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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended January 31, 2005

OR

For the transition period from              to             

Commission file number: 000-30326

VSOURCE, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (858) 551-2920

SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:

NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:

COMMON STOCK, PAR VALUE $0.01 PER SHARE

Indicate by check mark whether the registrant (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  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the 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.

The aggregate market value of common stock of the registrant held by non-affiliates of the registrant on April 15, 2005 was $199,229 computed upon the basis of the average bid and asked prices of the common stock on that date.

Documents Incorporated By Reference

None.

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VSOURCE, INC.

FORM 10-K ANNUAL REPORT

FOR THE YEAR ENDED JANUARY 31, 2005

TABLE OF CONTENTS

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FORWARD LOOKING STATEMENTS

The discussion in this Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) prospective business opportunities and (ii) our potential strategies for redirecting and financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to the plans, objectives and expectations of the Company. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this report should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. Readers should carefully review the risk factors described in this document as well as in our other documents that we file from time to time with the Securities and Exchange Commission (“SEC”), including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

We undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

PART I

Item 1. BUSINESS

References to “we”, “us”, “our”, “Vsource” or the “Company” refers to Vsource, Inc. and its subsidiaries. We maintain our executive offices at 7855 Ivanhoe Avenue, Suite 200, La Jolla, California 92037. Our telephone number is (858) 551-2920 and our website is at www.vsource.com.

COMPANY BACKGROUND

From 2001 to 2004, we provided Fortune 500 and Global 500 companies with customizable and comprehensive business process outsourcing solutions into and across the Asia-Pacific region. Business process outsourcing (“BPO”) is the outsourcing by a company of certain business and operational functions by hiring third-party vendors (such as Vsource previously provided) to perform those functions on their behalf.

On December 11, 2003, December 30, 2003 and March 22, 2004, we entered into sales and purchase agreements with Symphony House Berhad (“Symphony House”) and other investors to sell them 38.8% of the issued and outstanding share capital of Vsource Asia Berhad, formerly known as Vsource (Malaysia) Sdn Bhd, (“Vsource Asia”), our formerly wholly-owned Malaysian subsidiary, for total consideration of approximately $9.5 million. As part of the transaction, we transferred all of the shares and share capital of our wholly owned subsidiaries in Japan and Taiwan to Vsource Asia, and all intercompany amounts outstanding as of November 30, 2003 between these three companies and Vsource and our other subsidiaries were waived or forgiven. The sale was completed on March 23, 2004. As a result, we owned 61.2% of Vsource Asia, and Symphony House and the other investors held 30.3% and 8.5% respectively, upon the conclusion of these transactions.

Concurrent with the sale of 38.8% of the outstanding shares of Vsource Asia to Symphony House and other investors, we continued to evaluate alternatives to improve our capital structure. Management believed that the different classes of our preferred stock limited our ability to raise new capital to (i) finance growth and (ii) strengthen our balance sheet sufficiently to address issues frequently raised by clients and potential clients regarding our financial strength. In addition, the complexity of the capital structure made it very difficult for potential investors to understand our capital structure, and also restricted the ability of shareholders seeking liquidity to execute the sale of securities in the Company, should they wish to do so. Moreover, if we did not meet one or more of certain conditions set forth in the Certificate of Designation regarding our Series 4-A Preferred Stock by March 31, 2006, then each holder of our Series 4-A Preferred Stock would have had the right, at any time after March 31, 2006 and on or before September 30, 2006, to require us to purchase all but not less than all of the Series 4-A Preferred Stock held by such holder at a price of $3,000 per share. Based on the number of Series 4-A Preferred Stock outstanding as of November 1, 2004, $52.1 million would be required to purchase all of the Series 4-A Preferred Stock. Additionally, in the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, holders of our Series 1-A, Series 2-A and Series 4-A Preferred Stock (the “Preferred Stock”) are entitled to receive, prior to any distribution to holders of our common stock, a preference amount. As of November 1, 2004, holders of our Preferred Stock had an aggregate preference amount of $39.2 million and since our current net asset value at that time was less than $39.2 million, in the event we were to be liquidated or dissolved at that point, all our of assets and surplus funds would be distributed to the holders of our Preferred Stock only, and accordingly, there would have been no assets or surplus funds available to the holders of our common stock.

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For the reasons noted in the paragraph above and others described in the Company’s Schedule TO noted below, at the time of sale of 38.8% of Vsource Asia, several of our large shareholders requested that we evaluate alternatives to improve the prospects for liquidity of the Company’s securities. In response to these considerations, our Board of Directors established a Special Committee to review a series of transactions that ultimately led to the Exchange Offer (defined below) and related transactions that we completed on November 22, 2004 described in the paragraphs immediately below. Complete details on the Exchange Offer, including reasons for approval by our Board of Directors and Special Committee, can be found in the Company’s Exchange Offer and Consent Solicitation Circular, which was filed as an exhibit to the Company’s Schedule TO, filed with the Securities and Exchange Commission on October 18, 2004, which information is incorporated herein by reference.

On November 22¸ 2004, we contributed our remaining 61.2% ownership interest in Vsource Asia to a new wholly owned subsidiary of the Company incorporated in the British Virgin Islands (“Asia Holding Co.”). Immediately thereafter, we completed an exchange offer pursuant to which the holders of Preferred Stock could exchange their Preferred Stock for common shares of Asia Holding Co. at certain exchange ratios (the “Exchange Offer”). Effective upon the completion of the Exchange Offer on November 22, 2004, 92.8% of the Series 1-A Preferred Stock, 98.8% of the Series 2-A Preferred Stock and 100% of the Series 4-A Preferred Stock were tendered to the Company and subsequently cancelled. As a result, 67,600 shares of Series 1-A Preferred Stock and 3,900 shares of Series 2-A Preferred Stock remain outstanding. A further result of the Exchange Offer is that the potential Series 4-A Preferred Stock put right discussed above has been extinguished and the aggregate preference amount of our remaining Preferred Stock was reduced to approximately $194,000.

Simultaneous with completion of the Exchange Offer, we tendered our remaining 0.5% interest in Asia Holding Co. to Symphony House, at a price of US$0.158 per share pursuant to a tender offer being conducted by Symphony House for shares of Asia Holding Co. Vsource received $81,938 in cash proceeds as a result of the sale of its remaining shares in Asia Holding Co. to Symphony House.

Symphony House also entered into an agreement (the “Symphony Purchase Agreement”) pursuant to which it agreed to purchase Vsource common stock and warrants from certain preferred stockholders. As a result of the Symphony Purchase Agreement, which was completed on November 24, 2004, Symphony House acquired approximately 31.3% of the common stock of Vsource and warrants which, if exercised, would result in Symphony House owning approximately 53.6% of the outstanding common stock of Vsource. Since the completion of the Exchange Offer and the Symphony Purchase Agreement, the Company’s active BPO business operations ceased.

On December 6, 2004, we announced the resignation of Phillip E. Kelly as Chairman of the Board and Chief Executive Officer of Vsource. In addition, we announced that Dennis M. Smith, Vice Chairman and Chief Financial Officer, replaced Mr. Kelly as Chairman of the Board and Chief Executive Officer of Vsource. On December 6, 2004, we also announced that Luc Villette and I. Steven Edelson resigned as members of the Board of Directors of the Company with effect from November 30, 2004.

On April 1, 2005, the Board of Directors elected Richardson E. Sells as a Director of Vsource. Mr. Sells was also appointed to the Audit Committee of Vsource’s Board of Directors. There was no arrangement or understanding pursuant to which Mr. Sells was selected as a director and Mr. Sells has not been party to any transactions with Vsource.

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Finally, on April 1, 2005 and effective upon Mr. Sell’s appointment to Vsource’s Board of Directors, Stephen Stonefield, a member of the Board and its Audit Committee, resigned as a member of the Board of Directors.

CURRENT OPERATIONS

As a result of the Exchange Offer, Vsource no longer has an ownership interest in Vsource Asia or in Asia Holding Co, and therefore no longer provides BPO services. Since the completion of the Exchange Offer, our only active business operations consist of limited consulting services for which we received revenue in the amount of $254,000 during the year ended January 31, 2005 (“Fiscal 2005”). In Fiscal 2005 and through the Exchange Offer, Vsource Asia generated $13.9 million in revenues or approximately 96% of our consolidated revenues.

Since completing the Exchange Offer in November 2004, we have reduced our headcount and now operate with a minimal three person staff — our Chief Executive Officer, General Counsel and an administrative assistant — and have dedicated our time to determining how to use our remaining assets. We are in the process of considering our alternatives, including the sale of Vsource; liquidation and distribution of remaining assets to shareholders; and potential acquisition opportunities. In respect of potential acquisitions, we have not identified a specific industry on which we intend to focus; however, drawing on Vsource’s BPO background, we may consider small- to medium-sized business service companies in the United States, Europe and Japan that can benefit from the “productivity arbitrage” derived from the migration of operations involving high volume transaction processing to Asia and/or business services companies operating in Asia. In the case of a sale or acquisition, we may pursue additional funding opportunities. We have no present arrangements or understandings with respect to the sale of Vsource or the acquisition of any specific business.

Vsource Asia provides us with infrastructure management and administrative services, including accounting support, for a monthly fee of $5,000. Presently, these services are provided under an oral understanding and we are in the process of entering into a written agreement with Vsource Asia formalizing this arrangement.

At January 31, 2005, we had amounts owed to us from Vsource Asia totaling $1.739 million. These amounts relate to legacy inter-company obligations in place prior to the completion of the Exchange Offer. We are in discussions with Vsource Asia and its parent, Symphony House, to finalize payment arrangements and to memorialize this obligation with a written promissory note or other agreement evidencing a deferred payment plan. We may also consider selling or assigning the obligation to Symphony House or a third party at a purchase price to be mutually agreed, which price may represent a discount to the $1.739 million owed. Because of the uncertainty of the full repayment of the Vsource Asia obligation, we have made an estimated discount of $0.783 million against it and currently value the asset at $0.956 million.

INTELLECTUAL PROPERTY

We currently have trademark registrations in the United States and the European Community for the mark “VSOURCE” and our logo in the United States. When we provided BPO services, we used “Vsource Versatile Solutions”, “Vsource Foundation Solutions”, “Vmarketing” and “Vsuites” as trademarks. We have not secured registrations for any of these trademarks in the United States or in any other country. We cannot guarantee that we will be able to secure registrations of our marks domestically or in any foreign country. Our inability to register and protect marks could require us to stop using them or to share them with others, which could cause confusion in the marketplace.

We currently hold various Internet domain names, including www.Vsource.com and www.Vsource2U.com. The acquisition and maintenance of domain names generally is regulated by Internet regulatory bodies. The regulation of domain names in the United States and in foreign countries is subject to change. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may be unable to acquire or maintain relevant domain names in all countries in which we conduct business or into which we choose to expand. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights continues to evolve. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our intellectual property and other proprietary rights.

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We do not hold any patents.

On July 1, 2004, Vsource and Vsource Asia entered into a trademark and domain name license agreement (the “License Agreement”) pursuant to which Vsource granted Vsource Asia, for nominal consideration, a worldwide, perpetual, non-exclusive license to use the trademarks “Vsource,” including the “Vsource” logo, “Vsource Versatile Solutions”, “Vsource Foundation Solutions”, “Vmarketing” and “Vsuites,” the domain name www.vsource.com, as well as other domain names used by Vsource, and the word “Vsource” in any new domain names that Vsource Asia may wish to register from time to time.

EMPLOYEES

We have three employees at March 31, 2005 and consider our relations with employees to be good. None of our employees are represented by a labor union or under any collective bargaining agreement.

RISK FACTORS

ANY INVESTMENT IN THE COMPANY’S COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS REPORT.

Symphony House Berhad has significant voting control over the Company.

Symphony House currently beneficially owns 648,860 shares of our common stock, representing 31.3% of our outstanding common stock as of March 31, 2005. In addition, as part of the Symphony Purchase Agreement, Symphony purchased an outstanding warrant from a former preferred stockholder. This warrant became exercisable on April 1, 2005 and entitles Symphony to acquire an additional 1,000,000 shares of our common stock at an exercise price per share of $0.01. Therefore, assuming it exercises its warrant, Symphony House would own 1,648,860 shares of common stock, which would represent 53.6% of our common stock, when measured at March 31, 2005.

As a result of its voting interest, Symphony House has significant voting influence regarding such matters as the election of our directors, amendments to our charter, other fundamental transactions such as mergers, asset sales, the sale of the Company’s business and the liquidation of the Company’s assets, and other issues regarding the direction of the Company’s affairs. In addition, this voting influence could result in actions that could have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt or other transaction that a stockholder might consider in its best interest, including an attempt that might result in the receipt of a premium over the market price for the shares held by such stockholders. Such actions may include creating additional classes of stock with disparate voting rights, creating a classified Board of Directors with staggered terms, prohibiting the stockholders to take any action by a written consent or requiring advance notice for stockholder proposals and director nominations.

Dennis Smith, Chairman and Chief Executive Officer of Vsource serves as a director of Vsource Asia, which is majority owned by Symphony House. As a result of exchanging his Vsource Series 4-A Preferred Stock in the Exchange Offer, Mr. Smith also holds a minority ownership interest in Asia Holding Co. that owns a majority of the shares of Vsource Asia and Symphony House is the majority shareholder of Asia Holding Co.

We have limited cash resources and a large portion of these are owed to us by Vsource Asia and there is uncertainty about full payment of this obligation.

As discussed under the heading “Business – Current Operations,” we have amounts owed to us from Vsource Asia totaling $1.739 million, against which there is an estimated discount of $0.783 million because of the uncertainty of full repayment. These amounts related to legacy inter-company obligations in place prior to the completion of the Exchange Offer. We are in discussions with Vsource Asia and its parent, Symphony House, to finalize payment arrangements and to memorialize this obligation with a written promissory note or other agreement evidencing a deferred payment plan. We may also consider selling or assigning the obligation to Symphony House or a third party at a price to be mutually agreed, which price may represent a discount to the $1.739 million owed or even to the $0.956 million value ($1.739 million subtracting the $0.783 million estimated discount) we currently use to value this asset. There is, however, no assurance that we will successfully replace the Vsource Asia payment obligation with a promissory note or deferred payment plan or negotiate for the sale of the obligation to a third party. If we are unable to conclude a written promissory note or other agreement evidencing a deferred payment plan with Vsource Asia and Vsource Asia fails to honor its payment obligation and we seek legal redress or we fail to sell the obligation to a third party, this would have a material adverse effect on our financial condition.

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We continue to have significant corporate and SEC-related expenses and limited revenue to offset these expenses.

Although we have taken measures to reduce expenses, including reducing the number of employees to three, monthly overheads, including salaries, office rent for our offices in La Jolla, California and Hong Kong, and other administrative expenses are significant when viewed as a portion of our existing cash resources. In addition, the costs associated with filings and compliance as a SEC registrant, including legal and accounting fees, represent a material cost to us. We had revenues in the amount of $254,000 during Fiscal 2005 from limited consulting services provided to third parties. There is no assurance we will be able to increase or even match these revenues in the coming year or that these revenues will cover our significant corporate and SEC-related expenses.

We have broad discretion in using our cash resources and may not use them in a manner that our stockholders would prefer.

We have not identified specific uses for our cash resources, and have broad discretion in how we use them. Although we may, among other opportunities, consider investments or acquisitions, including the sale of the Company, we have not identified a specific industry on which we intend to initially focus and have no present arrangements or understandings with respect the acquisition of any specific business. We may consider investment and acquisition opportunities, including the sale of the Company, outside of the business process outsourcing or broader services sector. In general, our stockholders will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use our cash resources. The failure of our Board of Directors and management to apply the funds effectively could have a material adverse effect on our financial condition.

Appropriate acquisitions or investment opportunities may not be available.

As noted above, we may use a portion of our cash resources to pursue acquisition opportunities, including the sale of the Company. If we decide to seek such opportunities, our future results will be dependent on our ability to identify, attract and complete desirable acquisition opportunities, which may take considerable time. In addition, our cash position, $0.5 million at March 31, 2005, and the uncertainty surrounding repayment of the Vsource Asia obligation, may limit the scale and therefore the number of opportunities available. Our future results will be dependent on the performance of the acquired businesses, if any. We may not be successful in identifying, attracting or acquiring desirable acquisition candidates, or in realizing profits from any acquisitions.

Pending their possible application, we anticipate that our cash resources will be placed in interest-bearing bank accounts or readily marketable interest-bearing securities. As a result of the lack of an operating business and our large number of stockholders, we must maintain our liquid assets in bank accounts or in government securities, which generally produce low returns, or comply with the requirements of the Investment Company Act of 1940. Consequently, until we complete an acquisition, we anticipate that our cash resources will yield only that rate of return earned by such interest-bearing accounts. In addition, a portion of our cash resources will be used to pay corporate overhead and administrative costs, and other expenses associated with analyzing and pursuing acquisition opportunities.

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We will have sole and absolute discretion in identifying and selecting acquisition and investment opportunities and in structuring, negotiating and undertaking transactions with our target companies. We may acquire, invest or be sold (in whole or in part) at any time, as our Board of Directors and management determine is appropriate. Our stockholders generally will not be able to evaluate the merits of the acquisition, investment or sale (partial or otherwise) before we take any of these actions. In addition, in making decisions to complete acquisitions, investments or a sale, we will rely, in part, on financial projections developed by our management and financial advisors and the management of potential target companies. These projections will be based on assumptions and subjective judgments. The actual results of these transactions may differ significantly from these projections.

We may finance acquisitions by issuing additional capital stock or incurring substantial debt, both of which could have negative consequences.

As noted, we may use a portion of our resources to pursue acquisition opportunities and the timing, size and success of our acquisition efforts and any associated capital commitments cannot be readily predicted. We may raise additional funds to complete such acquisitions. Generally, our Board of Directors has the power to issue new equity (to the extent of authorized shares) without stockholder approval. If additional funds are raised through the issuance of equity securities, the percentage ownership of the Company’s then current stockholders would be diluted, our earnings and book value per share could be diluted and, if such equity securities take the form of preferred stock, the holders of such preferred stock may have the rights, preferences or privileges senior to those of holders of common stock. If we are able to raise additional funds through the incurrence of debt, and the Company does so, we would likely become subject to restrictive financial covenants and other risks associated with the incurrence of debt.

If we are deemed to be an Investment Company, we will be forced to comply with the requirements under the Investment Company Act of 1940, which could limit the flexibility of our operations.

U.S. companies that have more than 100 stockholders or are publicly traded in the U.S. and are, or hold themselves out as being, engaged primarily in the business of investment, reinvesting or trading in securities are subject to regulation under the Investment Company Act of 1940. Unless a substantial part of our assets consists or, and a substantial part of our income is derived from interests in the majority-owned subsidiaries and companies that we primarily control, we may be required to register and become subject to regulation under the Investment Company Act.

If we are deemed to be, and are required to register as, an investment company, we will be forced to comply with substantive requirements under the Investment Company Act, including:

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

We could become a target of securities litigation based upon the volatility of our stock in the marketplace. Litigation of this type could result in substantial costs and divert management’s attention and resources. Over the past five years, our stock has declined steeply from as high as $1,700 per share to as low as $0.12 per share (in each case as adjusted to reflect our 20-to-1 reverse stock split which was effected on November 20, 2002), and as of March 31, 2005 the closing price of our common stock was $0.14 per share. Public companies suffering this much stock price volatility are often sued by their shareholders.

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Additionally, we are obligated to indemnify our directors and officers as required by our bylaws under certain circumstances. Accordingly, we may be required to pay any judgments and legal costs to defend our directors and officers, in addition to the Company, in these actions, to the extent that such costs are not covered by insurance.

The market for our common stock may be illiquid.

The average daily trading volume of our registered common stock on the OTC Bulletin Board is currently less than 2,000 shares, and we have had some days with no trading. There can be no assurance that trading volumes will increase to a consistently higher level or that holders of the shares will be able to sell their shares in a timely manner or at all.

Our stock is not listed on a major stock market

Our common stock currently trades on the OTC Bulletin Board and we do not meet the listing requirements for the Nasdaq national market or any other major stock market in the United States. The listing of our stock may have an effect on the perception of our company among potential investors or acquirers and may adversely affect the liquidity of our shares and therefore can have an effect on our ability to complete such transactions or raise additional funds.

Item 2. PROPERTIES

Our executive headquarters are located in 2,170 square feet of space in La Jolla, California and is leased through May 31, 2006. We also have an office in Hong Kong occupying 2,934 square feet. Although, our Hong Kong lease was originally due to expire on August 31, 2005, we have recently agreed with the landlord to an early termination of the lease and have paid outstanding rent and other charges through June 2005 in full satisfaction of our obligations under this lease.

Item 3. LEGAL PROCEEDINGS

None.

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

None.

PART II

Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

MARKET INFORMATION

Our common stock is quoted on the OTC Bulletin Board under the symbol “VSCE.OB”. The following table presents, for the periods indicated, the high and low bid prices per share of our common stock. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions. All prices have been adjusted to reflect our 20-to-1 reverse stock split which was effected on November 20, 2002.

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SHAREHOLDERS

As of April 15, 2005, there were 495 stockholders of record of our common stock, 3 holders of our Series 1-A convertible preferred stock, referred to herein as Series 1-A Preferred, 1 holder of our Series 2-A convertible preferred stock, referred to herein as Series 2-A Preferred, no holders of our Series 3-A convertible preferred stock and no holders of our Series 4-A Preferred.

DIVIDENDS

We have never declared or paid cash dividends on our common stock or preferred stock. Holders of our Series 1-A Preferred are entitled to noncumulative dividends, if declared by the Board of Directors, of $0.20 per share annually. Holders of our Series 2-A Preferred are entitled to noncumulative dividends, if declared by the Board of Directors, in an amount equal to 8% of the price originally paid to Vsource for each share of Series 2-A Preferred ($0.51 per share as of March 31, 2005, based on the original purchase price of $6.41 per share, as may be adjusted for stock splits, stock dividends, combinations and the like). No dividend may be declared and paid upon shares of our common stock in any fiscal year unless dividends on all such preferred stock have been paid or declared and set aside for payment to holders of our preferred stock for such fiscal year. We currently intend to retain all future earnings to finance future growth and, therefore, do not anticipate declaring or paying any cash dividends in the foreseeable future.

EQUITY COMPENSATION PLAN INFORMATION

Fiscal Year-End Equity Compensation Plan Information

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RECENT SALE OF UNREGISTERED SECURITIES

None.

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

Five-Year Summary

AS NOTED ABOVE, IN 2005 WE CONCLUDED THE EXCHANGE OFFER AND RELATED TRANSACTIONS RESULTING IN THE CESSATION OF OUR OWNERSHIP IN VSOURCE ASIA, WHICH REPRESENTED 96% AND 100% OF OUR REVENUES IN 2005 AND 2004 RESPECTIVELY. THE DISCUSSION BELOW PRESENTS OUR RESULTS, EXCLUDING REVENUES AND EXPENSES FROM DISCONTINUED OPERATIONS.

The revenue and operating expenses figures exclude those relating to discontinued operations.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto appearing elsewhere in this Form 10-K.

FORWARD LOOKING STATEMENTS

The information set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operation (“MD&A) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) prospective business opportunities and (ii) our potential strategies for redirecting and financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to the plans, objectives and expectations of the Company. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this report should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. Readers should carefully review the risk factors described in this document as well as in our other documents that we file from time to time with the Securities and Exchange Commission, including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

We undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

OVERVIEW

OUR FISCAL YEAR ENDS ON JANUARY 31 OF THE FOLLOWING CALENDAR YEAR. UNLESS OTHERWISE INDICATED, REFERENCES TO “2002”, “2003”,”2004” AND “2005” RELATE TO THE FISCAL YEARS ENDED JANUARY 31, 2002, 2003, 2004 AND 2005, RESPECTIVELY, RATHER THAN CALENDAR YEARS. AS NOTED ABOVE, IN 2005 WE CONCLUDED THE EXCHANGE OFFER AND RELATED TRANSACTIONS RESULTING IN THE CESSATION OF OUR OWNERSHIP IN VSOURCE ASIA, WHICH REPRESENTED 96% AND 100% OF OUR REVENUES IN 2005 AND 2004, RESPECTIVELY. THE DISCUSSION BELOW PRESENTS OUR RESULTS, EXCLUDING REVENUES AND EXPENSES FROM DISCONTINUED OPERATIONS.

From 2001 to November 2004, we provided Fortune 500 and Global 500 companies with customizable and comprehensive business process outsourcing solutions into and across the Asia-Pacific region.

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In the fourth quarter of 2005, as a result of the Exchange Offer and related transactions described under the heading “Business – Company Background,” we ceased operating any active business, apart from limited consulting services we provide to third parties and for which we received revenue in the amount of $254,000 during the year ended January 31, 2005. Accordingly, the results of operations have been classified as discontinued, which significantly affects the comparability of the following information for certain of the periods presented below in the MD&A. Therefore, our historical results will not be indicative of future performance.

We are in the process of considering our future alternatives. Among the alternatives that may be considered is the pursuit of acquisition opportunities, sale or liquidation of the Company.

FUNDING

We had an accumulated deficit of approximately $65.6 million as of January 31, 2005 that has been funded primarily through preferred stock financing and cash generated from the disposal of interest in Vsource Asia and the Exchange Offer (see heading “Business – Company Background” for detail). We have sustained operating losses since inception. In 2005, we used net cash of $7.9 million from operating activities, generated $8.6 million in investing activities, and generated $10,000 from financing activities that resulted in an increase in cash of $0.7 million.

Our management believes that we have adequate funding from cash and cash equivalents and from the receivable from Vsource Asia for us to continue in operation for at least 12 months from the balance sheet date. Therefore, we have prepared our financial statements on a going concern basis. However, without additional funding, there is substantial doubt that about our ability to continue as a going concern beyond 12 months.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue and costs recognition

Revenue derived from continuing operations, our consulting services, are recognized based on services rendered. Costs relating to consulting services are recognized when incurred.

Recoverability of assets

At January 31, 2005, we had amounts owed to us from Vsource Asia totaling $1.739 million. These amounts related to legacy inter-company obligations in place prior to the completion of the Exchange Offer. Because of the uncertainty of the full repayment of the Vsource Asia obligation, we have made an estimated discount of $0.783 million against it, giving rise to a net receivable of $0.956 million, being our management’s best estimate of the amount that will ultimately be recoverable.

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RESULTS OF OPERATIONS (All amounts in thousands)

MANAGEMENT’S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS – YEAR ENDED JANUARY 31, 2005 COMPARED TO THE YEAR ENDED JANUARY 31, 2004. AS NOTED ABOVE, IN 2005 WE CONCLUDED THE EXCHANGE OFFER AND RELATED TRANSACTIONS RESULTING IN THE CESSATION OF OUR OWNERSHIP IN VSOURCE ASIA, WHICH REPRESENTED 96% AND 100% OF OUR REVENUES IN 2005 AND 2004, RESPECTIVELY. THE DISCUSSION BELOW PRESENTS OUR RESULTS, EXCLUDING REVENUES AND EXPENSES FROM DISCONTINUED OPERATIONS.

Revenue

Revenue in 2005 from continuing operations was derived entirely from consulting services.

Our revenues in 2005 from continuing operations increased to $0.254 million from zero in 2004. All revenues in 2005 were earned from providing consulting services to third parties.

Cost of Revenue

Cost of revenue from continuing operations consisted primarily of costs related to employees and other expenses that were associated with providing consulting services to clients.

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Cost of revenue increased to $0.161 million in 2005 from zero in 2004. Total cost of revenues in 2005 represented 63% of total revenue.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consisted primarily of employee-related costs that are not directly related to providing goods or services, such as salaries and benefits of administrative and support personnel, rental, insurance premiums and costs relating to certain other outside services.

Selling, general and administrative expenses decreased by 40% to $2.34 million in 2005 from $3.88 million in 2004. Total selling, general and administrative expenses represented 922% of total revenue. Due to sale of the Company’s interest in Vsource Asia, we were able to implement cost reduction initiatives and streamline our administrative structure in 2005. As noted in “Business – Current Operations,” we rely on Vsource Asia to provide us with infrastructure and administrative services, including accounting support, and the monthly fees for these services, which totaled $54,400 in Fiscal 2005, are included within selling, general and administrative expenses.

Amortization of Stock-based Compensation

Amortization of stock-based compensation is related to the issuance of stock options to employees with an exercise price below the fair market value of the underlying stock at the date of measurement. The stock-based compensation was fully amortized in 2004.

Operating Loss

As a result of the foregoing, we had an operating loss from continuing operations in 2005 of $2.25 million, which was lower than our operating loss of $5.39 million in 2004.

Interest Expense

We had $12,000 interest expense in 2005, compared to zero in 2004.

Taxation

Taxation charges for the current year amounted to $5,000, attributable entirely to California Franchise Tax for 2005. There is no tax payable arising on income disposal of discontinued operations as the same were offset against tax losses brought forward from prior years.

Discontinued Operations

As noted above under the heading “Overview”, we disposed of Vsource Asia, our former wholly-owned Malaysian subsidiary in a series of transactions culminating in the Exchange Offer.

We recorded a gain from disposal of entire interest in Vsource Asia of $21.6 million. The gain is calculated based on the difference between the cash proceeds and value of preferred stocks cancelled as a result of the Exchange Offer and the net assets of the subsidiary at the date of disposal. Incidental costs of disposal of $0.3 million were incurred.

As a result of the Exchange Offer, Vsource no longer has an ownership interest in Vsource Asia or in Asia Holding Co, and therefore no longer provides BPO services or has any active business operations, apart from consulting services.

Human capital management solutions were originally launched in October 2003 and discontinued in July 2004. Revenue from the segment was $0.25 million and $0.07 million in 2005 and 2004, respectively. Operating losses in 2005 and 2004 were $0.99 million and $0.68 million, respectively.

In conjunction with the decision to discontinue human capital management solutions, we disposed of our interest in a former wholly owned subsidiary, Vsource (Texas), Inc, which was primarily engaged in the delivery of these services.

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We recorded a loss on disposal of $0.16 million from the disposal of Vsource Texas. The loss was calculated based on the difference of the sale price to the net assets of the subsidiary at the date of disposal. The $46,000 sale price was payable in the form of a promissory note and was based on the excess of assets over liabilities, including certain long term lease and other contractual commitments totaling approximately $87,000, as measured at June 1, 2004. The terms of the note provided for payment in twelve equal monthly installments starting on August 15, 2004, bearing interest at 3% per annum. The note was pre-paid in full on March 3, 2005. No incidental costs were incurred.

Net Income or Loss

As a result of the foregoing, we had a net income in 2005 of $15.2 million in 2005, compared to a net loss in 2004 of $11.4 million.

Deemed Non-cash Dividend to Preferred Shareholders

In 2005 and 2004, we recorded a deemed dividend of $12.2 million and $11.9 million respectively, arising from Series 4-A Preferred Stock representing the amortization of the discount on the issue of this stock for both attached warrants and beneficial conversion features.

Credit on Exchange

Upon completion of the Exchange Offer on November 22¸ 2004, the Company recorded a credit of $34.4 million representing the excess of the carrying value of preferred stock over the fair value of the common stock of Asia Holding Co. issued for the exchange.

Net Income or Loss Available to Common Shareholders

Net income or loss available to common shareholders is computed from net income or loss and adding or deducting deemed non-cash dividend to preferred shareholders and credit on exchanges. We had net income available to common shareholders of $37.4 million, or $18.37 and $17.92 per basic and diluted share, respectively, in 2005, compared to a net loss of $23.2 million, or $12.15 per basic share, in 2004 .

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents totaled $1.1 million as of January 31, 2005, as compared to $0.3 million as of January 31, 2004. As of January 31, 2005, we had working capital of $1.9 million and shareholders’ equity of $1.7 million. We had no long term liabilities as of January 31, 2005. To date, we have financed our operations primarily through preferred stock financings and cash generated from the disposal of our interest in Vsource Asia in a series of transactions culminating in the Exchange Offer (see “Overview” above for detail).

Net cash used in operating activities increased $1.2 million, from $6.7 million to $7.9 million in 2005. Net cash received from investing activities increased $11.8 million from ($3.2) million in 2004 to $8.6 million in 2005. Net cash received from investing activities for 2005 primarily related to the proceeds from disposal of discontinued operations of $9.6 million. Net cash used in investing activities in 2004 primarily related to the acquisition of property and equipment of $1.7 million and the $1.5 million expenses related to the terminated merger with TEAM America.

Net cash provided by financing activities was $10,000 in 2005 and $34,000 in 2004. Net cash provided by financing activities in 2005 came from issuance of common stock arising from stock options exercised. Net cash provided by financing activities in 2004 came from issuance of common stock under our Employee Stock Purchase Plan.

As of January 31, 2005, the only significant contractual obligations or commercial commitments outstanding consisted of our future minimum lease commitments totaling $0.17 million, of which $0.14 million will be paid out in 2006 and $0.03 million in 2007. We have no other off-balance sheet arrangements that could significantly reduce our liquidity.

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The Company now operates with a small staff who are dedicated to assessing and seeking out alternative actions available to the Company, which may include the sale of the Company, liquidation and distribution of remaining assets to shareholders; and potential acquisition opportunities. In the case of a sale or acquisition, the Company may pursue additional funding opportunities.

As of January 31, 2005, we had liabilities of $0.779 million and our main assets consisted of cash and cash equivalents of $ 1.064 million and an amount due from Vsource Asia, a related party, of $0.956 million ($1.739 million less estimated discount of $0.783 million). We are in discussions with Vsource Asia and its parent Symphony House to finalize payment arrangements in respect of the amount due and our management is confident that the amount due will be received so as to allow the Company to pay its obligations as and when they fall due. A delay or default in payment by Vsource Asia in respect of this obligation would have a materially adverse effect on the Company’s financial condition.

The Company’s management believes that the Company has adequate funding from cash and cash equivalents and from the obligation from Vsource Asia for the Company to continue in operation for at least 12 months from the balance sheet date. Therefore, the Company has prepared its financial statements on a going concern basis. However, without additional funding, there is substantial doubt about the Company’s ability to continue as a going concern beyond 12 months.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued a revised SFAS No. 123R, “Share-Based Payment”, which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, and addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The focus is on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The Statement also eliminates the use of the intrinsic value method of accounting, as discussed in Opinion 25 and was provided in Statement 123 as an alternative to valuation. Under Opinion 25, issuing stock options to employees generally resulted in recognition of no compensation cost. This Statement requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards, with limited exceptions. The original effective date was interim or annual reporting periods beginning after June 15, 2005, but subsequently the SEC has converted this to be only applicable to annual periods beginning after this date. The company does not expect the adoption of SFAS No. 123R to have a material impact on its financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our cash on deposit with high quality financial institutions. While we are exposed with respect to interest rate fluctuations in many countries, our interest income is most sensitive to fluctuations in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on our cash. However, changes in interest income will not have a material impact on our financial results, as we derived only $14,000 from interest income in 2005.

Foreign Currency Risk

Our business derives most of its revenues from operations in the United States. All our revenues are currently denominated in U.S. dollars. An increase or decrease in the value of the U.S. dollar relative to foreign currencies does not have a material impact on the demand for our services or on our expenses. Currently, we do not hedge against any foreign currencies and, as a result, could incur unanticipated gains or losses.

In 2005 and 2004, we incurred expenses in foreign currencies, principally Hong Kong Dollars. The Hong Kong Dollar currently has a fixed exchange rate to the U.S. dollar and there is no exchange exposure at present although there is no assurance that such fixed exchange rate will be maintained in the future.

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Item 8. CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

To The Board of Directors and Shareholders

of Vsource, Inc:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders’ equity/deficit and cash flows present fairly, in all material respects, the financial position of Vsource, Inc. and its subsidiaries at 31 January 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended 31 January 2005 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 – “Future Funding”, the Company no longer has any active business operations and only has sufficient assets, including a receivable from a related party, to continue in operation for one year which raises substantial doubt about the Company’s ability to continue as a going concern beyond one year. Management’s plans in regard to this matter are also described in note 1 – “Future Funding”. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

PricewaterhouseCoopers

Hong Kong

May 13, 2005

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VSOURCE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

Commitments and contingencies (Note 11)

The accompanying notes are an integral part of these Consolidated Financial Statements.

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VSOURCE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

The accompanying notes are an integral part of these Consolidated Financial Statements

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VSOURCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

The accompanying notes are an integral part of these Consolidated Financial Statements.

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VSOURCE, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY/(DEFICIT)

(in thousands, except for shares data)