U.S. Securities and Exchange Commission
                            Washington, D.C. 20549

                            FORM 10-QSB


     [X]  QUARTERLY  REPORT  UNDER  SECTION  13  OR 15(D) OF THE SECURITIES
          EXCHANGE ACT OF 1934

          For the quarterly period ended September 30, 1996

          COMMISSION FILE NUMBER   0-20468


                        3NET SYSTEMS, INC.
 (Exact name of small business issuer as specified in its charter)


               Delaware                             68-0195770
          (State or other jurisdiction             (IRS Employer
          of incorporation or organization)      Identification No.)


                629 J Street, Sacramento, CA  95814
             (Address of principal executive offices)


                          (916) 498-3900
                    (Issuer's telephone number)




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

     Number of shares of common  stock  outstanding as of October 31, 1996:
     200,000,000



                          3NET SYSTEMS, INC.
                        Condensed Balance Sheet
                              SEPTEMBER 30, 1996
                              (UNAUDITED)
           ASSETS

CURRENT ASSETS:
  Cash                                              $        61,904
  Accounts receivable, net                                  102,132
  Other current assets                                       90,714
    Total current assets                                    254,750

PROPERTY AND EQUIPMENT:
  Equipment                                                 957,127
  Purchased software                                        233,872
  Furniture and fixtures                                    148,445
                                                          1,339,444
  Accumulated depreciation and amortization              (1,261,864)
    Property and equipment, net                              77,580

 Other assets                                                 2,638

                                                     $      334,968
           LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Line of credit                                      $   1,000,000
  Notes payable to stockholders                             911,752
  Accounts payable to stockholder                           335,425
  Accounts payable                                          653,978
  Accrued payroll and related expenses                      133,373
  Deferred revenue                                          135,913
  Accrued customer obligations                              242,848
  Accrued preferred stock dividends                         275,625
  Other current liabilities                                  75,921
  Other notes payable                                        57,654
  Obligations under capital leases                            5 512
     Total current liabilities                            3,828,001

Commitments and contingencies

Stockholders' deficit:
   Preferred  stock,  $6.00 par value - 1,200,000
  shares  authorized,  204,167 Series D shares
   issued and outstanding; liquidation preference 
   value of $1,500,627                                    1,225,002
  Common stock, $0.01 par value - 200,000,000 shares
    authorized, 200,000,000 shares issued and outstanding 2,000,000
  Common stock to be issued                                 680,240
  Additional paid-in capital                             26,017,394
  Accumulated deficit                                   (33,415,669)
    Total stockholders' deficit                          (3,493,033)

                                                   $        334,968



SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.



                        3NET SYSTEMS, INC.
                CONDENSED STATEMENTS OF OPERATIONS
                            (UNAUDITED)

                                            Three Months
                                         ENDED SEPTEMBER 30,
                                           1996      1995
REVENUES:
 Contract programming revenue        $  360,929 $  245,653
 Service revenue                         93,734    109,434
 System sales                                -      14,091
Total revenues                          454,663    369,178

COSTS AND EXPENSES:
 Costs of revenues:
  Contract programming revenue          344,724    151,962
  Service revenue                        63,087     47,388
  System sales                              -       19,937
 Research and development                   -      274,958
 Marketing and sales                        -       91,210
 General and administrative             212,253    307,998
 Settlement expense                         -       78,125
Total costs and expenses                620,064    971,578

Loss from operations                   (165,401)  (602,400)

Other income (expense):
 Interest expense                       (47,232)   (30,462)
 Other, net                               4,663     (1,715)
                                        (42,569)   (32,177)

Net loss                              $(207,970) $(634,577)

Preferred stock dividends in arrears    (30,625)   (30,625)

Net loss applicable to common 
stockholders                          $(238,595)  $(665,202)

Net loss per share                   $    (0.00)  $   (0.02)

Shares used in per share 
calculations                        252,188,868  26,867,261

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.

                        3NET SYSTEMS, INC.
                CONDENSED STATEMENTS OF CASH FLOWS
                            (Unaudited)


                                                  THREE MONTHS ENDED
                                                     SEPTEMBER 30,
                                                   1996         1995

Net cash used in operating activities         $  (155,000)  $  (65,762)

Cash flows from investing activities:
 Sale (purchases) of property and equipment         6,165       (3,960)
 (Increase) decrease in  other  assets               -            -

Net cash used in investing activities               6,165       (3,960)

Cash flows from financing activities:
   Proceeds from exercise of warrants               1,077         -
 Proceeds from notes payable to stockholders      173,000       51,000
 Payments on notes payable and capital leases     (15,444)     (12,290)
Net cash provided by financing activities         158,633       38,710

Net increase  (decrease) in cash                    9,798      (31,012)
Cash at beginning of period                        52,106       38,913

Cash at end of period                        $     61,904    $   7,901



SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
<PAGE>

PART I.   FINANCIAL INFORMATION
Item 1.   Financial Statements

                        3NET SYSTEMS, INC.
              NOTES TO CONDENSED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1996

                            (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The  accompanying  unaudited  condensed   financial  statements  have  been
prepared in accordance with generally accepted  accounting  principles  for
interim  financial information and pursuant to the rules and regulations of
the Securities  and  Exchange Commission.  Accordingly, they do not include
all  of  the information  and  footnotes  required  by  generally  accepted
accounting  principles  for  complete  financial  statements.   For further
information,  refer  to  the  financial  statements  and  footnotes thereto
included in the Company's annual report on Form 10-KSB for  the fiscal year
ended June 30, 1996.

In the opinion of management, the unaudited condensed financial  statements
contain  all  adjustments, consisting only of normal recurring adjustments,
considered necessary  to present fairly the Company's financial position at
September 30, 1996, results of operations for the three month periods ended
September 30, 1996 and  1995  and  cash  flows  for  the three months ended
September  30,  1996 and 1995.  The results for the period  ended September
30, 1996 are not necessarily indicative of the results to be  expected  for
the entire fiscal year ending June 30, 1997.

NOTE 2 - FINANCING ARRANGEMENTS

The  Company  has  a $1,000,000 revolving line of credit with a bank due in
monthly installments  of  interest  only  at the bank's reference rate plus
1.0% (9.25% at September 30, 1996).  In June 1996, the maturity date of the
line of credit was extended from July 1, 1996 to January 1, 1997.  The line
of credit was fully utilized as of September  30,  1996.   At September 30,
1996,  the  Company  was in default under the terms of the line  of  credit
because additional debt was incurred during fiscal year 1996 and during the
three months ended September 30, 1996.  The Company's obligations under the
line of credit are guaranteed  by  shareholder  James  W. Cameron, Jr.  See
also Part I, Item 2. Liquidity and Capital Resources.

Through  September  30,  1996,  the  Company  borrowed  $911,752  from  two
shareholders pursuant to seven unsecured promissory notes.   All  the notes
mature  on  December  31,  1996  and  bear  interest  at  10.25% per annum.
Beginning in October 1996, the Company is required to make monthly interest
payments totaling $12,724 on three of the notes.

NOTE 3 -  EQUITY TRANSACTIONS

On November 18, 1994, the Company entered into a series of  agreements  for
the  purchase  of  Series  E  Convertible Preferred Stock with two existing
stockholders, one of whom is a former director.  The transaction included a
debt  to  equity  conversion  of $2,232,856  and  an  additional  aggregate
investment of $1,215,004 in exchange  for the issuance of 287,322 shares of
Series E Preferred Stock.  On December  1,  1995,  the  holders  of all the
outstanding shares of the Company's Series E Preferred Stock tendered those
shares  for  conversion  into  223,359,332  shares  of the Company's Common
Stock,  pursuant  to  the  terms of the Series E Preferred  Stock  Purchase
Agreement.   As of the conversion  date,  200,000,000  common  shares  were
authorized; therefore, 52,200,565 shares are recorded as Common Stock to be
issued until such time as the number of authorized shares can be increased.

NOTE 4 - CONTINGENCIES

SUIT FROM FORMER CONSULTANT

In April 1994,  the  Company  entered  into  a  settlement agreement with a
former officer and director (the "Former Officer") and a former consultant,
officer and director (the  "Former Consultant") in connection with disputes
concerning   outstanding   compensation,   expense  reimbursement,   equity
entitlement issues and ownership of the Company's proprietary software.  In
November 1994, the Former Officer and Former  Consultant  asserted that the
Company  had  breached  certain  of  its  obligations  under the settlement
agreement.   In  February 1995, the Company believes it cured  any  alleged
default under the  settlement  agreement  by fulfilling certain nonmaterial
obligations to the Former Officer and the Former  Consultant.  In addition,
the  Former  Consultant  asserted claims against the Company  and  numerous
other parties under a variety  of  legal  theories.  On  June 12, 1995, the
Former  Consultant  filed  a  lawsuit  in Sacramento County Superior  Court
against the Company, its then-current directors, James W. Cameron, Jr., the
Former Consultant's stockbroker and brokerage firm and one of the Company's
largest customers.  The lawsuit set forth  twenty causes of action based on
a  variety  of  legal theories and sought in excess  of  $15.0  million  in
damages plus punitive  damages.  In August 1995, the Superior Court granted
petitions to compel arbitration  filed  by  the  3Net  defendants  and  Mr.
Cameron  which  petitions  were  based  on the arbitration provision of the
April 1994 settlement agreement.  The Court  also  granted a similar motion
filed  by  the  Former Consultant's stockbroker and brokerage  firm.    The
litigation of the  case in Superior Court was stayed pending the outcome of
the arbitration of all  claims  set  forth in the action.  In February 1996
the Arbitration Panel entered its order  dismissing  with  prejudice all of
the  Former  Consultant's claims made against the 3Net defendants  and  Mr.
Cameron and awarded  3Net  recovery of a portion of its fees and costs.  On
July 26, 1996, the Superior  Court  confirmed the Arbitration Panel's order
of dismissal and award. On September  10,  1996,  the  Company was notified
that  the  Former  Consultant  had filed a Notice of Appeal  with  the  3rd
District Appellate Court.  At September  30,  1996 legal expenses and costs
of $201,550 incurred  by  the  Company  related   to  this  litigation  are
included  in  the balance of accounts payable to stockholder.   The Company
does  not  believe  that  the  outcome  of this matter will have a material
adverse impact on its financial position or results of operations.

DISTRIBUTOR AND CO-DEVELOPMENT AGREEMENT

In November 1993, a dispute arose between  the  Company  and  its  Canadian
distributor  (the  "Distributor")  which  was  settled in April 1994.  This
settlement agreement encompassed a cash payment  of  $50,000 for consulting
services and the issuance of 200,000 shares of the Company's  Common  Stock
(estimated fair market value of $325,000) as an incentive for entry into  a
renewal  of the Distributor and Co-Development Agreement.  Accordingly, the
Company recorded $50,000 in general and administrative expense and $325,000
in marketing and sales expense during fiscal 1994.

The  Company  entered  into  discussions  to  renegotiate  its  contractual
relationship  with the Distributor.  These discussions led to the execution
of a letter agreement  on January 27, 1995 that modified certain provisions
of the April 1994 agreement.   In  addition,  certain  minor  changes  were
agreed  to  in  a letter dated March 22, 1995. These agreements called for,
among other things,  issuance  of  an  additional  200,000  shares  of  the
Company's  Common Stock to the Distributor, if the Distributor successfully
developed a  pilot  site  for  the  Canadian  version  of 3Net software the
Distributor was developing.  Accordingly, the Company recorded  $200,000 of
settlement  expense  in  fiscal  1995  which  was offset by a reduction  in
reserves  of  approximately  $170,000.     On  May 15,  1995,  the  Company
received a letter from the Distributor declaring  an event of default based
on the Company's alleged failure to deliver a specified number of shares of
the Company's Common Stock pursuant to the agreement.  Within approximately
sixty days, the subject stock certificates issuable to the Distributor were
delivered by the transfer agent to the Distributor.   On  January  5, 1996,
the   Distributor  sent  a  letter  to  the  Company  indicating  that  the
Distributor  intended  to  file  a  lawsuit against the Company and others,
stating a number of claims.  The Distributor  indicated  their  belief that
the value of these claims exceeds $5.0 million.  The Company believes  that
the  Distributor has breached the contract and intends to vigorously defend
itself  if  a  lawsuit  is  filed.   The  Company has offered to settle the
dispute, but the Distributor has not responded to the Company's offer.

The expense of defending any lawsuit in connection with this agreement will
place additional strains on the Company's resources  and  cash position and
the Company may be required to seek protection under federal bankruptcy law
should the Distributor pursue its claims through litigation.  Moreover, due
to  the  Company's  current  and projected cash positiosatisfy  an  adverse
verdict in this matter that obligates  the  Company  to pay any significant
damages to the Distributor.  In the event an adverse verdict  is the result
of  this  dispute,  the  Company  may be required to seek protection  under
federal bankruptcy law.

The  following  is  Management's  Discussion   and  Analysis  of  Financial
Condition  and  Results of Operations for the period  ended  September  30,
1996.

OVERVIEW

3Net Systems, Inc.  provides  contract computer programming  and consulting
services and acts as an intermediary  in  providing  such services.  During
fiscal years 1995 and 1996, the Company developed and implemented a program
whereby  3Net  recruits qualified personnel from the former  Soviet  Union,
obtains necessary  visas,  and  places  them  for  assignment in the United
States.   3Net  has  chosen  to  emphasize  this  program  because  of  the
significant  growth  dynamics  of  the high technology temporary  placement
industry and to de-emphasize the  laboratory  software and service business
upon which it was originally founded.

The  Company was founded in 1989 to focus on the  design,  development  and
sale of integrated computer network systems primarily for use by hospitals,
commercial  and  insurance laboratories and physician clinics.  The Company
effected a public  Common  Stock  offering in August 1992.  Fiscal 1993 and
fiscal 1994 operating results were adversely affected by significant delays
by  the  Company  in  finishing  development   and  implementation  of  its
laboratory information systems ("LIS").  The delays resulted in significant
losses and severe liquidity problems.  Cost cutting  required  by  the cash
flow   situation   resulted   in   additional   software   development  and
implementation  delays.   As a result, the Company recognized  no  material
revenue in fiscal 1993 or fiscal  1994  and  significant  losses in both of
those years.  The Company received acceptance of LIS at one  customer  site
in  fiscal 1995; but the Company had lost sales momentum due to the earlier
delays  and  now no longer devotes any dedicated resources to the marketing
or selling of this product.  The Company successfully installed four of its
automated timekeeping  systems  ("TimeNet")   in  fiscal 1995; however, the
Company's  continuing  lack of financial strength negatively  affected  the
Company's ability to close  new  TimeNet business in fiscal 1995 and fiscal
1996.   In  January 1996, the Company  decided  to  no  longer  devote  any
dedicated resources  to  the  marketing or selling of TimeNet.  The Company
has also suspended further development  of  the  product  and  is no longer
providing  service support on TimeNet systems that have been sold.   During
fiscal 1996,  the Company wrote off the remaining net book value of TimeNet
purchased software.

The Company's inability  to close new product sales business in fiscal 1995
and fiscal 1996 and the resulting  lack  of  revenues caused the Company to
recognize significant losses in fiscal 1995 and  fiscal  1996.  In order to
ren  steps  to  reduce  expenses  and  generate  revenues  by focusing  its
operations on providing contract programming and consulting  services,  and
acting  as  an  intermediary  in  providing  such  services.  These actions
substantially  reduced  the Company's level of cash consumption  in  fiscal
1996 as compared to fiscal  1995.   However,  the  Company did not generate
sufficient cash flow in fiscal 1996 and fiscal 1997  to date to support its
operations.  See Liquidity and Capital Resources for additional discussion.

RESULTS OF OPERATIONS

REVENUES
Revenues  increased  $85,485  or 23.2% in the quarter ended  September  30,
1996,  as compared to the  quarter  ended  September  30, 1995.  The higher
level  of  revenue in the first quarter of fiscal 1997 compared  to  fiscal
1996  was  due  to  management's  decision  that  the  Company's  long-term
prospects were best served by concentrating existing resources on providing
contract  computer   programming   and  consulting  services  in  the  high
technology temporary placement industry.   The  following is an analysis of
the Company's revenues by category:

CONTRACT  PROGRAMMING  REVENUE.   Contract programming  revenue  (sales  of
custom programming and software development  services,  and  acting  as  an
intermediary in providing such services) in the quarter ended September 30,
1996 increased $115,276 or 46.9% over the same period of the previous year.
A $176,100 increase resulted from agreements to provide additional contract
programming personnel to two customers.  This increase was primarily offset
by  a decrease in providing contract system enhancements programming for an
existing LIS customer.

SERVICE  REVENUE.  Service revenue (sales of annually renewable maintenance
contracts  for software support and hardware services) decreased $15,700 or
14.3% in the  quarter  ended  September 30, 1996 compared to the comparable
quarter  in fiscal 1996.  This decrease  resulted  primarily  from  several
service customers  replacing  their  Cortex  LIS  systems  with  systems of
competitors  during  fiscal  1996  causing  a  general  decline  in service
revenues.   The  Company  expects service revenue to decrease over time  as
more Cortex LIS customers choose  to  move  to systems of competitors since
the company is not enhancing this system.  Also,  the  Company is no longer
providing service to TimeNet customers.

SYSTEM  SALES.   No  product  sales were recorded in the first  quarter  of
fiscal 1997 and none are expected  to  be recorded during fiscal 1997 since
the  Company  no longer devotes any dedicated  resources  to  marketing  or
selling its LIS or TimeNet products.  System sales revenues recorded in the
first quarter of  fiscal  1996  were  primarily  enhancements  to  existing
systems at customer sites.

COST OF REVENUES

CONTRACT  PROGRAMMING  REVENUE.   The gross  margin on contract programming
revenue was 4.5%  for the quard to  38.1%  in  the  same  quarter of fiscal
1996.  This decrease is due to generating lower revenues providing contract
system enhancements for an existing LIS customer and due to  start-up costs
related  to  immigration  and  placement  of 9 programmers from the  former
Soviet Union at two U.S. sites.  In addition,  in  fiscal  1997,  technical
staff  whose  costs were assigned to Research & Development in fiscal  1996
are now assigned  to  contract  programming  revenue  and  customer service
revenue.

SERVICE  REVENUE.   The gross margin on service revenue was 32.7%  for  the
three months ended September  30,  1996,  compared  to  56.7%  for the same
period in fiscal 1996.  The lower margin in fiscal 1997 resulted  primarily
from  an increase in the number of employees assigned to customer services.
In fiscal  1997,   technical  staff whose costs were assigned to Research &
Development in fiscal 1996 are now assigned to contract programming revenue
and customer service revenue.

SYSTEM SALES.  There were no system  sales  costs  in  the first quarter of
fiscal  1997,  and none are expected during the fiscal year  1997.   System
sales gross margin  was  negative  during  fiscal 1996 primarily due to the
write  down  of the remaining net book value of  purchased  TimeNet  system
software.

EXPENSES

RESEARCH AND DEVELOPMENT  EXPENSES.  There were no Research and Development
("R&D") expenses during the  quarter ended September 30, 1996, and none are
expected during the fiscal year  1997.   In  fiscal  1997,  technical staff
whose costs were assigned to R & D fiscal 1996 are now assigned to contract
programming revenue and customer service.

MARKETING  AND  SELLING  EXPENSES.   There  were  no marketing and  selling
expenditures during the  quarter ended September 30,  1996,   and  none are
expected during the fiscal year 1997.  The fiscal 1996 expenses are related
to  five  sales/marketing  employees  who were terminated during the second
quarter of fiscal 1996.

GENERAL  AND  ADMINISTRATIVE  EXPENSES  ("G&A").   G&A  expenses  decreased
$93,745 or 30.6% for the quarter ended September  30, 1996, compared to the
same quarter of fiscal 1996.  This decrease is due primarily to a reduction
of approximately $52,000 in legal costs and $35,000 in personnel costs.

SETTLEMENT EXPENSE.  There were no settlement expenses in the first quarter
of  fiscal 1997.  Expenses in fiscal 1996 were primarily  settlement  of  a
suit by a former employee.

NET LOSS

Net loss  decreased $426,607 or 67.2% for the quarter ended September 1996.
Although the  Company  expects  losses to continue in the second quarter of
fiscal 1997, the Company expects  these  losses  to  be significantly below
prior  year  levels  due  to  cost  and  expense  reductions  and  contract
programming revenue increases.

<PAGE>

PART I.   FINANCIAL INFORMATION
Item 2.   Management's  Discussion and Analysis of Financial Condition  and
Results of Operations

NET LOSS PER SHARE

The Company's net loss per  share  has  been  computed by dividing net loss
after deducting Preferred Stock dividends ($30,625  in  each  of  the first
quarters of fiscal 1997 and 1996) by the weighted average number of  shares
of Common Stock outstanding during the quarters presented, including Common
Stock to be issued.

INCOME TAXES

The  Company  accounts  for  income  taxes  under  Statement  of  Financial
Accounting Standards No. 109.  As of June 30, 1996, the Company had  a  net
operating  loss  carryforward  for federal and state income tax purposes of
approximately $23 million and $11  million,  respectively.  The federal net
operating loss carryforward expires in the years  2005 through 2011 and the
state  net operating loss carryforward expires in 1997  through  2001.   In
connection  with  the  Company's  initial  public  offering,  a  change  of
ownership  (as defined in Section 382 of the Internal Revenue Code of 1986,
as amended),  occurred.   As  a  result,  the  Company's net operating loss
carryforwards generated through August 10, 1992  are  subject  to an annual
limitation of approximately $300,000.

In August and September 1993, a controlling interest of the Company's stock
was  purchased,  resulting  in  a second annual limitation of approximately
$398,000  on  the  Company's  ability   to   utilize   net  operating  loss
carryforwards  generated  between August 11, 1992 and September  13,  1993.
The Company expects that the  aforementioned annual limitations will result
in approximately $3.6 million of  net  operating  loss carryovers which may
not be utilized prior to the expiration of the carryover period.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has used a combination  of equity and debt
financing and internal cash flow to fund research and development,  support
operations,  obtain  capital  equipment, and finance inventory and accounts
receivable.  The Company expects  to  continue to be a net user of cash for
operations in the near future.  In the  first  quarter  of  fiscal 1997 the
Company  used  an  average of approximately $52,000 per month of  cash  for
operating activities,  as compared with an average of approximately $53,000
per month of cash for operating activities in fiscal 1996 and approximately
$22,000 per month in the first quarter of fiscal 1996.  The Company expects
that the average rate at  which  cash  is  used  during  fiscal  1997  will
decrease  as  a  direct  result  of the change in its emphasis to providing
contract computer programming and consulting services.

In fiscal 1996 and the first quarter  of  fiscal 1997, the Company suffered
significant losses from operations.  As of  September 30, 1996, the Company
had a net working capital deficit of $3,573,251  and an accumulated deficit
of $33,415,669.  The Company was unable to generate adequate cash flow from
operations  to  meet  its  cash  flow  requirements  in the  quarter  ended
September  30,  1996,  and,  as  a result, the Company met  its  cash  flow
requirements primarily through short  term  financing  from  a stockholder.
During the first quarter of fiscal 1997, the Company consumed approximately
$155,000 on operating activities, and generated approximately $159,000 from
financing  activities  and  $6,000  from investing activities.  During  the
first quarter of fiscal 1996, the Company consumed approximately $66,000 on
operating  activities  and $4,000 on investing  activities,  and  generated
approximately $39,000 from financing activities.

The report of the independent  auditors  on  the  Company's  June  30, 1996
financial  statements  includes  an  explanatory  paragraph  regarding  the
Company's  potential  inability  to  continue  as  a  going  concern.   The
financial  statements  do  not  include  any  adjustments  to  reflect  the
uncertainties related to the recoverability and classification of assets or
the  amounts  and  classification  of  liabilities that may result from the
inability of the Company to continue as  a  going  concern.   Based  on the
recent  steps the Company has taken to reduce its expenses and refocus  its
operations,  the  Company  believes  that it has developed a viable plan to
address the Company's ability to continue  as a going concern and that this
plan will enable the Company to continue as a going concern through the end
of  fiscal  year  1997.   However, considering,  among  other  things,  the
Company's historical operating  losses,  its  lack  of  experience  in  the
contract  computer programming industry, and anticipated negative cash flow
from operations,  there  can  be  no  assurance  that  this  plan  will  be
successfully   implemented.   The  Company  does  not  expect  to  generate
sufficient cash  flow  from  operations  to  sustain  its  operations until
sometime after the first half of fiscal 1997.

Historically, the Company has relied upon cash infusions from  two  of  its
major  shareholders  to  fund its operations.  Although the Company has not
entered into any written agreement,  management  believes  that  these  two
shareholders  will  continue  to  finance  the  Company's operations during
fiscal 1997.  There can be no assurance, however,  that  events  may  arise
which may affect these shareholders' ability to finance the Company or that
the Company may experience significant and unanticipated cash flow problems
which  may  cause  these  two  shareholders to reconsider their investment.
Further, if the Company experiences  significant  cash  flow  problems, the
Company may be required to reduce the level of its operating activities  or
be forced into seeking protection under federal bankruptcy laws.

EFFECTS OF INFLATION

Management  does  not  expect  inflation  to  have a material effect on the
Company's operations.


<PAGE>

PART II.  OTHER INFORMATION
Item 1.   Legal Proceedings

The Company was notified on March 16, 1995 by the  staff  of  the  regional
office  of the Securities and Exchange Commission ("Commission") that  they
intended  to  recommend that the Commission file a civil action against the
Company seeking  injunctive and other relief.  The staff indicated that the
complaint would allege  violation  of  various disclosure provisions of the
federal  securities  laws  in connection with  the  Company's  registration
statement on Form S-18 that became effective in August 1992.

The Company and its attorney  met with the Commission staff and the Company
proposed  a  settlement  of  the complaint.   On  September  30,  1996  the
Commission  accepted the Company's  offer  of  settlement  whereby  it  has
consented, without  admitting  or  denying liability, to a cease and desist
order that it will not commit or cause  any  future  violation  of  certain
Federal securities laws.

In  April  1994,  the  Company  entered  into a settlement agreement with a
former officer and director (the "Former Officer") and a former consultant,
officer and director (the "Former Consultant")  in connection with disputes
concerning   outstanding   compensation,   expense  reimbursement,   equity
entitlement issues and ownership of the Company's  proprietary software. In
November 1994, the Former Officer and Former Consultant  asserted  that the
Company  had  breached  certain  of  its  obligations  under the settlement
agreement.   In  February 1995, the Company believes it cured  any  alleged
default under the  settlement  agreement  by fulfilling certain nonmaterial
obligations to the Former Officer and the Former  Consultant.  In addition,
the  Former  Consultant  asserted claims against the Company  and  numerous
other parties under a variety  of  legal  theories.   On June 12, 1995, the
Former  Consultant  filed  a  lawsuit in Sacramento County  Superior  Court
against the Company, its then-current  directors,  James  Cameron, Jr., the
Former Consultant's stockbroker and brokerage firm and one of the Company's
large customers. The lawsuit set forth twenty causes of action  based  on a
variety of legal theories and sought in excess of $15.0 million in damages,
plus  punitive  damages.   On  August  21, 1995, the Superior Court granted
petitions  to  compel arbitration filed by  the  3Net  defendants  and  Mr.
Cameron which petitions  were  based  on  the  arbitration provision of the
April 1994 settlement agreement. The Court also  granted  a  similar motion
filed  by  the  Former  Consultant's  stockbroker  and brokerage firm.  The
litigation of the case in Superior Court was stayed  pending the outcome of
the arbitration of all claims set forth in the action.   In  February  1996
the  Arbitration  Panel  entered its order dismissing with prejudice all of
the claims made against the  3Net  defendants  and  Mr. Cameron and awarded
3Net recovery of a portion of its fees and costs.  On  July  26,  1996, the
Superior  Court  confirmed  the Arbitration Panel's order of dismissal  and
award.  On September 10, 1996,  the  Company  was  notified that the Former
Consultant  had  filed a Notice of Appeal with the 3rd  District  Appellate
Court.  At September 30, 1996 legal expenses and costs of $201,550 incurred
by the Company related  to  this  litigation are included in the balance of
accounts payable to stockholder.  The  Company  does  not  believe that the
outcome of this matter will have a material adverse impact on its financial
position or results of operations.


<PAGE>

PART II.  OTHER INFORMATION
Item 6.   Exhibits and Reports on Form 8-K


(a) Exhibit  NUMBER DESCRIPTION OF DOCUMENT

   10.48  Note  Payable  between the Registrant and the Cameron  Foundation
          dated  July 31, 1996.

   10.49  Note Payable between  the  Registrant  and the Cameron Foundation
          dated August 9, 1996.

   10.50  Note Payable between the Registrant and James W. Cameron, Jr., as
          an individual,  dated August 16, 1996.

   10.51  Note Payable between the Registrant and James W. Cameron, Jr., as
          an individual,  dated August 30, 1996.

(b)  There were no reports on Form 8-K filed during  the last quarter ended
September 30, 1996.


<PAGE>


                            SIGNATURES



In accordance with the requirements 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.

3NET SYSTEMS, INC.
(Registrant)





Date: November 4, 1996                    /S/ GEORGE R. VAN DERVEN
                                          George R. Van Derven
                                          Chief Executive Officer
                                          (Principal Executive Officer)






Date: November 4, 1996                    /S/ EDWARD L. LAMMERDING
                                          Edward L. Lammerding
                                          Chief Financial Officer
                                          (Principal Financial Officer)