<TABLE>
<CAPTION>
Period                                           Low Bid   High Bid
--------------------------------------------------------------------
<S>                                              <C>       <C>
FISCAL YEAR ENDED DECEMBER 31, 1998:
Fourth Quarter (October 12 - December 31, 1998)  $  4.375  $   8.875
FISCAL YEAR ENDED DECEMBER 31, 1999:
First Quarter (January 1 - March 31, 1999)       $  6.187  $  18.750
Second Quarter (April 1 - June 30, 1999)         $ 11.500  $  34.500
Third Quarter (July 1 - September 30, 1999)      $  7.375  $  16.500
Fourth Quarter (October 1 - December 31, 1999)   $  1.843  $   7.875
FISCAL YEAR ENDED DECEMBER 31, 2000:
First Quarter (January 1 - March 31, 2000)       $  1.406  $   9.062
Second Quarter (April 1 - June 30, 2000)         $  0.940  $   5.968
Third Quarter (July 1 - September 30, 2000)      $  0.420  $   1.420
Fourth Quarter (October 1 - December 31, 2000)   $  0.125  $   0.520
FISCAL YEAR ENDED DECEMBER 31, 2001
First Quarter (January 1 - March 31, 2001)       $  0.125  $   0.295
Second Quarter (April 1 - June 30, 2001)         $  0.095  $   0.495
Third Quarter (July 1 - September 30, 2001)      $  0.080  $   0.360
Fourth Quarter (October 1 - December 31, 2001)   $  0.190  $   0.085
FISCAL YEAR ENDING DECEMBER 31, 2002
First Quarter (January 1 - February 12, 2001)    $  0.280  $   0.110
</TABLE>

     On February 12, 2002, the high and low bid prices per share for our common
stock on the Bulletin Board were $0.225 and $0.200 respectively. As of February
12, 2002, there were 386 stockholders of record who held shares of our common
stock.

                                 DIVIDEND POLICY

     To date, no dividends have been declared or paid on any of our capital
stock.  We currently intend to retain earnings, if any, to fund the development
and growth of our business and do not anticipate paying cash dividends in the


                                       24
<PAGE>
foreseeable future.  Payment of future dividends, if any, will be at the
discretion of our Board of Directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion.

RECENT SALES OF UNREGISTERED SECURITIES

     Set forth in chronological order is information regarding shares of common
stock issued and options and warrants and other convertible securities granted
by the Company during the year ended December 31, 2001.  Also included is the
consideration, if any, received by the Company for such shares and options and
information relating to the section of the Securities Act of 1933, or rule of
the Securities and Exchange Commission under which exemption
from registration was claimed.

(1)     From January to December, 2001 the Company under its 1998 and 1999 Stock
Option Plans issued options to purchase up to 3,005,000 shares of common stock
to employees, with exercise prices ranging from $0.13 to $0.24 per share, which
was not less than the fair market value of the shares on the date of grant.
Options to purchase 1,705,000 of these shares have expired as of December 31,
2001. The issuances were made in reliance on Section 4(2) of the Securities Act
of 1933 and/or Rule 701 promulgated under the Securities Act of 1933 and were
made without general solicitation or advertising. The purchasers were
sophisticated investors with access to all relevant information necessary to
evaluate the investments, and who represented to the Company that the shares
were being acquired for investment.

(2)     In April 2001, we issued warrants to purchase up to 1,500,000 shares of
common stock to a consultant at an exercise price of $0.13 per share, which was
not less than the fair market value of the shares on the date of grant. The
issuance was made in reliance on Section 4(2) of the Securities Act of 1933
and/or Regulation D promulgated under the Securities Act of 1933 and was made
without general solicitation or advertising. The purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment, and who represented to the Company that the shares were being
acquired for investment.


                                       25
<PAGE>
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

Summary Financial Data

     Set forth below are summary statements of operations data for the period
from October 23, 1997, the date of incorporation to December 31, 1997, the years
ended December 31, 1998, 1999, 2000 and 2001, and summary balance sheet data as
of December 31, 1997, 1998, 1999, 2000 and 2001.  This information should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations", appearing elsewhere in this Form.

<TABLE>
<CAPTION>
                                      1997          1998          1999          2000           2001
                                   -----------  ------------  ------------  -------------  ------------
<S>                                <C>          <C>           <C>           <C>            <C>
STATEMENT OF OPERATIONS DATA:
Net revenues                       $  144,900   $   258,000   $ 5,032,800   $  9,418,400   $ 2,069,500
Gross profit                       $   57,500   $    18,200   $ 1,029,000   $  2,110,700   $(2,188,600)
Loss from operations               $ (142,100)  $(3,082,300)  $(9,402,500)  $(10,367,900)  $(8,986,500)
Net loss                           $ (159,700)  $(3,113,600)  $(9,880,400)  $(14,351,400)  $(8,550,400)
Net loss available to common       $ (327,200)  $(3,127,900)  $(9,880,400)  $(14,351,400)  $(8,550,400)
shareholders
Basic loss per share               $    (0.06)  $     (0.32)  $     (0.46)  $      (0.36)  $     (0.20)
Diluted loss per share             $    (0.06)  $     (0.32)  $     (0.46)  $      (0.36)  $     (0.20)

WEIGHTED-AVERAGE COMMON
SHARES:
Basic outstanding shares            5,483,500     9,724,781    21,274,203     39,381,211    43,124,586
Diluted outstanding shares          5,483,500     9,724,781    21,274,203     39,381,211    43,124,586

Balance Sheet Data:
Working capital (Deficiency)       $ (222,900)  $   300,400   $(2,053,000)  $ 14,144,500   $ 8,525,200
Total Assets                       $2,082,300   $ 1,652,700   $ 6,031,200   $ 18,123,600   $ 8,791,700
Long-term Liabilities              $  773,500   $     5,400   $ 3,200,000   $          0   $         0
Total stockholders' equity         $  973,400   $ 1,332,100   $(2,000,300)  $ 16,563,300   $ 8,607,800
(Deficiency)
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934, including, without limitation, statements regarding the


                                       26
<PAGE>
company's expectations, beliefs, intentions or future strategies that are
signified by the words "expects", "anticipates", "intends", "believes", or
similar language.  These forward-looking statements involve risks, uncertainties
and other factors.  All forward-looking statements included in this document are
based on information available to the company on the date hereof and speak only
as of the date hereof.  The factors discussed below under "Risk Factors" and
elsewhere in this Annual Report on Form 10-K are among those factors that in
some cases have affected the company's results and could cause the actual
results to differ materially from those projected in the forward-looking
statements.  The following discussion should be read in conjunction with the
condensed consolidated financial statements and notes thereto.

OVERVIEW

     Nettaxi.com is an Internet marketing portal that provides content and
Internet based services for consumers and businesses. Our web site at
www.nettaxi.com serves as a gathering place for people with shared topics of
interest, as well as an entry point, referred to as a portal, to the Internet.
Through our web site, we provide content addressing a number of targeted
categories. Subscribers to our web site are also provided with access to
enhanced content such as broadband video clips and email accounts. In 1999, we
developed a diversified revenue model under which we provided subscribers with
access to web site hosting services and a broad range of content, and we
provided affiliated businesses with access to a large population of Internet
users for advertising and promotional purposes.

     In 2001, Nettaxi faced the challenges of an overall downturn in the
Internet industry and the economy in general. As of December 31, 2001, we had
incurred losses of approximately $36.2 million. The bankruptcy and liquidation
of many of our Internet based customers and suppliers caused us to re-evaluate
our business model. Since the Internet infrastructure is unstable and customer
base financially weak, we took corrective action to significantly decrease our
cash burn and determine the best course of action to maintain and enhance the
value of our company. In this regard, we implemented an acquisition strategy
pursuant to which we sought to identify an appropriate entity with which to
merge, acquire or restructure our current business. Since the announcement of
our acquisition strategy in May 2001, we have evaluated a number of potential
Merger candidates in a wide variety of industries. Of all of these companies, we
believe RAE Systems presents the best fit for our shareholders. We believe the
Merger with RAE Systems is the fruit of our acquisition strategy and that the
Merger will provide us with a new direction that avoids the pitfalls that have
crippled so many Internet businesses.

     In June 2001, we reduced our overhead and burn rate by reducing the
salaries of our employees and reducing the number of personnel, marketing
expenses and costs associated with our hosting activities. Our current
management team, consisting of finance and administrative employees is in place
to maintain our operations and consummate the proposed Merger with RAE Systems.

     We continue to operate our website, however, we have focused our energies
on our acquisition strategy and therefore have not pursued any revenue
generating activities in the last six months of 2001.


                                       27
<PAGE>
     Prior to June 2001, we provided web site hosting and Internet connectivity
services for corporate customers. Our services were delivered through a
state-of-the-art Internet data center located in Southern California using a
high-performance Internet backbone network. Customers paid monthly fees for the
professional services utilized, one-time installation fees, and connectivity
charges. These "hosting" revenues were recognized in the period the services
were provided. Hosting revenues were variable, based upon bandwidth usage and
services used, and resulted in operating losses from time to time. In June 2001,
we terminated our significant co-hosting customer contracts effective July 7,
2001. In connection with this, we also discontinued the purchase of bandwidth
and premium services from our third party provider, further reducing monthly
expenditures. The terminations have reduced our operating expenses, and
materially affected our revenues beginning in the third quarter of 2001.

     Acquisitions carry numerous risks and uncertainties and we cannot guarantee
that we will be able to successfully integrate any businesses, products,
technologies or personnel that might be acquired in the future.

RESULTS OF OPERATIONS; COMPARISON OF THE TWELVE MONTHS ENDED DECEMBER 31, 2001
AND 2000

     NET REVENUES. Net revenues for the twelve months ended December 31, 2001
were $2.1 million compared with $9.4 million for the twelve months in 2000. The
significant decrease is primarily the result of the substantial reduction of our
operating activities and expenditures in connection with the adoption of our
acquisition strategy and the current economic climate in the Internet industry.
In June 2001, we terminated our significant co-hosting customer contracts
effective July 7, 2001, which materially decreased our revenues beginning in the
third quarter of 2001. The substantial decrease was also the result of
significantly lower advertising revenues recognized in the twelve months ended
December 31, 2001.

     For the twelve months ended December 31, 2001, three customers each
accounted for greater than 10% of total net revenues for a total of
approximately $1.9 million or 90% of the total revenues. These customers,
Babenet, Whitesand Communications, and Whitehorn Ventures Limited, accounted for
47%, 19%, and 25%, respectively of our total revenues. All three of these
customers were co-hosting customers. For the twelve months ended December 31,
2000, four customers, Babenet, Whitesand Communications, Hearme.com,
Spinrecords.com, each accounted for greater than 10% of total net revenues for a
total of approximately $5.1 million or 54% of the total revenues. In June 2001,
we terminated our significant co-hosting customer contracts effective July 7,
2001, which has materially affected revenues beginning in the third quarter of
2001.

     ADVERTISING REVENUES. Advertising revenues for the twelve months ended
December 31, 2001 and 2000 were approximately $0.2 million and approximately
$5.7 million, respectively, which represented 10% and 60%, respectively, of
total net revenues. The decline in absolute dollars resulted from the
substantial reduction of our operating activities and expenditures in connection
with the adoption of our acquisition strategy and the current economic climate
in the Internet industry.  The decline was also attributable to the discontinued
use of reciprocal advertising transactions and decreases in the number of


                                       28
<PAGE>
advertisers and the decrease in the average rate paid by these advertisers. As a
result of the increased bankruptcy and liquidation trend in the marketplace, we
further tightened our credit terms and loss many of our customers. Also, we
initiated several cost savings strategies in the first quarter of 2001, which
resulted in cancellation of advertising arrangements by our customers that
decided that these new strategies did not meet their criteria for advertising
promotions. Also, in the first quarter of 2001, we terminated our free hosting
arrangements for our citizens, which resulted in decreased page views and
therefore decreased the number of banner advertisements served. We believe that
the revenues from the sale of banner advertisements can no longer justify the
cost of purchasing bandwidth. Reciprocal advertising arrangements accounted for
approximately 0% and 28% of total revenues for the twelve months ended December
31, 2001 and 2000, respectively. Reciprocal arrangements were used in our
strategy in developing strategic relationships with other advertisers or service
providers for non-cash media advertising. We no longer utilize these agreements
as the return on investment for these agreements no longer benefits us. We
continue to operate our website and sell advertising products, but these
revenues will be significantly lower than prior periods. We do not expect these
revenues to grow in light of the changing market conditions and the recent
actions taken by us.

     HOSTING REVENUES. Our hosting revenues were approximately $1.9 million and
$3.7 million for the twelve months ended December 31, 2001 and 2000, which
represented 90% and 40%, of total net revenues, respectively. The decline in
absolute dollars resulted from the substantial reduction of our operating
activities and expenditures in connection with the adoption of our acquisition
strategy and the current economic climate in the Internet industry. For the
twelve months ended December 31, 2001, hosting revenues were a higher percentage
of total net revenue as advertising revenues significantly decreased in the
twelve months ended December 31, 2001. Our services are delivered through a
state-of-the-art Internet data center located in Southern California using a
high-performance Internet backbone network. Customers pay monthly fees for the
professional services utilized, one-time installation fees, and monthly
connectivity charges. These hosting revenues were recognized in the period the
services were provided. We did not receive any one-time installation fees in the
twelve months ended December 31, 2001 and 2000, respectively.  In June 2001, we
terminated our significant co-hosting customer contracts effective July 7, 2001,
which materially affected revenues beginning in the third quarter of 2001.

     COST OF OPERATIONS. Cost of operations were approximately $4.3 million and
$7.3 million for the twelve months ended December 31, 2001 and 2000,
respectively.  Cost of operations decreased as a result of the substantial
reduction of our operating activities and expenditures in connection with the
adoption of our acquisition strategy.  The decline was also attributable to the
termination of our co-hosting customer contracts which required our purchasing
of bandwidth and services from a third party provider.  We have also experienced
a substantial decrease in traffic to our website which resulted in the offset to
the cost of purchasing bandwidth.  Beginning in February 2001 we changed our web
hosting provider to Alchemy Communications, a carrier in Southern California.
This new provider provides similar services but at substantial cost saving to
us. We entered into traffic directive arrangements whereas selected web traffic
or page views are diverted to interest specific areas of our website and
advertisements. These arrangements require special tools and costs to third


                                       29
<PAGE>
parties. We began these new arrangements in the fourth quarter of 2000, but as
result of our acquisition strategy we terminated these arrangements in July
2001. There were no similar costs in the twelve months ended December 31, 2001.

     SALES AND MARKETING EXPENSES. Sales and marketing expenses were
approximately $0.9 million and $5.9 million for the twelve months ended December
31, 2001 and 2000, respectively. The decline in sales and marketing expenses was
attributable to the substantial reduction of our operating activities and
expenditures in connection with the adoption of our acquisition strategy.  The
decline was also attributable to the discontinued use of reciprocal online
advertising arrangements to increase brand awareness and traditional print and
media marketing advertising.  We recorded reciprocal advertising expenses in
relation to the reciprocal advertising revenues of approximately $2.2 million
for the twelve months ended December 31, 2000. There were no similar expenses in
2001.

     RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
approximately $0.4 million and $1.6 million for the twelve months ended December
31, 2001 and 2000, respectively. The decline in expense was primarily
attributable to the decrease in salaries expense for personnel as the result of
decreased personnel. We terminated all research and development personnel in the
beginning of the second quarter 2001. Currently, we have no hiring plan in
effect for replacement of these individuals. We plan to utilize consultants for
any technical projects. As of October 2001, we have engaged two technical
consultants for short-term projects.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were approximately $5.5 million and $5.0 million for the twelve months ended
December 31, 2001 and 2000, respectively. General and administrative costs
consisted primarily of salaries and related costs for executives,
administrative, and finance personnel, as well as legal, accounting and other
professional service fees. In addition to the above we recognized in 2001 a
write-down of approximately $823,000 due to impairment of equipment, purchased
technology and other intangibles, and a loss on disposal of certain equipment of
$327,600 related to our move to smaller facilities in the June 2001. Due to the
market conditions, we were unable to sell the capital equipment and the costs
for storage and moving the equipment would have exceeded any gain realized on
the sale. In June 2001 we negotiated an early termination of our facilities
lease and recognized a one-time charge of approximately $94,000, which included
the forfeited deposit. This fee was necessary as a result of the market
conditions in the San Francisco Bay Area. We entered into a facilities lease of
smaller space in Campbell, California. We believe that this space will be
sufficient to conduct our current activities. We also recognized approximately
$141,000 in one-time costs associated with the termination of our intended
acquisition with LookupGuide.com. The above additional expenses were offset with
decreases in personnel costs as a result of termination of personnel in the
first and second quarter of 2001.

     INTEREST INCOME. Interest income was approximately $447,900 and $703,800
for the twelve months ended December 31, 2001 and 2000, respectively. The higher
average cash balance in the twelve months ended December 31, 2000, was the
result of the issuance of common stock in a private placement offering in
February 2000 for which cash proceeds became available in March 2000.


                                       30
<PAGE>
     INTEREST EXPENSE. Interest expense was approximately $9,400 and $4.7
million for the twelve months ended December 31, 2001 and 2000, respectively.
For the year 2000 period, the interest expense was primarily the result of
non-cash deemed interest expense related to the implied beneficial conversion
feature and the value of warrants issued in connection with the settlement
agreement that we reached with the holder of the convertible debentures issued
on March 31, 1999. The convertible note was fully converted in the second
quarter of 2000 and therefore no interest expense was recorded on this note in
2001.

     INCOME TAXES. The provision for income taxes for the years ended December
31, 2001 and 2000 consisted of minimum state taxes of $2,400 and $1,600,
respectively.  At December 31, 2001, we had net operating loss carryforwards
available to reduce future taxable income that aggregate approximately $26.7
million for Federal income tax purposes. These benefits begin to expire in 2017.
We also had California net operation loss carryforwards in the amount of $14.2
million, which may be applied to future taxable income until these benefits
begin to expire in 2002. Our ability to utilize the net operating loss
carryforwards is dependent upon our ability to generate taxable income in future
periods and may be limited due to restrictions imposed under Federal and state
laws upon change in ownership.  If we complete an acquisition consistent with
our acquisition strategy, we may be unable to apply these net operating loss
carryforwards at all.

RESULTS OF OPERATIONS; COMPARISON OF THE TWELVE MONTHS ENDED DECEMBER 31, 2000
AND 1999

     NET REVENUES.  Net revenues for the year ended December 31, 2000 increased
87% to approximately $9.4 million from $5.0 million for the year ended December
31, 1999.  The absolute dollar increase is the result of an increase in revenues
from the corporate web hosting and the increase in advertising revenues.
Advertising revenues included third party revenues from both traditional and
internet related advertisers which also includes reciprocal arrangements.  For
the year ended December 31, 2000, four customers each accounted for greater than
10% of total net revenues for a total of approximately $5.1 million or 54% of
the total revenues.  These customers, Babenet, SpinRecords.com, Whitesand
Communications, and Hearme.com, accounted for 20%, 13%, 11% and 10%,
respectively of our total revenues.  For the year ended December 31, 1999, one
customer, Whitesand Communications, accounted for greater than 10% of total net
revenues. The loss of any one of all of these customers could have a material
adverse affect on our revenue.

     ADVERTISING REVENUES.  Advertising revenues for the year ended December 31,
2000 and 1999 were approximately $5.7 million and approximately $2.7 million,
respectively, which represented 60% and 53%, respectively, of total net
revenues. The year over year increase in absolute dollars resulted from an
increase in reciprocal advertising transactions and increases in the number of
advertisers as well as the increase in average contract commitments of these
advertisers as a result of increased web traffic to our web site. Reciprocal
advertising arrangements are exchanges of similar services between the Company
and the advertisers. These arrangements accounted for approximately 28% and 7%
of total revenues for the twelve months ended December 31, 2000 and 1999,
respectively. Reciprocal arrangements for the twelve months ended December 31,
2000 are the result of the Company's strategy in developing strategic
relationships with other advertisers or service providers for non-cash media
advertising.


                                       31
<PAGE>
     TRANSACTION PROCESSING FEES. There were no transaction processing fees for
the year ended December 31, 2000. Transaction processing fees were approximately
$1.29 million for the year ended December 31, 1999, which represented 26%, of
total net revenues. Transactions fees consisted of revenue derived from credit
card evaluations and from the processing of on-line credit card transactions.
The 1999 revenue is attributable to the Merger with Plus Net, Inc. in May 1999.
The contract through which these fees have been derived terminated in December,
1999 and we do not expect revenues of this type to be significant in future
periods.

     HOSTING REVENUES.  Our hosting revenues were approximately $3.7 million and
$945,000 for the years ended December 31, 2000 and 1999, respectively, which
represented 40% and 19%, of total net revenues, respectively.  For the year
ended December 31, 2000, we recognized hosting revenues for the twelve months as
compared to only six months in the year ended December 31, 1999.  In the third
quarter of 1999, we began providing internet hosting and connectivity services
for corporate customers.  Our services are delivered through a state-of-the-art
Internet data center located in Southern California using a high-performance
Internet backbone network.  Customers pay monthly fees for the professional
services utilized, one-time installation fees, and monthly connectivity charges.
These "hosting" revenues were recognized in the period the services were
provided.  The Company has experienced strong revenue growth in the internet web
hosting for corporate customers, but does not expect this growth to continue at
the current rate, or that the Company will sustain profitability from this
business segment.  Additionally, the Company cannot assure that it can increase
the number of corporate customers or maintain the current customer base.  As
previously described, two web-hosting customers accounted for more than 10% of
total net revenues for the twelve months ended December 31, 2000.

     COST OF OPERATIONS.  Cost of operations were approximately $7.3 million and
$4.0 million for the years ended December 31, 2000 and 1999, respectively.  Cost
of operations increased 83%.  Approximately 85% of the increase is the result of
additional expenses related to costs for co-location (Internet connection
charges) expenses.  In the third quarter of 1999, we began providing Internet
connectivity services to corporate customers and required purchases of
additional bandwidth to service these customers.  These costs are expected to
continue to increase as our web traffic increases and our corporate customer
require additional bandwidth for our "citizens".  For the year ended December
31, 2000, the Company recognized hosting expenses for twelve months as compared
to only six months in the year ended December 31, 1999.  Approximately 6% of the
increase is related to increased depreciation expense for capital purchased in
1999.  Approximately 6% of the increase is related to the costs for consultants
to improve our website.  Separately, during the third quarter ended September
30, 2000, we also initiated cost effective measurement tools to limit the use of
unauthorized excessive bandwidth or charging the individual users for the use of
additional bandwidth.  These cost measures resulted in cost savings to the
Company in the third and fourth quarter of year 2000.  We cannot be assured that
these cost saving measures will continue to result in substantial savings or any
savings at all.

     SALES AND MARKETING EXPENSES.  Sales and marketing expenses were
approximately $5.9 million and $4.8 million for the twelve month periods ended
December 31, 2000 and 1999, respectively.  Sales and marketing expenses


                                       32
<PAGE>
consisted primarily of advertising, including co-branding and reciprocal,
salaries of our sales and marketing personnel and related costs, marketing, and
promotion costs.  Approximately $1.9 million of the net increase is the result
of the redirected marketing approach for brand awareness implemented in the
third quarter of 2000.  This consisted of using reciprocal online advertising
arrangements to increase brand awareness rather than the traditional print and
media marketing approach.  The Company recorded reciprocal advertising expenses
in relation to the reciprocal advertising revenues of $2.2 million for the year
ended December 31, 2000 compared to approximately $0.3 million for the year
ended December 31, 1999.  The Company utilizes reciprocal advertising
arrangements as an inexpensive advertising media for increasing brand awareness.
There can be no assurance that these increased expenditures will result in
increased visitors to our web site or additional revenues in the future.  This
increase was offset by a reduction of approximately $0.8 million reduction in
spending on traditional marketing media expenditures.

     RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses were
$1.6 million and $2.2 million for the twelve months ended December 31, 2000 and
1999, respectively.  The 28% decrease was primarily attributable to the lower
utilization of consultants by the Company and decrease in average number of
technical personnel during the year 2000.  Approximately $0.6 million of the
decrease was related to the lower utilization of consultants and $0.2 million of
the decrease was related to the decrease in recruiting fees paid to hire new
employees.  The above two costs were offset by an approximately $0.3 million
increase which was related to increased depreciation expense for capital
equipment.  The Company has experienced a difficulty in its ability to recruit
and retain technical personnel as a result of the current economic prosperity
and high cost of living in Silicon Valley and expects this condition to have a
continuous impact on the ability of the Company to retain and hire additional
technical personnel.

     GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
were $5.0 million and $3.5 million for the twelve months ended December 31, 2000
and 1999, respectively.  General and administrative costs consisted primarily of
salaries and related costs for executives, administrative, and finance
personnel, as well as legal, accounting and other professional service fees.
Approximately $0.6 million of the increase in general and administrative
expenses were primarily attributable to amortization of deferred compensation
expense related to stock, warrants and options granted during the year to
various consultants for the services.  Approximately $0.4 million of the
increase was the result of additional salaries and personnel costs.
Approximately $0.4 million of the increase is related to higher insurance costs
associated with being a public company.   Also, the increase is the result of
legal fees related to the settlement agreement with the holder of convertible
debentures.  The Company also recorded approximately $500,000 provision for
uncollectible accounts receivable.  The Company expects that due to the highly
volatile market conditions for internet related and other advertising companies,
the provision for bad debt may be higher in the future.  The above increases
were offset by the decrease in expenditures related to the Merger with Plus Net,
Inc. in 1999.

     INTEREST EXPENSE.  Net interest expense was $4.0 million and $0.4 million
for the years ended December 31, 2000 and 1999, respectively.  For the year 1999
period the net interest expense was primarily due to the convertible promissory


                                       33
<PAGE>
note that was issued on March 31, 1999 and to amortization of deferred interest
related to warrants issued in conjunction with the convertible promissory note,
offset by interest income.  For the year 2000 period, the net interest expense
was primarily the result of deemed interest expense related to the convertible
debenture issued on March 31, 1999.  We recognized deemed interest expense of
approximately $3.9 million in the second quarter of 2000.  This non-cash
interest expense resulted from the implied beneficial conversion feature and the
value of warrants issued in connection with the settlement agreement that we
reached with the holder of the convertible debenture.

     INCOME TAXES.  The provision for income taxes for the year ended December
31, 2000 consisted of minimum state taxes.  For the year ended December 31, 1999
we recorded a tax provision which related to earnings made by PlusNet, Inc.
during its fiscal period before our merger.  At December 31, 2000, we had net
operating loss carryforwards available to reduce future taxable income that
aggregate approximately $25.1 million for Federal income tax purposes.  These
benefits begin to expire in 2017.  The Company also had a California net
operation loss carryforwards in the amount of $13.4 million which may be applied
to future taxable income until these benefits begin to expire in 2002.  Our
ability to utilize the net operating loss carryforwards are dependent upon our
ability to generate taxable income in future periods and may be limited due to
restrictions imposed under Federal and state laws upon change in ownership.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 2001, the Company had cash and cash equivalents of
approximately $8.6 million, compared to approximately $13.9 million at December
31, 2000. Net cash used in operating activities equaled approximately $5.3
million and $8.4 million for the twelve month periods ended December 31, 2001
and 2000, respectively. The decline in cash used was related to the decrease of
approximately $5.8 million in net loss for the twelve months ended December 31,
2001 compared to the same twelve months ended December 31, 2000. However, in
2000 we incurred approximately $4.6 million of non-cash interest expense
relating to a settlement agreement and issuance of warrants.  Net adjustment
related to customer receivables amounted to approximately $1.7 million.

     Net cash used in investing activities was approximately $26,400 and
$744,100 for the twelve months ended December 31, 2001 and 2000, respectively.
Substantially all of the cash used in investing activities for both periods was
primarily related to the purchase of capital equipment.

     Net cash provided by financing activities was approximately $0 and $22.0
million for the twelve months period ended December 31, 2001 and 2000,
respectively. Net cash provided by financing activities in 2000 consisted
primarily of net proceeds from the issuance of our common stock.

     We incurred net losses of approximately $8.6 million and $11.4 million for
the twelve months ended December 31, 2001, and 2000, respectively. At December
31, 2001, we had an accumulated deficit of approximately $36.2 million. The net
losses and accumulated deficit resulted from the significant operational,


                                       34
<PAGE>
infrastructure and other costs incurred in the development and marketing of our
services and the fact that revenues failed to keep pace with such costs.
Beginning in the fourth quarter of 2000, we initiated cost reductions in all
areas of operations. We are continuing to review and reduce all non-essential
expenditures while we pursue our acquisition strategy.

     We do not have any long-term commitments that currently require a specified
capital budget other than normal operations. We believe that current cash, and
cash equivalents would be sufficient to meet our anticipated operating cash
needs for at least the next 12 months if the Merger with RAE Systems were not to
take place. The obligations of RAE Systems to close the Merger are subject to,
among other things, our net cash being at least $7,500,000.  If we do not have
$7,500,000 we may be forced to seek additional capital from outside sources.
There can be no assurance that financing will be available in amounts or on
terms acceptable to us, if at all. The sale of additional equity or convertible
debt securities could result in additional dilution to our stockholders.

RECENT ACCOUNTING PRONOUNCEMENTS

     In December 1999, the staff of the Securities and Exchange Commission
issued its Staff Accounting Bulletin No. 101, "Revenue Recognition". Staff
Accounting Bulletin No. 101 provides the SEC staff's views in applying generally
accepted accounting principles to selected revenue recognition issues.  Staff
Accounting Bulletin No. 101 is effective for the fourth fiscal quarter of fiscal
years beginning after December 15, 1999.  We believe our current revenue
recognition policies comply with the provisions of Staff Accounting Bulletin No.
101.

     In March 2000, the Financial Accounting Standards Board issued
Interpretation (Interpretation) No. 44, "Accounting for Certain Transactions
involving Stock Compensation, an Interpretation of ABP Opinion No. 25", which
became effective July 1, 2000.  Interpretation No. 44 clarifies (a) the
definition of employee for purposes of applying Opinion 25, (b) the criteria for
determining whether a stock compensation plan qualifies as a noncompensatory
plan, (c) the accounting consequences of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination.  Adoption of the
provisions of the Interpretation had no significant impact on our financial
statements.

In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instrument
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133, which amends SFAS No. 133 to be effective for all fiscal years beginning
after June 15, 2000. In June 2000, SFAS No. 133 was amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Hedging Activities, which
amended or modified certain issues discussed in SFAS No. 133. SFAS No. 138 is
also effective for all fiscal years beginning after June 15, 2000. SFAS No. 133
and SFAS No. 138 establish accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statements also require that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. The Company does not engage
in derivative instruments or hedging activities. Accordingly, there was no
impact on the Company's financial statements from the adoption of SFAS No. 133
and SFAS No. 138.


                                       35
<PAGE>
In July 2001, the FASB issued SFAS No. 141 (SFAS 141), Business Combinations,
which supersedes Accounting Principles Board (APB) Opinion No. 16, Business
Combinations. SFAS 141 eliminates the pooling-of-interests method of accounting
for business combinations and modifies the application of the purchase
accounting method. The elimination of the pooling-of-interests method is
effective for transactions initiated after June 30, 2001. The remaining
provision of SFAS 141 will be effective for transactions accounted for using the
purchase method that are completed after June 30, 2001.

In July 2001, the FASB also issued SFAS No. 142 (SFAS 142), Goodwill and
Intangible Assets, which supersedes APB Opinion No. 17, Intangible Assets. Under
SFAS 142, goodwill and intangible assets with indefinite lives are not amortized
but are tested for impairment annually using the fair value approach, except in
certain circumstances, and whether there is an impairment indicator, other
intangible assets will continue to be valued and amortized over their estimated
lives; in-process research and development will continue to be written off
immediately; all acquired goodwill must be assigned to reporting units for
purposes of impairment testing and segment reporting and existing goodwill will
no longer be subject to amortization. The provisions of SFAS No. 142 are
required to be applied starting with fiscal years beginning after December 15,
2001.

In August 2001, the FASB issued SFAS No. 143 (SFAS 143) Accounting for
Obligations Associated with the Retirement of Long-Lived Assets. SFAS 143
addresses financial accounting and reporting for the retirement obligation of an
asset. SFAS 143 states that companies should recognize the asset retirement
cost, at its fair value, as part of the cost asset and classify the accrued
amount as a liability in the balance sheet. The asset retirement liability is
then accreted to the ultimate payout as interest expense. The initial
measurement of the liability would be subsequently updated for revised estimates
of the discounted cash outflows. SFAS 143 will be effective for fiscal years
beginning after June 15, 2002. The Company has not yet determined the effect
SFAS 143 will have on its financial position, results of operations, or cash
flows.

In October 2001, the FASB issued SFAS No. 144 (SFAS 144) Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supersedes the SFAS No.
121 by requiring that one accounting model to be used for long-lived assets to
be disposed of by sale, whether previously held and used or newly acquired, and
by broadening the presentation of discontinued operation to include more
disposal transactions. SFAS 144 will be effective for fiscal years beginning
after December 15, 2001. The Company has not yet determined the effect SFAS 144
will have on its financial position, results of operations, or cash flows.


                                       36
<PAGE>
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

     As of December 31, 2001, we did not have any long term debt obligations.
Therefore, an immediate 10% increase in market interest rates would not have a
material adverse effect on our financial position. We currently do not have any
material market rate risks.  We could be exposed to market risk related to any
debt obligations for financing working capital and capital equipment
requirements in the future.  Historically, we have financed such requirements
from the issuance of both preferred and common stock.  We continue to consider
financing alternatives, which may include the incurrence of long term
indebtedness.  Actual capital requirements may vary based upon the timing and
success of the expansion of our operations. We believe that based on the terms
and maturities of any future debt obligations that the market risk would be
minimal.

EFFECTS OF INFLATION

     Due to relatively low levels of inflation in 1997, 1998, 1999, 2000 and
2001, inflation has not had a significant effect on our results of operations.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our financial statements, schedules and supplementary data, as listed under
Item 14, appear in a separate section of this report beginning on page F-1.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

NONE.


                                       37
<PAGE>
                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

     Our directors, executive officers and other key employees, and their ages,
as of December 31, 2001 are as follows:

<TABLE>
<CAPTION>
NAME                        AGE                      POSITION
--------------------------  ---  -------------------------------------------------
<S>                         <C>  <C>

Robert A. Rositano, Jr.(1)   32  Chief Executive Officer, Secretary and Director

Dean Rositano (1)            29  President, Chief Operating Officer, Interim Chief
                                 Financial Officer and Director

Andrew Garroni (2)           45  Director

<FN>
(1)     Messrs. Robert A. Rositano, Jr. and Dean Rositano are brothers.
(2)     Mr. Andrew Garroni is currently the sole member of our Compensation
Committee and our Audit Committee and is not an employee of Nettaxi.com.
</TABLE>


     Each director holds office until the next annual meeting on the
stockholders and until his successor is elected and qualified. Executive
officers are appointed by and serve at the pleasure of our board of directors.

     Set forth below is certain information regarding the business experience
during the last five years of each of the above named persons.

     ROBERT A. ROSITANO, JR. Mr. Rositano Jr. co-founded Nettaxi Online
Communities, Inc., a Delaware corporation , in October, 1997. He has served as
Chief Executive Officer and Secretary of Nettaxi since the reorganization with
Swan Valley and prior to that served in the same capacities with Nettaxi Online
Communities from its inception.  He has over seven years of experience in the
Internet service provider and Internet industry. In February 1995, he co-founded
Simply Interactive, Inc. , an Internet/intranet software company, and served as
Executive Vice President in the areas of Inside Sales, Customer Service and
Product Development until he co-founded Nettaxi Online Communities. In January
1994, he co-founded Digital Data Express, a company focused on beginner level
Internet users, and served as Chief Executive Officer until February 1995 when
Digital Data Express was acquired by Simply Interactive. From 1992 to 1994, Mr.
Rositano was hired on as the third employee at Netcom On-line Communications in
1992 and served as a senior sales and account manager until 1993.

     DEAN ROSITANO. Mr. Rositano co-founded Nettaxi Online Communities in
October, 1997. He has served as President of Nettaxi since the reorganization
with Swan Valley and prior to that served in the same capacities with Nettaxi
Online Communities. He has over seven years of experience in the ISP and
Internet industry. In February 1995, he co-founded Simply Interactive, Inc., an


                                       38
<PAGE>
Internet/intranet software company, and served as Vice President of Technology
until he co-founded Nettaxi Online Communities. While at Simply Interactive, he
assembled a digital production studio and produced the Internet the City CD-ROM
in a three month time frame on three platforms, Windows 3.1, Windows 95, and
Macintosh. In January 1994, he co-founded Digital Data Express and served as
President and Chief Executive Officer until February 1995 when Digital Data
Express was acquired by Simply Interactive. At Digital Data Express, Mr.
Rositano co-produced and directed the world's first Internet training video
"Introduction to the Internet."

     ANDREW GARRONI. Mr. Garroni has served as a director since completion of
our merger with Plus Net in May 1999. Under the terms of our merger agreement
with Plus Net, Mr. Garroni was appointed as a member of the board of directors.
Mr. Garroni has over 20 years experience in the development and management of
start-up entertainment companies. He currently serves as Executive Producer of
Showtime's movie series "Naked City," a position he has held since January,
1998. From 1990 to September, 1998 he served as President of Axis Films
International, Inc. supplying films to cable television networks such as Home
Box Office, Showtime Networks and DBS providers like Direct TV. He began his
career in New York as a principal partner in the motion picture Production
Company Cinerex Associates, Inc. whose clients included Twentieth Century Fox
and Orion Pictures. While in New York, he helped create Magnum Motion Pictures
and Magnum Entertainment. Mr. Garroni has a Bachelor's degree in Marketing from
Fairleigh Dickinson University.

EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS

     EXECUTIVE EMPLOYMENT AGREEMENTS. On August 1, 1998 Nettaxi Online
Communities, Inc. entered into executive employment agreements with Robert A.
Rositano, Jr. and Dean Rositano, and these agreements continued in effect after
the reorganization with Swan Valley Snowmobiles, Inc. Pursuant to the terms of
their individual executive employment agreements, Robert A. Rositano, Jr. is to
perform the duties Chief Executive Officer and serve as a member of the board of
directors, and Dean Rositano is to perform the duties of President and serve as
a member of the board of directors. Each executive employment agreement provides
for an annual base salary which may be increased by the board of directors, in
its discretion. The base salary also is to increase by ten percent per annum,
which increase shall be cumulative for each year.  In connection with the
adoption of our acquisition strategy in May 2001, each executive officer
voluntarily agreed to accept reduced base salaries of $150,000.  Under the
executive employment agreements, each executive is also eligible for annual
bonus compensation in the minimum amount of $50,000 up to a maximum amount equal
to the base salary then payable. The board of directors is to determine the
amount of the annual bonus based upon performance targets established by the
board of directors. In 2001, each executive received the minimum bonus
compensation payable.

     Under the executive employment agreements, Robert A. Rositano, Jr. and Dean
Rositano each received warrants to purchase up to 883,952 shares of the common
stock of Nettaxi Online Communities. The warrants were to vest over three years
and vesting was accelerated upon the reorganization with Swan Valley. Robert A.
Rositano, Jr. and Dean Rositano each exercised their warrants in September,
1998. They have each been granted registration rights with respect to shares of
common stock issued upon exercise of the warrants and they have each waived any


                                       39
<PAGE>
such rights with respect to this registration statement. Each executive is
eligible to receive three weeks paid vacation for the first year of employment
and four weeks per year thereafter. They are also eligible to participate in the
health, life insurance, medical, retirement and other benefit programs which we
may offer from time to time. Each executive receives a car allowance in an
amount not to exceed $600 per month plus insurance and costs of repair and may
be reimbursed for other reasonable expenses incurred during the course of
performing their duties.

     The term of the executive employment agreements is four years and they are
automatically renewed for successive periods of one year unless terminated prior
to such renewal. We may terminate either executive at any time with or without
cause. The term "cause" is defined in the executive employment agreements. If
any executive is terminated without cause, he is to receive severance pay equal
to the base salary for the remainder of the term, minimum bonus plus any pro
rata bonus in excess of the minimum bonus, pre payment of all automobile
allowance for the remaining period of the term and continued coverage for life,
health and disability insurance for the remainder of the term. These amounts
shall be due in one lump sum payment three days following the termination of his
employment without cause. If there is a "change in control" with respect to
Nettaxi, the executives may terminate their executive employment agreements and
be entitled to severance in the amount of three years of annual benefits to be
realized in accordance with the terms of the executive employment agreements,
payable in one lump sum. "Change in control" is defined in the executive
employment agreements as any change of equity such that more than 50% of the
outstanding shares of our outstanding shares are transferred to a third party,
debt ownership such that more than 50% of our outstanding shares are transferred
to a third party, or a sale of 70% or more of our assets.

     The executive employment agreements also contain covenants restricting the
disclosure of our confidential information, the solicitation of our employees or
agents and the ability of the executives to engage in competing activities with
us.

     In the course of the previous year, as a result of our limited human
resources, both executives have performed other responsibilities not necessarily
within the scope of the definition of their positions under the executive
employment agreements.

BOARD COMMITTEES

     The Compensation Committee of the board of directors determines the
salaries and incentive compensation of our officers and provides recommendations
for the salaries and incentive compensation of our other employees. The
compensation committee also administers our 1998 Stock Option Plan. There is
currently one member of the Compensation Committee, Mr. Garroni. We are
currently seeking qualified individuals to join our board of directors and serve
on our audit committee.

     The Audit Committee of the board of directors reviews, acts on and reports
to the board of directors with respect to various auditing and accounting
matters, including the selection of our independent auditors, the scope of the
annual audits, fees to be paid to the auditors, the performance of our
independent auditors and our accounting practices. Mr. Garroni is currently the


                                       40
<PAGE>
only member of the audit committee.  We are currently seeking qualified
individuals to join our board of directors and serve on our audit committee.

     The board of directors does not have a nominating committee.

DIRECTORS' COMPENSATION

     Directors who are also our employees receive no compensation for serving on
the board of directors. With respect to directors who are not employees, we
intend to reimburse such directors for all travel and other expenses incurred in
connection with attending meetings of the board of directors and any committees
of the board of directors. Non-employee directors are also eligible to receive
grants of non-qualified stock options under our 1998 Stock Option Plan and 1999
Stock Option Plan. We intend to grant our non-employee directors, subject to
shareholder ratification, options to purchase common stock under our stock
option plans to provide us with an effective way to recruit and retain qualified
individuals to serve as members of the board of directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     We did not have a Compensation Committee or other committee of the board of
directors performing similar functions during the fiscal years ending December
31, 1997 and 1998. Messrs. Robert A. and Dean Rositano are each officers of
Nettaxi and, as members of the board of directors, participated in deliberations
of the board of directors relating to the compensation of our executive
officers. As indicated above, the board of directors established a Compensation
Committee as of May 3, 1999.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our officers and directors, and persons who own more than ten percent of a class
of our capital stock, to file reports of ownership and changes in their
ownership with the Securities and Exchange Commission. Officers, directors and
greater than ten-percent shareholders are required to furnish us with copies of
all Section 16(a) forms they file.

     Based solely on a review of the copies of such forms received by us, or
written representations from certain reporting persons that no Forms 5 were
required for such persons, we believe that, during the last fiscal year, all
filing requirements applicable to our officers, directors and greater than ten
percent beneficial owners were complied with except that reports on Form 4 were
filed late by Messrs. Robert A. Rositano, Jr. and Dean Rositano.


                                       41
<PAGE>
ITEM 11.   EXECUTIVE COMPENSATION

     The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to our Chief Executive
Officer and President, collectively, the "named executives" during the years
ended December 31, 1998, 1999, 2000 and 2001:


<TABLE>
<CAPTION>
                         SUMMARY COMPENSATION TABLE (1)

                             ANNUAL COMPENSATION        LONG-TERM
                          ----------------------------  COMPENSATION
NAME AND PRINCIPAL                                      NUMBER OF SECURITIES
POSITION                   YEAR     SALARY   BONUS ($)  UNDERLYING
                                    ($)                 WARRANTS/ OPTIONS (#)
------------------------  -------  --------  ---------  ----------------------
<S>                       <C>      <C>       <C>        <C>
Robert A. Rositano, Jr.   1998(2)    95,917          -              1,012,347
Chief Executive Officer     1999    156,550    132,500                600,000
                            2000    214,933    150,000                640,000
                            2001    184,818     50,000                380,000

Dean Rositano,            1998(2)    95,917          -              1,012,347
President                   1999    156,550    132,500                600,000
                            2000    214,933    150,000                640,000
                            2001    184,818     50,000                380,000

Robert Speicher, Vice       2000    179,229     50,000                250,000
President of Sales and      2001    320,869          -                      -
Marketing (3)

<FN>
(1)     The columns for "Other Annual Compensation" "Restricted Stock Awards"
"LTP Payouts" and "All Other Compensation" have been omitted because there is no
compensation required to be reported. No other executive officer received
compensation in excess of $100,000 during this period.

(2)     Information regarding the compensation of Messrs. Robert A. and Dean
Rositano earned during 1998 includes services rendered by them while employed by
Nettaxi Online Communities, Inc. prior to the reorganization with Swan Valley
Snowmobiles, Inc. and by Nettaxi following the reorganization with Swan Valley.
The salary earned by each of Messrs. Robert A. and Dean Rositano during 1998
includes $93,000 in cash compensation and 16,574 shares of common stock issued
to each of them in February, 1998 in lieu of salary earned in 1998 having an
ascribed value of $2,198 as determined by the board of directors.

(3)     Mr. Speicher was hired in 1999, but did not earn in excess of $100,000
in 1999. Mr. Speicher is no longer employed by Nettaxi.  The amount of


                                       42
<PAGE>
compensation shown for Mr. Speicher in 2001 includes a payment of $260,000 which
was made in connection with the cessation of his employment with Nettaxi.
</TABLE>

WARRANT AND OPTION GRANTS IN LAST YEAR

     The following table sets forth information concerning warrants and options
granted to the named executives during 2001.

<TABLE>
<CAPTION>
Warrant And Option Grants During Year Ended December 31, 2001(1)
------------------------------------------------------------------------------------------------------------------
Name            Number of    % of Total        Exercise   Expiration  Potential  Realizable  Value  at
                Securities   Warrants/         Price Per  Date        Assumed  Annual  Rates  of  Stock
                Underlying   Options Granted   Share                  Price  Appreciation  for  Option  Term
                Warrants/    to Employees in   ($/Sh)                 (3)
                Options      2001                                     --------------------------------------------
                Granted (#)                                           5%                     10%
------------------------------------------------------------------------------------------------------------------
<S>             <C>          <C>               <C>        <C>         <C>                    <C>
Robert A.           380,000               29%       0.13      1/2010  $           76,635.61  $          116,482.62
Rositano, Jr.
(2)
------------------------------------------------------------------------------------------------------------------
Dean                380,000               29%       0.13      1/2010  $           76,635.61  $          116,482.62
Rositano (2)
------------------------------------------------------------------------------------------------------------------


                                       43
<PAGE>
<FN>
(1)     No SARs were granted to either of the named executives during 2001. Each warrant and option represents the
right to purchase one share of our common stock. In 2001, we granted employees options to purchase an aggregate of
1,300,000 shares of our common stock. The options shown may terminate before their expiration dates if the
optionee's status as an employee is terminated or upon the optionee's death or disability.

(2)     Robert A. Rositano, Jr. and Dean Rositano were each granted options to purchase 380,000 shares of our
common stock under two option agreements. Under each agreement, the options expire in twelve equal quarterly
installments.

(3)     The amounts indicated in the columns under the heading "Potential Realizable Value at Assumed Annual Rates
of Stock Price Appreciation for Option Term" Amounts represent hypothetical gains that could be achieved for the
respective warrants and options if exercised at their end of their respective terms. The 5% and 10% assumed annual
rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission and
do not represent our estimate or projection of the future prices of the common stock. Actual gains, if any, on any
exercises of warrants and options are dependent upon the future performance of our common stock and overall stock
market conditions. The amounts reflected in the table may not necessarily be achieved.
</TABLE>

WARRANT AND OPTION EXERCISES AND YEAR-END OPTION VALUES

     The following table sets forth information with respect to the Named
Executives concerning their exercise of warrants during 2001 and exercisable and
unexercisable stock options held by them as of December 31, 2001.

<TABLE>
<CAPTION>

AGGREGATE WARRANT AND OPTION EXERCISES IN 2001 AND YEAR END OPTION VALUES
------------------------------------------------------------------------------------------------
NAME             Shares       Value     Number of Unexercised       Value of Unexercised In-the-Money
                 Acquired On  Realized  Options at Year End(#)      Options at Year End($) (1)
                 Exercise(#)  ($)       --------------------------  ----------------------------
                                        Exercisable  Unexercisable  Exercisable   Unexercisable
------------------------------------------------------------------------------------------------
<S>              <C>          <C>       <C>          <C>            <C>           <C>
Robert A.                  0      0.00      326,667      1,660,000  $     316.67  $     1,583.33
Rositano, Jr.
------------------------------------------------------------------------------------------------
Dean Rositano              0      0.00      326,667      1,660,000  $     316.67  $     1,583.33
------------------------------------------------------------------------------------------------
Robert Speicher            0      0.00            0              0  $       0.00  $         0.00
------------------------------------------------------------------------------------------------
<FN>

(1)     The amounts shown in the columns under the heading "Value of Unexercised In-the-Money
Options at Year End" are based on a per share fair market value of our common stock equal to
$0.135 at December 31, 2001, the closing price for our common stock on that date as reported by
various market makers for our common stock on the NASD O-T-C Market Bulletin Board. Neither of
the Named Executives have options to purchase shares of common stock which were in the money at
year end.
</TABLE>


                                       44
<PAGE>
EMPLOYEE BENEFIT PLANS

     1999 STOCK OPTION PLAN. Our 1999 Stock Option Plan was adopted by the board
of directors in January 2000, and amended the plan to increase the number of
shares reserved for issuance under the plan in April, 2000. It has not been
presented to our stockholders for ratification. The following description of our
1999 Stock Option Plan is a summary and qualified in its entirety by the text of
the plan, which is filed as an exhibit to this annual report on Form 10-K. The
purpose of the 1999 Stock Option Plan is to enhance our profitability and
stockholder value by enabling us to offer stock based incentives to employees,
directors and consultants. The 1999 Stock Option Plan authorizes the grant of
options to purchase shares of common stock to employees, directors and
consultants of Nettaxi and its affiliates. Under the 1999 Stock Option Plan, we
may grant incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986 and non-qualified stock options. However, options
granted under the plan may not qualify as incentive stock options because our
plan was not presented for shareholder ratification.

     The number of shares available for options under the 1999 Stock Option Plan
was initially 3,300,000. The board of directors amended the plan to increase the
number of shares available for options to 8,900,000. As of December 31, 2001,
8,333 shares had been issued as a result of the exercise of options previously
granted under the 1999 Stock Option Plan, 3,053,000 shares of common stock were
subject to outstanding options and 5,838,667 shares were available for future
grants. The exercise prices of the outstanding options ranged from $0.13 to
$2.44. We have registered 3,300,000 of the shares subject to issuance under our
1999 Stock Option Plan, pursuant to our registration statement filed on Form S-8
(File No. 333-32678).

     The 1999 Stock Option Plan is administered by the Compensation Committee of
the board. Subject to the provisions of the 1999 Stock Option Plan, the
Compensation Committee has authority to determine the employees, directors and
consultants of Nettaxi who are to be awarded options and the terms of such
awards, including the number of shares subject to such option, the fair market
value of the common stock subject to options, the exercise price per
share and other terms.

     Incentive stock options must have an exercise price equal to at least 100%
of the fair market value of a share on the date of the award and generally
cannot have a duration of more than 10 years. If the grant is to a stockholder
holding more than 10% of our voting stock, the exercise price must be at least
110% of the fair market value on the date of grant. Terms and conditions of
awards are set forth in written agreements between Nettaxi and the respective
option holders. Awards under the 1999 Stock Option Plan may not be made after
the tenth anniversary of the date of its adoption but awards granted before that
date may extend beyond that date.

     If the employment with Nettaxi of the holder of an incentive stock option
is terminated for any reason other than as a result of the holder's death or
disability or for "cause" as defined in the 1999 Stock Option Plan, the holder
may exercise the option, to the extent exercisable on the date of termination of
employment, until the earlier of the option's specified expiration date and 90
days after the date of termination. If an option holder dies or becomes
disabled, both incentive and non-qualified stock options may generally be


                                       45
<PAGE>
exercised, to the extent exercisable on the date of death or disability, by the
option holder or the option holder's survivors until the earlier of the option's
specified termination date and one year after the date of death or disability.

     Optionees have no rights as stockholders with respect to shares subject to
option prior to the issuance of shares pursuant to the exercise thereof. Options
issued to employees under the 1999 Stock Option Plan shall expire no later than
ten years after the date of grant. An option becomes exercisable at such time
and for such amounts as determined at the discretion of the board of directors
or the Compensation Committee at the time of the grant of the option. An
optionee may exercise a part of the option from the date that part first becomes
exercisable until the option expires. The purchase price for shares to be issued
to an employee upon his exercise of an option is determined by the board of
directors or the Compensation Committee on the date the option is granted. The
purchase price is payable in full in cash, by promissory note, by net exercise
or by delivery of shares of our common stock when the option is exercised. The
1999 Stock Option Plan provides for adjustment as to the number and kinds of
shares covered by the outstanding options and the option price therefor to give
effect to any stock dividend, stock split, stock combination or other
reorganization of or by Nettaxi.

     1998 STOCK OPTION PLAN. Our 1998 Stock Option Plan was adopted by the
board of directors, and ratified and approved by our stockholders, as of
September 29, 1998. The following description of our 1998 Stock Option Plan is a
summary and qualified in its entirety by the text of the plan, which is filed as
an exhibit to the registration statement of which this prospectus is a part. The
purpose of the 1998 Stock Option Plan is to enhance our profitability and
stockholder value by enabling us to offer stock based incentives to employees,
directors and consultants. The 1998 Stock Option Plan authorizes the grant of
options to purchase shares of common stock to employees, directors and
consultants of Nettaxi and its affiliates. Under the 1998 Stock Option Plan, we
may grant incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986 and non-qualified stock options. Incentive stock
options may only be granted our employees.

     The number of shares available for options under the 1998 Stock Option Plan
is 3,000,000. As of December 31, 2000, 4,998 shares had been issued as the
result of the exercise of options previously granted under the 1998 Stock Option
Plan, 2,525,000 shares were subject to outstanding options and 470,002 shares
were available for future grants. The exercise prices of the outstanding options
ranged from $0.13 to $14.875. The options under the 1998 Stock Option Plan vest
over varying lengths of time pursuant to various option agreements that we have
entered into with the grantees of such options. We have registered the shares
subject to issuance under our 1998 Stock Option Plan, pursuant to the Securities
Act of 1933, pursuant to our registration statement on Form S-8 (File No.
333-32678).

     The 1998 Stock Option Plan is administered by the Compensation Committee of
the board. Subject to the provisions of the 1998 Stock Option Plan, the
Compensation Committee has authority to determine the employees, directors and
consultants of Nettaxi who are to be awarded options and the terms of such
awards, including the number of shares subject to such option, the fair market
value of the common stock subject to options, the exercise price per share and
other terms.


                                       46
<PAGE>
     Incentive stock options must have an exercise price equal to at least 100%
of the fair market value of a share on the date of the award and generally
cannot have a duration of more than 10 years. If the grant is to a stockholder
holding more than 10% of our voting stock, the exercise price must be at least
110% of the fair market value on the date of grant. Terms and conditions of
awards are set forth in written agreements between Nettaxi and the respective
option holders. Awards under the 1998 Stock Option Plan may not be made after
the tenth anniversary of the date of its adoption but awards granted before that
date may extend beyond that date.

     If the employment with Nettaxi of the holder of an incentive stock option
is terminated for any reason other than as a result of the holder's death or
disability or for "cause" as defined in the 1998 Stock Option Plan, the holder
may exercise the option, to the extent exercisable on the date of termination of
employment, until the earlier of the option's specified expiration date and 90
days after the date of termination. If an option holder dies or becomes
disabled, both incentive and non-qualified stock options may generally be
exercised, to the extent exercisable on the date of death or disability, by the
option holder or the option holder's survivors until the earlier of the option's
specified termination date and one year after the date of death or disability.

     Optionees have no rights as stockholders with respect to shares subject to
option prior to the issuance of shares pursuant to the exercise thereof. Options
issued to employees under the 1998 Stock Option Plan shall expire no later than
ten years after the date of grant. An option becomes exercisable at such time
and for such amounts as determined at the discretion of the board of directors
or the Compensation Committee at the time of the grant of the option. An
optionee may exercise a part of the option from the date that part first becomes
exercisable until the option expires. The purchase price for shares to be issued
to an employee upon his exercise of an option is determined by the board of
directors or the Compensation Committee on the date the option is granted. The
purchase price is payable in full in cash, by promissory note, by net exercise
or by delivery of shares of our common stock when the option is exercised. The
1998 Stock Option Plan provides for adjustment as to the number and kinds of
shares covered by the outstanding options and the option price therefor to give
effect to any stock dividend, stock split, stock combination or other
reorganization of or by Nettaxi.

     401(K) SAVINGS PLAN. Effective June 1, 1999 we instituted the Nettaxi
401(k) Savings Plan. Eligible employees may begin making deferrals under the
401(k) Savings Plan. The 401(k) Savings Plan is intended to be a qualified plan
under Internal Revenue Code Section 401(a), with a cash or deferred option
governed by Section 401(k) Savings of the Internal Revenue Code. Employees may
elect to defer their eligible current compensation up to the statutorily and
401(k) Savings Plan prescribed limits and have the amount of such deferral
contributed to the 401(k) Savings Plan. Contributions to the 401(k) Savings Plan
are invested in the investment funds described in the 401(k) Savings Plan.

INDEMNIFICATION AGREEMENTS

     We have entered into indemnification agreements with our directors and
officers. These agreements  provide, in general, that we shall indemnify and
hold harmless such directors and officers to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement, and expenses incurred


                                       47
<PAGE>
in connection with, or in any way arising out of, any claim, action or
proceeding against, or affecting, such directors and officers resulting from,
relating to or in any way arising out of, the service of such persons as our
directors and officers.  Directors and officers are entitled to the benefits of
the limitation of liability provided under our charter documents and the laws of
the State of Nevada.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the beneficial
ownership of Nettaxi's common stock as of February 12, 2002 (i) by each of
Nettaxi's directors; (ii) by each person known by Nettaxi to own beneficially
more than five percent of our common stock; (iii) by our executive officers; and
(iv) by all directors and executive officers of Nettaxi as a group.  The
percentages of total shares of common stock set forth below assume that only the
indicated person or group has exercised options and warrants which are
exercisable within 60 days of February 12, 2002, and do not reflect the
percentage of common stock which would be calculated if all other holders of
currently exercisable options or warrants had exercised their securities.

     Unless otherwise indicated in the paragraphs following the table, the
following individuals have sole voting and sole investment control with respect
to the shares they beneficially own. Unless otherwise indicated, the address of
each beneficial owner listed below is care of Nettaxi.com, 1875 S. Bascom Ave.,
No. 116, Campbell, California 95008.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
NAME OF BENEFICIAL OWNER                  BENEFICIAL OWNERSHIP OF COMMON STOCK OF
                                          NETTAXI PRIOR TO THE MERGER
--------------------------------------------------------------------------------
EXECUTIVE OFFICERS AND DIRECTORS OF       NUMBER OF SHARES     PERCENT OF CLASS
NETTAXI:                                  BENEFICIALLY OWNED
                                          (2)
--------------------------------------------------------------------------------
<S>                                       <C>                  <C>

Robert A. Rositano, Jr., Chief                     1,736,078                4.0%
Executive Officer, Secretary and
Director (3)
--------------------------------------------------------------------------------
Dean Rositano, President, Chief                    2,097,134                4.8%
Operating Officer, Interim Chief
Financial Officer and Director (4)
--------------------------------------------------------------------------------
Andrew Garroni, Director (5)                         225,000                  *

All directors and executive officers as            4,058,210                8.8%
a group (three persons)                   -------------------  -----------------
--------------------------------------------------------------------------------
OTHER 5% STOCKHOLDERS:
--------------------------------------------------------------------------------
Michael Gardner (6)                                2,914,600                6.5%
--------------------------------------------------------------------------------
HBK Investments L. P. (7)                          3,000,000                6.5%
--------------------------------------------------------------------------------


                                       48
<PAGE>
<FN>
     *  Less  than  one  percent.

(1)     Amounts calculated pursuant to the exchange ration; actual numbers may
differ.

(2)     Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock and options on exercisable within 60 days of February 12,
2002 are deemed outstanding. Such shares, however, are not deemed outstanding
for the purposes of computing the percentage ownership of each other person.

(3)     The number of shares shown for Robert A. Rositano, Jr. includes 365,000
shares of common stock subject to options that are currently exercisable within
60 days of February 12, 2002. Robert A. and Dean Rositano are brothers.

(4)     The number of shares shown for Dean Rositano includes 365,000 shares of
common stock subject to options that are exercisable within 60 days of February
12, 2002. Robert A. and Dean Rositano are brothers.

(5)     The number of shares shown for Andrew Garroni includes 150,000 shares of
common stock subject to options that are currently exercisable.

(6)     The shares shown for Mr. Gardner include 1,429,800 shares of common
stock subject to warrants that are currently exercisable. Mr. Gardner's address
is care of Baytree Capital Associates, LLC, 40 Wall Street, 58th Floor, New
York, NY 10005. The Company obtained this information from Mr. Gardner's public
filings on Form 13D.

(7)     The number of shares shown for HBK Investments L.P. includes 3,000,000
shares of common stock subject to warrants that are currently exercisable. The
shares shown for HBK Investments L.P. are held in the name of Montrose
Investments, Ltd. HBK Investments L.P. has sole voting and dispositive power
over these shares pursuant to an Investment Management Agreement with Montrose
Investments, Ltd. Accordingly, Montrose has no beneficial ownership of such
shares. The address for HBK Investments L.P. is 300 Crescent Ct. Ste 700,
Dallas, Texas 75201. Nettaxi obtained this information from HBK Investments
L.P.'s public filings on Form 13G.
</TABLE>

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The following describes transactions to which we were or are a party and in
which any of our directors, officers, or significant stockholders, or members of
the immediate family of any of the foregoing persons, had or has a direct or
indirect material interest.

     In March 2000, we granted Robert Speicher, our former Vice President of
Sales and Marketing, options to purchase up to 150,000 shares of common stock
under our 1999 Stock Option Plan. The exercise price for these options was not


                                       49
<PAGE>
less than the fair market value on the date of grant. The right to purchase the
shares accrued in 12 equal quarterly installments. Mr. Speicher's employment
with Nettaxi ceased in 2001 and he received a payment in the amount of $260,000.

     In October 1999, we granted Glenn Goelz, our former chief financial
officer, options to purchase up to 250,000 shares of common stock under the 1998
Stock Option Plan. In January 2000, we granted Mr. Goelz additional options to
purchase up to 112,000 shares of common stock under our 1999 Stock Option Plan.
The exercise price for these options was not less than the fair market value on
the date of grant. The right to purchase 12,000 of the options issued were
vested on the date of grant and the right to purchase the remaining shares
vested in 12 equal quarterly installments. In February 2000, we granted Mr.
Goelz, additional options to purchase up to 168,000 shares of common stock under
our 1999 Stock Option Plan. The exercise price for these options was not less
than the fair market value on the date of grant and the remainder accrued in 12
quarterly installments. As of April 30, 2000, Mr. Goelz resigned and any shares
not vested on the date of his resignation terminated automatically.

     Mr. Brian Stroh, our former Vice President of Information Services,  was
granted options to purchase 12,000 and 124,000 shares of common stock,
respectively, under two option agreements. Under each agreement, the options
were to vest in 12 equal quarterly installments beginning on the date of grant.
Mr. Stroh resigned as the Vice President of Information Services and as an
employee of Nettaxi.com on November 9, 2000. Therefore, Mr. Stroh's options to
purchase our common stock expired on February 9, 2001.

     As previously described, we have an agreement with Alchemy Communications,
pursuant to which Alchemy Communications hosts the servers that support our web
site.  Mr. Andrew Garroni, a member of our board of directors, Mr. Garroni is a
member of the board of directors of Alchemy Communications and is also the
Secretary of Alchemy Communications.

     On October 30, 2000, we entered into a consulting agreement with Mr.
Michael Gardner, the beneficial owner of 6.6% of our outstanding common stock.
Under the agreement, Mr. Gardner was to perform certain consulting services
specified in the agreement. As compensation for his services, Mr. Gardner
received warrants to purchase 350,000 shares of our common stock, having an
exercise price of $0.35 per share.

     On May 7, 2001 Nettaxi entered into an additional consulting agreement with
Baytree Capital Associates, LLC under which Baytree identified and evaluated
acquisition candidates, conducted due diligence and otherwise advised the
company with respect to the structuring of a transaction with acquisition
candidates. Mr. Michael Gardner is a principal member of Baytree. This agreement
was superceded in August 2001 when Nettaxi entered into a new agreement with
Baytree for the same purposes. To date, Baytree has not received compensation
under this agreement.

     We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the


                                       50
<PAGE>
independent and disinterested outside directors on the board of directors, and
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A)     DOCUMENTS FILED AS PART OF THIS REPORT:

     1.     Financial Statements.  The following financial statements of
Nettaxi.com are included in a separate section of this Annual Report on Form
10-K commencing on the pages referenced below:


                                                                        CONTENTS
================================================================================


     REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                      F-1

     CONSOLIDATED FINANCIAL STATEMENTS
          Consolidated balance sheets                                        F-2
          Consolidated statements of operations                              F-3
          Consolidated statements of shareholders' equity                    F-4
          Consolidated statements of cash flows                              F-5
          Notes to consolidated financial statements                  F-6 - F-30



     2.     Financial Statement Schedules. The financial statement schedules of
Nettaxi.com have been omitted because they are not applicable, not required, or
the information is included in the consolidated financial statements or notes
thereto.

     3.     Exhibits. The following Exhibits are attached hereto and
incorporated herein by reference:

Exhibit Number      Description of Exhibit
--------------      ----------------------

2.1                 Agreement and Plan of Reorganization dated September 24,
                    1998 by and among Nettaxi Online Communities, Inc., the
                    owners of all the outstanding shares of common stock of
                    Nettaxi Online Communities, Inc. and the Company.
                    (Incorporated by reference to exhibit 2.1 filed with the
                    Registrant's Registration Statement on Form S-1 (File No.
                    333-78129) which was declared effective on August 13, 1999)

2.2                 Merger Agreement and Plan of Reorganization dated April 1,
                    1999 by and between Plus Net, Inc. and the Company.
                    (Incorporated by reference to exhibit 2.2 filed with the
                    Registrant's Registration Statement on Form S-1 (File No.
                    333-78129))

2.3                 Merger Agreement and Plan of Reorganization dated January 9,
                    2002 by and between RAE Systems Inc., RAES Acquisition
                    Corporation and the Company. (Incorporated by reference to
                    exhibit 2.1filed with the Registrant's Periodic Report on
                    Form 8-K filed on January 10, 2002)

3.1                 Articles of Incorporation of the Company. (Incorporated by
                    reference to exhibit 3.1 filed with the Registrant's
                    Registration Statement on Form S-1 (File No. 333-78129))

3.2                 Certificate of Amendment to the Articles of Incorporation of
                    the Company. (Incorporated by reference to exhibit 3.2 filed
                    with the Registrant's Registration Statement on Form S-1
                    (File No. 333-78129))


                                       51
<PAGE>
3.3                 By-Laws of the Company (Incorporated by reference to exhibit
                    3.3 filed with the Registrant's Registration Statement on
                    Form S-1 (File No. 333-78129))


3.4                 Certificate of Amendment to the Articles of Incorporation of
                    the Company. (Incorporated by reference to Exhibit 3.4 filed
                    with the Registrant's Quarterly Report on Form 10-Q for the
                    quarter ended September 30, 1999)

3.5                 Certificate of Amendment to the Articles of Incorporation of
                    the Company. (Previously filed with this registration
                    statement)

4.1                 Specimen Common Stock Certificate of the Company.
                    (Incorporated by reference to exhibit 4.1 filed with the
                    Registrant's Registration Statement on Form S-1 (File No.
                    333-78129))

4.2                 See Exhibits 3.1, 3.2 and 3.3 for provisions of the Articles
                    of Incorporation and By-Laws of the Company defining the
                    rights of holders of Common Stock of the Company.

4.4                 1999 Stock Option Plan of the Company. (Incorporated by
                    reference to exhibit 4.4 filed with the Registrant's
                    Registration Statement on Form S-8 (File No. 333-32678)
                    which was filed on March 17 2000)

4.5                 Form of Stock Option Agreement for options issued pursuant
                    to 199 Stock Option Plan of the Company. (Incorporated by
                    reference to exhibit 4.5 filed with the Registrant's
                    Registration Statement on Form S-8 (File No. 333-32678))

10.3                Stock Option Agreement dated March 20, 1998 by and between
                    Robert A. Rositano, Jr. and the Company. (Incorporated by
                    reference to exhibit 10.5 filed with the Registrant's
                    Registration Statement on Form S-1 (File No. 333-78129))

10.4                Stock Option Agreement dated March 20, 1998 by and between
                    Dean Rositano and the Company. (Incorporated by reference to
                    exhibit 10.6 filed with the Registrant's Registration
                    Statement on Form S-1 (File No. 333-78129))

10.5                Employment Agreement dated August 1, 1998 between Dean
                    Rositano and the Company. (Incorporated by reference to
                    exhibit 10.9 filed with the Registrant's Registration
                    Statement on Form S-1 (File No. 333-78129))

10.6                Employment Agreement dated August 1, 1998 between Robert A.
                    Rositano, Jr. and the Company. (Incorporated by reference to
                    exhibit 10.10 filed with the Registrant's Registration
                    Statement on Form S-1 (File No. 333-78129))


                                       52
<PAGE>
10.7                Stock Option Agreement dated August 1, 1998 by and between
                    Robert A. Rositano, Jr. and the Company. (Incorporated by
                    reference to exhibit 10.11 filed with the Registrant's
                    Registration Statement on Form S-1 (File No. 333-78129))

10.8                Stock Option Agreement dated August 1, 1998 by and between
                    Dean Rositano and the Company. (Incorporated by reference to
                    exhibit 10.12 filed with the Registrant's Registration
                    Statement on Form S-1 (File No. 333-78129))
10.9                Letter Agreement dated September 3, 1998 between Bay Tree
                    Capital Associates, LLC and the Company. (Incorporated by
                    reference to exhibit 10.14 filed with the Registrant's
                    Registration Statement on Form S-1 (File No. 333-78129))

10.10               1998 Stock Option Plan of the Company. (Incorporated by
                    reference to exhibit 10.17 filed with the Registrant's
                    Registration Statement on Form S-1 (File No. 333-78129))

10.11               Form of Stock Option Agreement for options issued pursuant
                    to 1998 Stock Option Plan of the Company. (Incorporated by
                    reference to exhibit 10.18 filed with the Registrant's
                    Registration Statement on Form S-1 (File No. 333-78129))

10.12               Stock Option Agreement under the 1998 Stock Option Plan by
                    and between Dean Rositano and the Company. (Incorporated by
                    reference to exhibit 10.19 filed with the Registrant's
                    Registration Statement on Form S-1 (File No. 333-78129))

10.13               Stock Option Agreement under the 1998 Stock Option Plan by
                    and between Robert A. Rositano, Jr. and the Company.
                    (Incorporated by reference to exhibit 10.20 filed with the
                    Registrant's Registration Statement on Form S-1 (File No.
                    333-78129))

10.19               Stock Purchase Warrant dated March 31, 1999 by and among RGC
                    International Investors, LDC and the Company. (Incorporated
                    by reference to exhibit 10.31 filed with the Registrant's
                    Registration Statement on Form S-1 (File No. 333-78129))

10.20               Registration Rights Agreement dated March 31, 1999 by and
                    among RGC International Investors, LDC and the Company.
                    (Incorporated by reference to exhibit 10.32 filed with the
                    Registrant's Registration Statement on Form S-1 (File No.
                    333-78129))


                                       53
<PAGE>
10.21               Oppenheimer Funds 401K Plan. (Incorporated by reference to
                    exhibit 10.33 filed with the Registrant's Registration
                    Statement on Form S-1 (File No. 333-78129))

10.23               Form of Indemnification Agreement between the Company and
                    each of its Directors and Executive Officers. (Incorporated
                    by reference to exhibit 10.35 filed with the Registrant's
                    Registration Statement on Form S-1 (File No. 333-78129))

10.34               Agreement for Terminal Facility Co-Location Space dated
                    January 18, 1999 between Alchemy Communications, Inc. and
                    the Company. (Incorporated by reference to exhibit 10.49
                    filed with the Registrant's Registration Statement on Form
                    S-1 (File No. 333-78129))

10.35               Letter Agreement dated January 15, 1999 between Babenet,
                    Ltd. and the Company. (Incorporated by reference to exhibit
                    10.50 filed with the Registrant's Registration Statement on
                    Form S-1 (File No. 333-78129))

10.46               Data Center Service Agreement dated July 15, 1999 by and
                    between Babenet, LTD and the Company. (Incorporated by
                    reference to exhibit 10.61 filed with the Registrant's
                    Quarterly Report on Form 10-Q for the period ending
                    September 30, 1999)

10.47               Data Center Service Agreement dated July 15, 1999 by and
                    between Whitehorn Ventures Limited and the Company.
                    (Incorporated by reference to exhibit 10.62 filed with the
                    Registrant's Quarterly Report on Form 10-Q for the period
                    ending September 30, 1999)

10.48               Data Center Service Agreement dated August 15, 1999 by and
                    between White Sand Communications, Inc. and the Company.
                    (Incorporated by reference to exhibit 10.63 filed with the
                    Registrant's Quarterly Report on Form 10-Q for the period
                    ending September 30, 1999)

10.49               Co-Branded Free ISP Agreement dated November 30, 1999 by and
                    between Spin Media Network, Inc. and the Company
                    (Incorporated by reference to exhibit 10.64 filed with the
                    Registrant's Registration Statement on Form S-1 (File No.
                    333-78129))

10.52               Form of Subscription Agreement of the Company. (Incorporated
                    by reference to exhibit10.67 filed with the Registrant's
                    Annual Report on Form 10-K for the period ending December
                    31, 1999)

10.53               Letter Of Intent Agreement dated as of February 29, 2000
                    between PPC Racing and the Company. (Previously filed with
                    this registration statement)


                                       54
<PAGE>
10.54               Registration Rights Agreement dated as of April 28, 2000 by
                    and between RGC International Investors, LDC and the
                    Company. (Incorporated by reference to Exhibit 10.54 filed
                    with the Registrant's registration statement on Form S-1
                    filed on June 2, 2000)

10.55               Warrant Agreement dated as of April 28, 2000 by and between
                    RGC International Investors, LDC and the Company.
                    (Incorporated by reference to Exhibit 10.54 filed with the
                    Registrant's registration statement on Form S-1 filed on
                    June 2, 2000)

10.56               Settlement Agreement and Mutual General Release dated as of
                    April 28, 2000 by and between RGC International Investors
                    LDC, Rose Glen Capital Management, L.P., RGC General Partner
                    Corporation, Steve Katznelson, Gerald Stahlecker, Chris
                    Hinkel and the Company. (Incorporated by reference to
                    Exhibit 10.54 filed with the Registrant's registration
                    statement on Form S-1 filed on June 2, 2000)

10.57               Consulting Agreement dated as of October 29, 2000 by and
                    between the Company and Michael Gardner. (Incorporated by
                    reference to Exhibit 10.57 filed with the Registrant's
                    annual report on Form 10-K for the year ended December 31,
                    2000)

10.58               Online Advertising Insertion Order dated as of April 3, 2000
                    by and between the Company and Hearme.com. (Incorporated by
                    reference to Exhibit 10.58 filed with the Registrant's
                    annual report on Form 10-K for the year ended December 31,
                    2000)

10.59               Content License Agreement dated April 27, 2000 by and
                    between the Company and ScreamingMedia. (Incorporated by
                    reference to Exhibit 10.59 filed with the Registrant's
                    annual report on Form 10-K for the year ended December 31,
                    2000)

10.60               Development and Revenue Sharing Agreement dated August 23,
                    2000 by and between the Company and Activeworlds.com, Inc.
                    (Incorporated by reference to Exhibit 10.60 filed with the
                    Registrant's annual report on Form 10-K for the year ended
                    December 31, 2000)

10.61               GoTo.com Search Services Order dated as of September 1, 2000
                    by and between the Company and GoTo.com. (Incorporated by
                    reference to Exhibit 10.61 filed with the Registrant's
                    annual report on Form 10-K for the year ended December 31,
                    2000)

10.62               WebMall Co-Branded Web Page Agreement dated as of September
                    7, 2000 by and between the Company and StoreRunner Network,
                    Inc. (Incorporated by reference to Exhibit 10.62 filed with


                                       55
<PAGE>
                    the Registrant's annual report on Form 10-K for the year
                    ended December 31, 2000)

10.63               Software License Agreement dated as of September 29, 2000 by
                    and between the Company and Annuncio Software, Inc.
                    (Incorporated by reference to Exhibit 10.63 filed with the
                    Registrant's annual report on Form 10-K for the year ended
                    December 31, 2000)

10.64               Consulting Services Agreement dated as of October 11, 2000
                    by and between the Company and Annuncio Software, Inc.
                    (Incorporated by reference to Exhibit 10.64 filed with the
                    Registrant's annual report on Form 10-K for the year ended
                    December 31, 2000)

10.65               Online Advertising Services Contract dated as of February 1,
                    2001 by and between the Company Fastclick.com, Inc.
                    (Incorporated by reference to Exhibit 10.65 filed with the
                    Registrant's annual report on Form 10-K for the year ended
                    December 31, 2000)

10.66               Gigabit Data Services Agreement dated as of March 2001 by
                    and between the Company and Alchemy Communications, Inc.
                    (Incorporated by reference to Exhibit 10.66 filed with the
                    Registrant's annual report on Form 10-K for the year ended
                    December 31, 2000)

10.67               Exit Traffic Agreement dated as of January 1, 2000 by and
                    between the Company and Internet Fuel.com, Inc.
                    (Incorporated by reference to Exhibit 10.67 filed with the
                    Registrant's annual report on Form 10-K for the year ended
                    December 31, 2000)

10.68               Consulting Agreement dated as of April 7, 2001 by and
                    between the Company and Innovative Networks, Inc.
                    (Incorporated by reference to Exhibit 10.68 filed with the
                    Registrant's quarterly report on Form 10-Q for the quarterly
                    period ended June 30, 2001)


10.69               Letter Agreement dated as of August 1, 2001 by and among the
                    Company and Baytree Capital Associates, LLC (Incorporated by
                    reference to Exhibit 10.69 filed with the Registrant's
                    quarterly report on Form 10-Q for the quarterly period ended
                    June 30, 2001)

21.1                Subsidiaries of the Company. (Incorporated by reference to
                    exhibit 10.57 filed with the Registrant's Registration
                    Statement on Form S-1 (File No. 333-78129))

23.1                Consent of BDO Seidman, LLP


(b)                 Reports on Form 8-K.


                                       56
<PAGE>
     On December 11, 2001 we filed a report on Form 8-K to announce that we had
entered into a non-binding letter of intent to merger with RAE Systems Inc.  On
January 10, 2002 we filed a report on Form 8-K to announce that we had entered
into an agreement to merge with RAE Systems Inc.


                                       57
<PAGE>
                                   SIGNATURES

     Pursuant  to  the  requirements  of  Section  13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its  behalf  by  the  undersigned,  thereunto  duly  authorized.

                                            NETTAXI.COM

Date: February 21, 2002                        By:  /s /Dean  Rositano
                                               -----------------------------
                                               Dean Rositano,
                                               Chief Financial Officer
                                               (Principal Accounting and
                                               Financial Officer)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
dates indicated:

<TABLE>
<CAPTION>
SIGNATURE                                          TITLE                      DATE
-----------------------------------  ---------------------------------  -----------------
<S>                                  <C>                                <C>

/s/Robert A. Rositano, Jr.           Chief Executive Officer,           February 21, 2002
-----------------------------------  Secretary and Director
  Robert A. Rositano, Jr.            (principal executive officer)

/s/Dean Rositano                     President Chief Financial Officer  February 21, 2002
-----------------------------------  and Director
  Dean Rositano                      (principal accounting officer)

/s/Andrew Garroni                    Director                           February 21, 2002
-----------------------------------
  Andrew Garroni
</TABLE>


                                       58
<PAGE>
                                                                     NETTAXI.COM



                                                                        CONTENTS
================================================================================


     REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                      F-1

     CONSOLIDATED FINANCIAL STATEMENTS
          Consolidated balance sheets                                        F-2
          Consolidated statements of operations                              F-3
          Consolidated statements of shareholders' equity                    F-4
          Consolidated statements of cash flows                              F-5
          Notes to consolidated financial statements                  F-6 - F-30



<PAGE>
REPORT  OF  INDEPENDENT  CERTIFIED  PUBLIC  ACCOUNTANTS


To The Board of Directors and Shareholders of
Nettaxi.com

We  have  audited the accompanying consolidated balance sheets of Nettaxi.com as
of  December  31,  2001  and  2000,  and  the related consolidated statements of
operations,  shareholders'  equity and cash flows for each of the three years in
the  period  ended  December  31,  2001.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion  on  these  financial  statements  based  on  our  audits.

We conducted our audits in accordance with auditing standards generally accepted
in  the  United  States  of  America.  Those  standards require that we plan and
perform  the  audit  to  obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe our audits provide a reasonable
basis  for  our  opinion.

As  discussed  in  Note  1  to  the  financial  statements,  on January 9, 2002,
Nettaxi.com  entered into a merger agreement under which Nettaxi.com, subject to
shareholder  approval,  agreed to merge with RAE Systems, Inc.  If the merger is
consummated,  Nettaxi.com will abandon its business model and adopt the business
model  of  RAE  Systems,  Inc.

In  our opinion, the consolidated financial statements referred to above present
fairly,  in  all  material respects, the financial position of Nettaxi.com as of
December 31, 2001 and 2000, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001, in conformity
with  accounting  principles generally accepted in the United States of America.



/s/  BDO Seidman, LLP
San  Jose,  California
January 11, 2002


                                                                             F-1
<PAGE>
<TABLE>
<CAPTION>
                                                                                   NETTAXI.COM


                                                                   Consolidated Balance Sheets
==============================================================================================

December 31,                                                            2001          2000
----------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>
ASSETS

Current Assets:
  Cash and cash equivalents (Note 9)                                $ 8,586,800   $13,894,700
  Accounts receivable, net of allowance for doubtful accounts
   of $114,100 and $433,000, respectively (Note 9)                            -       775,100
  Prepaid expenses and other assets (Note 7)                            122,300     1,035,000
----------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                  8,709,100    15,704,800
----------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net (Note 2)                                     77,000     1,748,300

PURCHASED TECHNOLOGY, net (Note 3)                                            -       319,000

OTHER INTANGIBLES, net (Note 3)                                               -        55,000

DEFERRED EXPENSE (Note 7)                                                     -       272,500

DEPOSITS                                                                  5,600        24,000
----------------------------------------------------------------------------------------------
                                                                    $ 8,791,700   $18,123,600
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                  $    49,200   $ 1,162,400
  Accrued expenses (Note 4)                                             134,700       397,900
----------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                               183,900     1,560,300
----------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 5, 9, and 12)

SHAREHOLDERS' EQUITY (Notes 6 and 7):
  Preferred stock, $0.001 par value; 1,000,000 shares authorized;
   no shares issued and outstanding                                           -             -
  Common stock subscribed                                               (95,000)      (95,000)
  Common stock, $0.001 par value; 200,000,000 shares authorized;
   43,124,586 shares issued and outstanding                              43,100        43,100
  Additional paid-in capital                                         44,897,900    44,732,900
  Deferred compensation                                                       -      (429,900)
  Accumulated deficit                                               (36,238,200)  (27,687,800)
----------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY                                            8,607,800    16,563,300
----------------------------------------------------------------------------------------------
                                                                    $ 8,791,700   $18,123,600
==============================================================================================
                                  See accompanying notes to consolidated financial statements.
</TABLE>


                                                                             F-2
<PAGE>
<TABLE>
<CAPTION>
                                                                        NETTAXI.COM


                                              Consolidated Statements of Operations
                                                                           (Note 1)
===================================================================================

Years ended December 31,                      2001          2000           1999
-----------------------------------------------------------------------------------
<S>                                       <C>           <C>            <C>
NET REVENUES (Notes 9 and 10)             $ 2,069,500   $  9,418,400   $ 5,032,800

OPERATING EXPENSES:
   Cost of operations                       4,258,100      7,307,700     4,003,800
   General and administrative               5,482,900      5,007,300     3,456,000
   Sales and marketing                        933,700      5,908,300     4,788,800
   Research and development                   381,300      1,563,000     2,186,700
-----------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES                   11,056,000     19,786,300    14,435,300
-----------------------------------------------------------------------------------
LOSS FROM OPERATIONS                       (8,986,500)   (10,367,900)   (9,402,500)

OTHER INCOME (EXPENSE):
   Interest income                            447,900        703,800        75,100
   Interest expense (Notes 6 and 7)            (9,400)    (4,685,700)     (426,200)
-----------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES                   (8,548,000)   (14,349,800)   (9,753,600)

INCOME TAXES (Note 8)                          (2,400)        (1,600)     (126,800)
-----------------------------------------------------------------------------------
NET LOSS                                  $(8,550,400)  $(14,351,400)  $(9,880,400)
===================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE   $     (0.20)  $      (0.36)  $     (0.46)
===================================================================================
WEIGHTED-AVERAGE COMMON SHARES
   OUTSTANDING                             43,124,586     39,381,211    21,274,203
===================================================================================
                       See accompanying notes to consolidated financial statements.
</TABLE>


                                                                             F-3
<PAGE>
<TABLE>
<CAPTION>
                                                                                                                  NETTAXI.COM


                                                                              Consolidated Statements of Shareholders' Equity
                                                                                                              (Notes 6 and 7)
==============================================================================================================================
                                          Common Stock        Common     Additional
                                      --------------------    Stock       Paid-in     Deferred      Accumulated
                                         Shares     Amount  Subscribed    Capital    Compensation     Deficit        Total
------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>      <C>        <C>          <C>            <C>            <C>
BALANCES, December 31, 1998            14,110,000  $14,100  $(95,000)  $ 4,868,800  $          -   $ (3,455,800)  $ 1,332,100

Issuance of common stock in
  connection with pooling               7,000,000    7,000         -             -             -           (200)        6,800
  (Note 1)
Deferred compensation related                   -        -         -       702,700      (702,700)             -             -
  to stock options
Amortization of deferred                        -        -         -             -       211,300              -       211,300
  compensation
Interest related to issuance                    -        -         -       361,200             -              -       361,200
  of warrants
Warrants exercised for                    150,000      100         -     1,181,200             -              -     1,181,300
  common stock
Exchange of convertible notes
  payable and accrued interest            802,223      800         -     1,862,500             -              -     1,863,300
Proceeds from the issuance of             802,223      800         -     1,862,500             -              -     1,863,300
  common stock
Issuance of common stock                  350,000      400         -     1,060,400             -              -     1,060,800
  for services
Net loss                                        -        -         -             -             -     (9,880,400)   (9,880,400)
------------------------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 1999            23,214,446   23,200   (95,000)   11,899,300      (491,400)   (13,336,400)   (2,000,300)

Exchange of convertible notes
  payable and accrued interest          2,382,472    2,400         -     3,317,500             -              -     3,319,900
Proceeds from the issuance of             632,472      600         -       834,300             -              -       834,900
  common stock
Deemed interest on settlement                   -        -         -     3,896,000             -              -     3,896,000
  agreement
Deferred compensation related                   -        -         -       512,200      (512,200)             -             -
  to stock options
Amortization of deferred                        -        -         -             -       573,700              -       573,700
Compensation
Conversion of trade payables to           778,982      800         -     1,557,200             -              -     1,558,000
common stock
Warrants issued in conjunction with
  conversion of  trade payables                 -        -         -       541,400             -              -       541,400
Issuance of common stock                  686,250      700         -       947,800             -              -       948,500
  for services
Warrants issued for services                    -        -         -        84,000             -              -        84,000
Proceeds from sale of common stock,
  net of costs of $1,831,600           15,416,633   15,400         -    21,127,200             -              -    21,142,600
Issuance of common stock due to
  the exercise of stock options            13,331        -         -        16,000             -              -        16,000
Net loss                                        -        -         -             -             -    (14,351,400)  (14,351,400)
------------------------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 2000            43,124,586   43,100   (95,000)   44,732,900      (429,900)   (27,687,800)   16,563,300

Amortization of deferred                        -        -         -             -       429,900              -       429,900
  compensation
Options granted for services                    -        -         -       165,000             -              -       165,000
Net loss                                        -        -         -             -                   (8,550,400)   (8,550,400)
------------------------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 2001            43,124,586  $43,100  $(95,000)  $44,897,900    $        -   $(36,238,200)  $ 8,607,800
==============================================================================================================================
                                                                 See accompanying notes to consolidated financial statements.
</TABLE>


                                                                             F-4
<PAGE>
<TABLE>
<CAPTION>
                                                                                        NETTAXI.COM


                                                              Consolidated Statements of Cash Flows
                                                                                          (Note 11)
===================================================================================================

Years Ended December 31,                                      2001          2000           1999
---------------------------------------------------------------------------------------------------
<S>                                                       <C>           <C>            <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH FLOWS FROM OPERATING ACTIVITIES:
 Net Loss                                                 $(8,550,400)  $(14,351,400)  $(9,880,400)
  Adjustments to reconcile net loss to net cash used in
   operating activities:
    Loss on disposal of equipment                             327,600              -             -
    Depreciation and amortization                             939,500      1,195,300       595,900
    Write-down of assets                                      823,000              -             -
    Allowance for doubtful accounts                          (318,900)       349,400        52,400
    Issuance of common stock for interest on
     convertible notes                                              -        119,900        63,300
    Issuance of common stock for services (Note 7)            955,700      1,019,400        34,200
    Compensation expense related to options
     and warrants granted                                     595,600        615,700       211,300
    Interest expense related to settlement agreement                -      2,400,000             -
    Interest expense related to issuance of warrants                -      2,196,400       202,200
    Changes in operating assets and liabilities:
       Accounts receivable                                  1,094,000         57,100    (1,100,300)
       Prepaid expenses and other assets                      228,800       (231,000)      (62,700)
       Accounts payable                                    (1,113,200)    (1,321,000)    3,854,500
       Accrued expenses                                      (265,600)      (262,800)      585,100
       Deferred revenue                                             -              -       (47,000)
       Income taxes payable                                     2,400       (124,000)      125,600
---------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES                      (5,281,500)    (8,337,000)   (5,365,900)
---------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Deposits                                                     18,400         26,900       (50,900)
  Proceeds from sale of equipment                              28,500              -             -
  Capital expenditures                                        (73,300)      (771,000)   (2,105,400)
---------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                         (26,400)      (744,100)   (2,156,300)
---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payment on obligations under capital lease                        -         (5,400)       (7,300)
  Proceeds from convertible notes payable                           -              -     5,000,000
  Net proceeds from issuance of common stock                        -     21,993,500     3,051,400
---------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                           -     21,988,100     8,044,100
---------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS       (5,307,900)    12,907,000       521,900

CASH AND CASH EQUIVALENTS, beginning of year               13,894,700        987,700       465,800
---------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year                    $ 8,586,800   $ 13,894,700   $   987,700
===================================================================================================
                                       See accompanying notes to consolidated financial statements.
</TABLE>


                                                                             F-5
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

1.  SUMMARY OF      The  Company
    ACCOUNTING
    POLICIES        Nettaxi.com  (formerly Nettaxi, Inc and formerly Swan Valley
                    Snowmobiles,  Inc.),  the  Company, is a Nevada Corporation,
                    which  was  incorporated  on  October  26,  1995.

                    On  September 29, 1998 the Company completed the acquisition
                    of  100%  of  the outstanding common stock of Nettaxi OnLine
                    Communities,  Inc.,  a Delaware corporation, and changed its
                    name  to  Nettaxi,  Inc.  (now  Nettaxi.com). For accounting
                    purposes,  the  acquisition  has  been  treated  as  the
                    acquisition  of  the  Company by Nettaxi OnLine Communities,
                    Inc.  with Nettaxi OnLine Communities, Inc. as the acquiror.

                    Nettaxi.com  is an Internet marketing portal that provides a
                    wide  range  of  content  and  Internet  based  services for
                    consumers  and  businesses. Subscribers to the Company's web
                    site,  www.nettaxi.com,  are  also  provided  with access to
                    enhanced  content  such  as broadband video clips and e-mail
                    accounts.  In  1999,  the  Company  developed  a diversified
                    revenue  model  under  which  it  provided  subscribers with
                    access  to  web  site  hosting  services an a broad range of
                    content, and provided affiliated businesses with access to a
                    large  population  of  Internet  users  for  advertising and
                    promotional  purposes.  The  Company  also provided web site
                    hosting  and  Internet  connectivity  services for corporate
                    customers.

                    The  Company's  principal  executive  offices are located in
                    Campbell,  California.

                    Beginning  in  April 2001, the bankruptcy and liquidation of
                    many of the Company's Internet based customers and suppliers
                    caused  management  to  re-evaluate  the  Company's business
                    model.  Since  the  Internet infrastructure was unstable and
                    customer  base  financially  weak,  management began to take
                    corrective  action  to  significantly decrease cash burn and
                    determine  the best course of action to maintain and enhance
                    the  value  of  the  Company.  In  this  regard,  management
                    implemented an acquisition strategy pursuant to which it has
                    been seeking to identify an appropriate entity with which to
                    merge,  acquire  or  restructure  the  Company's  current
                    business.


                                                                             F-6
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    Beginning  in  May  2001,  management  reduced the Company's
                    overhead and burn rate by reducing the salaries of employees
                    and reducing the number of personnel, marketing expenses and
                    costs  associated  with  the  Company's  hosting activities.
                    Effective  July  7,  2001,  the  Company  terminated  its
                    significant  co-hosting  customer  contracts.  In connection
                    with  this,  it  also discontinued the purchase of bandwidth
                    and  premium  services  from  its  third party provider. The
                    terminations  reduced  operating  expenses,  and  materially
                    affected  the  Company's  revenues  beginning  in  the third
                    quarter  of  2001.

                    The  Company  continues  to  operate  its  website, however,
                    following the implementation of an acquisition strategy, the
                    Company has not pursued any revenue generating activities in
                    the  last  six  months  of  2001.

                    The Company's current management team, consisting of finance
                    and  administrative  employees  is  in  place  to  maintain
                    operations  and  enable  ongoing  review  and  analysis  of
                    acquisition  candidates and to assist in the consummation of
                    an  appropriate transaction. Management has also engaged the
                    services  of an investment banker, to assist in this process
                    (see  Note  12).

                    Current  Developments

                    On  January 9, 2002 Nettaxi.com executed a definitive merger
                    agreement  which contemplates the merger of RAES Acquisition
                    Corporation,  a  California  corporation  and  wholly  owned
                    subsidiary  of  Nettaxi.com  with  RAE  Systems,  Inc.,  a
                    California  corporation  that  designs  and  manufacturers
                    portable  gas  detection instruments and wireless monitoring
                    and  communications equipment. Under the terms of the merger
                    agreement, unanimously approved by both Boards of Directors,
                    RAE  Systems  shareholders will receive approximately 80% of
                    the  outstanding  shares  of the combined entity. Subject to
                    the  approval  of  shareholders,  Nettaxi.com shares will be
                    reverse split at the ratio of 5.67 to 1 prior to the closing
                    of  the  merger.  The  management  and Board of Directors of
                    Nettaxi  will  resign  at  the  closing of the merger and be
                    replaced  with the Board of Directors and management team of
                    RAE  Systems.  It  is  the  understanding  of the respective
                    parties that upon completion of the merger the going-forward
                    operating activities of the combined company will be that of
                    RAE  Systems,  Inc. The transaction, which is expected to be
                    tax-free  to shareholders of both companies for U.S. Federal
                    income  tax  purposes  is  subject  to  the approval of each
                    party's  shareholders(see  Note  12). Upon completion of the
                    merger,  the  new  company will be known as RAE Systems Inc.



                                                                             F-7
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    Consolidation

                    The  accompanying  consolidated financial statements include
                    the  accounts  of  Nettaxi.com  and  its  wholly-owned
                    subsidiaries,  Nettaxi  OnLine  Communities,  Inc.  and RAES
                    Acquisition  Corporation.  All  intercompany  accounts  and
                    transactions  have  been  eliminated  in  the  consolidated
                    financial  statements.

                    Use  of  Estimates

                    The  preparation  of  consolidated  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  consolidated  financial statements and the reported
                    amounts  of  revenues  and  expenses  during  the  reporting
                    period.  Actual  results  could differ from those estimates.

                    Cash  and  Cash  Equivalents

                    The  Company  considers all highly liquid investments having
                    original  maturities  of  90  days  or  less  to  be  cash
                    equivalents.

                    Accounts  Receivable  and  Allowances  For Doubtful Accounts

                    The Company grants credit to its customers after undertaking
                    an investigation of credit risk for all significant amounts.
                    An allowance for doubtful accounts is provided for estimated
                    credit  losses  at  a level deemed appropriate to adequately
                    provide  for  known  and  inherent  risks  related  to  such
                    amounts.  The  allowance  is  based  on  reviews  of losses,
                    adjustment  history,  current  economic conditions and other
                    factors  that  deserve  recognition  in estimating potential
                    losses. While management uses the best information available
                    in  making  its  determination,  the  ultimate  recovery  of
                    recorded  accounts  receivable is also dependent upon future
                    economic  and  other  conditions  that  may  be  beyond
                    management's  control.


                                                                             F-8
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    Property  and  Equipment

                    Property  and  equipment are stated at cost. Depreciation is
                    provided  using  the straight-line method over the estimated
                    economic  useful  lives  of  the  assets,  as  follows:

                                                          Estimated useful lives
                   -------------------------------------------------------------

                   Furniture and fixtures                               5 years
                   Office equipment                                     5 years
                   Computers and equipment                              3 years
                   -------------------------------------------------------------

                    Assets  held  under  capital  leases  are  amortized  on  a
                    straight-line  basis  over  the shorter of the lease term or
                    the  estimated  useful  lives  of  the  related  assets.

                    Purchased  Technology  and  Other  Intangibles

                    The Company amortizes, on a straight-line basis, the cost of
                    purchased  technology and other intangibles over the shorter
                    of  five  (5)  years  or  the  useful  life  of  the related
                    technology  or  underlying  asset.

                    Revenue  Recognition  and  Deferred  Revenue

                    The Company's revenues are derived principally from the sale
                    of  banner  advertisements,  web  hosting  services and from
                    products  from  its  online  malls. Advertising revenues are
                    recognized  in  the  period  in  which  the advertisement is
                    delivered,  provided  that  collection  of  the  resulting
                    receivable  is  probable.  Advertisers  are charged on a per
                    impression or delivery basis up to a maximum as specified in
                    the  contract.  To  date,  the  duration  of  the  Company's
                    advertising  commitments has not exceeded one year. When the
                    Company  guarantees  a  minimum  number  of  impressions  or
                    deliveries,  revenue  is recognized ratably in proportion to
                    the  number  of  impressions  or  deliveries recorded to the
                    minimum number of impressions and deliveries guaranteed. Web
                    hosting  revenues  are recognized in the period in which the
                    services  are  provided.  Product revenue is recognized upon
                    shipment,  provided  no  significant  obligations remain and
                    collectability  is  probable.


                                                                             F-9
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    Advertising  revenue  include barter revenues, which are the
                    exchange  by  Nettaxi.com  of  advertising  space  on
                    Nettaxi.com's  web sites for reciprocal advertising space on
                    other web sites. Revenues from these barter transactions are
                    recorded  as  advertising  revenues  at  the  lower  of  the
                    estimated  fair  value  of  the  advertisements  received or
                    delivered and are recognized when the advertisements are run
                    on  Nettaxi.com's  web  sites.  Barter expenses are recorded
                    when  Nettaxi.com's advertisements are run on the reciprocal
                    web  sites,  which  is  typically in the same period as when
                    advertisements  are  run  on Nettaxi.com's web sites. Barter
                    revenues  and  related expenses for the years ended December
                    31,  2001, 2000, and 1999 were approximately $0, $2,224,800,
                    and  $343,400, respectively, representing 0%, 28%, and 7% of
                    net  revenues,  respectively.

                    In  November  1999, the Financial Accounting Standards Board
                    (FASB)  issued Emerging Issues Task Force (EITF) Issue 99-17
                    Accounting  for  Advertising Barter Transactions. Under EITF
                    99-17,  revenues  and  expenses  should  be  recognized from
                    advertising  barter  transactions  at  the fair value of the
                    advertising  surrendered  or  received only when the company
                    has  a  historical  practice of receiving or paying cash for
                    such  transactions.

                    Royalty  revenues  are  earned  on  sales  of  the  Company
                    developed  CD-Rom  "Internet  the  City"  by  third-party
                    distributors.  Third-party  distributors  package the CD-Rom
                    with  their  products  for  sale  to  the  end-user.  The
                    distributor remits payments to the Company 90 days after the
                    sales of their product to the end-user and the end-user does
                    not  have  a  right  of return. The Company recognizes these
                    revenues  only upon receipt of payment from the distributor.

                    The  Company is in contract with several partners in revenue
                    and  expense  sharing agreements. The agreements provide for
                    the  Company  to  earn  revenues  based  on  the  sale  of
                    third-party  suppliers  products.  For  those  transactions,
                    where  the  Company  receives  either  a  percentage  of the
                    transaction  or  a  fixed  fee,  revenues  are recorded net.


                                                                            F-10
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    The  Company  charges  its  co-hosting  customers  one-time
                    installation  fees.  Prior  to January 31, 2001, the Company
                    recognized  these  fees upon completion of the installation.
                    In  accordance with Staff Accounting Bulletin (SAB) No. 101,
                    Revenue  Recognition  one-time  installation  fees are to be
                    deferred  and  systematically  recognized  as  the  products
                    and/or services are delivered and/or performed over the term
                    of  the  arrangement  or  the expected period of performance
                    that  the fees are earned. The Company did not recognize any
                    one-time  installation  fees  in  2001.

                    Premium subscribers are charged web-site development fees to
                    develop  their web-site upon request. These fees charged and
                    the costs to develop these sites by the Company are nominal.
                    The  Company defers the recognition of the fees charged over
                    the  period  of  the  contract.

                    In  December  1999, the staff of the Securities and Exchange
                    Commission  (SEC) issued its Staff Accounting Bulletin (SAB)
                    No.  101,  Revenue Recognition. SAB No. 101 provides the SEC
                    staff's  views  in  applying  generally  accepted accounting
                    principles  to  selected revenue recognition issues. SAB No.
                    101  is  effective  for  the fourth fiscal quarter of fiscal
                    years  beginning  after  December  15,  1999.  The  Company
                    believes  that  its  current  revenue  recognition  policies
                    comply  with  the  provisions  of  SAB  No.  101.

                    Income  Taxes

                    The  Company  accounts  for  income taxes in accordance with
                    Statement  of Financial Accounting Standards (SFAS) No. 109,
                    Accounting  for  Income  Taxes,  which requires an asset and
                    liability approach. This approach results in the recognition
                    of deferred tax assets (future tax benefits) and liabilities
                    for  the  expected  future  tax  consequences  of  temporary
                    differences  between  the  book carrying amounts and the tax
                    basis of assets and liabilities. The deferred tax assets and
                    liabilities  represent the future tax return consequences of
                    those  differences,  which  will  either  be  deductible  or
                    taxable  when  the  assets  and liabilities are recovered or
                    settled.  Future  tax  benefits  are  subject to a valuation
                    allowance  when  management  believes it is more likely than
                    not  that  the  deferred  tax  assets  will not be realized.

                    Advertising  Costs

                    The cost of advertising is expensed as incurred. Advertising
                    costs for the years ended December 31, 2001, 2000, and 1999,
                    were  approximately  $74,700,  $2,365,600,  and  $2,831,300,
                    respectively.


                                                                            F-11
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    Long-Lived  Assets

                    The  Company  periodically reviews its long-lived assets for
                    impairment. When events or changes in circumstances indicate
                    that the carrying amount of an asset may not be recoverable,
                    the  Company  writes  the  asset  down  to  its  fair value.

                    The  Company periodically reviews other intangible assets to
                    evaluate  whether events or changes have occurred that would
                    suggest an impairment of carrying value. An impairment would
                    be  recognized when expected future operating cash flows are
                    lower  than  the  carrying  value.

                    Fair  Values  of  Financial  Instruments

                    The  following  methods  and  assumptions  were  used by the
                    Company  in  estimating  its  fair  value  disclosures  for
                    financial  instruments:

                         Cash  and  cash  equivalents:

                         The  carrying  amount  reported  in  the  consolidated
                         balance  sheets  for  cash  and  cash  equivalents
                         approximates  fair  value.

                         Short-term  debt:

                         The  fair  value  of  short-term debt approximates cost
                         because  of  the  short  period  of  time  to maturity.

                    Stock-Based  Incentive  Program

                    SFAS  No.  123,  Accounting  for  Stock-Based  Compensation,
                    encourages  entities  to  recognize  compensation  costs for
                    stock-based employee compensation plans using the fair value
                    based  method  of  accounting  defined  in SFAS No. 123, but
                    allows  for  the  continued use of the intrinsic value based
                    method  of  accounting  prescribed  by Accounting Principles
                    Board  (APB)  Opinion No. 25, Accounting for Stock Issued to
                    Employees.  The  Company  continues  to  use  the accounting
                    prescribed  by APB Opinion No. 25 and as such is required to
                    disclose pro forma net income (loss) and earnings (loss) per
                    share  as  if  the fair value based method of accounting had
                    been  applied  (Note  7).


                                                                            F-12
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    In  March  2000,  the  Financial  Accounting Standards Board
                    (FASB)  issued  Interpretation  (Interpretation)  No.  44,
                    Accounting  for  Certain  Transactions  involving  Stock
                    Compensation, an Interpretation of APB Opinion No. 25, which
                    became  effective  July  1,  2000.  Interpretation  No.  44
                    clarifies  (a)  the  definition  of employee for purposes of
                    applying  Opinion  25,  (b)  the  criteria  for  determining
                    whether  a  stock  compensation  plan  qualifies  as  a
                    noncompensatory  plan,  (c)  the  accounting consequences of
                    various  modifications  to  the  terms of a previously fixed
                    stock  option  or  award,  and  (d)  the  accounting  for an
                    exchange  of  stock  compensation  awards  in  a  business
                    combination.  Adoption  of  the  provisions  of  the
                    Interpretation  had  no  significant impact on the Company's
                    financial  statements.

                    Basic  and  Diluted  Loss  Per  Common  Share

                    In February 1997, the FASB issued SFAS No. 128, Earnings Per
                    Share,  which was effective December 28, 1997. Conforming to
                    SFAS  No.  128,  the Company changed its method of computing
                    earnings  per  share and restated all prior periods included
                    in  the  consolidated  financial  statements. Basic loss per
                    common  share  is  determined  by dividing loss available to
                    common shareholders by the weighted average number of common
                    shares  outstanding. Diluted per-common-share amounts assume
                    the  issuance  of  common stock for all potentially dilutive
                    equivalent  shares  outstanding. Anti-dilution provisions of
                    SFAS  128  require  consistency  between  diluted
                    per-common-share  amounts and basic per-common-share amounts
                    in  loss  periods.  For  the periods reported, there were no
                    differences  between  basic  and diluted earnings per share.
                    The  number  of  potential  common  shares  not  included in
                    diluted  earnings  per  share,  due  to  their  being
                    anti-dilutive,  are  25,953,816,  23,994,732, and 3,838,679,
                    for  the  years  ended  December  31,  2001, 2000, and 1999,
                    respectively.  All  share and per share information has been
                    adjusted  for  the  shares exchanged for the common stock of
                    Plus  Net,  Inc.


                                                                            F-13
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    Adoption  of  New  Accounting  Pronouncements

                    In  June  1999, the FASB issued SFAS No. 137, Accounting for
                    Derivative  Instrument  and Hedging Activities - Deferral of
                    the  Effective  Date of FASB Statement No. 133, which amends
                    SFAS  No. 133 to be effective for all fiscal years beginning
                    after  June 15, 2000. In June 2000, SFAS No. 133 was amended
                    by  SFAS  No.  138,  Accounting  for  Certain  Derivative
                    Instruments  and  Hedging  Activities,  which  amended  or
                    modified  certain issues discussed in SFAS No. 133. SFAS No.
                    138  is  also effective for all fiscal years beginning after
                    June  15,  2000.  SFAS  No.  133  and SFAS No. 138 establish
                    accounting  and  reporting  standards  requiring  that every
                    derivative  instrument  be  recorded in the balance sheet as
                    either an asset or liability measured at its fair value. The
                    statements  also  require  that  changes in the derivative's
                    fair  value  be  recognized  currently  in  earnings  unless
                    specific hedge accounting criteria are met. The Company does
                    not  engage in derivative instruments or hedging activities.
                    Accordingly,  there was no impact on the Company's financial
                    statements  from  the  adoption of SFAS No. 133 and SFAS No.
                    138.

                    In  July  2001,  the  FASB  issued  SFAS No. 141 (SFAS 141),
                    Business  Combinations,  which  supersedes  Accounting
                    Principles  Board  (APB)  Opinion  No.  16,  Business
                    Combinations.  SFAS 141 eliminates the pooling- of-interests
                    method  of accounting for business combinations and modifies
                    the  application  of  the  purchase  accounting  method. The
                    elimination  of the pooling-of-interests method is effective
                    for  transactions  initiated  after  June  30,  2001.  The
                    remaining  provision  of  SFAS  141  will  be  effective for
                    transactions  accounted  for  using the purchase method that
                    are  completed  after  June  30,  2001.

                    In  July 2001, the FASB also issued SFAS No. 142 (SFAS 142),
                    Goodwill and Intangible Assets, which supersedes APB Opinion
                    No.  17,  Intangible  Assets.  Under  SFAS 142, goodwill and
                    intangible  assets  with  indefinite lives are not amortized
                    but  are tested for impairment annually using the fair value
                    approach, except in certain circumstances, and whether there
                    is  an  impairment  indicator,  other intangible assets will
                    continue  to  be  valued  and amortized over their estimated
                    lives;  in-process research and development will continue to
                    be  written  off  immediately; all acquired goodwill must be
                    assigned  to  reporting  units  for  purposes  of impairment
                    testing  and segment reporting and existing goodwill will no
                    longer  be  subject  to amortization. The provisions of SFAS
                    No.  142  are  required  to  be applied starting with fiscal
                    years  beginning  after  December  15,  2001.


                                                                            F-14
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    In  August  2001,  the  FASB  issued SFAS No. 143 (SFAS 143)
                    Accounting for Obligations Associated with the Retirement of
                    Long-Lived  Assets.  SFAS 143 addresses financial accounting
                    and  reporting  for  the  retirement obligation of an asset.
                    SFAS  143  states  that companies should recognize the asset
                    retirement  cost,  at  its  fair  value, as part of the cost
                    asset  and classify the accrued amount as a liability in the
                    balance  sheet.  The  asset  retirement  liability  is  then
                    accreted  to  the  ultimate  payout as interest expense. The
                    initial  measurement  of the liability would be subsequently
                    updated  for  revised  estimates  of  the  discounted  cash
                    outflows.  SFAS  143  will  be  effective  for  fiscal years
                    beginning  after  June  15,  2002.  The  Company has not yet
                    determined  the  effect  SFAS 143 will have on its financial
                    position,  results  of  operations,  or  cash  flows.

                    In  October  2001,  the  FASB issued SFAS No. 144 (SFAS 144)
                    Accounting  for  the  Impairment  or  Disposal of Long-Lived
                    Assets.  SFAS  144  supersedes the SFAS No. 121 by requiring
                    that  one  accounting model to be used for long-lived assets
                    to  be disposed of by sale, whether previously held and used
                    or  newly  acquired,  and  by broadening the presentation of
                    discontinued  operation  to  include  more  disposal
                    transactions.  SFAS  144  will be effective for fiscal years
                    beginning  after  December 15, 2001. The Company has not yet
                    determined  the  effect  SFAS 144 will have on its financial
                    position,  results  of  operations,  or  cash  flows.

2.  PROPERTY AND    Property  and  equipment  consisted  of  the  following:
    EQUIPMENT

<TABLE>
<CAPTION>
                    December 31,                      2001        2000
                    -----------------------------  ----------  ----------
<S>                                                <C>         <C>
                    Computers and equipment        $1,470,900  $2,721,100
                    Furniture and fixtures             55,200     203,600
                    Office equipment                   55,100      55,100
                    -----------------------------  ----------  ----------

                                                    1,581,200   2,979,800
                    Less accumulated depreciation   1,504,200   1,231,500
                    -----------------------------  ----------  ----------

                                                   $   77,000  $1,748,300
                    =====================================================
</TABLE>
                    In the fourth quarter of 2001, the Company had a third-party
                    appraisal  carried  out  of its property and equipment. As a
                    result  of  this  appraisal  the  Company  recorded  asset
                    impairment  charges  of  $551,000.


                                                                            F-15
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

3. PURCHASED        Purchased  technology and other intangibles consisted of the
   TECHNOLOGY AND   following:
   OTHER
   INTANGIBLES

                    December 31,                     2001      2000
                    -----------------------------  --------  --------
                    Purchased technology           $870,000  $870,000
                    Less accumulated amortization   870,000   551,000
                    -----------------------------  --------  --------
                                                   $     --  $319,000

                    Other intangibles              $150,000  $150,000
                    Less accumulated amortization   150,000    95,000
                    -----------------------------  --------  --------
                                                   $     --  $ 55,000
                    =================================================

                    As  a result of the decision taken by management in mid-2001
                    to  implement  an  acquisition strategy and to terminate the
                    Company's  significant  co-hosting  customer  contracts, the
                    projected  undiscounted  cash  flows to support the value of
                    the  purchased  technology  and  other  intangibles  were no
                    longer  deemed adequate. In 2001, the Company wrote-down its
                    purchased  technology  and other intangibles by $232,000 and
                    $40,000,  respectively.

4.  ACCRUED         Accrued  expenses  consisted  of  the  following:
    EXPENSES

<TABLE>
<CAPTION>
                    December 31,                    2001      2000
                    ----------------------------  --------  --------
<S>                 <C>                           <C>       <C>
                    Professional fees             $109,300  $157,300
                    Payroll and related expenses     2,300    97,800
                    Marketing                            -    83,800
                    Other                           23,100    59,000
                    ----------------------------  --------  --------
                                                  $134,700  $397,900
                    ================================================
</TABLE>

5.  LEASE           The  Company  leases  its facility under an operating lease,
    COMMITMENTS     which  expires  on May 31, 2002. The facility lease requires
                    the  Company  to  pay  certain  maintenance  and  operating
                    expenses,  such  as  taxes,  insurance,  and utilities. Rent
                    expense  for  the  years  ended December 31, 2001, 2000, and
                    1999, was $245,300, $281,600, and $178,000, respectively.


                                                                            F-16
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    In  1999,  the  Company  entered  into  operating  leases on
                    certain  vehicles.  For  the  years ended December 31, 2001,
                    2000,  and  1999, rent expense related to the vehicle leases
                    aggregated  $5,300,  $5,300,  and  $2,600.

                    A  summary  of  the  future  minimum payments required under
                    noncancelable  operating  leases with terms in excess of one
                    year  follows:

<TABLE>
<CAPTION>
                                                                  Operating
                    Year Ending December 31,                        Leases
                    --------------------------------------------  ----------
<S>                                                               <C>
                    2002                                          $   23,800
                    --------------------------------------------  ----------
                                                                  $   23,800
                    ========================================================
</TABLE>
6.  CONVERTIBLE     On  March  31,  1999  the  Company entered into a $5,000,000
    NOTES PAYABLE,  Convertible  Debt  Financing  Agreement (the Agreement) with
    RELATED PARTY   RGC  International  Investors,  LDC  (RGC).  The convertible
                    debenture  bears  interest  at  5%  and matures on March 31,
                    2004.  The  debentures  are convertible at the option of the
                    holder  into  that number of shares of common stock equal to
                    the  principal  amount  of  the  debentures  to be converted
                    including  all  accrued  interest, divided by the conversion
                    price  specified  in the debentures. The conversion price is
                    the  lesser  of  a  variable  or fixed conversion price. The
                    variable  conversion  price is based on the trading price of
                    the Company's common stock over a fixed period to conversion
                    of the debentures, and the fixed conversion price is $11.88.
                    The fixed conversion price represents 120% of the average of
                    the three lowest trades ten days prior to the effective date
                    of  the  Agreement.

                    In  accordance  with  the  terms  of the debt agreement, RGC
                    converted,  in November and December 1999, $1,800,000 of the
                    debentures,  with  accrued interest of $63,300, into 802,223
                    shares  of  common  stock and, in January and February 2000,
                    $800,000 of the debentures, with accrued interest of $34,900
                    into  632,472  shares  of  common  stock.


                                                                            F-17
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    On  April  28,  2000,  the  Company  reached  a  settlement
                    agreement  with  RGC  for the $2,400,000 remaining principal
                    amount  of the convertible debentures, plus accrued interest
                    thereon of approximately $85,000, whereby the Company agreed
                    to  issue  an  aggregate of 1,750,000 shares of common stock
                    "settlement shares" and warrants to purchase an aggregate of
                    2,200,000  shares of common stock, with an exercise price of
                    $1.50 per share, as discussed further in Note 7. It was also
                    agreed that beginning on the date of the agreement and prior
                    to  the  delivery  of  the settlement shares, the debentures
                    would  be  convertible  at a fixed conversion price of $1.42
                    per  share.  As the fair market value of the Company's stock
                    on April 28, 2000 was $3.00, the Company recognized a deemed
                    noncash  interest  expense  of $2,400,000 resulting from the
                    implied  beneficial  conversion  feature.

7.  SHAREHOLDERS'   COMMON STOCK
    EQUITY

                    In  May  1999,  the  Company  completed a merger in a single
                    transaction  with Plus Net, Inc. (as discussed in Note 1) by
                    exchanging  7,000,000  shares of its common stock for all of
                    the  common  stock  of Plus Net, Inc. Each share of Plus Net
                    was  exchanged for 1,000 shares of Nettaxi common stock. The
                    merger  constituted  a  tax-free  reorganization  and  was
                    accounted  for  as  a  pooling  of interest under Accounting
                    Principles  Board  Opinion  No.  16.

                    For  periods  proceeding  the  merger,  there  were  no
                    intercompany  transactions that require elimination from the
                    combined  consolidated  results of operations and there were
                    no adjustments necessary to conform the accounting practices
                    of  the  two  companies. Plus Net, Inc. reported no revenues
                    and  a  net  loss  of $200 for the period ended December 31,
                    1998. For the period from January 1 to May 7, 1999 Plus Net,
                    Inc.  had  revenues of approximately $700,000 and net income
                    of  approximately  $413,600.  Subsequent  to  the merger the
                    Company  ceased  its  evaluation  and  processing  of online
                    credit  card  transactions  business.  In 1999, this line of
                    business  accounted  for  approximately  $1,285,000  of  the
                    Company's  revenues.

                    In accordance with the Convertible Debt Financing Agreement,
                    entered  into  between  the  Company  and  RGC International
                    Investors,  LDC  on  March  31,  1999, RGC had the option to
                    purchase  one  additional  share  of  common stock for every
                    share  of  common stock issuable as a result of a conversion
                    of  the  debenture,  at  a  price  equal  to  the applicable
                    conversion  price.


                                                                            F-18
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    In November and December 1999, RGC exercised this investment
                    option  right  and purchased 802,223 shares of the Company's
                    common  stock for proceeds of $1,863,300 and, in January and
                    February  2000, an additional 632,472 shares of common stock
                    for  proceeds  of  $834,900.

                    In  December  1999,  the  Company  issued  350,000 shares of
                    common  stock  to  a  consulting  group  in  exchange  for a
                    two-year  agreement  to  provide the Company with consulting
                    services.  Based on the then fair market value of the shares
                    issued  the  price  of  these  services was determined to be
                    $1,060,800.  In  February  2000,  the  Company  issued  an
                    additional  175,000  shares  of  common  stock,  with a fair
                    market value of $574,200, in consideration for extending the
                    agreement  for  an  additional  six  months.

                    The Company amortized the aggregate consideration given over
                    the  term  of  the  agreement  and  fully  recognized  the
                    unamortizated  portion  in  the  second  quarter  of  2001.
                    Included in prepaid expenses and deferred expenses was as of
                    December  31,  2000,  $926,500,  representing  the  then
                    unamortized  portion  of  the  consideration given for these
                    consulting  services.

                    In  September  2000,  the  Company  issued 75,000 additional
                    shares  of  common  stock  to  the  consulting  group  in
                    consideration  of failure to execute the demand registration
                    rights  in a timely manner pursuant to the agreements. Based
                    on  the  fair market value of the shares issued, the Company
                    recognized  $37,500  in  consulting  expense  for  this
                    transaction.

                    In  February  2000, the Company offered shares of its common
                    stock,  valued  at  $1.50  per  share,  and  warrants,  each
                    expiring  on  January  31, 2003 and entitling the holder the
                    right  to  purchase one share of common stock at an exercise
                    price  of  $4.00  per  share,  through  a  private placement
                    offering.  The  Company  issued  15,416,633 shares of common
                    stock  and  warrants to purchase 15,416,633 shares of common
                    stock  in  the  offering  for  net  proceeds of $21,142,600.

                    In  February 2000, the Company issued 6,250 shares of common
                    stock, with a fair market value of $9,700, in settlement for
                    the  cancellation  of  a  letter  of  intent  to  provide
                    sponsorship.

                    In  March  and April 2000, the Company issued 778,982 shares
                    of  common  stock and warrants to purchase 389,491 shares of
                    common  stock  at  an  exercise price of $2.76 per share, as
                    discussed  further  below, in exchange for the conversion of
                    $1,558,000  in  trade  payables.


                                                                            F-19
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    In  July and August 2000, the Company issued an aggregate of
                    430,000  shares of common stock, with a fair market value of
                    $327,100,  in  consideration  for  consulting  services. The
                    Company amortizes the aggregate consideration given over the
                    term  of  the  underlying  agreements.  Included  in prepaid
                    expenses  is,  as of December 31, 2000, $29,200 representing
                    the unamortized portion of the consideration given for these
                    consulting  services.

                    In  May 2000, the Company's Certificate of Incorporation was
                    amended  to  increase  the  number  of  shares of authorized
                    common  stock  to  200,000,000.

                    WARRANTS

                    In  1998,  prior to the adoption of the Stock Option Plan as
                    discussed  below,  the Company granted warrants to directors
                    and  employees  of the Company, to purchase 2,399,298 shares
                    of  common  stock  at $0.04. As the exercise price for those
                    warrants  was less than the market price of the common stock
                    on  the  grant date, the Company recorded in accordance with
                    APB  Opinion  No.  25,  Accounting  for  Stock  Issued  to
                    Employees,  $855,000  of  compensation costs associated with
                    these  warrants.

                    In  September  1998,  these  warrants  were  exchanged  for
                    2,399,298  shares  of  common  stock  via  the  issuance  of
                    promissory  notes  for  $95,000,  concurrent  with  the
                    reorganization  of  the  Company.  The promissory notes have
                    been  accounted  for  as  common stock subscribed and are an
                    offset  to  shareholders'  equity  until  such  notes  are
                    collected.

                    During  the  years  ended  December  31,  2000 and 1999, the
                    Company  issued  warrants  in  connection  with  financing,
                    consulting  services,  and  conversion  of trade payables to
                    purchase  3,139,491  and  475,000  shares  of  common stock,
                    respectively.

                    The  Company  estimates  the  fair  value of warrants at the
                    grant  date  by using the Black-Scholes valuation model with
                    the  following  weighted-average assumptions used for grants
                    in  2001,  2000,  and  1999:  dividend yield of 0%; expected
                    volatility of 94%, 138%, and 69%; risk-free interest rate of
                    5.5%,  6.2%, and 6.2%; and the expected contractual lives of
                    the  warrant. The computed value is charged to operations or
                    interest  over  the  term  of  the  related  agreements.


                                                                            F-20
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    In  conjunction with the Agreement, entered into between the
                    Company  and  RGC  on  March  31,  1999,  the Company issued
                    warrants,  which  vested  immediately,  to  purchase 150,000
                    shares of common stock at $12.375. The Company recognized an
                    additional  $115,500  of  interest  expense  associated with
                    these  warrants. In August 1999, the Company entered into an
                    agreement  with  RGC  pursuant  to  which it exercised these
                    warrants.

                    In consideration for the early exercise of the warrants, the
                    exercise  price  for the warrants was decreased from $12.375
                    to $7.875 and the Company issued RGC warrants to purchase an
                    additional  150,000  shares of common stock at $7.875. These
                    warrants were subsequently, due to anti-dilution provisions,
                    issued at an exercise price of $4.38 per share, resulting in
                    an  increase  in the number of shares issuable upon exercise
                    of  the  warrants  to  269,692.  The  Company  recognized an
                    additional  $245,700  of  interest  expense  associated with
                    these  warrants.  In  2000  and 1999, the Company recognized
                    $159,000  and  $86,700  of  this  amount as interest expense
                    respectively.

                    In  June  2000,  the  Company  issued warrants, which vested
                    immediately, to purchase 2,200,000 shares of common stock at
                    $1.50  per share, exercisable over five years, in accordance
                    with  the  settlement  agreement  entered  into  between the
                    Company and RGC or April 28, 2000. The Company recognized an
                    additional  $1,496,000 of deemed interest expense associated
                    with  these  warrants.

                    In  February 2000, the Company issued warrants, which vested
                    immediately,  to  purchase 200,000 shares of common stock at
                    an exercise price of $4.00, in addition to previously issued
                    warrants  to  purchase  50,000  shares of common stock at an
                    exercise price of $12.375 for finders fee in connection with
                    the  private  placement.

                    In  March  and  April  2000,  the Company issued warrants to
                    purchase 389,491 shares of common stock at an exercise price
                    of  $2.76  in  conjunction  with  the  conversion  of  trade
                    payables.  The  Company  recognized  $541,400  in  interest
                    expense  associated  with  these  warrants.


                                                                            F-21
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    In  October 2000, the Company issued warrants for consulting
                    services,  which  vested  immediately  to  purchase  350,000
                    shares  of  common  stock  at an exercise price of $0.35 per
                    share.  The  aggregate value of these warrants, $84,000, was
                    amortized  over  a four months period. In 2001 and 2000, the
                    Company  recognized  $42,000  and  $42,000  of  this amount,
                    respectively.


                    In  April  2001,  the  Company issued warrants, which vested
                    immediately, to purchase 1,500,000 shares of common stock at
                    an  exercise  price  of  $0.13  for  financial  consulting
                    services.  The aggregate value of these warrants amounted to
                    $165,000.  Included  in  prepaid expenses as of December 31,
                    2001, is $41,200 representing the unamortized portion of the
                    consideration  given  for  these  consulting  services.

                    STOCK  OPTION  PROGRAM

                    In September 1998, the Company adopted the 1998 Stock Option
                    Plan  and,  in  January 2000, the Board of Directors adopted
                    the 1999 Stock Option Plan (collectively "the Plans"), which
                    is  subject  to  its  ratification  by  the  shareholders.

                    The Plans authorizes the grant of options to purchase shares
                    of  common stock to employees, directors, and consultants of
                    the  Company  and  its  affiliates.  The  options  are  a
                    combination  of  both  incentive  and  nonstatutory options.

                    Incentive  options  may  be granted at not less than 100% of
                    the  fair  market  value per share, and nonstatutory options
                    may be granted at not less than 85% of the fair market value
                    per share at the date of grant as determined by the Board of
                    Directors  or  committee thereof, except for options granted
                    to  a  person  owning  greater  than  10% of the outstanding
                    stock,  for  which  the exercise price must not be less than
                    110%  of  the  fair  market value. Options granted under the
                    Plans  generally  vest  over three years and are exercisable
                    over  ten  years.

                    The  Company  has  reserved 3,000,000 shares of common stock
                    for  issuance under the 1998 Stock Option Plan and 8,900,000
                    shares  of  common  stock  for issuance under the 1999 Stock
                    Option  Plan.


                                                                            F-22
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    A  summary  of the status of the Company's stock option plan
                    as  of December 31, 2001, 2000, and 1999, and changes during
                    the  years  then  ended is presented in the following table:

<TABLE>
<CAPTION>
                                                               Options Outstanding
                                    ----------------------------------------------------------------------------
                                        December 31, 2001          December 31, 1999         December 31, 2000
                                    -------------------------  ------------------------  -----------------------
                                                   Weighted-                  Weighted-               Weighted-
                                                    Average                    Average                 Average
                                                   Exercise                   Exercise                 Exercise
                                        Shares      Price          Shares       Price       Shares     Price
                    --------------------------------------------------------------------------------------------
<S>                 <C>             <C>           <C>          <C>           <C>         <C>         <C>
                    Beginning         5,293,916   $     4.83     2,580,166   $     9.47     280,000   $     0.80
                    Granted           3,005,000   $     0.16     3,931,600   $     1.88   2,614,000   $    10.40
                    Exercised                --   $       --       (13,331)  $     1.20          --   $       --
                    Forfeited        (2,720,916)  $     2.45    (1,204,519)  $     5.19    (313,834)  $     9.45
                                    ------------               ------------              -----------

                    Ending            5,578,000   $     3.47     5,293,916   $     4.83   2,580,166   $     9.47
                    =========       ============  ===========  ============  ==========  ===========  ==========

                    Exercisable at
                      year-end        4,521,734                  2,368,750                  640,499
                                    ============               ============              ===========

                    Weighted-average fair value of options granted during the period:

                                                  $     0.11                 $     1.34               $     5.71
                                                  ===========                ===========              ==========
</TABLE>

                    The  following  table  summarizes  information  about  stock
                    options  outstanding  as  of  December  31,  2001:

<TABLE>
<CAPTION>
                                            Options Outstanding
                                  ---------------------------------------    Options Exercisable
                                                Weighted-                  -------------------------
                                                 Average      Weighted-                   Weighted-
                      Range of                  Remaining     Average                     Average
                      Exercise     Number      Contractual    Exercise      Number        Exercise
                       Prices     Outstanding  Life (Years)    Prices      Exercisable     Prices
                    --------------------------------------------------------------------------------
<S>                               <C>          <C>          <C>            <C>          <C>
                    $0.01-0.75     1,408,000          7.53  $        0.16      593,826  $       0.17
                    $0.76-1.00       165,000          3.50  $        0.80      165,000  $       0.80
                    $1.01-2.00     1,199,000          6.46  $        1.50    1,221,894  $       1.48
                    $2.01-5.00     1,396,000          7.76  $        2.44      921,894  $       2.44
                    $5.01-10.00    1,200,000          7.61  $        9.08    1,200,000  $       9.08
                    $10.01-15.00     210,000          6.87  $       13.91      205,528  $      13.96
                    --------------------------------------                 -----------
                                   5,578,000                $        3.47    4,521,734  $       4.13
                                  ===========               =============  ===========  ============
</TABLE>


                                                                            F-23
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    During  the  years  ended December 31, 2001, 2000, and 1999,
                    the  Company recorded deferred compensation of approximately
                    $0,  $512,200,  and  $702,700, respectively, relating to the
                    issuance  of  0,  380,000,  and  285,000 consultant options,
                    respectively,  for  administrative  and  sales and marketing
                    services.  These  amounts  were  computed  using  the
                    Black-Scholes  option  valuation  model.  The  related
                    amortization  was charged to operations over the term of the
                    related consulting agreements. In 2001, 2000, and 1999, such
                    amortization  amounted  to approximately $429,900, $573,700,
                    and $211,300, respectively. The weighted-average assumptions
                    used to compute the value of the options granted in 2000 and
                    1999  were  as  follows:  dividend  yield  of  0%;  expected
                    volatility  of 110% and 82%; risk-free interest rate of 6.2%
                    and  6.2%;  and  expected  lives  of  two  years.

                    SFAS  No.  123,  Accounting  for  Stock-Based  Compensation,
                    requires  the  Company  to  provide  pro  forma  information
                    regarding net (loss) income and (loss) earnings per share as
                    if compensation cost for the Company's stock option plan had
                    been  determined  in  accordance  with  the fair value based
                    method  prescribed in SFAS No.123. The Company estimates the
                    fair  value  of stock options at the grant date by using the
                    Black-Scholes  option  valuation  model  with  the following
                    weighted  average assumptions used for grants in 2001, 2000,
                    and  1999: dividend yield of 0%; expected volatility of 96%,
                    124%,  and  112%; risk-free interest rate of 5.0%, 6.2%, and
                    6.2%;  and  expected  lives  of  three  years  for  all plan
                    options.

                    Under  the  accounting  provisions  of  SFAS  No.  123,  the
                    Company's  net  loss  and the basic and diluted net loss per
                    common  share  would  have  been  adjusted  to the pro forma
                    amounts  below:

<TABLE>
<CAPTION>
                                            2001           2000           1999
                    ---------------------------------------------------------------
<S>                                     <C>            <C>            <C>
                    Net income (loss):
                      As reported       $ (8,550,400)  $(14,351,400)  $ (9,880,400)
                      Pro forma         $(11,905,200)  $(19,426,800)  $(11,516,600)

                    Basic and diluted earnings (loss) per share:
                      As reported       $      (0.20)  $      (0.36)  $      (0.46)
                      Pro forma         $      (0.28)  $      (0.49)  $      (0.54)
</TABLE>


                                                                            F-24
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

8.  INCOME TAXES    The  provision  for income taxes for the year ended December
                    31,  1999 relates to the earnings of Plus Net, Inc. prior to
                    the  merger.  The  provision  for income taxes for the years
                    ended  December 31, 2001 and 2000 consisted of minimum state
                    taxes.

                    The  following summarizes the differences between income tax
                    expense  and the amount computed applying the Federal income
                    tax rate of 34% for the years ended December 31, 2001, 2000,
                    and  1999:

<TABLE>
<CAPTION>
                                                     2001          2000          1999
                    ---------------------------------------------------------------------
<S>                                              <C>           <C>           <C>
                    Federal income tax
                      benefit at statutory rate  $(2,720,000)  $(4,675,000)  $(3,316,200)
                    State income taxes, net
                      of federal benefit            (466,000)     (799,000)     (566,500)
                    Nondeductible book
                      expenses                       555,000     2,308,000             -
                    Tax benefit not currently
                      recognizable                 2,404,000     2,992,900     3,884,100
                    Other                            229,400       174,700       125,400
                    ---------------------------------------------------------------------

                    Provision for income taxes   $     2,400   $     1,600   $   126,800
                    =====================================================================
</TABLE>
                    The  Company's effective tax rate differs from the statutory
                    federal  income  tax  principally as a result of federal and
                    state  net operating losses for which no deferred benefit is
                    recognized due to a full valuation allowance provided on the
                    resulting  deferred  tax  asset.


                                                                            F-25
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    Temporary  differences  and carryforwards which gave rise to
                    significant  portions of deferred tax assets and liabilities
                    as  of  December  31,  2001,  2000, and 1999 are as follows:

<TABLE>
<CAPTION>
                    December 31,                     2001           2000          1999
                    ----------------------------------------------------------------------
<S>                                              <C>            <C>           <C>
                    Net operating loss
                      carryforward               $  9,994,000   $ 7,375,000   $ 4,558,900
                    Depreciation and
                      amortization                    280,000       (36,000)     (216,800)
                    Accrued compensation
                      and benefits                          -        37,000       562,700
                    Reserves not currently
                      deductible                       61,000       555,000        33,300
                    ----------------------------------------------------------------------
                    Net deferred tax asset         10,335,000     7,931,000     4,938,100
                    Valuation allowance           (10,335,000)   (7,931,000)   (4,938,100)
                    ----------------------------------------------------------------------

                    Reported deferred tax asset  $          -   $          -  $         -
                    ======================================================================
</TABLE>

                    As  of  December  31,  2001,  the  Company had a federal net
                    operating  loss  (NOL)  carryforward  in  the  amount  of
                    $26,754,000  which  may  be applied to future taxable income
                    until  these  benefits  begin to expire in 2017. The Company
                    also  had  a  California  NOL  carryforward in the amount of
                    $14,200,600  which  may  be applied to future taxable income
                    until  these  benefits  begin  to  expire  in  2002.

                    The  Company's  ability to utilize the NOL carryforwards are
                    dependent  upon  the  Company's  ability to generate taxable
                    income  in  future  periods  and  may  be  limited  due  to
                    restrictions  imposed  under  Federal  and state laws upon a
                    change  in  ownership.

9.  CONCENTRATION   Financial instruments, which potentially subject the Company
    OF CREDIT RISK  to concentration of credit risk, consist principally of cash
                    and  cash  equivalents  and  trade  receivables. The Company
                    places  its  cash  and  cash  equivalents  with high quality
                    financial institutions and, by policy, limits the amounts of
                    credit  exposure  to  any  one  financial  institution.


                                                                            F-26
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    The  Company's  accounts  receivable  are  derived from many
                    customers  in  various  industries. The Company believes any
                    risk  of accounting loss is significantly reduced due to the
                    diversity  of  its end-customers and geographic sales areas.
                    The  Company  performs  credit  evaluation of its customers'
                    financial  condition  whenever necessary, and generally does
                    not  require  cash  collateral  or other security to support
                    customer  receivables.


10.  MAJOR          In  2001,  three  customers accounted for approximately 47%,
     CUSTOMERS      25%, and 19% of revenues, respectively, with related account
                    receivable  as  of  December  31,  2001  of  $0, $0, and $0,
                    respectively.

                    In  2000,  four  customers  accounted for approximately 20%,
                    13%,  11%,  and  10% of revenues, respectively, with related
                    account  receivable as of December 31, 2000 of $294,000, $0,
                    $95,200,  and  $0,  respectively.

                    In  1999,  one  customer  accounted for approximately 17% of
                    revenues, with related account receivable as of December 31,
                    1999  of  $250,000.

11.  SUPPLEMENTAL   The  following is supplemental disclosure for the statements
     DISCLOSURE     of  cash  flows.
     OF CASH FLOW
     INFORMATION

<TABLE>
<CAPTION>
                    Years Ended December 31,                2001      2000        1999
                    --------------------------------------------------------------------
<S>                                                       <C>     <C>         <C>
                    CASH PAID:
                      Income taxes                        $    -  $  127,200  $    1,600
                      Interest                            $9,400  $        -  $    3,000

                    NONCASH INVESTING AND
                      FINANCING ACTIVITIES:
                        Issuance of common stock for
                          convertible notes payable plus
                          accrued interest                $    -  $3,319,900  $1,863,300
                        Issuance of common stock
                          for consulting services         $    -  $  948,500  $1,060,800
                        Issuance of common stock
                          for trade payables              $    -  $1,558,000  $        -
                        Warrants issued in conjunction
                          with debt financing             $    -  $        -  $  361,200
                    ====================================================================
</TABLE>


                                                                            F-27
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

12.  COMMITMENTS    On May 1, 2001 seven shareholders of Nettaxi filed an action
AND CONTINGENCIES   against  the Company. The complaint also names the Company's
                    Chief  Executive  Officer,  President  and  former  Chief
                    Financial  Officer  as  additional defendants. The complaint
                    alleged  that  the  Company  violated  securities  laws  in
                    connection  with  its  February  2000 private placement. The
                    complaint  was  amended  on  May  23,  2001.  The  amendment
                    addressed  factual matters and added three new plaintiffs to
                    the lawsuit. Shortly after filing the amended complaint, the
                    Company,  pursuant  to  the rules of the District Court, met
                    with plaintiffs and pointed out further factual inaccuracies
                    and  deficiencies.  Plaintiffs,  then,  chose  to attempt to
                    amend  their  complaint  for  a  second  time.  Six  of  the
                    plaintiffs  purchased  shares of Nettaxi common stock in the
                    February  2000  private  placement.  Prior  to  filing  the
                    complaint  the  plaintiffs demanded the refund of all of the
                    money  invested  in  Nettaxi  and demanded that the exercise
                    price  of  the  warrants  issued in the private placement be
                    reduced  from  $4.00 to $0.25 per share. Additionally, prior
                    to filing the complaint, Nettaxi was asked to invest capital
                    in  a  company affiliated with one of the plaintiffs. In the
                    complaint,  the  plaintiffs  seek  compensatory  damages,
                    injunctive relief and fees and interest. On October 1, 2001,
                    the Company filed a motion to dismiss the complaint filed by
                    Plaintiffs.  In  response, Plaintiffs have given notice that
                    they intend to seek court permission to file a third amended
                    complaint  to  attempt to recharacterize their claims and to
                    remove  some claims which Plaintiffs concede are contrary to
                    the  law.  Management  believes that the allegations made in
                    the  complaint  are  without  merit  and  that  this lawsuit
                    reflects shareholder frustration over the recent downturn in
                    the  stock  market  and  will  defend the action vigorously.

                    From time to time, in the normal course of business, various
                    claims  are  made  against the Company. At this time, in the
                    opinion  of  management,  there  are  no pending claims, the
                    outcome of which is expected to result in a material adverse
                    effect  on  the  financial  position  of  the  Company.


                                                                            F-28
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                    In  May  2001, the Company entered into an agreement with an
                    investment  banker  to  provide,  on a semi-exclusive basis,
                    services  in  connection with identifying a potential merger
                    candidate  and  to  assist  in  negotiating  and effecting a
                    transaction.  The  terms  of  the  agreement  provide  for
                    compensation  to  be  paid to the investment banker upon the
                    successful  closing  of a transaction in the amount of 5% of
                    the  total amount of the transaction up to $3 million and 2%
                    of  the remaining amount of the transaction, payable, at the
                    election  of  the investment banker, in cash or common stock
                    of  the  Company and a warrant exercisable to purchase up to
                    5%  of  the  Company's  common  stock at a purchase price as
                    defined  in  the  agreement

                    On  January  9,  2002,  the  Company  entered  into a merger
                    agreement  under  which  the Company, subject to shareholder
                    approval,  agreed  to  merge  with  RAE Systems, Inc. If the
                    Company's  shareholders  do  not  approve of the merger, the
                    Company shall pay RAE Systems, Inc., within five days of the
                    date  of  the termination of the merger agreement, an amount
                    equal  to  $250,000.

                    If  the  merger  is consummated, with a change in control of
                    the  Company  as  a  result, the two officers of the Company
                    will  each  be  entitled  to  receive  a  severance  package
                    consisting  of  a  cash  payment  of  $150,000;  accelerated
                    vesting  on outstanding options to purchase 67,020 shares of
                    common  stock  (after  taking  into  account  the  5.67 to 1
                    reverse split) at an exercise price of $0.737 per share, and
                    a  cash  bonus  of an amount necessary to exercised price of
                    $0.737 per share, and a cash bonus of an amount necessary to
                    exercise the options; and warrants to purchase up to 176,366
                    shares  of  common stock (after taking into account the 5.67
                    to  1  reverse  split)  at  an  exercise price of $1.134 per
                    share.

<TABLE>
<CAPTION>
13.  VALUATION AND                                             Additions
     QUALIFYING                                Balance        Charged to                 Balance
     ACCOUNTS                               as of Beginning   Costs  and                as of End
                         Description           of Period       Expenses   Deductions    of Period
                    ------------------------------------------------------------------------------
<S>                                        <C>               <C>          <C>          <C>
                    2001:
                      Allowance for
                        doubtful accounts  $        433,000  $     2,600  $ (321,500)  $   114,100

                    2000:
                      Allowance for
                        doubtful accounts  $         83,600  $   504,900  $ (155,500)  $   433,000

                    1999:
                      Allowance for
                         doubtful accounts  $        31,200  $    52,400  $        -   $    83,600
                    ==============================================================================
</TABLE>


                                                                            F-29
<PAGE>
                                                                     NETTAXI.COM



                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

14.  QUARTERLY      The  summarized  quarterly  financial  data  presented below
     INFORMATION    reflect  all  adjustments,  which,  in  the  opinion  of
     (UNAUDITED)    management,  are  of a normal and recurring nature necessary
                    to  present fairly the results of operations for the periods
                    presented.  Effective  July  7, 2001, the Company terminated
                    its  significant  co-hosting  customer  contracts  and
                    effectively  ceased  all  revenue  generating  activities.

<TABLE>
<CAPTION>
    Year Ended          First         Second          Third       Fourth
      December 31,     Quarter        Quarter         Quarter     Quarter        2001
-----------------------------------------------------------------------------------------
<S>                 <C>           <C>           <C>           <C>           <C>
Net revenues        $ 1,192,500   $   869,700   $     7,000   $       300   $  2,069,500
Gross profit
  (loss)               (761,300)   (1,282,200)     (145,400)          300     (2,188,600)
Operating (loss)     (2,533,800)   (4,408,100)     (914,500)   (1,130,100)    (8,986,500)
Net (loss)           (2,361,300)   (4,286,200)     (826,500)   (1,076,400)    (8,550,400)
Basic and diluted
  (loss) per
  common share            (0.05)        (0.10)        (0.02)        (0.02)         (0.20)
=========================================================================================

    Year Ended          First         Second          Third       Fourth
      December 31,     Quarter        Quarter         Quarter     Quarter        2000
-----------------------------------------------------------------------------------------
Net revenues        $ 2,764,900   $ 2,984,900   $ 2,254,000   $ 1,414,600   $  9,418,400
Gross profit
  (loss)                991,400     1,063,100       600,600      (544,400)     2,110,700
Operating (loss)     (2,696,500)   (2,605,400)   (2,360,500)   (2,705,500)   (10,367,900)
Net (loss)           (2,769,000)   (6,461,600)   (2,132,200)   (2,988,600)   (14,351,400)
Basic and diluted
  (loss) per
  common share            (0.09)        (0.15)        (0.05)        (0.07)         (0.36)
=========================================================================================
</TABLE>


                                                                            F-30
<PAGE>