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

                                   FORM 10-QSB

                Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

For quarterly period ended September 30, 2000     Commission File Number 0-23123

                            NETGAIN DEVELOPMENT, INC.
        (Exact name of small business issuer as specified in its charter)

            Colorado                                             84-0856436
(State or other jurisdiction of                                (IRS Employer
 incorporation or organization)                              Identification No.)

              152 West 57th Street, 40th Floor, New York, NY 10019
                    (Address of principal executive offices)

 The registrant's current telephone number, including area code: (212) 765-2914

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  the number of shares  outstanding  of each  class of the  Registrant's
Common Stock.

The  Registrant  has only one class of Common Stock  outstanding.  As of Oct 31,
2000, there were 23,199,609 shares of the Registrant's Common Stock outstanding.

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

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<PAGE>
                            NETGAIN DEVELOPMENT, INC.

                                      INDEX
                                                                            PAGE
                                                                            ----
PART I. FINANCIAL INFORMATION

     Item 1. Consolidated Financial Statements

             Consolidated Balance Sheets September 30, 2000 and
               December 31, 1999 ..........................................   3

             Consolidated Statements of Loss--Three and Nine
               Months ended September 30, 2000 and 1999 ...................   4

             Consolidated Statements of Cash Flows--Nine Months
               ended September 30, 2000 and 1999 ..........................   5

             Notes to Interim Consolidated Financial Statements ...........   6

     Item 2. Management's Discussion and Analysis of Financial
             Condition and Results of Operations ..........................  11

PART II. OTHER INFORMATION

     Item 1. Legal Proceedings.............................................  14

     Item 2. Changes in Securities.........................................  14

     Item 3. Subsequent Events.............................................  15

     Item 4. Defaults Upon Senior Securities...............................  15

     Item 5. Submission of Matters to a Vote of Security Holders...........  15

     Item 6. Other Information.............................................  15

     Item 7. Exhibits and Reports on Forms 8-K.............................  15

SIGNATURES.................................................................  16

                                        2
<PAGE>
                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                             September 30,     December 31,
                                                                 2000             1999
                                                              ------------     ------------
                                                              (Unaudited)
<S>                                                           <C>              <C>
                                         ASSETS
CURRENT ASSETS:
   Cash & cash equivalents                                    $    121,319     $  3,642,245
   Accounts receivable, net                                         77,329               --
   Receivable from Partner Companies                             2,000,000               --
   Marketable Securities (Note 3)                                1,459,833               --
   Inventory                                                       282,159               --
   Prepaid expenses                                                  1,550           18,000
   Due from related parties                                             --           33,000
                                                              ------------     ------------
          Total Current Assets                                   3,942,190        3,693,245

PROPERTY AND EQUIPMENT, NET                                        409,876               --
INVESTMENTS AT COST                                              9,523,950        7,620,000
GOODWILL AND OTHER INTANGIBLE ASSETS, NET (Note 4)               2,599,141               --
OTHER ASSETS                                                       103,002          103,002
                                                              ------------     ------------
                                                              $ 16,578,158     $ 11,416,247
                                                              ============     ============
                       LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                                           $  1,338,949     $     53,006
   Accrued expenses                                                335,925           46,174
   Due to related parties                                          200,635           16,101
                                                              ------------     ------------
          Total Current Liabilities                              1,875,509          115,281

LONG TERM DEBT                                                          --               --
COMMITMENTS & CONTINGENCIES                                             --               --

STOCKHOLDERS' EQUITY:
   Preferred Stock-- $0.0001 par value; 10,000,000
     shares authorized;  designated Series A                             1                1
   Common Stock-- $0.0001 par value; 100,000,000
     shares authorized; 23,157,301 shares issued
     and outstanding                                                 2,316            1,717
   Capital in excess of par -- Preferred                         2,702,247        3,277,247
   Capital in excess of par -- Common                           24,678,522        9,534,634
   Accumulated deficit                                         (11,895,438)        (959,477)
   Stock subscriptions receivable                                   (7,156)          (7,156)
   Treasury stock, at cost (420 shares of Preferred)              (546,000)        (546,000)
   Accumulated other comprehensive income (Note 3)                (231,842)              --
                                                              ------------     ------------
          Total Stockholders' Equity                            14,702,650       11,300,966
                                                              ------------     ------------
                                                              $ 16,578,158     $ 11,416,247
                                                              ============     ============
</TABLE>

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

                                        3
<PAGE>
                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES
                    UNAUDITED CONSOLIDATED STATEMENTS OF LOSS

<TABLE>
<CAPTION>
                                                           Three Months Ended             Nine Months Ended
                                                              September 30,                 September 30,
                                                      ---------------------------    ---------------------------
                                                          2000            1999           2000            1999
                                                      ------------    -----------    ------------    -----------
<S>                                                   <C>             <C>            <C>             <C>
Revenue, net                                          $    110,153    $        --    $    290,217    $        --

Cost of Sales                                                9,723             --         140,537             --
                                                      ------------     ----------    ------------    -----------
Gross Profit                                               100,430                        149,680
Selling, General & Administrative Expenses                 881,519        180,698       2,034,526        242,033
Amortization of Intangibles                                246,872             --         917,904             --
Public Relations Consultancy Fee (Note 4)                       --                      3,423,600             --
Impairment of goodwill (Note 4)                          3,900,361             --       3,900,361             --
Lawsuit settlement                                         699,437             --         699,437             --
                                                      ------------     ----------    ------------    -----------
Operating Loss                                          (5,627,759)      (180,698)    (10,826,148)      (242,033)

Loss on investment (Note 4)                               (120,000)            --        (120,000)            --
Interest (expense) Income                                   (1,217)            --          10,187             --
                                                      ------------    -----------    ------------    -----------
Loss before income tax benefits                       $ (5,748,976)   $  (180,698)   $(10,935,961)   $  (242,033)
Income tax benefits                                             --        (96,800)             --        (96,800)
                                                      ============    ===========    ============    ===========
Net loss after income tax benefits                    $ (5,748,976)   $   (83,898)   $(10,935,961)   $  (145,233)
Basic Loss per Common Share                           $      (0.26)   $     (0.01)   $      (0.54)   $     (0.01)
                                                      ============    ===========    ============    ===========
Weighted Average Number of Common Shares Outstanding    21,830,876     12,971,000      20,200,764     11,458,179
</TABLE>

                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES
                    UNAUDITED STATEMENT OF COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                           Three Months Ended           Nine Months Ended
                                                              September 30,               September 30,
                                                      -------------------------    -------------------------
                                                          2000          1999           2000          1999
                                                      ------------    ---------    ------------    ---------
<S>                                                   <C>             <C>          <C>             <C>
NET LOSS                                              $ (5,748,976)      --        $(10,935,961)       --

OTHER COMPREHENSIVE INCOME:
  Unrealized gains (losses) on securities:
    Unrealized gains                                       330,660       --             330,660        --
    Unrealized losses                                     (562,502)      --            (562,502)       --
                                                      ------------                 ------------
    Comprehensive loss                                $ (5,980,818)      --        $(11,167,803)       --
                                                      ============                 ============
</TABLE>

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

                                        4
<PAGE>
                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW


                                                         Nine Months Ended
                                                            September 30,
                                                     --------------------------
                                                         2000          1999
                                                     ------------   -----------
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES:
  Net Loss                                           $(10,935,961)  $  (145,233)
  Non cash items:
   Depreciation and amortization                          973,571            --
   Public relations consultancy fee paid with
    common stock (Note 4)                               3,423,600            --
   Write off of goodwill (Note 4)                       3,900,361
   Loss on investment (Note 4)                            120,000
   Lawsuit settlement                                     699,437
  Changes in operating assets & liabilities,
    excluding effects from acquisitions of a
    subsidiary
  (Increase) decrease in:
    Accounts receivable                                   (63,056)           --
    Preferred stock subscriptions receivable                           (275,020)
    Common stock subscription receivable                                 (1,445)
    Deferred tax receivable                                             (96,800)
    Inventory                                             124,127
    Prepaid expenses                                       36,762
    Due from related parties                              192,534
    Other                                                               (61,667)
    Non-cash consideration for services                                   1,521
  (Decrease) increase in:
    Accounts payable and accrued expenses                (269,315)      149,005
                                                      -----------   -----------
Net cash flows used in operating activities            (1,797,940)     (429,639)
                                                      -----------   -----------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES:
  Investments in Partner Companies                     (1,700,000)   (2,250,000)
  Investment in subsidiary                               (835,000)           --
  Investment in marketable securities                  (1,700,000)           --
  Proceeds from sale of marketable securities               8,325            --
  Purchase of property and equipment                      (25,033)           --
  Receivable from a Partner Company                    (2,000,000)           --
  Cash acquired in acquisition of a subsidiary          3,056,223            --
                                                      -----------   -----------
Net cash used in investing activities                  (3,195,485)   (2,250,000)
                                                      -----------   -----------
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES:
  Repayment of long term debt                             (50,000)           --
  Proceeds from issuance of common stock                1,522,500        13,851
  Proceeds from issuance of preferred stock                    --     3,552,248
                                                      -----------   -----------
Net cash flows from financing activities                1,472,500     3,566,099
                                                      -----------   -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS   (3,520,925)      886,460
Cash and cash equivalents, beginning of period          3,642,245            48
                                                      -----------   -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD              $   121,319   $   886,508
                                                      ===========   ===========

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

                                        5
<PAGE>
                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - DESCRIPTION OF BUSINESS

     NetGain  Development,  Inc., a Colorado  corporation (the  "Company"),  was
incorporated in 1981 for the purposes of gas exploration.  From 1981 until 1993,
the Company acted as an agent for oil and gas leaseholders.  From 1993 until May
21,  1999,  the Company was  inactive.  On May 21, 1999, a change of control and
corporate objectives occurred.  In connection with the change of control, all of
the officers  and  directors  resigned and new  management  and  directors  were
appointed.  The new  corporate  objective  is to become a major  technology  and
internet  company  (i) by  operating  our own  subsidiaries,  (ii) to a  limited
extent,  by taking  minority  positions in  companies  and (iii) by acting as an
incubator providing consulting services.

     The consolidated  financial statements include the accounts of the Company,
its  wholly  owned   subsidiaries,   CoolAudio.com,   Inc.   ("CoolAudio")   and
forsalebyowner.com  Corp.  ("FSBO") for the three- and nine-month  periods ended
September  30,  2000,  each  of  which  was  consolidated   since  its  date  of
acquisition.

     Although  the Company  refers to the  companies in which it has acquired an
equity  ownership  interest  as  its  "Partner  Companies"  and  that  it  has a
partnership  with  these  companies,  it  does  not  act as an  agent  or  legal
representative for any of its Partner  Companies,  it does not have authority to
legally  bind any of its  Partner  Companies  and it does not have the  types of
liabilities  in relation to its Partner  Companies  that a general  partner of a
partnership would have.

NOTE 2 - BASIS OF PRESENTATION

     The accompanying financial statements have been prepared in accordance with
generally accepted accounting  principles for interim financial  information and
with the  instructions to Form 10-QSB and Regulation S-B.  Accordingly,  they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management,  the  accompanying  consolidated  financial  statements  reflect all
adjustments,  consisting only of normal recurring  adjustments,  necessary for a
fair presentation of the Company's financial position, results of operations and
cash  flows at the  dates  and for the  periods  indicated.  While  the  Company
believes that the disclosures presented are adequate to make the information not
misleading,   these  consolidated   financial   statements  should  be  read  in
conjunction with the audited financial statements and related notes for the year
ended  December 31, 1999 which are contained in the Company's 1999 Annual Report
on Form 10-KSB as filed with the Securities and Exchange Commission. The results
for  the  three-and   nine-month  periods  ended  September  30,  2000  are  not
necessarily indicative of the results that may be expected for the full calendar
year ending  December 31, 2000.  Certain prior year amounts in the  consolidated
financial  statements  have  been  reclassified  in  accordance  with  generally
accepted accounting principles to conform with the current year presentation.

                                        6
<PAGE>
                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Note 3 - MARKETABLE SECURITIES

     Companies are required to classify each of their investment into one of the
three categories,  with different accounting for each category. At September 30,
2000,   management  has  classified   certain  of  their  equity  securities  as
available-for-sale  securities,  which are reported at fair market  value,  with
unrealized  gains and losses reported as other  comprehensive  income.  Gains or
losses on the sale of securities  are  recognized  on a specific  identification
basis. The Company investment in marketable  securities for the nine-month ended
September 30, 2000 is summarized as follows:

                                                   Unrealized Gain  Fair Market
                                   Amortized Cost      (Loss)          Value
                                     ----------      ----------      ----------
Balance June 30, 2000                $       --      $       --      $       --
Transfer to marketable securities
  from investments at cost            1,691,675              --       1,691,675
Unrealized loss during 3rd Quarter           --        (231,842)       (231,842)
                                     ----------      ----------      ----------
Balance as of September 30,2000      $1,691,675      $ (231,842)     $1,459,833
                                     ==========      ==========      ==========

NOTE 4 - ACQUISITIONS AND INVESTMENTS IN PARTNER COMPANIES

     Effective  March  30,  2000,  the  Company  completed  its  acquisition  of
CoolAudio, a  business-to-business  e-tailing enabler and e-retailer of "best in
class" home  entertainment  products from around the world.  The acquisition was
completed through an Agreement and Plan of Merger between NetGain, CoolAudio and
a wholly  owned  subsidiary  of the Company  pursuant to which each  outstanding
share of CoolAudio was converted into .08 of a share of the Company. As a result
of the acquisition, CoolAudio.com has become a wholly owned operating subsidiary
of  the  Company.   The  total  purchase  price  for  CoolAudio  was  valued  at
approximately  $8.6  million  consisting  of 1,795,593  shares of the  Company's
common  stock valued at  approximately  $7.3 million and options and warrants to
purchase  shares of the  Company's  common  stock valued at  approximately  $1.3
million.  The value of the Company's  shares  included in the purchase price was
recorded  net of a 35% market  value  discount  to reflect the  restrictions  on
transferability.  The  Company  has  accounted  for this  transaction  under the
purchase  method of accounting.  The aggregate  purchase price exceeded the fair
value of the net assets acquired by approximately $6.4 million.  The Company has
allocated this to goodwill and other intangible  assets which is being amortized
over a three (3) year period.

     CoolAudio  was acquired  effective  March 30, 2000 and therefore no revenue
and expense is reflected in the Company's  Unaudited  Consolidated  Statement of
Loss  for the  period  January  1 - March  31,  2000.  The pro  forma  condensed
Statements  of Loss below  present the results of  operations of the Company for
the Nine months ended  September 30, 2000 assuming the  acquisition of CoolAudio
occurred on January 1, 2000.  The amounts  presented  for the Company  have been
derived from the Company's  historical  financial statements for the Nine months
ended September 30, 2000. The amounts presented for CoolAudio are the historical
financial  position and results of operations of CoolAudio.  Had the acquisition
occurred on January 1, 2000,  actual  results of  operations  would  likely have
differed  from the  amounts  presented  in these  pro  forma  statements.  These
unaudited  pro  forma  condensed   consolidated  financial  statements  are  not
necessarily  indicative  of the  results  of  operations  that  would  have been
attained had the acquisition  actually taken place on the dates indicated and do
not purport to be indicative of the effects that may be expected to occur in the
future.

                                        7
<PAGE>
                            NETGAIN DEVELOPMENT, INC
                UNAUDITED PRO FORMA CONDENSED STATEMENTS OF LOSS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000


<TABLE>
<CAPTION>
                       Nine Months Ended    Period Ended
                       September 30, 2000    January 1 -
                          Consolidated     March 31, 2000     Pro Forma
                            Netgain          Cool Audio      Adjustments      Pro Forma
                          ------------      ------------    -------------    ------------
<S>                       <C>               <C>             <C>              <C>
Revenue                   $    290,217      $     58,520                     $    348,737
Cost of Goods Sold             140,537            56,532                          197,069
Gross Profit                   149,680             1,988                          151,668
Operating Expenses           6,376,030         1,295,605       494,467          8,166,102
Operating Loss              (6,226,350)       (1,293,617)     (494,467)        (8,014,434)
Loss on investment            (120,000)                                          (120,000)
Lawsuit settlement            (699,437)                                          (699,437)
Write off of goodwill       (3,900,361)                                        (3,900,361)
Other income                         0             1,213                            1,213
Interest income                 10,187             5,786                           15,973
Net Loss                  $(10,935,961)     $ (1,286,618)   $ (494,467)      $(12,717,046)
Basic Loss per Share      $      (0.54)                                      $      (0.60)
Weighted Average Common
  Shares Outstanding        20,200,764                                         21,088,817
</TABLE>

     Simultaneously  with  and in  connection  with the  CoolAudio  transaction,
NetGain  entered into Consulting  Agreements  with Rajiv Bhatia,  Ted Karkus and
Eric  Schwartzman  dated March 20, 2000. All of the agreements are for a term of
one year,  provided that either party may  terminate the agreement  upon 30 days
prior written  notice.  The agreements  may be extended for additional  one-year
terms if not terminated. Two of the agreements were subsequently revised on June
12, 2000.

     With respect to Rajiv  Bhatia's  agreement,  Mr. Bhatia was paid $7,500 per
month,through  July  31,  2000,  plus  ordinary  and  reasonable  out of  pocket
expenses.  Mr. Bhatia was also granted,  concurrently  with the execution of the
Agreement,  non-qualified  stock  options to  purchase an  aggregate  of 350,000
shares of common  stock at an exercise  price of $1.75 per share.  Such  options
become  exerciseable over a one-year period in equal quarterly  installments and
expire ten years from the date of grant.  The  exercise  price was amended  from
$4.00 to $1.75 per share on June 12, 2000.

     With  respect  to  Ted  Karkus'  agreement,   Mr.  Karkus  is  entitled  to
reimbursement of all ordinary and reasonable out of pocket expenses.  Mr. Karkus
was  also  granted,   concurrently   with  the   execution  of  the   Agreement,
non-qualified stock options to purchase an aggregate of 150,000 shares of common
stock at an exercise price of $1.75 per share. Such options become  exerciseable
over a one-year period in equal quarterly installments and expire ten years from
the date of grant.  The exercise price was amended from $5.00 to $1.75 per share
on June 12, 2000.

                                        8
<PAGE>
                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - ACQUISITIONS AND INVESTMENTS IN PARTNER COMPANIES (CONTINUED)

     With respect to Eric Schwartzman's  agreement,  Mr. Schwartzman is entitled
to  reimbursement  of all ordinary and  reasonable out of pocket  expenses.  Mr.
Schwartzman was also granted,  concurrently with the execution of the Agreement,
non-qualified  stock options to purchase an aggregate of 50,000 shares of common
stock at an exercise price of $5.00 per share. Such options become  exerciseable
over a one-year period in equal quarterly installments and expire ten years from
the date of grant.

     In   January    2000,    the   Company    acquired    the   domain    name,
www.forsalebyowner.com,  together with a fully  operational  website,  including
designs,  programming,  database and technology for $835,000 in cash. The assets
were  purchased  from the individual who owned the domain name and developed the
website.  Subsequent  to the purchase,  the Company  assigned,  transferred  and
delivered the assets to FSBO, a newly formed and wholly owned  subsidiary of the
Company.  The Company has  accounted  for this  transaction  under the  purchase
method of  accounting.  The Company has allocated the entire  purchase  price to
intangible assets,  which is being amortized using the straight-line method over
three years.

     During the first  quarter of fiscal year 2000,  the Company  increased  its
aggregate  investments  by $1.4  million  in certain  of its  Partner  Companies
specifically,  MicroCast, Perform.com and Orbit Networks. Also, during the first
quarter  of  fiscal  year  2000,  the  Company  made  new  minority  investments
aggregating  $2.5 million in the Linux Fund,  eSaludo.com and Bascom.  The Linux
Fund is a holding  company/incubator  of eight LINUX software companies,  with a
large  number  of  LINUX  luminaries  as  founders,  directors,  and  investors,
including  Netscape  founder and Browser  inventor Marc Anderseen.  eSaludo is a
Spanish  electronic  greeting  card site which has an  exclusive  contract  (for
Spanish  greeting  cards) with  Paramount,  a major greeting card  manufacturer.
BASCOM  is a  LINUX-based  middleware  and  plug-and-play  network  connectivity
software   provider  for  hardware   integrators  and  ISP's  to  provide  LINUX
thin-server  based easy and  inexpensive  Internet  access by companies to ISP's
without concern about firewall and web catching implementations.

     During the second  quarter of fiscal year 2000,  the Company  increased its
aggregate  investments  by $1.2  million  in certain  of its  Partner  Companies
specifically,  eSaludo.com and Bascom.  Also during the second quarter of fiscal
year 2000, the Company made a new minority investment of $.25 million in College
Boardwalk.com. The $1 million investment in the Linux Fund was reclassified as a
receivable  from a Partner  Company,  since  Linux  Fund  will be paying  the $1
million back to the company prior to December 31, 2000.

     During the third  quarter of fiscal year 2000,  the company  decreased  its
aggregate  investments by $6.2 million in certain of its partner  companies as a
result of the  following  transactions.  An  additional  $50,000 was invested in
eSaludo.com  and an  investment  of  $323,950  was made by stock  issuance  into
Lawstreet.com.  establishing  20%  ownership  by the Company.  The  objective of
Lawstreet.com  is to create an  on-line  community  of legal  professionals  and
support  personnel  who  will  utilize  one  site as their  virtual  office  and
centralized  communication  center.  The $1 million investment in Orbit Networks
was reclassified as a receivable from a partner  company,  since the amount will
be paid back within one year. The $1.5 million investment in Fusion Networks was
reclassified as marketable  securities,  since Fusion Networks became a publicly
traded company in the third quarter. On July 12, 2000 AsiaNetCorp.  Ltd., agreed
to be  acquired  by the  Littauer  Technologies  Company  Ltd.  $200,000  of the
companies $1 million  investment in Littauer  Technologies  was  reclassified as
marketable  securities,  since 20% of the shares  received  by Netgain  are free
trading and 80% are restricted.  Approximately $3.9 million of the investment in
CoolAudio.com  was written off due to the decrease of its value as a result of a
permanent  impairment  to the  e-commerce  marketplace  and the  decision by the
Company to redesign  its  strategy  for  CoolAudio.com.  This amount  represents
two-thirds of  CoolAudio.com's  goodwill.  The remaining  investment amounts are
considered realizable.

                                        9
<PAGE>
                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - ACQUISITIONS AND INVESTMENTS IN PARTNER COMPANIES (CONTINUED)

     The  Company's  $120,000  reserve for  investments  loss is a result of the
failure of Solutions Media.

NOTE 5 -  PUBLIC RELATIONS CONSULTANCY FEE

     On January 1, 2000, the Company issued 50,000 shares of common stock valued
at $171,000 to Access I Financial  in  connection  with an  agreement  to obtain
various investor relations consulting services.

     During  June 2000,  the Company  issued  1,390,000  shares of common  stock
valued at $3,252,600  to Liviakis  Financial  Communications,  Inc in connection
with an agreement to obtain public relations consulting services.

                                       10
<PAGE>
                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES

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

     In addition to historical information, this Report contains forward-looking
statements regarding the Company and its Partner Companies, which represents the
Company's  expectations  or beliefs  including,  but not limited to,  statements
concerning  the Company's and our Partner  Companies'  operations,  performance,
financial  condition,  business  strategies  and  other  information.  For  this
purpose,  any  statements  contained in this Report that are not  statements  of
historical fact may be deemed to be forward-looking statements. Without limiting
the  generality  of the  foregoing,  words  such  as  "may,"  "will,"  "expect,"
"believe,"  "anticipate,"  "intend,"  "could,"  "estimate" or "continue," or the
negative or other variations  thereof or comparable  terminology are intended to
identify  forward-looking  statements.  The  statements by their nature  involve
substantial  risk and  uncertainties,  certain of which are beyond the Company's
and  Partner  Companies'  control,  and actual  results  may  differ  materially
depending on a variety of important factors, including among other things:

     *    development of an e-commerce market,
     *    growth in demand for Internet products and services,
     *    our ability to  identify  trends in our markets and the markets of our
          Partner Companies,
     *    our and our Partner  Companies'  ability to  successfully  execute our
          business model,
     *    our ability to acquire interests in additional companies,
     *    our and our Partner Companies' ability to attract key executives, and
     *    our Partner Companies' ability to successfully  compete against direct
          and indirect competition.

     The  Company  does not  intend  to  engage  primarily  in the  business  of
investing,  reinvesting  or  trading  in  securities  so as to be an  investment
company  required to register as such under the Investment  Company Act of 1940.
Nevertheless,  the Company may be required to register as an investment  company
as a consequence  of  investments  that it has made  subsequent to its change of
control  to the extent  that it  presently  holds  "investment  securities"  (as
defined by the  Investment  Company Act) which  constitute  more than 40% of the
value of the Company's assets (exclusive of U.S. government  securities and cash
items) on an unconsolidated  basis,  unless the Company  restructures or reduces
its  holdings  of  investment  securities  within a  reasonable  period of time.
Although it is the  intention  of the Company to take the actions  necessary  to
avoid investment company status, no assurance can be given that the Company will
be able to take such  actions.  The  Investment  Company  Act of 1940  imposes a
comprehensive   scheme  of   regulation   which  would   require  a  substantial
restructuring  of the  operations of the Company to permit the Company to comply
with applicable  regulations.  Applicable regulations may also operate to impose
significant  restrictions on the permissible  activities and transactions of the
Company. If the Company cannot restructure its operations or reduce its holdings
of investment  securities to avoid the need for investment company registration,
the Board of Directors will consider  taking such actions as may be necessary or
appropriate under the circumstances.

BASIS OF PRESENTATION

     Certain  amounts  for  prior  periods  in  the  accompanying   consolidated
financial  statements,  and in the discussion  below have been  reclassified  to
conform with the current period presentations.

                                       11
<PAGE>
                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS

     The  Company's  corporate  objective  is to become a major  technology  and
internet  company  (i) by  operating  our own  subsidiaries,  (ii) to a  limited
extent,  by taking  minority  positions in  companies  and (iii) by acting as an
incubator providing  consulting  services.  In light of the change in control of
the Company and change in the Company's  business focus,  which was effective in
June 1999, an analysis of the Company's results of operations for the three- and
nine-month periods ended September 30, 2000,  compared to September 30, 1999, is
not indicative of the results of operations in future periods.

     The various  interests that the Company  acquires in its Partner  Companies
are accounted for under three broad  methods:  consolidation,  equity method and
cost method.  The  applicable  method is generally,  but not always,  determined
based on the Company's voting interest in a Partner Company. As of September 30,
2000,  we owned  interests  in 17  companies,  which we refer to as our  Partner
Companies.  Of those 17, we consolidate two Partner Companies and the results of
operations from those Partner  Companies have been included in the  Consolidated
Statements of Loss from the date of acquisition.  All intercompany  accounts and
transactions  are  eliminated.  The two companies  that are publicly  traded are
accounted  for by recording the  investments  at the current  market value.  All
other Partner  Companies  have been recorded under the cost method of accounting
since they are privately traded.  Under this method,  the Company's share of the
earnings or losses of such Partner  Companies  is not included in the  Unaudited
Consolidated Statements of Loss.

     For the three  months  ended  March 31,  2000,  FSBO was  consolidated  and
accounted  for all of our  consolidated  revenue  and  approximately  .6% of our
consolidated selling,  general and administrative  expense. For the three months
ended June 30, 2000,  FSBO  accounted for 42 % of our  consolidated  revenue and
approximately  1%  of  our  consolidated  selling,  general  and  administrative
expense.  For the three months ended  September 30, 2000, FSBO accounted for 73%
of our consolidated  revenue and approximately 10% of our consolidated  selling,
general and administrative  expense.  CoolAudio was acquired effective March 30,
2000 and  therefore  no  revenue  and  expense  is  reflected  in the  Company's
Unaudited  Consolidated  Statements  of Loss for  period  January 1, - March 31,
2000. For the three months ended June 30, 2000,  CoolAudio was  consolidated and
accounted  for 50% of our  consolidated  revenue and  approximately  .07% of our
consolidated selling, general and administrative expense. For three months ended
September 30, 2000,  CoolAudio accounted for 8% of our consolidated  revenue and
approximately 17% our consolidated selling, general and administrative expense.

     Selling,  general and administrative  expenses comprise mostly professional
fees,  compensation  and office  services.  The  expenses are as a result of the
infrastructure and resources necessary to implement and support our strategy. We
expect certain of these expenses to increase as we continue our growth strategy.

     Amortization  expense  increased  substantially  in the  current  quarterly
reporting period, as a result of our recent CoolAudio  writedown.  We anticipate
that amortization expense will increase in future periods as we continue to make
acquisitions.

     Interest income is comprised of interest earned on cash balances.

                                       12
<PAGE>
                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (CONTINUED)

     For the nine months ended  September  30,  2000,  we recorded a net loss of
$10,673,813.  Excluding  amortization and non-cash public  relations  consulting
fees the net loss was  $6,594,457.  The loss was  primarily  due to the  factors
described  above.  Management  expects  these  losses to continue  and  possibly
increase until the Company is able to successfully implement its business plan.

LIQUIDITY AND CAPITAL RESOURCES

     As of September 30, 2000, the Company had cash and equivalents of $121,319.
In addition,  as of  September  30,  2000,  the Company had accounts  payable of
$1,338,949.  These  amounts are  substantially  a result of the  acquisition  of
CoolAudio.  As of  September  30,  2000,  the  Company  had  working  capital of
approximately  $2,066,681.  Cash used in operations  was $1,797,940 for the nine
months  ended  September  30, 2000 and resulted  primarily  from the net loss of
$10,673,813 offset by non-cash charges of $8,854,821.

     Cash used in investing  activities was $3,195,485 for the nine months ended
September 30, 2000.  This was  comprised of  investment in Partner  Companies of
$2,535,000,  investment in marketable securities of $1,691,675,  receivable from
Partner  Companies  of  $2,000,000  and  purchase of property  and  equipment of
$25,033 less cash acquired in our acquisition of CoolAudio.  As discussed above,
the Company expects investments to increase as part of its on-going strategy.

     Cash provided by financing for the nine months ended September 30, 2000 was
generated by the sale of 333,333 shares of the Company's  common stock for $4.50
per share or  $1,500,000  in the  aggregate  and the sale of 9,000 shares of the
Company's common stock for $2.50 per share or $22,500 in the aggregate.

     On July 12, 2000 AsiaNetCorp. Ltd., one of the Company's Partner companies,
agreed to be acquired by Littauer  Technologies  Company  Ltd.,  in a stock deal
valued at  approximately  $1.2  billion.  Under the terms of the  merger,  seven
shares of AsiaNetCorp were exchanged for one share of Littauer Technologies.  At
the  time of the  closing  of that  transaction,  based  on the  stock  price of
Littauer  Technologies.  The cost of the Company's  investment in AsiaNet was $1
million.  The stock  price of  Littauer  is  highly  volatile  and is  currently
significantly  lower than at the time of closing and there is no guarantee  that
such a profit  will be  sustained  by the time the  Company  sells its shares to
realize its profit.  20% of the shares  received by NetGain are sellable now and
80% will be sellable in January 2001.  Based on the sale of the  Company's  free
trading shares of Littauer  stock the Company  expects to generate cash proceeds
to increase its capital resources.

     The  Company  intends to  continue  to fund  existing  and future  Internet
efforts,  acquire additional  companies for cash, stock or other  consideration.
The Company will  require  additional  working  capital to fund  operations  and
future  acquisitions and opportunities.  Therefore,  management intends to raise
additional  monies in order to enable it to continue to execute its strategy and
develop its business plan.

                                       13
<PAGE>
                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES

                           PART II - OTHER INFORMATION


     During June 2000 the Company retained  Liviakis  Financial  Communciations,
Inc.  ("Liviakis") as financial public relations consultant to the Company for a
one (1) year period.  Liviakis  will:  (1) present the Company's  name to a wide
array of financial market professionals and financial media sources; (2) provide
access to financial  media outlets that the Company  otherwise  could not easily
reach;  and (3) consult and assist the Company in  developing  and  implementing
appropriate  plans and means for presenting the Company and its business  plans,
strategy and personnel to the financial community, establishing an image for the
Company in the financial  community,  and creating the foundation for subsequent
financial  public  relations  efforts.  Liviakis'  fee  for its  services  is as
follows: (1) One Million Three Hundred Ninety Thousand (1,390,000) shares of the
Company's  common  stock;  and (2) a  monthly  consultancy  fee of One  Thousand
(1,000) shares of the Company's common stock.

ITEM 1. LEGAL PROCEEDINGS.

     A  legal  proceeding  against  the  Company,  for  which  the  Company  has
negotiated a settlement  agreement  with  plaintiffs,  was approved by the court
during the third quarter of Fiscal year 2000.This legal  proceeding in which the
Company has been named as a defendant,  is a lawsuit  filed in federal  court in
New Jersey by two individuals who,  pursuant to a merger  agreement,  sold their
stock in a company named  Conversion  Services  International,  Inc.  ("CSI") to
Elligent  Consulting  Group,  Inc.  ("Elligent"),  a company  for which  Andreas
Typaldos acts as Chairman,  CEO and  President.  The  plaintiffs  added to their
original  complaint  charges  purportedly  brought  derivatively  on  behalf  of
Elligent. Those added claims are to the effect that Typaldos and another NetGain
Board member diverted business opportunities of Elligent, namely the concept and
strategy of NetGain becoming an internet  incubator  company and the opportunity
of offering technology and consulting services to, and investing in, early stage
Internet  companies.  The Company is alleged to have been  unjustly  enriched by
being the recipient of those purported opportunities.

     The agreed  settlement of this  proceeding  included a non-cash  payment of
475,000  shares of NetGain to Elligent  and to  plaintiff's  attorneys  of which
187,500  shares is returnable  back to NetGain if the price of its stock remains
at a certain  level one year after the date of  settlement.  The 475,000  shares
were issued on September 21, 2000 and were valued at $699,437.

     On  November  8, 2000,  the  company  was served with a lawsuit by a former
employee,  Jennifer Monahan,  seeking $1.5 million and other unspecified damages
in  connection  with her  termination  on July 17,  2000.  Such  damages are not
alleged on the basis of discrimination of any kind. Ms. Monahan's employment was
at will and the Company  believes  that it was within its right to terminate her
employment.  It further  believes  that the suit is without merit and intends to
defend itself vigorously.

ITEM 2. CHANGES IN SECURITIES.

     On January 1, 2000,  the Company  issued  50,000  shares of common stock in
connection  with an agreement to obtain various  investor  relations  consulting
services.

     Effective  February  11,  2000,  the  Company  sold  333,333  shares of the
Company's  common stock for $4.50 per share or $1,500,000 in the aggregate.  The
shares  were  sold  in  a  transaction  exempt  from  registration  pursuant  to
Regulation S promulgated  under the  Securities  Act of 1933,  as amended,  to a
non-U.S.  Person (as defined in Regulation S). No fees or commissions  were paid
to brokers in connection with such transaction. The gross proceeds of $1,500,000
will be used for working capital and operations.

     Effective March 30, 2000, the Company issued 1,795,593 shares of its common
stock in connection  with the  acquisition of all of the issued and  outstanding
shares of  CoolAudio.com,  Inc. The shares were issued in a private  transaction
exempt from registration. No commissions were paid to brokers in connection with
this transaction.

                                       14
<PAGE>
                   NETGAIN DEVELOPMENT, INC. AND SUBSIDIARIES
                           PART II - OTHER INFORMATION


     Effective  June 12, 2000,  the Company  sold 9,000 shares of the  Company's
common  stock  for  $2.50  per share or  $22,500  in the  aggregate.  No fees or
commissions were paid to brokers in connection with such transaction.  The gross
proceeds of $22,500 will be used for working capital and operations.

     During the  second  quarter  of 2000 a total of 1,659  shares of  preferred
stock were converted to 831,924 shares of common stock.

     During June 2000,  the Company  issued  1,390,000  shares of the  Company's
common stock valued at $3,252,600 to Liviakis Financial Communications,  Inc. in
exchange for public relations consultancy services to be performed.

     During the third  quarter of 2000 a total of  440,726  shares of  preferred
stock were converted to 881,453 shares of common stock.

     During  September  2000, the company issued 220,000 shares of the company's
common stock valued at $323,950 in exchange for an investment  in  Lawstreet.com
and the company also issued  475,000  shares valued at $699,437 in settlement of
the Elligent Lawsuit.

ITEM 3. SUBSEQUENT EVENTS

     Indigo,  LLC has agreed to  provide  consulting  services  in the future to
Novix/Power  Plantation,  a web  development-company,  in exchange  for Net Gain
shares.

ITEM 4. DEFAULTS UPON SENIOR SECURITIES.

     None

ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None

ITEM 6. OTHER INFORMATION

     None

ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K.

     a)   Exhibits

          Exhibit 27-- Financial Data Schedule (SEC use only)

     b)   Reports on Form 8-K

          Form 8-K dated  March 31,  2000 and filed with the SEC on May 15, 2000
          regarding the acquisition of Cool Audio.

                                       15
<PAGE>
                                   SIGNATURES

     In accordance  with Section 12 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.


                                        Netgain Development, Inc.


Dated: November 14, 2000                By: /s/ Andreas Typaldos
                                            ------------------------------------
                                            Andreas Typaldos
                                            Chairman of the Board and
                                            Chief Executive Officer

                                       16