U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10QSB

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the period ended March 31, 2001

Commission file number 000-3692114

CARNEGIE INTERNATIONAL CORPORATION.
(Name of Small Business Issuer in Its Charter)

Colorado 13-3692114
(State of Incorporation) (IRS Employer Identification No.)

11350 McCormick Road, Suite 1001, Hunt Valley, Maryland 21031
(Address of Principal Executive Offices)

(410) 785-7400
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
--- ---

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 72,750,588 shares of Common
Stock ($.001 par value) as of March 31, 2001.

Transitional small business disclosure format: Yes No X
--- ---

CARNEGIE INTERNATIONAL CORPORATION

Quarterly Report on Form 10-QSB for the
Quarterly Period Ending March 31, 2001

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Consolidated Statements of Losses:
Three Months Ended March 31, 2001 and 2000

Consolidated Balance Sheets:
March 31, 2001 and December 31, 2000

Consolidated Statements of Cash Flows:
Three months ended March 31, 2001 and 2000

Notes to Consolidated Financial Statements:
March 31, 2001

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

Independent Accountant's Report

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Item 2. Changes in Securities.

Item 3. Defaults Upon Senior Securities.

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

Item 5. Other Information.

Item 6. Exhibits and Reports on Form 8-K.

The accompanying notes are an integral part of these statements.

CARNEGIE INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

Three Months Ended
March 31,
2001 2000
------ ------

REVENUES:
Operating $ 4,013,574 $ 4,660,247
Sale of service contracts 281,325 414,176
----------- -----------
4,294,899 5,074,423
COST OF SALES 2,031,483 2,825,824
----------- -----------
GROSS PROFIT 2,263,416 2,248,599
----------- -----------
OPERATING EXPENSES:

Selling, General & Administrative 2,562,400 2,334,419
Consulting Agreement -- 316,044
Depreciation and Amortization 266,189 1,381,946
----------- -----------
Total operating expenses 2,828,589 4,032,409
----------- -----------
LOSS FROM OPERATIONS (565,173) (1,783,810)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 1,848 6,223
Interest expense (81,468) (140,815)
Other income 27,194 123,012
Gain on Sale of subsidiary 893,022 --
---------- ----------
Total other income (expense) 840,596 (11,580)
INCOME/(LOSS) FROM CONTINUING OPERATIONS ---------- ----------
BEFORE INCOME TAXES 275,423 (1,795,390)

INCOME TAXES (BENEFIT) -- --

INCOME/(LOSS) FROM CONTINUING OPERATIONS 275,423 (1,795,390)

Net Profit (loss) per common share
(basic and assuming dilution) $0.00 $(0.03)

Weighted average common shares outstanding
Basic and diluted 69,221,888 60,307,889
----------- -----------
COMPREHENSIVE LOSS:
Net Profit (loss) 275,423 (1,795,390)
Foreign currency translation -- --
----------- -----------
COMPREHENSIVE PROFIT (LOSS) 275,423 (1,795,390)
=========== ===========

See accompanying notes and accountant's report.

CARNEGIE INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

March 31, December 31,
2001 2000
------------ ------------

ASSETS

Current Assets:
Cash and equivalents $ 141,490 $ 212,973
Accounts receivable, net of allowance for doubtful
accounts 1,229,439 1,656,047
Notes receivable 717,653 -
Loans receivable - 24,000
Inventory, at cost 84,859 537,311
Prepaid expenses and other assets 81,494 26,975
------------ ------------
Total current assets 2,254,935 2,457,306

Property and equipment, less accumulated depreciation 759,110 1,179,844
Software development costs, less accumulated amortization - -

Intangible assets, less accumulated amortization 3,339,604 4,820,322
Due from related parties 250,432 228,417
Other assets 115,092 37,569
------------ ------------
$ 6,719,173 $ 8,723,458
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY

Current Liabilities
Notes payable - Banks $ - $ 36,200
Advance on stock purchases 250,000 250,000
Current maturities of long-term debt 1,351,651 1,547,361
Current maturities of notes payable to stockholders
and affiliates 1,148,640 1,849,722
Current maturities of capital lease obligations 132,532 85,059
Accounts payable and accrued expenses 6,353,224 6,717,374
Deferred revenue 78,183 75,410
------------ ------------
Total current liabilities 9,314,230 10,561,126

Long-term debt less current Maturities 86,333 209,757
------------ ------------
Total Liabilities $ 9,400,563 $ 10,770,883

Stockholders' Equity:

Convertible preferred stock, Series A, B, E, and
F, $1.00 par value per share; 40,000,000 shares authorized;
424,100 and 624,100 shares issued and outstanding 371,600 624,100

Common stock, no par with a stated value of $.01 per share;
110,000,000 shares authorized; 72,750,588 issued and 69,972,569
outstanding at March 31, 2001 and 70,542,140 issued and 67,764,121
outstanding at December 31, 2000 727,506 705,421

Additional paid-in capital 68,903,070 69,582,043
Accumulated deficit (70,844,775) (71,120,198)
Foreign currency translation adjustment 23,489 23,489
------------ ------------
(819,110) (185,145)
Less treasury stock, at cost (1,862,280) (1,862,280)
------------ ------------
Stockholders' (deficiency) equity (2,681,390) (2,047,425)
------------ ------------
$ 6,719,173 $ 8,723,458
============ ============

See accompanying notes and accountant's report.

CARNEGIE INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Three Months Ended March 31
2001 2000
----- -----

Increase (Decrease) in cash and equivalents:
Cash flows from operating activities
Net Income/(Loss) $ 275,423 (1,795,390)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Gain on Sale of Subsidiaries (893,022)
Depreciation and amortization 266,189 1,381,946
Accounts receivable 426,608 646,168
Due from affiliates - (21,194)
Inventory 452,452 (13,750)
Prepaid expenses and other assets (54,520) 10,708
Refundable income taxes (12,046)
Accounts payable and accrued expenses (364,150) 267,142
Deferred revenue 2,773 (144,317)
Other, net (753,633) (713,123)
--------- ----------
Net cash provided by (used in) operating activities (641,880) (393,856)
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized Software, Net - -
Purchase of property and equipment - (60,122)
Collection of Loans Receivable 18,000 20,119
Increase of Notes Receivable (26,293)
--------- ----------
Net cash provided by (used in) investing activities 18,000 (66,296)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 286,164 249,826
Sale of common stock 53,701
Proceeds from Sale of Subsidiary 350,000
Proceeds from sale of option to purchase common
stock
Notes Payable Converted to Common Stock (83,767)

Proceeds from Capital Leases 82,563
--------- ----------
Net cash provided by (used in) financing activities 552,397 386,090

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (71,483) (74,062)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 212,973 463,374
--------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 141,490 $ 389,312
========= ==========

SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest 81,468 98,006
Common stock issued in exchange for services and
compensation 453,448 50,000
Common stock issued in exchange for acquisitions 700,000
Convertible Preferred Returned due to the
Sale of Subsidiary 200,000
Convertible preferred converted to common stock
pursuant to acquisition agreement of Romnet, Inc. 52,500

See accompanying notes and accountant's report.

CARNEGIE INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

(UNAUDITED)

NOTE A - SUMMARY OF ACCOUNTING POLICIES

General
- -------

The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB, and therefore, do not
include all the information necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.

In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2001. The unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's December 31, 2000 annual report
included in SEC Form 10-KSB.

Basis of Presentation
- ---------------------

The consolidated financial statements include the accounts of the Carnegie
International Corporation ("Company") and its wholly-owned subsidiaries, Talidan
Limited, a British Virgin Islands corporation; Profit Through
Telecommunications (Europe) Limited, a United Kingdom corporation; Talidan USA
t/a Victoria Station, a Florida corporation; Harbor City Corporation t/a ACC
Telecom, a Maryland corporation; Voice Quest, Inc., a Florida corporation;
RomNet Support Services, Inc., a Massachusetts corporation; Carnegie
Communications, Inc., a Maryland corporation, Paramount International
Telecommunciations, Inc. ("Paramount"), a Nevada Corporation and American
Telephone & Computers, Inc., a Maryland Corporation; and Federation of
Associated Health Systems, A Texas Corporation.

All significant intercompany accounts and transactions have been eliminated in
consolidation.

Segment Information
- -------------------

During 2001 and 2000, the Company operated in two principal industries:
telecommunications and restaurant. Telecommunications include the development
and distribution of software, and telephone operations. Corporate and other
includes unallocated corporate costs. The Company's foreign operations are
conducted by Talidan and PTT.

Three Months Ended March 31,
2001 2000
---- ----

Revenues from external customers:
Telecommunications $3,848,089 $ 4,584,683
Restaurant 446,810 489,740
Corporate - -
---------- -----------
Total $4,294,899 $ 5,074,423
=========== ===========
Interest expense:
Telecommunications $ 40,410 $ 95,687
Restaurant 17,788 2,319
Corporate 23,270 42,809
---------- -----------
Total $ 81,468 $ 140,815
========== ===========
Depreciation and amortization:
Telecommunications $ 218,814 $ 1,354,906
Restaurant 12,662 9,190
Corporate 34,713 17,850
---------- -----------
Total $ 266,189 $ 1,381,946
========== ===========
Segment profit (loss) before taxes:
Telecommunications $ (60,490) $ (946,579)
Restaurant 27,627 (29,130)
Corporate 308,286 (819,681)
---------- -----------
Total $ 275,423 $(1,795,390)
========== ===========
Segment assets:
Telecommunications $4,999,067 $46,057,384
Restaurant 234,981 184,974
Corporate 1,485,125 772,414
---------- -----------
Total $6,719,173 $47,014,772
========== ===========
Expenditure for segment assets:
Telecommunications - $ 49,621
Restaurant - 10,501
Corporate - -
---------- -----------
Total $ $ 60,122
========== ===========

The following geographic area data for trade revenues is based on product or
service delivery location and property, plant and equipment is based on physical
location.

Three Months Ended March 31,
2001 2000
---- ----

Revenues from external customers:
United States $4,026,560 $ 4,317,426
Canada 268,339 752,762
Mexico - -
Brazil - -
United Kingdom - 4,235
---------- -----------
Total $4,294,899 $ 5,074,423
========== ===========
Segment assets:
U.S., net of intersegment receivables $6,637,233 $43,671,524
Canada 42,807 24,683
Mexico - -
Brazil - 6,529
United Kingdom 39,133 3,312,036
---------- -----------
Total $6,719,173 $47,014,772
========== ===========

NOTE B - DISPOSITION OF HABOR CITY CORPORATION, D.B.A. ACC TELECOM

On March 23, 2001 the Company sold its wholly owned interconnect subsidiary
Harbor City Corporation, d.b.a. ACC Telecom (ACC) of Columbia, Maryland to its
former owners Barry and Susan Hunt for $3.5 million, concurrently ending a
pending dispute between the parties. The transaction was comprised of $700,000
in cash and notes to be paid over a one (1) year period, waiver of debt of
$800,000 owed from the original purchase agreement and return of 200,000
preferred shares that were convertible to $2,000,000 worth of the Company's
restricted common stock. The Company's financial statement will reflect a gain
of $893,022 on this sale during this reporting quarter. The Company has
performed significant tests under Rule 11-01(b) and is not required to provide
any additional financial information at this time.

Mr. Hunt was president and Mrs. Hunt was an officer of ACC Telecom when
Carnegie acquired it in May of 1998. Mr. Hunt has served as a member of
Carnegie's Board of Directors since that time, before resigning on March 1,
2001. (See Changes in Directors and Management).

ACC sold, serviced and installed telephony equipment in the greater
Baltimore/Washington area. Under the purchase agreement ACC had the exclusive
marketing rights in North America for the Company's MAVIS/(TM)/ voice activated
auto attendant. With the sale of ACC the Company will now be able to explore
other avenues for marketing this product in North America. It should be noted
that the Company has a wholly owned subsidiary in a similar business in the
Greater Chicago area. (See 8K filed April 6, 2001, and referenced herein.)

NOTE C - SUBSEQUENT EVENTS

On May 2, 2001 the Company's subsidiary Victoria Station Miami, Inc. received a
Complaint for Eviction and Breach of Lease Agreement from its Landlord. The
complaint alleges unpaid rent and taxes of $186.610.77. The Company expects that
the management of Victoria Station Miami, Inc. will be able to resolve this, but
can give no assurance that the eviction will be stayed.

On May 9, 2001 Carnegie's motion to dismiss, regarding a lawsuit commenced by
Capital Media Networks, Inc. was upheld by the circuit court of Palm Beach. (See
NOTE D - COMMITMENTS AND CONTINGENCIES for lawsuit information).

Carnegie Communications, a subsidiary of the Company involved in the sale and
marketing of MAVIS/(TM)/ has ceased activity until further notice and has no
current sales staff effective March 1, 2001.

The Company has suspended operations at its subsidiary Profit Thru
Telecommunications (Europe) LTD. (PTT) in March. The Suspension will continue
until the company believes market conditions improve sufficiently and can again
fund PTT operations. All IVR marketing efforts have ceased related to Order
Master, Wage Master, Database Management, Profiling and Travel Information.
Relationships with Call-a-Card, Security Micro Dot, Employee Supervision and the
Scottish Tourist Board will be interrupted since these relationships have not
produced profits. The Company still believes that MAVIS/(TM)/ is an extremely
attractive and useful product that has great potential. MAVIS/(TM)/ is a voice
activated auto attendant. MAVIS/(TM)/ is designed for small business use.
MAVIS/(TM)/ eliminates the need for a human telephone operator and incorporates
its own voice mail, email and unified message system at a very competitive
price. MAVIS/(TM)/ was developed, however using the voice engine of Lernout &
Hauspie (L&H). The Company believes the L&H speech engine component of
MAVIS/(TM)/ must be changed before any further efforts are made to market the
product or develop additional enhancements. There have been substantial and well
documented difficulties relating to the voice engine and its producer L&H
resulting in a loss of market confidence. To that end, the Company has
instructed the remaining employees at PTT to explore a relationship with a new
speech engine provider. Vocalis, Speech Works and others are potential
development partners currently being pursued by PTT for MAVIS/(TM)/. This will
be the only development project for the foreseeable future at PTT and will
likely produce no revenue in year 2001. There can be no guarantee that a
suitable engine or development partner will be found but the company continues
to believe that voice activated products have unlimited market potential and
will continue to pursue the development of MAVIS/(TM)/ and MAVIS/(TM)/
derivative products in the future as a key component of the Company's business
plan.

NOTE D - COMMITMENTS AND CONTINGENCIES

Operating leases
- ----------------

The Company's future minimum annual aggregate rental payments for office space,
required under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year are as follows:

2001 $ 703,892
2002 592,701
2003 341,427
2004 510,942
2005 109,940
----------
$2,258,902
==========

Employment Agreements
- ---------------------

The Company has entered into various employment agreements as follows:

. A five-year agreement commencing May 10, 1996 providing for an annual salary
of $80,000, plus certain benefits.

. A two-year agreement commencing May 15, 1997, with an extension through
September 2005, providing for an annual salary of $100,000 - $300,000.

. A five-year agreement commencing August 18, 1997, providing for an annual
salary of $75,000, plus certain benefits.

. A five-year agreement commencing April 8, 1998, with an extension through
April 8, 2005, providing for an annual salary of $350,000, plus bonus.

. A five-year agreement commencing May 18, 1998 providing for an annual salary
of $125,000. This agreement ended with the sale of Harbor City Corporation,
d.b.a ACC Telecom (See NOTE B).

. A five-year agreement commencing July 31, 1998 providing for an annual salary
of $75,000. This agreement ended with the sale of Harbor City Corporation,
d.b.a ACC Telecom (See NOTE B).

. Four five-year agreements commencing February 28, 1999, providing for annual
salaries of $130,000 each, plus bonuses.

. A two-year agreement commencing June 1, 2000, providing for an annual salary
of $85,000.

On December 21, 1998, Gloria Lucas, personal Representative of the Estate of
John Charles Saah, brought suit against Carnegie and two of it's officers in the
Northern District of Maryland. This case stems from a series of contracts and
negotiations resulting from the acquisition of ECAC by Grandname, the assignment
to Carnegie and Carnegie's subsequent sale of ECAC. A settlement agreement was
entered into and a dismissal with prejudice only with respect to Carnegie has
been filed with the Court. Payments have been made to the Plaintiff through the
sale of Carnegie stock belonging to the Estate of John Charles Saah, which has
been placed in escrow. Currently, there remains a balance due of approximately
$106,000 plus a disputed amount of $130,654, which are recorded as liabilities.

Lisa Kamil, a former broker of ECAC, brought an action against ECAC, n/a
Carnegie International Corporation, and Ewing Partners Corporation, d/b/a Value
Partner, Limited, which is pending in the Circuit Court for Oakland County,
Michigan. This case originates from a number of transactions involving
Carnegie's former subsidiary, ECAC, which was sold to Value Partners Limited on
January 10, 1998, and a special arrangement between Ms. Kamil, Carnegie and
Franklin Bank. The complaint in this action seeks damages in the amount of
$150,000. The incidents and matters which are the subject of the Complaint are
based on activities caused by First Charter Bank, a subsidiary or affiliate of
Ewing Partners Corporation, d/b/a Value Partners. Although the Plaintiff may
have a valid claim for a smaller sum, Carnegie believes that it is not at fault
in this matter and that Plaintiff is not likely to prevail against Carnegie.
Carnegie believes that it has no material liability and may have a strong cross-
claim against Value Partners and also a strong third party claim against First
Charter Bank, which have not yet been filed. Carnegie intends to vigorously
defend itself in this matter and believes it will be successful in defending
this litigation to its conclusion or otherwise resolving the same in Carnegie's
favor.

On or about August 1, 2000, Joseph Fisher filed suit against Paramount
International Telecommunications, Inc. and Call Data Clearing, Inc. for breach
of contract. Thereafter, and on or about October 10, 2000, Paramount
International Telecommunications, Inc. filed a cross-complaint against Joseph
Fisher for breach of fiduciary duty, breach of the implied covenant of good
faith dealing, and fair dealing, negligent interference with prospective
economic advantage, intentional interference with economic advantage and
declaratory relief. The parties have conducted substantial discovery and have
recently attended a mediation, to no avail. It is Paramount International
Telecommunication, Inc.'s position that the claim is baseless and without merit.
Trial is scheduled in this matter for August 2001.

On November 14, 2000, a lawsuit was commenced in Baltimore County Circuit court
against Carnegie and several other defendants, including E. David Gable,
Carnegie's Chairman, Lawrence Gable, a Vice-President of

Carnegie, and John Gable, a Carnegie employee, by Bel-Ken Associates, alleging
damages against Carnegie as an alleged guarantor on a breached lease agreement.
The Complaint, as amended, requests damages of $76,073.66. Carnegie believes
that even if Plaintiff prevails, other defendants will ultimately be liable
therefore, although there can be assurance in this regard.

On February 20, 2001, Alltel Communications Products Inc. commenced a lawsuit in
Baltimore county Circuit Court against Carnegie, alleging damages for breach of
contract involving an alleged distributorship agreement entered into on January
20, 1999. Plaintiff claims that it properly returned certain merchandise to
Carnegie and is claiming a refund of $118,855. Carnegie believes that it has
valid defenses to the claim and has filed a counterclaim for Plaintiff's
material breach of the distributorship agreement. The lawsuit is currently in
discovery stages. Carnegie believes that it has no material liability although
there can be on assurance in this regard.

On October 25, 2000, Edward Lawson, as stockholder and escrow agent, commenced
an interpleader lawsuit against Carnegie, Fountainhead, Inc. and Lucky Dog, LLC
in the Blaine County (Idaho) District court. Plaintiff alleges that he and
defendants entered into an escrow agreement for transaction involving the
purchase and sale of Carnegie Common Stock, pursuant to a November 25, 1999
Letter Agreement. The complaint alleges that Fountainhead delivered certain
stock and Lucky Dog delivered $250,000 out of a required $500,000 to plaintiff,
and plaintiff in turn delivered the $250,000 to Carnegie. The Letter Agreement
required that Lucky Dog fully perform its obligations and tender the full
$500,000. Carnegie has fully performed all of the conditions required of it
under the Agreement. Lucky Dog has filed a cross claim against Carnegie seeking
damages of $500,000 for claims of breach of contract, breach of covenant of good
faith and fair dealing, fraud, violation of Idaho Securities Act, and
negligence.

On March 22, 2001, Capital Media Networks Inc. commenced a lawsuit in the
Circuit Court of Palm Beach, Florida, against Carnegie, alleging damages of
$16,333 for breach of contract involving an infomercial. Plaintiff claims that
it fully performed the Agreement and is claiming a balance due on the contract.
Carnegie believes that it has valid defenses to the claim, and that the Florida
court has no jurisdiction. Carnegie filed a motion to dismiss the case on a
jurisdictional basis. The motion is currently pending. Carnegie believes that it
has substantial defenses and counter claims to the lawsuit, and believes it will
be successful in defending this litigation to it's conclusion or otherwise
resolving the same in Carnegie's favor, although there can be no assurance in
this regard.

Several lawsuits were commenced between November 14, 2000 and January 29, 2001
against Carnegie's subsidary, Talidan USA, Inc.

On May 23, 2000, the Company filed a lawsuit against its former auditors and
certain other parties demanding $2.1 billion in damages. The former auditors
have filed a Motion to Dismiss, which was vigorously opposed by the Company.
Subsequently, the Company has assigned a portion of recovery rights to a third
party for consideration of $250,000 cash. Pursuant to this assignment, the third
party will receive $1,250,000 of any proceeds from this lawsuit after any
attorney's fee and payment to stockholders, but before any payment to the
Company.

The corporation and a number of its current officers and directors are parties
to several lawsuits, which purport to be class actions filed on behalf of
shareholders of the Corporation. These actions purport to allege violations of
federal securities laws in connection with the Company's filing with the
Securities and Exchange Commission of a Form 10-SB on October 28, 1998. On March
20, 2000, a consolidated complaint was filed in the United States district court
in Maryland. The Company's insurer under its Directors, Officers and Corporate
Liability Insurance Policy has undertaken representation of all of the
defendants in the several lawsuits. The Policy contains a $150,000 retention,
applicable to defense costs which the insurance company has waived. The parties
have agreed to a settlement. The Company expects court approval by April 2001.

In November 1999, Victoria Station entered into a financing arrangement with IGT
Services, Inc., a discount credit card company, whereby IGT advances funds and
is reimbursed a portion of revenues generated by customers who use the IGT
credit card. IGT has effected a lien on all Victoria Station assets.

The Phone Stop has a line of credit with Verizon Wireless for inventory. Verizon
Wireless filed a lien against The Phone Stop for all inventory from Verizon
Wireless and accounts receivable.

The Company is also a party to claims and lawsuits arising in the normal course
of operations. Management is of the opinion that exposure from these claims and
lawsuits have either been provided for or do not have a material effect on the
financial position of the Company at March 31, 2001.

NOTE E - GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As of March 31, 2001, the Company
had a working capital deficit of $7,059,295 and an accumulated deficit of
$70,844,775. Based upon the Company's plan of operation the Company estimates
that existing resources, together with funds generated from operations, will not
be sufficient to fund the Company's working capital. The Company is actively
seeking additional equity and debt financing. There can be no assurances that
sufficient financing will be available on terms acceptable to the Company or at
all. If the Company is unable to obtain such financing, the Company will be
forced to scale back operations, which would have an adverse effect on the
Company's financial conditions and result of operation.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended March 31, 2001 and 2000

The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, included elsewhere within
this Report.

Description of Company
- ----------------------

The Corporation is a holding company that operates a group of owned subsidiaries
in the telecommunications, Internet support & computer service, and restaurant
industry. The Corporation has no direct operating assets or business activity,
but does provide management and other services to its subsidiaries. The
Corporation's telecommunications business includes the development of
interactive voice response ("IVR") and voice recognition system software,
telecommunication billing clearing services to hospitality, health care and pay-
telephone industries for 0+ (credit card) & 0- (operator assisted) calls, the
marketing of international long distance call traffic through the promotion of

information and entertainment services, and the sale, installation and servicing
of telephone equipment. The Internet and computer services include technical
support services (help desk) for software and hardware, Internet support
services including Web development and e-commerce. The Corporation's restaurant
business consists of the ownership and operation of one restaurant located in
the Miami, Florida area. A full description of the Company's subsidiaries are in
the 2000 10-KSB filed on March 31, 2001

Forward Looking Statements
- --------------------------

This Form 10-QSB contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. All statements
included herein that address activities, events or developments that the
Corporation expects, believes, estimates, plans, intends, projects or
anticipates will or may occur in the future, are forward-looking statements.
Actual events may differ materially from those anticipated in the forward-
looking statements. Important risks that may cause such a difference include:
general domestic and international economic business conditions, increased
competition in the Corporation's markets and products. Other factors may
include, availability and terms of capital, and/or increases in operating and
supply costs. Market acceptance of existing and new products, rapid
technological changes, availability of qualified personnel also could be
factors. Changes in the Corporation's business strategies and development plans
and changes in government regulation could adversely affect the Company.
Although the Corporation believes that the assumptions underlying the forward-
looking statements contained herein are reasonable, any of the assumptions could
be inaccurate. There can be no assurance that the forward-looking statements
included in this filing will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Corporation that the objectives and expectations of the Corporation would be
achieved.

Results of Operations
- ---------------------

The Company's revenues for the three months ended March 31, 2001, decreased by
$779,524 to $4,294,899, as compared to $5,074,423 for the same period in 2000.
Loss from operations decreased $(1,218,637) to $(565,173) for the first three
months of 2001, from $(1,783,810) during the three months ended March 31, 2000.

Cost of sales for the three months ended March 31, 2001 were $2,031,483, a
decrease of $794,341 from $2,825,824 during the same period in 2000.

Operating expenses decreased $1,203,820 for the first three months of 2001
compared to the same period in 2000. Operating expenses as a percentage of
revenues were 65.8% in the first three months of 2001 as compared to 79.5% in
2000. Selling, general and administrative increased $227,981 for the first three
months of 2001 to $2,562,400 from $2,334,419 during the three months ended
March 31, 2000.

Other income and expenses for the three months ended March 31, 2001 resulted in
net income of $840,596 as compared to net expenses of $(11,580) during the
previous three month period ended March 31, 2000. The principal component of
other income during the three months ended March 31,2001 was the gain on sale of
a subsidiary for $893,022.

Liquidity and Capital Resources
- -------------------------------

As of March 31, 2001, the Company had a working capital deficit of $7,059,295
compared to a working capital deficit of $8,103,820 at December 31, 2000 an
increase in working capital of $1,044,525. The increase in working capital was
substantially due to the Company's reduction of debt through the sale of a
subsidiary. During the three months ended March 31, 2001 and 2000, the Company
incurred a cash flow deficit from operating activities of $641,880 in 2001 as
compared to a cash flow deficit of $393,856 for the same period in 2000. The

Company invested $0 in equipment during the first three months of 2001 compared
to $60,122 during the same period of 2000. The Company met its cash requirements
during the first three months of 2001 through the borrowings of short term debt
in the amount of $286,164. While the Company has raised capital to meet its
working capital and financing needs in the past, additional financing is
required in order to meet the Company's current and projected cash flow deficits
from operations. The Company is seeking financing in the form of equity in order
to provide the necessary working capital. The Company currently has no
commitments for financing. There are no assurances the Company will be
successful in raising the funds required.

The Company has issued shares of its Common Stock from time to time in the past
to satisfy certain obligations, and expects in the future to also acquire
certain services, satisfy indebtedness and/or make acquisitions utilizing
authorized shares of the capital stock of the Company. There are no assurances
the Company will be successful in this regard.

The Company is subject to several lawsuits that are discussed in detail below
under Part II, Item 1. Carnegie has and intends to vigorously defend the
consolidated complaint, which have been filed against the Company and its
officers and directors, as well as the consolidated complaint that may be filed
later this year. The Complaints filed seeks monetary damages and other relief;
however, none specifically allege a defined amount of damages. The Company
believes it will be successful in the defense of these actions or a settlement
outlined below. There can be no assurance in this regard.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.
- ---------------------------

On February 20, 2001 Alltel Communications Products Inc. commenced a
lawsuit in Baltimore County Circuit Court against Carnegie, alleging damages for
breach of contract involving an alleged distributorship agreement entered into
on January 20, 1999. Plaintiff claims that it properly returned certain
merchandise to Carnegie and is claiming a refund of $118,855 therefore. Carnegie
believes that it has valid defenses to the claim, and has filed a counterclaim
for Plaintiff's material breach of the distributorship agreement. The lawsuit is
currently in discovery stages. Carnegie believes that it has no material
liability although there can be no assurance in this regard.

On November 22, 2000 Kathleen Cover and several other persons commenced a
lawsuit individually and on behalf of Strongput, Inc. in Baltimore City Circuit
Court against Carnegie, and several other defendants, including DAR Products
Corporation, a former Carnegie subsidiary until September 15, 1997, E. David
Gable, Carnegie's Chairman, Scott Caruthers, a former Carnegie Director and
Shareholder, Dashielle Lashra, Scott Caruthers spouse, David Pearl, a former
Carnegie Secretary, Richard Greene, a former Carnegie Secretary, and Acting
Chief Financial Officer, Gary Dahne, a Carnegie employee, Richard Gershberg, a
former law partner of David Pearl, Gershberg and Pearl, Gershberg and Pearl,
LLP, Gershberg and Pearl, LLC, Dan Eckert, and Strongput, Inc. Carnegie believes
the lawsuit is without merit against it and certain other defendants, and as a
result thereof, Plaintiffs on April 13, 2001 agreed to dismiss the lawsuit
against Carnegie, E. David Gable, Richard Greene, and Gary Dahne.

Carnegie previously reported certain disagreements with J-Net Group, the
former owners of Carnegie's subsidiary RomNet, concerning certain payment
issues. On March 2, 2000, as previously reported, Carnegie and J-Net agreed to
the withdrawal of the Request for Arbitration, without Prejudice to the rights
of either party. Carnegie and J-Net has since resolved this matter with the
execution by Carnegie of a promissory note in the amount of $112,000, with equal
monthly payments over 12 months, commencing March, 2001 and the issuance to
J-Net of 525,000 shares of the Corporation's Common Stock in exchange for
previously issued 52,500 shares of Series F Preferred.

On March 22, 2001 Capital Media Networks Inc. commenced a lawsuit in the
Circuit Court of Palm Beach, Florida against Carnegie, alleging damages of
$16,333 for breach of contract involving an infomercial. Plaintiff claims that
it fully performed the Agreement and is claiming a balance due on the contract.

Carnegie believes that it has valid defenses to the claim, and that the Florida
court has no jurisdiction. Carnegie filed a motion to dismiss the case on a
jurisdictional basis. The motion is currently pending. Carnegie believes that it
has substantial defenses and counter claims to the lawsuit, and believes it will
be successful in defending this litigation to it conclusion or otherwise
resolving the same in Carnegie's favor, although there can be no assurance in
this regard.

Several lawsuits were commenced between November 14, 2000 and January 29,
2001 against Carnegie's former subsidiary, Talidan, USA, Inc. The Company
believes that any judgments that are or may be entered against Talidan USA, Inc.
will have no material impact upon Carnegie's financial statements.

Shareholders Suits. The Corporation and various of its current officers and
directors are parties to several lawsuits which purport to be class actions
filed on behalf of non affiliates who purchased or acquired the Corporation's
Common Stock in the period from September 15, 1998 to April 30, 1999. The first
of these suits, typical of the others, was filed in the U.S. District Court for
the District of Maryland on or about June 11, 1999, titled Alan Genut,
individually and on behalf of all others similarly situated v. Carnegie
International Corporation, et al., Civil No. L-99-1688. Four other lawsuits of
like kind were filed by other plaintiffs in the same court.

These Maryland actions purport to allege violations of federal securities
laws in connection with the Corporation's filing with the Securities and
Exchange Commission of a Form 10-SB, on or about October 28, 1998. Each of the
five original complaints filed in Maryland alleged that the Defendants
improperly recorded certain transactions in violation of generally accepted
accounting principles. The transactions in question are the sale of ECAC, and
the purchase of its subsidiaries, PTT and Talidan.

In August 1999, the Plaintiffs in the several actions which have been filed
in Federal Court moved to consolidate their complaints, in accordance with
provisions of the Private Securities Law Reform Act of 1995 (the "PSLRA"). The
Company and the other Defendants in those actions consented to the motion and,
on or about September 1, 1999, the Court entered an Order consolidating the
actions and requiring that a consolidated complaint be filed on or before
October 31, 1999. The parties agreed to extend until March 21, 2000 the time
within which such a consolidated complaint must be filed.

On March 21, 2000, the Plaintiffs in the Maryland actions filed a
consolidated complaint, alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act, 15 U.S.C. (S)(S) 78j(b) and 78t(a), as well as SEC Rule
10-b-5, 17 C.F.R. 240.10b-5. The consolidated complaint purports to be a class
action filed on behalf of non affiliates who purchased or acquired the
Corporations Common Stock in the period from September 15, 1998 to April 30,
1999. An agreement has been reached between the parties. This agreement and its
terms require approval by the Court. The settlement will provide for the
dismissal of the shareholder suits against the Company and Grant Thornton. The
settlement terms include a payment to the shareholders by the Company's insurer
in the amount of $2.25 million. The shareholders will also receive $3 million in
warrants in the Company's stock and a 3% interest in the Company's suit against
Grant Thornton in the Baltimore City Circuit Court, described below. At a
hearing on April 27, 2001 Grant Thornton raised questions concerning the effect
of the PSLRA on future actions by Carnegie in the Maryland state court
litigation commenced by Carnegie against Grant Thornton, described below. The
Court has established a schedule to resolve the questions which Grant Thornton
has raised. The Court will hold a further hearing on May 31, 2001, to determine
the issues which the Court must resolve and to establish a further schedule for
resolution of those issues. The Company can give no assurances that the Court
will accept the proposals for settlement as agreed to between the Company and
the shareholders.

The Company's insurer under its Directors, Officers and Corporate Liability
Insurance Policy has undertaken payment for the representation of all of the
defendants, including current and former officers and directors of the Company,
in the lawsuit. The SEC also asked the Company and its employees to submit
certain documents or information pursuant to a private investigation. The
Company's insurance has also paid for the submission of those documents and
information. The Company may be subject to repayment of all or some portion of

these costs. On May 23, 2000, the Company filed a Complaint against Grant
Thornton and Arthur Flach, in the Circuit Court for Baltimore City, alleging
claims of breach of contract, negligence in preparation of the Company's 1997
and 1998 financial statements and defamation of certain company officers, who
are also plaintiffs in the action. The Complaint entitled Carnegie International
----------------------
Corporation, et al. v. Grant Thornton, LLP, et al., Civil No. 24-C-00-002639,
- --------------------------------------------------
demands $2.1 billion in damages and is scheduled for trial in October 2001.
Grant Thornton filed a Motion to Dismiss certain claims in the Complaint which
was vigorously opposed by the Company. A hearing on Grant Thornton's motion was
argued before the Court in January 2001, however no decision has yet been
rendered. The parties are engaging in the exchange of the documents and expect
to commence depositions in early May 2001.

The Company has retained the law firm of William H. Murphy, Jr. and Associates,
P.A. with the law firm of Gary, Williams, Parenti, Finny, Lewis, McManus, Watson
& Sperando as co-council on a full contingency so the Company will have no
financial loss from this action.

Item 2. Changes in Securities.

During this reporting period the Company issued 2,208,448 restricted shares of
common stock under Section 4 (2) of the Securities Act of 1933, for cash,
payment of services, an acquisition incurred in 2000 and settlement of a
lawsuit.

Item 3. Defaults Upon Senior Securities.

None

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

None

Item 5. Other Information

On January 13, 2000 (during the Company's halt in the trading of its common
stock), the Company entered into a share purchase agreement with Infinity
Ventures.net. The agreement was for the investor to purchase Two Million
(2,000,000) shares of restricted Common Stock of the Company subject to the
provisions of Rule 144 of the Securities Act of 1933 for Thirty Five cents
($0.35) per share, or an aggregate purchase price of Seven Hundred Thousand
Dollars. The agreement called for the purchase to be made in three (3)
installments, which were all made. The agreement also called for registration
rights and penalties, an option to acquire a business

owned by the Company in the event the Company's shares do not resume trading
within a specified period of time and a yield protection provision. (See exhibit
10.46 to the Corporation's Form 10-KSB filed with the Commission on April 17,
2001 and incorporated by reference herein.) On February 14, 2001 the Company
reached an agreement with the investor tied to the Company's action versus its
former auditors and the pending merger with Host Funding. The agreement called
for the Company and Host to have completed the merger by April 17, 2001. The
agreement called for the Company and Infinity to extend the agreement or it
reverts back to the terms of the agreement signed on January 13, 2000. The
Company has entered into negotiations with Infinity but can give no assurance
that the February 14, 2001 agreement will be extended. (See exhibit 10.47 to the
Corporation's Form 10-KSB filed with the Commission on April 17, 2001 and
incorporated by reference herein.)

The assumptions supporting the current value of goodwill are:
The current intangible value at 3/31/01 is $3,339,604. The $3,339,604 value
consists of Goodwill, Customer lists and assembled workforces. Goodwill is
amortized over 15 years. Customer lists and assembled workforces are amortized
over a shorter period of time. Please refer to the 1999 10-KSB/A for applicable
periods of amortization. In order to assess the recoverability of the net
Goodwill value, a cash flow is completed annually and quarterly for each
subsidiary that recognizes Goodwill. Cash flow reports are completed for each
subsidiary to determine whether or not the cash flow obtained solely from the
subsidiary is equal to or greater than the subsidiary's net Goodwill. If it is
not, the Goodwill is considered impaired. Based on cash flow, no impairment of
goodwill existed at 3/31/01.

Purchase Agreement Issues
- -------------------------

The purchase agreement for Paramount calls for payment due to the Eberle
Family Trust on May 25, 1999 in the amount of $1,244,774.48. This payment has
not been made to date. The Trust has agreed to accept monthly interest payments
until the Company can satisfy this obligation. At this time no payment schedule
has been agreed upon. Despite the forbearance of the Eberle Family Trust, the
possibility exists for an attempted rescission of this transaction although the
Company believes this is unlikely, but there can be no assurances of such. If a
payment schedule is not agreed upon by both parties litigation could ultimately
result. The Company does not believe this will occur, and can give no assurance
of this not happening in the future.

Changes in Directors and Management
- -----------------------------------
During the quarter Barry Hunt tendered his resignation as a director of the
Company effective March 1, 2001. (See exhibit 99.8 to the Corporation's Form 10-
KSB filed with the Commission on April 17, 2001 and incorporated by reference
herein.)

Item 6. Exhibits and Reports on Form 8-K.

There was no Form 8-K filed during the Quarter. As a subsequent event the
Company filed an 8K on the sale of Harbor City Corporation on April 6, 2001 and
is incorporated by reference herein.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

CARNEGIE INTERNATIONAL CORPORATION
Registrant

May 15, 2001 By: /s/ Lowell Farkas
Date -----------------------
Lowell Farkas
President and Chief Executive Officer

INDEPENDENT ACCOUNTANT'S REPORT
-------------------------------

To the Stockholders and Board of Directors
Carnegie International, Inc. and Subsidiaries

We have reviewed the accompanying consolidated balance sheet of Carnegie
International, Inc. and Subsidiaries as of March 31, 2001, and the related
statements of operations, comprehensive income (loss) and cash flows for the
three months then ended. These financial statements are the responsibility of
the company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note (E) to the
financial statements, the Company has suffered recurring losses from operations
and its limited capital resources raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note (E). The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheet as of December 31, 2000, and the related consolidated
statements of operations, comprehensive loss, stockholders equity, and cash
flows for the year then ended (not presented herein); and in our report dated
April 6, 2001, we expressed an unqualified opinion on those consolidated
financial statements.

In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2000 is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.

MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants

New York, New York
May 14, 2001