10-K 1 f10-k2001.txt 2001 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _______________ Commission file number: 333-78659 AUTOTRADECENTER.COM INC. (Exact name of registrant as specified in its charter) ARIZONA 86-0879572 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15170 NORTH HAYDEN ROAD, SUITE 5, SCOTTSDALE, ARIZONA 85260 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (480) 556-6701 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ___ No X Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.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. [X] Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of July 23, 2001: $7,376,448 Number of shares of common stock outstanding as of March 31, 2001: 40,954,759 Documents incorporated by reference: None PART I ITEM 1. BUSINESS. Unless the context otherwise requires, the terms "we," "our," and "us," refers to AutoTradeCenter.com Inc. GENERAL We assist automobile manufacturers, finance companies, financial institutions, lease and rental companies, and automobile dealers in marketing their inventories of used automobiles over the Internet. This is referred to as "remarketing" in the automotive industry. We have developed technology that enables businesses with used vehicles to post their inventories on a website, provide detailed information about each vehicle, and sell these vehicles to other dealers. We believe that our services provide businesses with an efficient and cost-effective used vehicle redistribution or remarketing system as an alternative to traditional auto auctions. Presently, all of our revenues are derived from developing and operating remarketing websites for businesses, such as American Honda Finance and American Suzuki Motor, for which we are paid listing fees and fees when a vehicle is bought or sold on the website. We are trying to market our services to other similar types of companies. CORPORATE BACKGROUND We were organized as an Arizona corporation on July 10, 1997 under the name Auto Network USA, Inc., and commenced operations on September 22, 1997, at our facility in Scottsdale, Arizona. In December 1998, we changed our name to Auto Network Group, Inc. as a result of an agreement reached with an entity with a similar name. We again changed our name to AutoTradeCenter.com in April 1999 to more accurately reflect our Internet presence and our future direction of providing automotive remarketing services over the Internet. SUBSIDIARIES. Auto Network Group of New Mexico, Inc., a wholly owned subsidiary, was incorporated on May 18, 1998, and commenced operations on June 1, 1998. Upon the opening of our Auto Network Group of New Mexico office and warehouse facility, we were able to attract the necessary brokers and administrative personnel by issuing common stock and stock options in our company. We utilized this same process or methodology in opening other targeted markets, which, at the time, was part of our business plan and corporate strategy. Auto Network Group of New Mexico operated its business in a manner similar to certain other subsidiaries of its parent, AutoTradeCenter.com. On August 20, 1998, we acquired Pinnacle Dealer Services, Inc., an affiliated Arizona corporation by issuing 300,000 shares of common stock. Pinnacle Dealer Services promoted and administered alternative financing programs for dealers who purchased used cars from us. On January 7, 1999, we incorporated BusinessTradeCenter.com Inc. in Arizona to facilitate the wholesale buying and selling of vehicles between dealers on the Internet. Initially, we owned 55% of the common shares. BusinessTradeCenter.com has developed the technology and systems necessary to make our inventory, as well as the inventory of member dealers, available for purchase and sale on our Internet site. In March 2000, we acquired the remaining 45% minority interest of BusinessTradeCenter by issuing 5,000,000 shares of our common stock valued at $1.88 per share. As part of this transaction we repaid a $200,000 note that contained conversion rights to acquire a 30% (after conversion) interest in BusinessTradeCenter.com. On March 31, 1999, we acquired Walden Remarketing Services, Inc., a Minnesota corporation, by issuing to the shareholders of Walden Remarketing 2,050,000 restricted shares of common stock, cash of $125,000, and a promissory note in the principal amount of $450,000. We valued the issued shares at their estimated fair market value of $0.71 per share, or $1,450,000. In a separate agreement reached in December 1999, the then remaining balance of this note, $314,475, was paid through the issuance of 314,475 shares of common stock, valued at $1.00 per share. Walden Remarketing assists manufacturers in the disposition of their fleet and consumer lease vehicles. Walden Remarketing changed its name to AutoTradeCenter Remarketing Services in January 2000. 2 On July 20, 1999, we acquired Auto Network Group Northwest, Inc., an Oregon corporation formed to establish operations in the northwestern part of the United States. It had no prior operating history. Auto Network Group Northwest operated in a manner similar to Auto Network Group of New Mexico, Inc. On March 1, 2000 we acquired NDSCo.com Inc., a provider of systems and applications technology for the automotive industry, by issuing to the former shareholders of NDSCo 1,100,000 shares of our common stock valued at $2.55 per share. NDSCo became a wholly-owned subsidiary of BusinessTradeCenter.com, Inc. Auto Group of San Antonio, Ltd. and Auto Network Group of Eastern Pa., Inc. became wholly-owned subsidiaries of our company on April 1, 2000. These entities did not have prior operations. They operated in a manner similar to our New Mexico and Oregon wholesale operations. In September 2000, we decided to close the Pennsylvania operation. On August 2, 2000, we formed a new wholly-owned subsidiary, Auto Network Group of Denver, Inc. This subsidiary was not funded primarily due to our growing emphasis on Internet operations. Effective December 29, 2000, we sold our interest in Auto Network Group of New Mexico, Inc., Auto Network Group Northwest, Inc., and Auto Group of San Antonio, Ltd. EQUITY FINANCING. In December 1997, we sold 1,002,500 shares of common stock, in a private placement, for gross proceeds of $25,062.50. In February 1998, we sold 6,750 shares of Series A preferred stock, in a private placement, for $675,000. From November 1998 to December 1998, we sold 47,000 shares of Series B preferred stock for gross proceeds of $470,000 in a private placement. In February 2000, we sold in a private placement 20,800 shares of Series C preferred stock and 31,200 shares of Series D preferred stock for gross proceeds of $5,200,000. From March 2001 through April 20, 2001, we have sold 6,612,018 shares of common stock and 3,306,009 warrants in a private placement for gross proceeds of $1,653,005. INTERNET OPERATIONS On February 1, 1999, we introduced an Internet site: AutoTradeCenter.com. Our wholly-owned subsidiary, BusinessTradeCenter.com, controls the legal rights to the Internet domain name, technology, systems, and programming required to operate this site. Upon introduction, access to this site was limited to registered members including automobile dealers, leasing companies, banks, and fleet or rental companies. It was our intent, at the time, to provide to members information on used vehicles offered for sale by us and by others. To encourage use of this site, initially we offered free membership. We planned to charge a membership fee at an undetermined future date. From inception, approximately 500 businesses have registered as members. Initially up to ten members posted cars on the Internet site. Our entire inventory also was listed on the Internet site. To date no revenue has been generated from the AutoTradeCenter.com web site. Our current business plan does not include generating revenue from this site. The start-up costs for the development of the site were not material, since the prior minority owner of BusinessTradeCenter.com contributed the technology for the site design for its ownership interest. Software relating to Internet dealer-to-dealer used car exchanges acquired from NDSCo.com, as part of the purchase price of that company, was written off as impaired in our fiscal year ended March 31, 2001. The development of our website and our acquisition of Walden Remarketing Services led to the execution of a Motor Vehicle Remarketing Agreement with American Honda Finance Corporation in February 2000. The agreement gave us the exclusive contract to remarket, over the Internet for two years, all of the vehicles returned to Honda after termination of a lease. Access to the website is restricted to users approved by Honda. As of June 15, 2000, the Honda Web site was operational with all Honda and Acura dealers throughout the United States. We amended our agreement with American Honda Finance on February 12, 2001. Among other things, the amendment extends our contract to remarket Honda and Acura vehicles through January 31, 2004, and increases the fees we can earn for each vehicles marketed on the website. 3 We developed a pilot program for Suzuki, similar to the program utilized for Honda, in September 2000. We signed a definitive agreement with Suzuki in January 2001, and initiated sales of Suzuki vehicles over the Internet in May 2001. BusinessTradeCenter is responsible for the technology used in our contracts with American Honda Finance Corporation and American Suzuki Motor Corporation, in addition to the on-going responsibility of maintaining the system. On March 1, 2000, we acquired NDSCo.com Inc., a provider of technology for the automotive industry. We believe that certain of the applications and technology obtained by this acquisition complements the technology that we have previously acquired or developed. The rights to this technology, processes and applications became the property of BusinessTradeCenter.com. The functionality of certain of the systems acquired through the NDSCo.com acquisition is similar to the technology previously developed by BusinessTradeCenter. However, we believe that the NDSCo.com systems offer more flexibility and capability of being adapted for use by multiple clients. We believe that this technology allows us to add more clients, such as American Suzuki, without having to effect major changes to what we have already developed for existing clients. By combining the BusinessTradeCenter and NDSCo.com technologies, we have created the next generation of AutoTradeCenter technology called ATCADVANTAGE, to better service current clients such as American Honda Finance Corporation and American Suzuki Motor Corporation, as well as prospective clients. These prospective clients most likely will be automobile manufacturers, finance companies, financial institutions, lease and rental companies, and automobile dealers with an inventory of used vehicles to sell. We launched ATCADVANTAGE in February 2001 with the Honda website. Both the Honda and Suzuki websites utilize the ATCADVANTAGE platform, as will other clients when or if obtained. The ATCADVANTAGE web site offers, among other things, the following services and features: o INVENTORY LISTING - A consignor can post inventory for sale. The listing can include a complete description of each vehicle, including make, model, trim, accessories, mileage, and the wholesale price. Uploaded digital images and condition reports are also associated with the vehicles for viewing. o COMMUNITY - Consignors can set up a private, branded site for the purpose of providing an information center for their buying dealers. This area on the site facilitates dealer buying histories, remarketing activities calendar, transportation links, newsletter and other static links. Consignors can advertise here, through the use of banner ads, and other tools to market information to prospective buyers. o CARGROUPS -Consignor vehicles are organized into groups that follow the same business rules, or behaviors. This technology allows differing vehicle bodies to be searched, and viewed side by side by with vehicles from other CarGroups. Consignors can make all their portfolios available for sale to any, or all-prospective buyers through the use of one or more CarGroups. o CLIENT INVENTORY MANAGEMENT TOOLSET - Live performance reports, auction routing and individual vehicle tracking are available to the consignors providing a comprehensive view of their portfolios activity including sales and logistical data. o CONDITION REPORT UPLOAD STANDARDS - Reduces integration costs as vendors are introduced into the environment. The Standard is intended to make it easier for buying dealers to interpret vehicle inspection results. o CLICK SUPPORT FOR DEALERS - Utilizes push technology to take customer service levels to a new higher standard. The application of push technology, with advanced lead and follow characteristics, links directly with a CRM system, to unify dealer phone, fax, browsing and email activities. We intend to charge new clients for services provided on our ATCADVANTAGE site a per vehicle listing fee and a transaction fee for each vehicle sold on the website. We also intend to charge fees for extra services such as providing a call center, generating reports and analyzing data collected through the website, and to pass certain custom programming costs on to clients. 4 Since we have been unable to generate revenue from posting and selling vehicles on the AutoTradeCenter.com site as a result of, among other things, obstacles relating to the dealer-to-dealer exchanges of used vehicles over the Internet, we decided to change the functionality of our AutoTradeCenter.com web site as follows: o No automobiles are posted on the site. o We are redirecting dealers to the ATCADVANTAGE site. We are using the AutoTradeCenter.com site to provide information about our company, such as financial statements, press releases, personnel information, etc. BusinessTradeCenter is also responsible for the development and maintenance of our Internet application utilizing our website WWW.TRADEINCARSONLINE.COM. This website, introduced in December 1999, was designed to facilitate the Internet car buying process by providing a firm bid on trade-ins. Consumers can obtain a bid from us on their used car that they are trading in when purchasing a new vehicle from one of the on-line new car sale or referral programs. As of July 16, 2001, we have not purchased a vehicle through this website and we are unable to predict when or if we will earn any revenues from this or any other website. LAND-BASED OPERATIONS We began operations as a licensed wholesale automobile dealer engaged in the wholesale used car business. The wholesale used car business involves the buying of a used vehicle from a licensed automobile dealer and selling that vehicle to another licensed automobile dealer. Automobile dealers are licensed through the laws of each state where they conduct business and include the following types of entities: o Franchised dealers o Independent dealers o Finance companies o Lease companies o Car rental companies The distribution process of used automobiles takes place on local and national levels as car demand and supply fluctuates within and between local and national markets. Currently, the auto auctions located primarily in major urban areas across the country fill this re-distribution process. We, and other wholesale companies similar to us, satisfy only a small portion of the used car re-distribution process. The typical profile of other wholesale companies, commonly referred to as independent wholesale brokers, are either individuals or small groups of up to five individuals that buy and sell automobiles as described above. Our land-based operations competed with both the auto auctions and the independent wholesale brokers. Our land-based operations focused their efforts on the buying and selling late model luxury automobiles. The average vehicle sale was approximately $15,000. Our land-based operations contracted with salesmen, referred to as brokers, to buy and sell used vehicles. Each broker entered into a non-exclusive contract with the local operation that authorized the broker to act as the operation's agent in the buying and selling of used vehicles under the company name. Each operation used corporate funds to purchase the vehicle and in turn all monies received upon the sale of the used vehicle were deposited into the corporate bank account. Even though the broker had the authority to buy used vehicles, each operation contractually limited the amount of inventory that each broker could have on hand or unsold at any given point in time. Each broker had the responsibility to sell the used cars he or she has purchased. The average length of time a used vehicle was in inventory was 15 days. As of February 28, 2001, we discontinued all land-based operations. 5 AUTOTRADECENTER REMARKETING SERVICES (FORMERLY WALDEN REMARKETING SERVICES) AutoTradeCenter Remarketing assists the finance subsidiaries of manufacturers, banks or other finance companies, and car rental companies in remarketing used vehicles that are returned upon the expiration of a lease term or other contractual arrangement. AutoTradeCenter Remarketing currently is providing certain of these services for American Honda Finance Corporation and American Suzuki Motor Corporation utilizing the Internet technology provided by BusinessTradeCenter.com. In the mid 90's, creative lease programs appeared and thousands of returned vehicles started to appear at auto auctions after termination of a lease. Currently, we believe that lessees purchase only 25% of these vehicles at termination of the lease. In addition, dealer purchases of these vehicles have not met industry expectations. Therefore, lessors have not been able to maximize the residual prices for these vehicles, resulting in certain cases in severe losses on lease portfolios. Remarketing programs were developed to address this resale need. FINANCE PROGRAMS - PINNACLE DEALER SERVICES We acquired Pinnacle Dealer Services to promote and administer alternative third party finance programs for dealers who purchase used cars from us. Making financing available to dealers had the effect of increasing sales and cash flow without exposing us to any financing risks. These dealers, who were independent of our company, were obligated to the third party for any financing extended to them. The third party had the risk of making the loans. This type of arrangement is no longer needed in light of the disposition of our land-based operations. CUSTOMERS Our e-commerce Internet automotive solutions and initiatives provides us with the opportunity to serve the large suppliers of used automobiles such as finance companies, lease companies and car rental companies. These customers are also considered to be automobile dealers; however, they only supply the industry with used vehicles, they are not purchasers of used automobiles. For the fiscal year ended March 31, 2001, substantially all of our revenues from continuing operations were generated from our contract with American Honda Finance. SEASONALITY OF BUSINESS The sale of used automobiles is a year-round process. However, generally sales slow down during the fourth quarter of the calendar year due to the introduction of new models and the holiday season. Business generally picks up in January. Similarly there are fewer vehicles returned after the termination of a lease in the fourth quarter of the calendar year. This is followed by a return to higher volumes in the first and second calendar quarters, followed by a further increase in vehicles being returned after lease terminations during the summer months. WORKING CAPITAL PRACTICES We financed our inventory needs for our land-based operations through private sources of capital and proceeds from the sale of used cars. In addition, we utilized a $3,000,000 line of credit with Wells Fargo Business Credit, Inc. This line of credit has been paid in full as it was no longer needed due to the disposition of our land-based operations. Currently we are meeting our working capital needs through private placement sale of equity or debt securities and loans from related parties. COMPETITION We compete with other Internet-based entities that maintain commercial Web sites for the wholesale remarketing of vehicles on the Internet including Autodaq.com Inc., Manheim Interactive, Fleet Lease Disposal, Inc., The Cobalt Group and GMAC's Smart auction. We also compete with various financial institutions who 6 remarket their own off-lease vehicles. We believe that we compete for customers, which are entities with inventories of off-lease or program vehicles to sell, primarily on the basis of: o The cost of using our services as opposed to the services of others; o The experience and expertise of our personnel in Internet technology and the automobile remarketing/retail sales industries; o Our call center which is staffed 24 hours a day, 7 days a week; o Whether the needs of these entities are being addressed adequately; and o The quality of service to be rendered to all users of the Web site - primarily the seller and the buyer. We currently assess our competition as follows: o AUTODAQ.COM INC. - We believe that we compete directly against Autodaq.com Inc., an entity that currently provides an Internet Web site that competes with our Internet initiatives. These initiatives are directed to the acquisition and redistribution of vehicles returned to finance companies after termination of a lease. Because Autodaq.com is privately held there is little public knowledge about this company, its financial strength or its business model. We consider Autodaq.com to be a major competitor. Based upon the reaction from prospective customers to our most recent proposals, we believe that we compete favorably with Autodaq.com. o MANHEIM INTERACTIVE - Manheim Interactive is an Internet-based subsidiary of Manheim Auctions, which is the largest automobile auction company in the United States. Until recently Manheim Interactive had limited its presence only to vehicles grounded at Manheim auctions. However, we believe that Manheim intends to expand its Internet presence to include other vehicles. Manheim is far better capitalized than we, as it is owned by Cox Enterprises, a subsidiary of Cox Communications. o FLEET LEASE DISPOSAL, INC. - Fleet Lease Disposal is a privately-held Florida-based corporation that competes against us for large financial institution clients. It appears to have a management team with a significant amount of experience both in automobile sales and Internet technology. Its Veretack program offers vehicle remarketing services, lease disposal/termination solutions, title services, or personalized customer programs. It recently introduced new, web-based, Internet technology to expedite the process of remarketing off-lease and fleet vehicles for manufacturers, banks and other financial institutions. o THE COBALT GROUP - Cobalt is a public company. It also is better capitalized than our company. Currently The Cobalt Group is a leading provider of e-business products and services to the automotive industry. Nearly half of the nation's auto dealers use Cobalt's technology, including 8,500 Web services clients. Its e-business products and services are endorsed by 15 automotive manufacturers and more than 50 of the 100 largest dealer groups in the United States. Cobalt is the only e-business provider endorsed by the National Automobile Dealers Association. In the event Cobalt decides to enter the remarketing business, it can become a formidable competitor. o GMAC - Although the GMAC web site has been limited to General Motors' vehicles, an expansion of this site to other manufacturers and financial institution also could provide substantial competition. GOVERNMENT REGULATION Compliance with government regulations does not impose a significant impact on our Internet operations. EMPLOYEES AND BROKERS As of July 16, 2001, we had 22 full-time employees and no part-time employees. Employment levels remain relatively high as we anticipate future growth. We depend upon a limited number of key management and technical personnel. As we continue to mature, grow and diversify, our need for highly skilled professionals increases. Our continued success will depend in large part upon our ability to retain and attract managerial and technical personnel with significant experience in finance, technology and computers, marketing, and sales who 7 have significant automobile industry experience. None of our employees is represented by labor organizations; we have never had a work stoppage or slowdown as a result of labor issues; and we have excellent relations with our employees. Management believes that the adoption of our stock plans, along with other company benefits, will enhance employees' interest in remaining with us. In the future, management is planning to add further incentives to attract and retain high quality personnel. ITEM 2. PROPERTIES. We lease, from an unrelated third party, approximately 6,000 square feet of office space in Scottsdale, Arizona, to house our Internet operations. The lease expires February 28, 2002. The 13,500 square feet administrative and warehouse facility, also in Scottsdale, Arizona, that formerly housed our land-based and warehouse facilities, is leased from an unrelated third party under an operating lease expiring September 30, 2002. This facility is subleased to two unrelated parties. Monthly rentals received by us under the sublease are approximately equal to our rental payments. In addition, we are obligated to pay annual net rentals of $33,497 for a facility in Denver, Colorado. We are attempting to sublease the Denver facility; however, in the event we are not successful in subleasing this property, we have established adequate reserves in our financial statements to offset all such lease costs. Facilities for our land-based operations were leased by the respective subsidiaries. Accordingly, we have no ongoing obligations for those leases. ITEM 3. LEGAL PROCEEDINGS. We and certain of our subsidiaries have been named as defendants in various claims, complaints and other legal actions arising in the normal course of business. In the opinion of management, the outcome of these matters will not have a material adverse effect upon our financial condition, results of operations or cash flows. See "Forward-Looking Statements" below. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our common stock traded over-the-counter on the OTC Bulletin Board from January 29, 1998 to August 2, 1999, and since November 8, 1999. From August 3, 1999 to November 5, 1999, our common stock traded on the "pink sheets". The following table sets forth the range of high and low bid quotations for each fiscal quarter since the stock began trading. These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions and may not necessarily represent actual transactions.

On July 23, 2001, the closing price for the common stock was $0.19. The number of record holders of common stock as of May 4, 2001 was 112 according to our transfer agent. Our common stock is subject to SEC rules relating to "penny stocks," which apply to non-NASDAQ companies whose stock trades at less than $5.00 per share or whose tangible net worth is less than $2,000,000. Prior to the sale of a penny stock recommended by the broker-dealer to a new customer who is not an accredited investor, the broker-dealer must approve the customer's account for transactions in penny stocks in accordance with procedures set forth in the SEC's rules. The broker-dealer must obtain information about the customer's financial situation, investment experience, and investment objectives. Using this information, the broker-dealer must be able to determine that transactions in penny stocks are suitable for this customer and that the customer has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker-dealer must furnish the customer with a written statement setting forth the basis for the broker's determination of suitability. The customer must sign, date, and return the statement to the broker-dealer. In addition, the broker-dealer must obtain a written agreement from the customer to purchase the penny stock that sets forth the identity of the stock and number of shares to be purchased. A separate agreement must be obtained for each penny stock purchased by the customer until he or she becomes an "established customer." Holders of shares of common stock are entitled to dividends when, and if, declared by the board of directors out of funds legally available for the payment of dividends. We have never paid any cash dividends on our common stock and intend to retain future earnings, if any, to finance the development and expansion of our business. Our future dividend policy is subject to the discretion of the board of directors and will depend upon a number of factors, including future earnings, capital requirements, and our financial condition. 9 ITEM 6. SELECTED FINANCIAL DATA. The balance sheet and income statement data shown below were derived from our audited financial statements. We have restated our financial statements due to our disposition of our land-based operations, which represents the disposal of a business segment. You should read this data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as our financial statements and notes thereto, included elsewhere in this report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Our actual future results could differ materially from our historical results of operations and those discussed in the forward-looking statements. All period references are from September 22, 1997, commencement of operations, through March 31, 1998 and the years ended March 31, 1999, 2000, and 2001. GENERAL The presentation includes a discussion of us with our wholly owned subsidiaries, NDSCo.com, Inc., AutoTradeCenter Remarketing Services, Inc. formerly Walden Remarketing Services, Inc., and BusinessTradeCenter.com Inc., as well as subsidiaries in which we formerly carried out our land-based operations. These subsidiaries are Auto Network Group of Arizona, Inc., Auto Network Group of New Mexico, Inc., Auto Network Group Northwest, Inc., Auto Network Group of Eastern Pa., Inc., Auto Group of San Antonio Ltd., Auto Network Group of Denver Inc., and Pinnacle Dealer Services, Inc. 10 As of December 29, 2000, we sold our interest in our land-based operations in Albuquerque, New Mexico; San Antonio, Texas; and Bend, Oregon to Automotive Disposition Management Services, Inc., an affiliated Arizona corporation, in exchange for a 16% interest in Automotive Disposition. Automotive Disposition is a private company owned by Jules Gollins, the manager of the New Mexico land-based operation, and by Mark Moldenhauer, one of our founders, a principal shareholder, and former officer and director. We disposed of our land-based operations in Scottsdale, Arizona, as of February 28, 2001, thereby discontinuing all land-based operations and allowing us to focus on providing automotive remarketing services via the Internet. As a result of the disposition of our land-based operations, as further described in the following paragraphs, the trend information should be carefully read and evaluated. See "Anticipated Trends and Plan of Operations" beginning at page 17. OVERVIEW We began operations on September 22, 1997 and completed our first fiscal year on March 31, 1998. On June 1, 1998, we opened the office and warehouse facility in Albuquerque, New Mexico. We acquired Pinnacle Dealer Services, Inc. in August 1998 to provide financing for the purchase of vehicles. On July 20, 1999, we opened our office and warehouse facility in Bend, Oregon. On April 1, 2000, we began operations in the Philadelphia, Pennsylvania area, with the incorporation of Auto Network Group of Eastern Pa., Inc. At the same time, we began operations in San Antonio, Texas, with the establishment of Auto Group of San Antonio Ltd., a Texas limited partnership. In each of these transactions, we entered into a management consulting agreement with the individual or entity responsible for managing each respective operation. Under these agreements, certain of our common shares were issued to such managers, subject to forfeiture based on both future earnings levels and continuity of management. In addition, we made stock options available to these managers, which could be earned based on future performance. On August 2, 2000, we formed a new wholly owned subsidiary, Auto Network Group of Denver, Inc., and leased a facility in Denver, Colorado. In January 1999, we announced the development of our Internet site WWW.AUTOTRADECENTER.COM. No revenues have been generated from the operations of this site, which is now used for informational purposes only. However, effective February 1, 2000, a new web site developed for American Honda Finance Corporation, powered by our technology, began generating revenue. We generated $291,587 of revenue in the year ended March 31, 2000 from remarketing activities that were not related either to our Internet remarketing business or our land-based operations. See the discussion about Walden Remarketing on page 13. Our existing remarketing agreement with Honda Finance Corporation gives us an exclusive contract to remarket, over the Internet through January 31, 2004, all of the vehicles returned to Honda and Acura after termination of a lease. These are referred to in the industry as "off-lease" vehicles. The Honda web site, www.hfcarsales.com, became operational in all Honda and Acura dealerships by June 15, 2000 upon completion of a phase in period beginning April 2000. We developed a pilot program for Suzuki, similar to the program developed for Honda, utilizing our Internet technology systems and procedures to remarket their program vehicles to dealers. The Suzuki pilot program began in September 2000 (www.suzukiproline.com) and we signed an agreement with Suzuki in January 2001 to remarket their program cars over the Internet for a one-year period. In April of 2001, we entered into an agreement to remarket off-lease Volvo vehicles with Volvo Finance North America for 15 months, commencing April 30, 2001. We anticipate the Volvo Finance web site, www.volvoride.com, will be completed by August 15, 2001. Due to the discontinuance of our land-based operations, we now focus all of our efforts on remarketing vehicles over the Internet. RESULTS OF OPERATIONS Our financial statements since our inception in 1997 reflect Internet operations as continuing operations and land-based operations as discontinued operations, even though we did not generate any revenue from our Internet remarketing operations until April 2000. On November 30, 2000, our management and Board of Directors decided to discontinue all of our land-based operations. We believe that our best opportunity to maximize profitability and shareholder value is to concentrate all of our efforts on remarketing used vehicles utilizing the Internet as the backbone of our operations. We sold our land-based subsidiaries in New Mexico, Oregon, and Texas on December 29, 2000, and closed our operations in Pennsylvania and Colorado by the end of the year. We began to 11 down size our Scottsdale, Arizona operations in December 2000, and transferred these operations to certain of the independent-contractor brokers who formerly purchased and sold vehicles for us primarily in Scottsdale, Arizona, effective February 28, 2001. The following schedule shows the computation of the loss resulting from discontinuing our land-based operations:

The following statement of operations for the land-based operations reflects the details of these operations for the periods herein presented: RESULTS OF OPERATIONS OF DISCONTINUED LAND-BASED OPERATIONS:

12 Net losses from continuing operations were $9,060,369 ($0.28 per share), $946,202 ($0.04 per share), and $276,671 ($0.02 per share) for the fiscal years ended March 31, 2001, 2000, and 1999, respectively. Total net losses (including discontinued operations) were $11,723,654 ($0.36 per share) and $2,587,753 ($0.12 per share) for the fiscal years ended March 31, 2001 and 2000. We had net income of $115,241 ($0.01 per share) for the year ended March 31, 1999. Net sales from continuing operations were $891,423, $291,587, and nil for our fiscal years ended March 31, 2001, 2000, and 1999, respectively. Substantially all revenue for the year ended March 31, 2001 was earned from remarketing 22,173 Honda and Acura vehicles under our contract with American Honda Finance Corporation. For the fiscal year ended March 31, 2000, all revenue was earned during the first part of the year by AutoTradeCenter Remarketing Services Inc. from contracts entered into by Walden Remarketing Services prior to our acquisition of that company. These contracts were with American Honda Finance and others. The revenue derived from these contracts resulted from services provided by us to encourage dealers to attend and purchase off-lease and other vehicles at auctions. None of this revenue resulted from Internet activities, and it ceased upon expiration of the contracts in July and August of 1999. Operating expenses from continuing operations were $9,849,903, $1,174,333, and $213,215 for the fiscal years ended March 31, 2001, 2000, and 1999, respectively. The increase in general and administrative expenses in the fiscal year ended March 31, 2001, as compared to our fiscal year ended March 31, 2000, primarily resulted from the expansion of our Internet operations to remarket off-lease and program vehicles. Included in expenses related to our new business plan are $342,089 for hosting and maintaining our Honda and Suzuki web sites and expenses to maintain a call center to serve all Honda, Acura, and Suzuki dealers 24 hours a day, 7 days per week. Sales and marketing expenses including salary, travel, and other website sales promotion totaled $730,883. Operating expenses for the year included all of our corporate overhead costs. During the fiscal year ended March 31, 2001, we expensed legal, accounting, and professional fees of $579,155, outside consulting fees including directors fees and other costs related to public relations of $473,788, rent expenses of $187,431, and general and administrative costs of $385,083. The increase in these costs, in addition to our expanded Internet operations, also can be attributed, in part, to expenses associated with our registration process, costs associated with our capital raising efforts, enhancements of our accounting and management information systems, and costs associated with the hiring and training of personnel. For the fiscal year ended March 31, 2000, operating expenses included all direct costs and salaries related to continuing operations plus an allocation of executive salary and administrative costs from our land-based operations. While there were no revenues generated in fiscal 1999, we had operating expenses of $213,215. Operating expenses for 1999 included certain allocations of corporate overhead and interest expense from our land-based operations. Depreciation primarily is capitalized software costs resulting from the acquisitions of minority interest in BusinessTradeCenter.com and the acquisition of NDSCo.com, as well as from computers and equipment required to run our Internet sites and office furniture and equipment. Depreciation and amortization related to continuing operations increased to $3,836,788 for the fiscal year ended March 31, 2001, as compared to $319,800 and $24,042 for the fiscal years ended March 31, 2000 and 1999, respectively. Included in depreciation and amortization for the fiscal year ended March 31, 2001 are $3,265,247 for depreciation of software acquired when we purchased the minority interest in BusinessTradeCenter.com and amortization of $198,538 of goodwill resulting from our acquisition (during our fiscal year ended March 31, 2000) of Walden Remarketing. The balance of depreciation expense resulted from depreciation of our furniture, fixtures, and computer hardware. We also recorded a charge for the loss on disposal of impaired software of $2,261,486. This software was acquired from NDSCo.com as part of the purchase price when we acquired NDSCo on March 31, 2000. This software that assists in dealer-to-dealer Internet exchanges of used vehicles does not fit in our current business plan of remarketing off-lease and program cars. Since we cannot determine when or if we will use the software, we are unable to assess its value and accordingly consider it impaired. 13 During the fiscal year ended March 31, 2000, depreciation and amortization charges of $319,800 included amortization of $198,538 for goodwill relating to our acquisition of Walden Remarketing, in addition to depreciation of furniture, fixtures, and computer hardware. For our fiscal year ended March 31, 1999, depreciation of furniture, fixtures, and computer hardware totaled $24,042. Interest expense for the fiscal years ended March 31, 2001, 2000, and 1999 of $106,888, $63,456, and $63,456, respectively, was from interest charges on related party debt allocated to continuing operations. The balance of interest expense from related party debt was included in the results of our discontinued operations. FLUCTUATIONS IN OPERATING RESULTS We have had limited experience to determine if our operations will be subjected to major fluctuations or trends. Historically, the used car market has remained relatively stable as an industry. Industry projections over the next few years indicate there will be an upward trend in used car sales. Vehicles coming off-lease during the next three years are predicted to remain relatively constant as are the availability of program cars. However, there can be no assurance that our sales will parallel industry projections or that industry projections will materialize. FINANCIAL CONDITION ASSETS. As a result of our decision to discontinue our land-based operations, our total assets decreased to $10,267,582 at March 31, 2001, from $20,102,747 at March 31, 2000. This decrease primarily results from the substantial completion of the sale of assets formerly used in our land-based operations (as is reflected in the following schedule) and our use of cash in funding operations. Total assets also declined due to non-cash depreciation and amortization of our software, furniture and equipment, and goodwill, and the write-off of impaired software. The following table reflects the detail of our net assets from discontinued operations: AUTOTRADECENTER.COM INC. SCHEDULE OF NET ASSETS FROM DISCONTINUED OPERATIONS

Total assets were $20,102,747 at March 31, 2000, an increase of $15,311,930 from total assets of $4,790,817 at March 31, 1999. A substantial amount of this increase is reflected in net software that increased from $5,442 at March 31, 1999 to $12,013,608 at March 31, 2000. The increase is due to our acquisitions of other entities for shares of our common stock and other consideration described below. Other increases in assets included an increase in cash of $4,057,986 from the proceeds of the sale in a private placement of our Series C and Series D convertible preferred stock, an increase in the carrying value of net assets for discontinued operations, and purchases of property and equipment. 14 o NATIONAL DEALER SERVICES CO. ("NDSCO") On March 1, 2000, we acquired NDSCo by issuing to its shareholders a total of 1,100,000 restricted shares of common stock, valued at $2.55 per share, in exchange for the outstanding NDSCo shares. Of the purchase price, $2,039,123 was allocated to the cost of software. During the fiscal year ended March 31, 2001, this entire undepreciated cost was charged to expense as a loss on impaired software as we no longer could determine its fair value, if any. o AUTOTRADECENTER REMARKETING SERVICES & WALDEN REMARKETING SERVICES, INC. ("WALDEN REMARKETING") On March 31, 1999, we acquired Walden Remarketing by issuing to its shareholders a total of 2,050,000 restricted shares of common stock, cash of $125,000, and a promissory note in the principal amount of $425,000. We valued the common stock at its estimated fair market value of $0.71 per share for a total of $1,450,000. The promissory note accrued interest at the rate of 12% per annum and required us to make 18 equal monthly payments of principal and interest beginning May 1, 1999. At December 31, 1999, we converted the remaining principal balance of the note ($314,475) into 314,475 shares of common stock. The excess of the purchase price over the fair value of the net assets acquired (goodwill) was $1,985,383 and is being amortized on a straight-line basis over 10 years. o BUSINESS TRADECENTER.COM INC. ("BTC") On January 7, 1999, we incorporated BTC in Arizona to facilitate the buying and selling of vehicles at wholesale between dealers on the Internet. BTC has developed the technology and systems necessary to make our inventory, as well as the inventory of member dealers, available for purchase and sale on our Internet site. On March 23, 2000, we acquired the remaining 45% minority interest of BTC by issuing 5,000,000 shares of common stock, valued at $1.88 per share, which represented management's estimate of the fair market value of the common stock on that date, and paying off a convertible $200,000 note. Of the purchase price, $9,374,550 was considered the value of the BTC software, certain of which was being completed pursuant to our contract to provide Internet marketing of American Honda Finance Corporation's off-lease vehicles. The carrying value of this software is being depreciated over 36 months. LIABILITIES. Current liabilities at March 31, 2001 decreased to $446,039 from $1,118,542 at March 31, 2000, primarily due to the repayment of our revolving note payable to Wells Fargo Business Credit in February 2001. Long-term debt due to related parties was $538,307 at March 31, 2001, as compared to $528,807 due to the same parties at March 31, 2000 and March 31, 1999. Our long-term debt is due April 1, 2002. STOCKHOLDERS' EQUITY. Stockholders' equity decreased from $18,455,398 at March 31, 2000, to $9,282,736 at March 31, 2001. The decrease primarily resulted from our net loss for the fiscal year ended March 31, 2001 of $11,723,654 offset by: $1,452,487 of proceeds from private placement of common shares in March 2001, cash received from the exercise of stock options of $498,550, common stock issued for services of $299,955, and the conversion of a note payable of $300,000 into common shares. Stockholders' equity increased from $2,911,064 at March 31, 1999 to $18,455,398 at March 31, 2000. The increase is attributable to: $4,766,341 of net proceeds from the sale in a private placement of our Series C and series D preferred shares; $9,375,000 from the issuance of common shares to acquire the minority interest in a subsidiary (BTC); $2,801,590 from the issuance of common shares to acquire a wholly owned subsidiary (NDSCo.); $250,000 of net proceeds from the sale of common stock as a result of exercise of options and warrants; the issuance of common stock valued at $193,401 in connection with the acquisition of our Northwest subsidiary; $80,000 in common shares issued for software development; $314,475 relating to a conversion of debt to equity; and $351,280 for the fair value of stock options granted. These increases were offset by our net loss for the year of $2,587,753. During February 2000 we issued 20,800 shares of Series C preferred stock ("Series C") for $2,080,000. Each share of Series C preferred stock is convertible, at the option of the holder, at any time, into 80 shares of Common Stock of the Corporation, which is based on the initial conversion price of $1.25. We assigned an intrinsic value of $1,697,280 to this conversion feature. As a result, a constructive dividend in this amount was charged to retained earnings with a corresponding increase in common stock. Each share of Series C preferred stock is entitled to a $100 liquidation preference over common stockholders. The Series C preferred stock is non-voting. We have 15 the right and option upon notice to the holders of the Series C preferred stock to call, redeem, and acquire any or all of the shares of Series C preferred stock at a price equal to $110.00 per share, at any time to the extent such shares have not previously converted to common stock pursuant to the terms described above; provided, however, that the holders of the Series C preferred stock shall, in any event, have the right during the 30-day period immediately following the date of the Notice of Redemption, which shall fix the date for redemption, to convert their shares of Series C preferred stock. During February 2000 we issued 31,200 shares of Series D preferred stock ("Series D") for $3,120,000. Each share of Series D preferred stock is convertible, at the option of the holder, at any time, into shares of Common Stock of the Corporation equal to $100.00 divided by the conversion price which shall be equal to 65% of the average closing bid price for the common stock for the 10 trading days immediately preceding the date of conversion. The maximum conversion price shall be $4.00 per share. We assigned an intrinsic value of $1,680,000 to this conversion feature. As a result, a constructive dividend in this amount was charged to retained earnings with a corresponding increase in common stock. Each share of Series D preferred stock is entitled to a $100 liquidation preference over common stockholders. The Series D preferred stock is non-voting. We have the right and option upon notice to the holders of the Series D preferred stock to call, redeem, and acquire any or all of the shares of Series D preferred stock at a price equal to $110.00 per share, at any time to the extent such shares have not previously converted to common stock pursuant to the terms described above; provided, however, that the holders of the Series D preferred stock shall, in any event, have the right during the 30-day period immediately following the date of the Notice of Redemption, which shall fix the date for redemption, to convert their shares of Series D preferred stock in accordance with the terms described above. In accordance with the terms of the Series C and D preferred stock, the Company was deemed to issue an additional 2% (416 shares of Series C and 624 shares of Series D) to the shareholders. As the additional shares were considered to be a cost of issuance, their cost was capitalized to the related equity account. The conversion price for the Series C preferred stock was subsequently reduced to $0.75. During our fiscal year ended March 31, 2001, holders of $981,708 and $1,632,508 of our Series C and D preferred stock (9,682 and 16,664 shares, respectively) elected to convert such shares to 3,352,663 common shares based on the formulae contained in the terms of the preferred shares. On May 17, 2000, we filed a registration statement to register the resale of the common shares issued or to be issued upon conversion of the Series C and Series D preferred stock. That registration is still in process. LIQUIDITY AND CAPITAL RESOURCES Working capital (current assets minus current liabilities) was $182,556 at March 31, 2001, as compared to working capital at March 31, 2000 of $4,370,634. The decrease of $4,188,078 substantially is due to the decrease in cash of $4,146,670 and the decrease in assets from discontinued operations offset by the increases in receivables and the repayment of our revolving line of credit with Wells Fargo. We used cash of $4,371,599 in our operating activities for the fiscal year ended March 31, 2001, the major components of which were our net losses for the period from continuing operations of $9,060,369, discontinued operations of $323,839, and discontinuance of land-based operations of $2,339,445. Cash primarily was provided by the non-cash charges for depreciation and amortization of $3,836,788, plus the non-cash loss on disposal of impaired assets of $2,261,486. An additional non-cash expense related to the issuance of stock and options for services valued at $299,955. Other accounts affecting our cash balances included cash received from liquidation of assets of discontinued operations of $1,001,354, an additional short-term loan from a related party, and increases in accounts payable and accrued liabilities offset by an increase in accounts receivable. For the fiscal year ended March 31, 2000, net cash used in operating activities was $742,328. The major component contributing to the cash used in operations for the fiscal year ended March 31, 2000 were our net losses for the period of $946,202 and $1,641,551 from continuing operations and discontinued operations, respectively. Cash primarily was provided by the non-cash charges for depreciation and amortization of $319,800 and the additional non-cash expense related to the issuance of stock and options for services valued at $351,280. Other accounts affecting our cash balances included cash received from discontinued operations of $1,257,062 and small changes, both positive and negative, to other current assets and liabilities. 16 For the fiscal year ended March 31, 1999, net cash used in operating activities was $1,682,760. The major components contributing to the cash used in operations for the fiscal year ended March 31, 1999 were our net income (loss) for the period of $(226,369) and $341,610 from continuing operations and discontinued operations, respectively. Cash was provided by the non-cash charges for depreciation and amortization of $24,042 and the additional non-cash expense related to the issuance of stock and options for services valued at $23,083. We used $1,823,695 to acquire assets for our discontinued land-based operations. Cash balances also were affected by small changes, both positive and negative, to other current assets and liabilities. Our investing activities for the fiscal years ended March 31, 2001, 2000, and 1999 used cash of $1,123,690, $374,420, and $188,832, respectively. For the fiscal year ended March 31, 2001, cash was used primarily for the purchase of computer hardware and software required for business expansion and our e-commerce and Internet operations, and offset by the sale of certain company-owned vehicles. For the fiscal year ended March 31, 2000, we acquired computer software and hardware, company cars, and office furniture and fixtures. Our investing activities for the fiscal year ended March 31, 1999 also were for similar items. In addition, we used $70,906 in an acquisition. Financing activities provided net cash of $1,148,619 for our fiscal year ended March 31, 2001, as compared to $5,174,734 and $2,169,344 during the previous two years, respectively. Increases in cash included $1,452,487 from the proceeds of the sale of 5,865,212 common shares in March 2001, $498,550 in proceeds received from the exercise of previously issued stock options, and additional borrowings of $310,000 from related parties. Our related party debt of $738,807 is due April 1, 2002. We used $1,112,418 to repay the Wells Fargo Business Credit, Inc. line of credit that had provided sufficient short-term liquidity and capital to implement our business plan, including the expansion into other markets. The note that evidenced this obligation to Wells Fargo Business Credit bore interest at 1.5% over prime and was extended from its original due date of March 31, 2000 to January 31, 2001. At March 31, 2000 our bank line of credit was $1,112,418. On February 16, 2001 we repaid Wells Fargo Business Credit in full. For our fiscal year ended March 31, 2000, we supported our cash needs by net borrowings of $158,393 and proceeds from the issuance of convertible preferred stock and common stock of $4,766,341 and $250,000, respectively. For the fiscal year ended March 31, 1999, cash needs were supplied by net borrowings of $1,268,500 and the issuance of long-term debt and convertible preferred stock for $528,807 and $372,037, respectively. ANTICIPATED TRENDS AND PLAN OF OPERATION We intend to continue the development of our Internet sites. We believe that focusing on providing automotive remarketing services via the Internet will improve our long-term prospects for profitability. While the land-based operations generated a substantial amount of revenue, the gross profit margins were low and insufficient to cover operating expenses relating to the land-based operations. These operating expenses consisted primarily of selling commissions, interest expenses (for financing inventory and accounts receivable), bad debt expense, and office overhead. In addition, the land-based operations were capital-intensive. In contrast, the Internet operations generate a lower amount of revenue, but result in higher profit margins. Our agreement with American Honda Finance Corporation will generate revenues for the next three years. We anticipate a greater number of car sales on our Honda website resulting in increased revenues in the months to come as a larger number of vehicles are being returned upon termination of leases and will be available to all Honda and Acura dealers in the United States. In addition our amended contract with American Honda Finance Corporation will provide additional revenue for each car sold on our website. With the definitive agreement signed with American Suzuki Motor Corporation in January 2001, we expect to generate added revenue from the Suzuki site. We entered into an agreement to remarket off-lease Volvo vehicles with Volvo Finance North America for 15 months, commencing April 30, 2001. We anticipate the Volvo Finance web site, www.volvoride.com, will be completed by August 15, 2001. We anticipate entering into similar contracts with other manufacturers and financial institutions to assist them in remarketing their inventories of used vehicles; however, no such other contracts exist at this time. The Company has sustained operating losses and negative cash flow since its inception, resulting in little tangible net worth at March 31, 2001. Currently we are operating at a cash flow deficit as revenues from Internet 17 operations do not cover operating expenses. We project that cash flow from operations will reach a break-even level during our quarter ended December 31, 2001. Accordingly, we require no less than $1,300,000 of cash through external sources to fund our operations and service our long and short-term debt until we achieve positive cash flow from operations. We plan to finance this deficit from additional capital in the form of equity or debt or both to be raised in a private placement. In the event this capital is not raised, our Internet operations will be severely limited and meeting our existing overhead will be difficult. This limitation adversely may affect shareholder value. We have addressed these concerns by: (1) obtaining a new line of credit, effective July 26, 2001, for up to $1,300,000 to fund our operating needs until the projected future revenue sources are developed; (2) Continuing our efforts to raise up to an additional $500,000 under terms similar to those of the private placement of equity securities in March and April of 2001; (3) Implementing plans to generate positive cash flow and operating profits by increasing revenues through the expansion of our Internet remarketing of off-lease and program vehicles with our current customers and others and development of new products and services for our current customer base and others; and (4) further reducing our cash requirements for software and website development and continuing to reduce our costs of operations. There is no assurance, however, that the Company will be able to implement its business plan as outlined above. In the event that the Company is unable to obtain positive cash flow prior to exhausting its new line of credit, it must obtain additional financing in the form of equity or debt to continue operations. SUBSEQUENT EVENT On July 26, 2001, we entered into a financing arrangement with Eagle Capital Group, LLC ("Eagle"), a private company, which provides for a line of credit up to $1,300,000. The loan provides for an initial advance of $250,000, followed by a thirty-day review period during which Eagle will complete its legal due diligence with respect to, among other items, the Company's intellectual property. The review period grants Eagle the right to discontinue funding of the line of credit if the Company's intellectual property is deficient in certain material respects. The loan is due June 30, 2002. It bears interest at the rate of 12% per annum payable monthly. We paid a commitment fee of $13,000 and are obligated to pay a one percent (1%) facility fee of up to $13,000 each quarter. We also are required to pay monthly principal payments of not less than 5% of the outstanding loan balance once we achieve positive cash flow. The loan is secured by all assets including, but not limited to, furniture, fixtures, leasehold, personal property, and intellectual property. The loan is convertible into our common stock at any time before the due date thereof, including any extensions, at the lesser of the average bid price following the date of the first advance and the earlier of the conversion date or the termination date or $0.10 per share. We also issued Eagle a warrant which allows Eagle, for a period of 90 days from the termination date of the loan, to purchase common shares at $0.10 per share in an amount equal to the difference between (a) 13,000,000 and (b) the number of shares of common stock issued upon prior conversion of any amounts under the loan. In addition, we issued a warrant to Eagle that allows Eagle to purchase, for a period of up to five years, up to 6,500,000 shares of common stock at an exercise price of $0.125 per share. If we prepay the loan in full at any time prior to December 31, 2001, we will issue to Eagle 1,500,000 shares of common stock as consideration. In addition, we issued to Eagle 1,300 shares Series E preferred stock, at a par value of $0.10 per share. The Series E preferred stock grants Eagle the right to vote an equivalent of 13,000,000 common shares. Eagle will have two representatives on our board of directors. We also entered into a Facilities Use and Administrative Services Agreement with an affiliate of Eagle for the use of office facilities, software development, marketing, accounting, and other management services that may vary from time to time. The fee for these services will be negotiated between the parties in good faith as business practices and circumstances change. On July 26, 2001, as part of the agreement with Eagle, we consolidated the notes payable to Pinnacle Financial and Mark Moldenhauer of $336,807 and $402,000, respectively. The consolidated note bears interest at 12% payable monthly. In addition, we are obligated to make principal payments of $25,000 per month in November 18 and December 2001, and $50,000 per month principal payments from January 2002 through May 2002. The balance of the note is due June 30, 2002. Any principal payment may be converted into common stock at the sole discretion of the lender at the rate of $0.10 per share, upon three days written notice. We also issued a warrant to purchase one share of common stock for every two shares of common stock received upon conversion. The warrant exercise price is $0.125 per share and expires five years from issuance. The note is subordinated to the first lien of Eagle. As a result of this transaction, we are required to reset the pricing of the units sold in March through April, 2001 pursuant to a private placement. The anti-dilution clause contained in the private placement required us to issue 9,948,027 shares of our common stock and 4,959,013 additional stock purchase warrants exercisable at $0.125 per share. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the financial statements beginning with page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 19 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The officers and directors of the company are as follows:

The term of office of each director of our company ends at the next annual meeting of our stockholders or when such director's successor is elected and qualifies. No date for the next annual meeting of stockholders is specified in our Bylaws or has been fixed by the board of directors. The term of office of each officer of our company ends at the next annual meeting of our board of directors, expected to take place immediately after the next annual meeting of stockholders, or when such officer's successor is elected and qualifies. ROGER L. BUTTERWICK has been the President and a director of our company since December 8, 1999 and our Treasurer since April 2, 1999. Prior to joining our company, Mr. Butterwick devoted the majority of his time as a partner in Cambridge Management Associates, LLP, an organization in the business of structuring and securing financing for developing organizations. Previously, Mr. Butterwick was an owner of Lehman, Butterwick & Company, P.C., a large local certified public accounting firm located in Denver, Colorado. In addition, he has been involved with the finance and mortgage banking industries. Mr. Butterwick received his Bachelor of Science in Business Administration from the University of Denver. He is a member of the American Institute of CPA's. Mr. Butterwick is a full-time employee of our company. JOHN E. ROWLETT has been the Secretary and a director of our company since December 8, 1999. Mr. Rowlett is a 25-year veteran of the automobile business. He has extensive expertise in all areas of dealership management, including facility design, development and maintenance, sales, sales management, general management, finance, CSI, wholesaling, reconditioning, parts, service and body shop management, forecasting, budgeting, policy administration, inventory acquisition and control, market trends, and financial management. Mr. Rowlett has been charged with the responsibility of managing large retail mega-dealerships involving multiple locations and new car store franchises. Accomplishments include: o Graduate of Chrysler Corporation's Dealer Academy o Experienced in turnarounds and rapid growth transitions, outstanding history of rehabilitation of marginal or unprofitable dealerships. o Accomplished in marketing, product development, operations and direct sales of diverse product lines. o Effective in all phases of labor relations, including recruiting, hiring, training, motivating and supervising. MICHAEL H. FEINSTEIN has been the Chief Financial Officer of our company since May 2000. Mr. Feinstein also serves as a director and the chairman of the audit committee of Styling Technology Incorporated of Scottsdale, Arizona, a publicly-held manufacturer and distributor of beauty salon products. He has held this position since June 1997. From May 1998 to April 2000, Mr. Feinstein has provided business consulting services in Phoenix, Arizona, in addition to serving for a period of time as the President of a private company engaged in manufacturing located in Tempe, Arizona. From July 1995 to May 1998, he served as the chief financial officer for Monaco Finance, Inc., of 20 Denver, Colorado, a sub-prime automobile finance company formerly listed on NASDAQ. He was the executive vice president and later president of American Southwest Holdings, Inc., of Phoenix, Arizona, engaged in the mortgage securitization industry. From 1983 to 1993, Mr. Feinstein was the chief financial officer for MDC Holdings, Inc. and Asset Investors Corporation, both based in Denver, Colorado and traded on the New York Stock Exchange. MDC Holdings is one of the largest homebuilders in the United States and Asset Investors is a real estate investment trust. Prior to 1983, he was a partner with the national public accounting firm of Deloitte and Touche. Mr. Feinstein is a graduate of the Wharton School of the University of Pennsylvania. He obtained his CPA certificate from Colorado and has been a member of the American Institute of CPA's. MARK R. JENSEN has been our Chief Technology Officer since March 2000. He is responsible for all operations that relate to our Internet initiatives. Mr. Jensen joined us from NDSCo.com, a privately-held Internet automotive remarketing company that we acquired in March 2000. As acting chief operations officer, he managed NDSCo.com's business operations from April 1999 to March 2000. Mr. Jensen founded The Deanox Group, Inc. in 1989 and operated that company until 1998. As a privately-held company in Logan, Utah, The Deanox Group provided computer software, hardware, and consulting services to customers desiring to apply computer technologies to their business operations. Mr. Jensen has been a frequent speaker and trainer for groups and academic forums including the State of Utah, Utah State University, Bernina of America, Weber State College, Mountain West Center for Regional Studies, Utah State Continuing Education Department, and the Office of the Governor for the State of Utah. JOHN HOUCK has been a director since November 2000. Mr. Houck retired in December 1998 from Toyota Motor Credit, where he had served as manager of its Phoenix, Arizona, branch office since June 1987. From December 1966 to May 1987, he worked with Ford Motor Credit, serving in the capacity of branch manager in Honolulu, Hawaii. JAMES KAISER has been a director since November 2000. Mr. Kaiser has been the chairman, chief executive officer, and a director of Avenir Partners Inc., a privately-owned franchised automobile dealership located in Memphis, Tennessee, since December 1998. He has also been the president of Kaiser Services, LLC, a business development company, located in Manhattan Beach, California, since 1998. From 1994 to 1996, Mr. Kaiser was the president, chief executive officer, and a director of Quanterra Inc., a subsidiary jointly owned by Corning Inc. and International Technology Inc., engaged in the business of environmental testing laboratories and located in Denver, Colorado. Mr. Kaiser serves as a director of the following public companies: Sunoco, Inc. since 1993; and The Mead Corporation since 1995. DAVID LIVINGSTON has been a director since November 2000. Since December 1995, Mr. Livingston has been the managing partner of The Corporate Development Group, a private firm located in Mission Viejo, California offering corporate development and investment banking services. He was the executive vice president of the Bank of New Mexico (a Western Bancorporation/First Interstate Bancorporation bank) from 1962 to 1970 and chairman, chief executive officer, and a director of First National Bank of Albuquerque from January 1970 to March 1975. During his career, Mr. Livingston has served on numerous boards for corporate, civic, and charitable organizations. He is also the current chairman of David Livingston & Associates, Inc., dba Pacific-Southwest Capital Group since 1975. R. GARY MCCAULEY has been a director since November 2000. Since 1964, he has owned and/or operated a number of private businesses. Mr. McCauley has been the owner, developer, and manager of retail shopping centers in Florida and Colorado since 1986. In addition, since 1972, he has held oil and gas interests through D&G Enterprises, a private company co-owned by him. He has owned and been the president and/or general manager of various automobile dealerships from time to time: Scott Toyota, Inc, Scottsdale, Arizona (1998-2000); McCauley Mazda, Phoenix, Arizona (1989-1990); McCauley Oldsmobile/Honda, Colorado Springs, Colorado (1977-1990); McCauley Volkswagen, Albuquerque, New Mexico (1966-1977); and McCauley Volkswagen, Yuma, Arizona (1964-1966). From 1979 to 1990, Mr. McCauley was the co-founder and an officer of Sunwest Life Insurance Co., which provided life, accident, health, and extended warranty insurance products to over 50 automobile dealerships in the western United States. 21 L. DAVID SIKES has been a director since November 2000. Since March 1995, Mr. Sikes has been the chairman and chief executive officer of Ramtron International Corporation, a publicly-owned specialty semiconductor company located in Colorado Springs, Colorado. Mr. Sikes was president and chief executive officer of the U.S. operations of ASM International N.V., a public semiconductor company domiciled in the Netherlands, from January 1990 to July 1992. His background also includes management positions with the following: vice president for the semiconductor product sector of Motorola, Inc., Phoenix, Arizona, from June 1984 to June 1987; an executive for National Semiconductor Corporation, Santa Clara, California, from July 1972 to January 1974; and an engineering management position for Eastman Kodak Company, Rochester, New York, from July 1963 to January 1967. A. MARVIN STRAIT has been a director since November 2000. Mr. Strait has been in the practice of public accountancy under the name of A. Marvin Strait, CPA, since June 1994. He specializes in litigation support, offering consulting services with a focus on business valuation. Mr. Strait was previously the managing partner and later chairman with Strait oKushinsky and Company, P.C. in Colorado Springs, Colorado, from October 1977 to May 1993. Mr. Strait was a past chairman (1987-1988) and served on the board of directors (1983-1989) of the American Institute of Certified Public Accountants. He received the AICPA Gold Medal for Distinguished Service in 1992. Mr. Strait currently serves as a director of the following: Whitman Education Group, Inc., a publicly-held company based in Miami, Florida, since late 1998; Colorado Technical University, a private university with campuses in Colorado and South Dakota, since 1990; and Western National Bank, a privately-held bank located in Colorado Springs, Colorado, since 1996. ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth the remuneration for Mr. Butterwick by fiscal year, who functions as our chief executive officer. We are not required to set forth information for any officer whose total annual salary and bonus does not exceed $100,000.

Currently, we pay the following monthly salaries plus car allowances: Roger Butterwick - $13,200 John Rowlett - $12,500 Michael Feinstein - $11,000 Mark Jensen - $14,166 We reimburse all officers and directors for actual out-of-pocket expenses incurred on our behalf. 22 We have no retirement, pension, profit sharing or medical reimbursement plans exclusively covering our officers and directors, although we do contemplate implementing a company sponsored 401(k) plan and providing major medical and dental health insurance coverage for all employees in the near future.

In addition to the stock options granted to Mr. Butterwick shown in the above table, stock options have also been granted to Mr. Butterwick in connection with loan guarantees. In addition, certain stock options were granted to Cambridge Management Associates, LLP, an entity controlled by Mr. Butterwick, that provided contracted financial services to our company prior to Mr. Butterwick becoming an officer, as described in the section of this prospectus entitled "Certain Relationships and Related Transactions." DIRECTORS' COMPENSATION AND COMMITTEES We pay each non-employee director $3,000 for his attendance at both the annual stockholders' meeting and annual directors' meeting, $2,000 for his attendance at each physical meeting of the board of directors, $750 for his attendance at each physical committee meeting, and $500 for his attendance at each telephonic meeting of the board of directors. We also reimburse them for their travel expenses incurred in connection with these meetings. We have the following committees of the board of directors: 23 o Audit Committee, consisting of A. Marvin Strait (committee chairman), John Houck, and Michael H. Feinstein (corporate liaison) o Technical Committee, consisting of L. David Sikes (committee chairman), James G. Kaiser, and Mark R. Jensen (corporate liaison) o Compensation Committee, consisting of R. Gary McCauley (committee chairman), David G. Livingston, and John E. Rowlett (corporate liaison) STOCK OPTION PLAN On August 5, 1997, the shareholders adopted the 1997 Stock Option Plan, which provides for the granting of both incentive stock options and non-qualified options to eligible employees, officers, and directors. The option pool is adjusted annually on the beginning of our fiscal year to a number equal to 10% of the number of shares of common stock outstanding at the end of our last completed fiscal year. At March 31, 2001, the number of shares eligible pursuant to the plan was 3,732,551. The plan is administered by the compensation committee of the board of directors or, if there is no committee, by the board of directors. A registration statement on Form S-8 was filed on May 15, 2000 registering the underlying shares of the options granted. At March 31, 2001, 2,606,729 options had vested and were eligible for exercise at a total exercise price of $3,839,320. The plan provides that disinterested directors, defined as non-employee directors or persons who are not directors of one of our subsidiaries, will receive automatic option grants to purchase 10,000 shares of common stock upon their appointment or election to the board of directors. Options shall have an option price equal to 100% of the fair market value of our common stock on the grant date and shall have a minimum vesting period of one year from the date of grant. Each option granted under the plan will be evidenced by a written option agreement between our company and the optionee. Incentive stock options may be granted only to employees as defined by the Internal Revenue Code. The option price of any incentive stock option may not be less than 100% of the fair market value per share on the date of grant of the option; provided, however, that any incentive stock option granted under the plan to a person owning more than 10% of the total combined voting power of our common stock will have an option price of not less than 110% of the fair market value per share on the date of grant of the incentive stock option. Each non-qualified stock option granted under the plan will be at a price no less than 85% of the fair market value per share on the date of grant thereof, except that the automatic stock option grants to disinterested directors will be at a price equal to the fair market value per share on the date of grant. The exercise period of options granted under the plan may not exceed ten years from the date of grant thereof. Incentive stock options granted to a person owning more than 10% of the total combined voting power of the common stock cannot be exercisable for more than five years. No portion of any option will be exercisable prior to the first anniversary of the grant date. An option may not be exercised unless the optionee then is an employee, officer, or director of our company or its subsidiaries, and unless the optionee has remained continuously as an employee, officer, or director of our company since the date of grant of the option. If the optionee ceases to be an employee, officer, or director of our company or any subsidiary other than by reason of death, disability, retirement, or for cause, all options granted to such optionee, fully vested to such optionee but not yet exercised, will terminate 90 days after the date the optionee ceases to be an employee, officer, or director. All options, which are not vested to an optionee, under the conditions stated in this paragraph for which employment ceases, will immediately terminate on the date the optionee ceases employment or association. Options have been granted under this plan as follows:

2000 EQUITY INCENTIVE COMPENSATION PLAN On November 29, 2000, the board of directors adopted the 2000 Equity Incentive Compensation Plan, which provides for granting stock options, stock appreciation rights, restricted and deferred stock, bonus stock, and other stock-based awards to officers, directors, employees, and independent contractors. The shareholders must still adopt this plan. The total number of shares of common stock that may be subject to the granting of awards under this plan at any time during the term of the plan is equal to 3,500,000 shares, plus the number of shares with respect to which awards previously granted under the plan that terminate without being exercised, and the number of shares that are surrendered in payment of any awards or any tax withholding requirements. During any fiscal year the number of options, stock appreciation rights, restricted shares of common stock, deferred shares of common stock, shares as a bonus or in lieu of other company obligations, and other stock-based awards granted to any one participant may not exceed 450,000 for each type of such award, subject to adjustment in certain circumstances. The maximum amount that may be paid out as an annual incentive award or other cash award in any fiscal year to any one participant is $2,000,000, and the maximum amount that may be earned as a performance award or other cash award in respect of a performance period by any one participant is $5,000,000. The compensation committee of the board of directors administers this plan, and o selects eligible persons to receive awards, o determines the type and number of awards to be granted and the number of shares of common stock to which awards will relate, o specifies times at which awards will be exercisable or settleable (including performance conditions that may be required as a condition thereof), o sets other terms and conditions of awards, o prescribes forms of award agreements, o interprets and specify rules and regulations relating to this plan, and o makes all other determinations that may be necessary or advisable for the administration of this plan. The board of directors may amend, alter, suspend, discontinue or terminate this plan or the compensation committee's authority to grant awards without further stockholder approval. However, stockholders must approve any amendment or alteration if that approval is required by law or regulation or under the rules of any stock exchange or quotation system on which our shares are then listed or quoted. Unless earlier terminated by the board of directors, this plan will terminate at such time as no shares of common stock remain available for issuance under this plan and we have no further rights or obligations with respect to outstanding awards under this plan. Subject to approval of this plan by the stockholders, options have been granted under this plan as follows:

OTHER OPTIONS In addition to the stock options granted under the 1997 stock option plan and 2000 equity incentive compensation plan, we have granted options as follows: 25

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table provides stock ownership information as to the officers and directors individually and as a group, and the holders of more than 5% of our common stock as of March 31, 2001:

On July 27, 2001, we issued 1,300 shares of Series E preferred stock to Eagle Capital Group, LLC that grants Eagle the right to vote an equivalent of 13,000,000 common shares. As a result of the transaction with Eagle, we will be issuing 9,948,027 shares of our common stock to purchasers of units sold in March through April, 2001 due to the anti-dilution clause contained in the private placement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. All of the terms of agreements and other transactions included in this section were as fair as those we could have obtained from unrelated third parties at arms-length transactions. Jeff Erskine, Mike Stuart, and Mark Moldenhauer and their respective spouses personally guaranteed the operating lease dated July 24, 1997, pursuant to which we lease our office and warehouse facilities in Scottsdale, Arizona. At July 24, 1997, Messrs. Erskine, Stuart, and Moldenhauer were officers, directors, and principal shareholders of our company. The lease expires September 30, 2002. From inception, September 22, 1997, through March 31, 2001, we had entered into various lending arrangements involving officers, directors and other affiliated entities owned or controlled by officers, directors and other key personnel. At March 31, 2001, 2000, and 1999, the outstanding balances on these notes were $738,807, $538,807, and $538,807, respectively. The total interest paid to these entities on all financing activities for the years ended March 31, 2001, 2000, and 1999 was $106,888, $63,456, and $63,456, respectively. The outstanding balances on related party notes respecting discontinued operations were $0, $5,166,821, and $3,342,639 at March 31, 2001, 2000, and 1999, respectively. Total interest paid to these entities on all financing activities for discontinued operations was $699,288, $704,665, and $233,368 for the fiscal years ended March 31, 2001, 2000, and 1999, respectively. 27

On May 5, 1998, we obtained a line of credit from First International Bank of Arizona in the amount of $500,000. The note was secured by a first lien on all inventory, accounts receivable, equipment, and general intangibles and personally guaranteed by Messrs. Erskine, Stuart and Moldenhauer. In addition, Mr. Moldenhauer agreed to subordinate his loans made to us to the bank's line of credit. On May 7, 1998, the Company granted each of Messrs. Erskine, Stuart, and Moldenhauer two-year options to purchase 100,000 restricted shares of common stock at a price of $.75 per share. On March 26, 1999, the note was paid. The expiration date of the options has been extended to May 7, 2002. On March 26, 1999, we obtained a $3,000,000 revolving line of credit from Wells Fargo Business Credit, Inc. The note was originally due March 31, 2000 and was secured by a first lien on all inventory, accounts receivable, equipment, and general intangibles. The interest rate paid was 1.5% over the bank's prime rate. Messrs. Stuart and Moldenhauer, who are former officers, directors, and/or principal stockholders, and Mr. Butterwick, currently an officer, director and principal stockholder personally guaranteed the note. On December 31, 1998, we granted each of Messrs. Stuart, Moldenhauer, and Butterwick three-year options to purchase 250,000 restricted 31 shares of common stock at a price of $1.00 per share, the closing bid on the common stock at December 31, 1998, in consideration for providing their personal guarantees on the line of credit. Mr. Butterwick remained as the sole guarantor of the note during the extension period. No additional consideration was granted to Mr. Butterwick. The note was paid in full on February 16, 2001. AUTO NETWORK GROUP OF NEW MEXICO, INC. TRANSACTIONS. On June 1, 1998, Auto Network Group of New Mexico entered into a lease for an office and warehouse facility in Albuquerque, New Mexico, with G & B Investments LLC, an entity owned and controlled by Bruce Burton and Jules Gollins. The original lease that expired on May 31, 1999 was extended to May 31, 2001. Messrs. Burton and Gollins are two of the principals who manage the Auto Network Group of New Mexico operations. The amount of lease payments made under this agreement was $26,732 for the year ended March 31, 1999 and $34,754 for the year ended March 31, 2000. Also on June 1, 1998, we entered into a Purchase of Goodwill Agreement with JBS, LLC, an entity whose members comprised the management team of Auto Network Group of New Mexico. In consideration for the goodwill which Auto Network Group of New Mexico received from JBS, JBS was granted a total of 800,000 contingently issuable restricted shares of our common stock valued at $.20 per share as follows: 266,667 shares issued upon execution of the agreement, held in escrow, and subject to forfeiture if Auto Network Group of New Mexico was not doing business as of June 1, 1999; 266,667 shares to be earned for the period June 1, 1998 through March 31, 1999 if pre-tax earnings of Auto Network Group of New Mexico were at least $60,000; and 266,666 shares to be earned for the period April 1, 1999 through March 31, 2000 if pre-tax earnings of Auto Network Group of New Mexico were at least $120,000. In addition, JBS was able to earn options to purchase restricted shares of our common stock at the rate of 5 options for every dollar of pre-tax earnings of Auto Network Group of New Mexico in excess of $60,000 for the period ending March 31, 1999, and 5 options for every dollar of pre-tax earnings of Auto Network Group of New Mexico in excess of $120,000 for the year ended March 31, 2000. The options were to be exercisable for a period of 3 years from date of grant at the bid price as of March 31, 1999 or 2000, respectively. Since Auto Network Group of New Mexico was doing business at June 1, 1999, 266,667 shares were earned. For the period from June 1, 1998 through March 31, 1999, Auto Network Group of New Mexico had pre-tax earnings of $107,962, resulting in JBS, LLC earning 266,667 shares and 239,810 options, exercisable at $3.00 per share. For the period ending March 31, 2000, Auto Network Group of New Mexico had pre-tax earnings of $70,395, resulting in no shares or options being earned. This agreement was subsequently amended and 266,666 shares were issued in 2000. On June 1, 1998, we loaned $250,000 to Auto Network Group of New Mexico. The related promissory note is due June 30, 2000 and earns interest at 12% per annum, payable monthly. This note has been extended to June 30, 2003. This note was repaid upon the sale of the subsidiary. WALDEN REMARKETING TRANSACTIONS. As of March 31, 1999, we acquired Walden Remarketing Services, Inc., a Minnesota corporation, by issuing the shareholders of Walden Remarketing a total of 2,050,000 restricted shares of common stock, cash of $125,000, and promissory notes in the aggregate principal amount of $425,000. The promissory notes accrued interest at the rate of 12% per annum and had a remaining principal balance of $314,475 at December 31, 1999, at which time they were converted into 314,475 common shares of our company. In connection with the acquisition of Walden Remarketing, Dennis E. Hecker, the principal shareholder of that company, provided a personal guaranty with respect to the full disclosure of liabilities of that company. On April 20, 1999, we entered into a consulting agreement with Dennis E. Hecker as part of our acquisition of Walden Remarketing. Mr. Hecker has agreed to provide consulting services to us for a period of three years ending April 20, 2002. We granted Mr. Hecker an option to purchase 3,000,000 shares of our common stock at $3.00 per share. As of December 1, 1999 the consulting agreement and the option to purchase 3,000,000 shares of our common stock were canceled. 32 AUTO NETWORK GROUP NORTHWEST, INC. On July 20, 1999, we acquired Auto Network Group Northwest, Inc., an Oregon corporation, by issuing the shareholders of Auto Network Group Northwest a total of 500,000 contingently issuable shares of restricted common stock valued at $1.50 per share. All shares are held in escrow and are subject to the following events: 1. 83,333 shares are subject to forfeiture if the pre-tax earnings of Auto Network Group Northwest as of March 31, 2000 are less than $30,000. If pre-tax earnings are between $30,000 and $50,000 a pro-rata amount of shares shall be issued and the balance shall be forfeited. 2. 166,667 shares are subject to forfeiture if the pre-tax earnings of Auto Network Group Northwest as of March 31, 2001 are less than $50,000. If pre-tax earnings are between $50,000 and $100,000 a pro-rata amount of shares shall be issued and the balance shall be forfeited. 3. 250,000 shares are subject to forfeiture if the pre-tax earnings of Auto Network Group Northwest as of March 31, 2002 are less than $75,000. If pre-tax earnings are between $75,000 and $150,000 a pro-rata amount of shares shall be issued and the balance shall be forfeited. In addition, the former shareholders of Auto Network Group Northwest may earn options to purchase restricted shares of our common stock at the rate of 5 options for every dollar of pre-tax earnings of Auto Network Group Northwest in excess of $50,000 for the period ending March 31, 2000; $100,000 for the year ended March 31, 2001; and, $150,000 for the year ended March 31, 2002. The options are to be exercisable for a period of 3 years from date of grant at the bid price of our common stock as of April 1, 2000, 2001 or 2002, respectively. For the period from July 20, 1999 through March 31, 2000, Auto Network Group Northwest had pre-tax earnings of $41,721, resulting in the former shareholders earning 69,535 shares. In April 2001, Automotive Disposition Management Services, the parent of Auto Network Group Northwest, entered into an agreement with the management of Auto Network Group Northwest under which Auto Network Group Northwest reacquired all of its outstanding common shares from Automotive Disposition Management Services and agreed to return to Automotive Disposition Management Services 430,465 shares of our common stock that were being held in escrow pending the results of the original earn-out agreement. We decided to exercise our option to exchange these shares for 8.55% of our interest in Automotive Disposition Management Services based upon the agreement wherein Automotive Disposition acquired certain of our operating subsidiaries. Effective July 1, 2001, all options previously issued to Auto Network Group Northwest management and employees, as well as rights to earn new options, expired unexercised. AUTO GROUP OF SAN ANTONIO, LTD. Effective April 1, 2000, we opened our office and warehouse wholesale operation in San Antonio, Texas. Auto Group of San Antonio Ltd., a Texas limited partnership, conducted our land-based business in San Antonio. Our company was the sole limited partner and the sole owner of a newly formed limited liability company which serves as the general partner. We loaned the limited partnership $450,000, which is evidenced by an unsecured promissory note with interest at the rate of 12% per annum payable monthly, in arrears. This note, which could be prepaid at any time, had a final maturity on March 31, 2005. The limited partnership has entered into a management agreement with JRB AutoBrokers, L.P., a Texas limited partnership. JRB AutoBrokers also loaned $100,000 to the limited partnership on similar terms to our advance. This promissory note was subordinate to our loan. When Automotive Disposition Management Services acquired the limited partnership, our note was repaid in full. Under the terms of the management agreement, JRB was responsible for all day-to-day management of the limited partnership with complete autonomy, subject only to reasonable review by the general partner. In addition, we granted 468,750 contingently issuable restricted shares of our common stock to JRB to acquire this operation. At that time, the shares were assigned a value of $2.00 per share, and held in escrow pending certain future events. 93,750 of such shares were released to JRB on April 1, 2001, since they were subject only to the continuation of the business at that date. Annually beginning March 31, 2001, 93,750 additional shares or a portion thereof were to be released subject to the limited partnership achieving pre-determined pre-tax earnings. For example, if the limited partnership earns $100,000 for the year ended March 31, 2001, 93,750 of such shares will be released to JRB. In the event earnings for the year fall below $100,000, a portion of these shares may still be released. After March 31, 33 2001, the pre-tax earnings floor increases through March 31, 2004. A currently interminable number of additional shares can be earned for the year ended March 31, 2005 based on pre-tax earning. Effective with the sale of this subsidiary we placed 375,000 common shares in escrow to meet our obligation under the earn-out agreement. For the fiscal year ended March 31, 2001, JRB reported unaudited earnings of $78,157 entitling the managers of JRB to receive 73,272 earn-out shares of the year then ended. AUTO NETWORK GROUP OF EASTERN PA., INC. Effective April 1, 2000 we opened our office and warehouse wholesale operation in the Philadelphia, Pennsylvania area. Our business in Pennsylvania was conducted by Auto Network Group of Eastern Pa., Inc., a Pennsylvania corporation. We were the sole shareholder of this Pennsylvania operation. We loaned $300,000 to the Pennsylvania operation, which was evidenced by an unsecured promissory note with interest at the rate of 12% per annum payable monthly, in arrears. The note could be prepaid at any time and had a final maturity on March 31, 2006. Mr. Edward G. McCusker had agreed to loan $100,000 to the Pennsylvania operation on terms similar to our advance, on or before June 30, 2000. This loan was to be subordinate to the debt owed to us. Mr. McCusker did not advance such funds for the Pennsylvania operations and for this reason, as well as others, we ceased our operations in Pennsylvania in the third quarter of 2000. We have filed a lawsuit in Pennsylvania against Mr. and Mrs. McCusker in an effort to recover all or a part of our $300,000 loan plus interest and costs. Although we believe that we are entitled to full recovery, we have charged the unpaid balance of our loan to expense in the year ended March 31, 2001. AUTOMOTIVE DISPOSITION MANAGEMENT SERVICES, INC. As of December 29, 2000, we sold our interest in our land-based operations in Albuquerque, New Mexico; San Antonio, Texas; and Bend, Oregon to Automotive Disposition Management Services, Inc., an affiliated Arizona corporation, in exchange for a 16% interest in Automotive Disposition. Automotive Disposition is a private company owned by Jules Gollins, the manager of the New Mexico land-based operation, and by Mark Moldenhauer, one of our founders, principal shareholders, and former officer and director. In addition, promissory notes for $1,200,000 owed to us by the land-based operations have been assigned to Pinnacle Financial Corporation, a private company owned by Mr. Moldenhauer. Pinnacle Financial Corporation has in turn reduced the outstanding principal balance of our promissory note to Pinnacle by $1,200,000 and extended the principal installment, originally due December 31, 2000, to January 30, 2001. As of February 16, 2001, Automotive Disposition Management Services, Inc. assumed a portion of the note owed to Pinnacle Financial Corporation. The remaining portion is being paid with a new note to Pinnacle Financial Corporation in the amount of $366,200 due April 1, 2002. As described above, we originally acquired the New Mexico, Texas, and Oregon operations with earn-out agreements, which enabled the managers of these operations to earn shares and options if certain performance goals were met. We agreed to place a total of 805,465 shares of our common stock in escrow to satisfy, in full, our obligations under these agreements. These common shares will remain in escrow until such time as certain shares of our stock are either earned or forfeited. If earned, the relevant shares of our stock will be transferred to the managers and brokers, and if unearned, the relevant shares of our stock will be transferred and delivered to Automotive Disposition. Any shares transferred to Automotive Disposition can, at our election, be exchanged for part or all of our interest in Automotive Disposition. FUTURE TRANSACTIONS. All future affiliated transactions will be made or entered into on terms that are no less favorable to us than those that can be obtained from any unaffiliated third party. A majority of the independent, disinterested members of our board of directors will approve future affiliated transactions and forgiveness of loans. We believe that all loans made to affiliates by us meet the foregoing standard. All loans to affiliates made by us carry an interest rate of 12% per annum. This is the same interest rate paid by us on all notes payable to both affiliates and outside third parties, with the exception of our revolving line of credit with a financial institution. That revolving line of credit bears interest at the prime rate plus 1-1/2%. 34 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. FINANCIAL STATEMENTS The following financial statements and financial statement schedules are filed with this report: Independent Auditors' Report Consolidated Balance Sheet Consolidated Income Statement Consolidated Statement of Changes in Stockholders' Equity Consolidated Statement of Cash Flows EXHIBITS The following exhibits are filed with this report:

REPORTS ON FORM 8-K 1. During the last quarter of the period covered by this report, no reports on Form 8-K were filed. 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AUTOTRADECENTER.COM INC. (Registrant) Date: August 2, 2001 By:/s/ ROGER L. BUTTERWICK ------------------------------------- Roger L. Butterwick, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

37 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders AutoTradeCenter.com, Inc. and Subsidiaries We have audited the consolidated balance sheets of AutoTradeCenter.com, Inc. and Subsidiaries as of March 31, 2001 and 2000, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years ended March 31, 2001, 2000, and 1999. These financial statements are the responsibility of AutoTradeCenter.com, Inc. and Subsidiaries' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AutoTradeCenter.com, Inc. and Subsidiaries as of March 31, 2001 and 2000, and the results of their operations and their cash flows for the years ended March 31, 2001, 2000, and 1999 in conformity with accounting principles generally accepted in the United States of America. /s/ Neff & Ricci LLP Albuquerque, New Mexico May 18, 2001, except for Note R and S, as to which the date is July 26, 2001. F-1 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES Consolidated Balance Sheet MARCH 31, 2001 AND 2000 ASSETS

See notes to consolidated financial statements F-2 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES Consolidated Income Statement Years ended March 31, 2001, 2000 and 1999

See notes to consolidated financial statements F-3 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES Consolidated Statement of Changes in Stockholders' Equity For the Years Ended March 31, 2001, 2000 and 1999

See notes to consolidated financial statements F-4 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES Consolidated Statement of Changes in Stockholders' Equity For the Years Ended March 31, 2001, 2000 and 1999

See notes to consolidated financial statements F-5 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES Consolidated Statement of Changes in Stockholders' Equity For the Years Ended March 31, 2001, 2000 and 1999

See notes to consolidated financial statements F-6 AutoTradeCenter.com Inc. and Subsidiaries Consolidated Statements of Cash Flows Years ended March 31, 2001, 2000 and 1999

See notes to consolidated financial statements F-7 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INCORPORATION AND NATURE OF BUSINESS AutoTradeCenter.com Inc. ("the Company") was incorporated pursuant to the laws of the State of Arizona on July 10, 1997 and began operations on September 22, 1997. In December 1998, the Company changed its name from Auto Network USA, Inc. to Auto Network Group, Inc. In March 1999, the Company again changed its name to AutoTradeCenter.com Inc. to more properly reflect its future direction as an Internet based wholesaler and remarketer of used automobiles. The wholesale automobile business principally involves activities related to redistributing used vehicles, typically acquired from franchised and independent auto dealers, lessors, banks and other finance companies and reselling them to other franchised and independent dealers. Prior to December 31, 2000 the Company engaged in these activities either as a fee-based service or as a principal. As a principal (land-based operations), the Company performed these services through independent wholesale brokers. Each broker bought, titled, and sold vehicles in the name of the Company. In November 2000, the Company decided to discontinue all of its land-based operations in order to concentrate efforts on remarketing used vehicles utilizing the Internet. Accordingly, it sold its land-based subsidiaries located in New Mexico, Texas, and Oregon on December 29, 2000, and transferred ownership of substantially all vehicles owned by its Scottsdale, Arizona operations on February 28, 2001 to certain of its former brokers. The Company's Internet operations facilitate the exchange (remarketing) of used vehicles from lessors, captive and other finance companies, banks, and franchised and independent auto dealers, to other franchised and independent dealers. The Company, generally, earns fees from these exchanges, utilizing its proprietary software. The Company currently has three contracts to remarket late model off-lease and program vehicles to specified franchised dealers. The Company currently does not act as principal in its Internet business. AutoTradeCenter.com Inc. stock is traded on the NASD Bulletin Board under the symbol AUTC.OB. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Auto Network Group of Arizona, Inc. ("ANET-AZ") Pinnacle Dealer Services, Inc. ("PDS"), National Dealer Services ("NDSCo"), AutoTradeCenter Remarketing Services Inc. formerly Walden Remarketing Services, Inc. ("Walden Remarketing"), and BusinessTradeCenter.com Inc. ("BTC"). All material intercompany accounts and transactions have been eliminated. Information regarding the discontinued operations of former subsidiaries; Auto Network Group of New Mexico, Inc. ("ANET-NM"), Auto Network Group Northwest, Inc. ("ANET-NW"), and Auto Group of SanAntonio, Ltd. ("ANET-SA"), is contained herein. Information regarding two other land-based subsidiaries that currently have no assets or liabilities, Auto-Network Group of Eastern PA, Inc. ("ANET-PA") and Auto Network Group of Denver, Inc. ("ANET-Den") also is contained herein. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current year presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosures at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. F-8 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH ITEMS Cash and cash items include all highly liquid debt instruments purchased with a maturity of three months or less at the date of acquisition. At times, cash balances held at financial institutions were in excess of federally insured limits. INVENTORY Inventory (relating to discontinued operations) consists entirely of used vehicles that are stated at the lower of cost or market. The cost of used vehicles is determined on a specific identification basis. The cost of each vehicle includes the purchase price plus transportation and reconditioning expenses. The Company reduces the carrying value of each vehicle if the total cost exceeds the net realizable value of the vehicle. At March 31, 2001 as a result of the discontinuance of its land-based operations the Company has no inventory. DEPRECIATION METHOD Equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the assets estimated useful lives ranging from 3 to 10 years. SOFTWARE CAPITALIZATION AND WEBSITE DEVELOPMENT COSTS The Company follows Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, in determining the amount of software costs developed in-house to be capitalized. The Company applies Emerging Issues Task Force 00-02 Accounting for Website Development Costs in determining the amount of website development costs to be capitalized. These standards require capitalization of certain direct development costs associated with internal use software and website development costs. Costs to be capitalized include internal and external direct project costs including, among others; payroll and labor, material, and services. These costs are included in software and are being amortized over a period not to exceed three years beginning when the software is substantially ready for use. Costs incurred on new projects, projects in a preliminary phase and projects that contract negotiations have not begun, as well as maintenance, and training costs are charged to expense as incurred. AMORTIZATION OF INTANGIBLES Goodwill and other intangibles are amortized on a straight-line basis over periods ranging up to 10 years. The Company periodically assesses the recoverability of the cost of its goodwill based upon a review of projected undiscounted cash flows of the related operating entity. These cash flow estimates are prepared and reviewed by management in connection with the Company's annual long-range planning process. As of March 31, 2001, there had been no write down of goodwill (See information regarding reclassification of goodwill- Note B). F-9 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION Revenue and the corresponding cost of revenue are recognized monthly. Customers are billed a per vehicle sales fee for vehicles sold while listed on the Company's hosted web sites. These sales are recorded in trade receivables until cash is received. The Company has implemented the requirements of Staff Accounting Bulletin 101, which did not have a material impact on revenue recognition in the financial statements. Formerly, land-based operating revenues and the corresponding cost of the sales were recognized when vehicles were sold to customers evidenced by a sale and a purchase order, respectively. The Company paid for the vehicle and received payment from its customers when the vehicle title was presented. It is not unusual for a title to lag several days behind the recordation of the vehicle purchase and physical delivery; correspondingly, a vehicle may be sold and delivered to a customer prior to the delivery of the title and the receipt of cash. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share have been computed based on the weighted average number of common shares outstanding. The computations exclude 430,465 shares held in escrow pending certain earn-out provisions. Diluted earnings per share for the year ended March 31, 1999, reflects the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options and the assumed conversion of debt and preferred stock. Basic and diluted earrings per share are the same for the years ended March 31, 2000, and 2001, as the Company reported losses for these years and a computation of fully diluted earnings would be anti-dilutive. VALUATION OF STOCK OPTIONS The Company uses the intrinsic value method for valuing stock options issued to employees. The Company uses the fair value of goods or services received or the fair value of the options or warrants issued, whichever is more readily measurable, to determine the expense to record for options or warrants issued to non-employees. INCOME TAXES The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based upon the difference between financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. SEGMENT REPORTING The Company is required to report information about its operating segments, as well as related disclosures about products and services, geographic areas and major customers. At March 31, 2001, Internet remarketing is the Company's only operating segment. All of its revenue for the year ended March 31, 2001 was earned from its contract with American Honda Finance Corporation. All former land-based operations are presented as discontinued operations. F-10 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE B - RECLASSIFICATION OF GOODWILL When the Company acquired NDSCo on March 31, 2000, $2,039,123 of the purchase price was allocated to goodwill. The goodwill was assigned a useful life of 10 years. Upon further consideration the Company reclassified this allocation from goodwill to cost of software to more succinctly categorize the nature of the assets purchased. During the quarter ended December 31, 2000, as a result of the changes in its business plan including the disposition of its dealer-to-dealer land based business, the Company further determined that it could no longer estimate the useful life, if any, of this software. Accordingly, the carrying cost of this asset was considered impaired and written off in full during the year. When the Company acquired the remaining 45% minority interest of BTC on March 23, 2000, $9,374,550 of the purchase price was allocated to goodwill with an estimated life of 10 years. Upon further consideration, the Company reclassified this allocation from goodwill to cost of software to more succinctly categorize the nature of the assets purchased. Effective for the year ended March 31, 2000, the Company changed its estimate of the useful life of this asset from 10 years to 3 years. The reclassified consolidated balance sheet at March 31, 2000, among other things, reflects both of these reclassifications. NOTE C - DISCONTINUED OPERATIONS On November 30, 2000, the Company formalized its decision to exit its land-based operations no later than March 31, 2001, the end of its fiscal year. The disposition of the land-based operations represents the disposal of a business segment under APB Opinion No. 30. Accordingly, results of these operations have been classified as discontinued and prior periods have been restated, including the reallocation of fixed overhead charges to both business segments. As of December 29, 2000, the Company sold its land-based operations in Albuquerque, New Mexico; San Antonio, Texas; and Bend, Oregon to Automotive Disposition Management Services, Inc., ("ADM") an affiliated Arizona corporation, in exchange for a 16% interest in ADM. The Company sold substantially all of its land-based operations in Scottsdale Arizona, to certain of its independent contract brokers effective February 28, 2001, thereby completing the discontinuance of all land-based operations. The Company has recorded an actual loss of $748,475 on the sale of its land-based operations to ADM, recorded total losses of $277,388 related to the earlier closing of its Pennsylvania operation and accrued an estimated loss of $1,313,582 on disposal of its Scottsdale operations, including $50,000 in estimated future expenses, included in accrued expenses. Total losses on disposition of land-based operations increased $687,392 over the amount reported in the Company's interim financial statements contained in Form 10-Q for the period ended December 31, 2000. The additional losses included among other things; $250,000 in additional allowance for losses for unpaid balances due the Company at December 31, 2000 from its independent contractor brokers, additional losses of $225,693 attributable to the sale and disposition of inventory during the three months ended March 31, 2001 that could not be charged to and collected from such brokers, an additional loss of $38,596, from the sale of subsidiary operations other than Scottsdale, with the balance attributable to general and administrative expenses related to closing the Scottsdale operation. The following schedule of net assets from discontinued operations, long term debt and notes payable of discontinued operations, and financial statements show the effect of discontinued operations to the consolidated balance sheets at March 31, 2001 and March 31, 2000 and to the condensed consolidated statements of operations and cash flow for the fiscal years ended March 31, 2001, 2000 and 1999. F-11 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE C - DISCONTINUED OPERATIONS (CONTINUED) SCHEDULE OF NET ASSETS FROM DISCONTINUED OPERATIONS:

RESULTS OF OPERATIONS OF DISCONTINUED LAND-BASED SEGMENT: AUTOTRADECENTER.COM INC. AND SUBSIDIARIES

F-12 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE C - DISCONTINUED OPERATIONS (CONTINUED) Long term debt and notes payable related to discontinued operations at March 31, 2000 consisted of the following:

1. A note in the amount of $300,000 is convertible, at the option of note holder, into shares of the Company's common stock at a conversion price of $0.10 per share. The option expires 30 days after the term of the note. This note was converted into 3,000,000 shares of common stock on May 1, 2000. 2. Various notes maturing during the year were extended by mutual agreement. F-13 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE C - DISCONTINUED OPERATIONS (CONTINUED) Impact of discontinued operations to the consolidated balance sheet for the year ended March 31, 2000:

F-14 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE C - DISCONTINUED OPERATIONS (CONTINUED) Impact of discontinued operations to the consolidated balance sheet for the year ended March 31, 1999:

F-15 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE C - DISCONTINUED OPERATIONS (CONTINUED) Impact of discontinued operations to the consolidated statement of operations for the year ended March 31, 2000:

F-16 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE C - DISCONTINUED OPERATIONS (CONTINUED) Impact of discontinued operations to the consolidated statement of operations for the year ended March 31, 1999:

F-17 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE C - DISCONTINUED OPERATIONS (CONTINUED) Impact of discontinued operations to the consolidated statement of cash flows for the year ended March 31, 2000:

F-18 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE C - DISCONTINUED OPERATIONS (CONTINUED) Impact of discontinued operations to the consolidated statement of cash flows for the year ended March 31, 1999:

F-19 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE C - DISCONTINUED OPERATIONS (CONTINUED) The following schedule shows the computation of the loss resulting from discontinuing the land-based segment:

NOTE D - ACCOUNTS RECEIVABLE Accounts receivable consist of the following: (No allowance for doubtful accounts is considered necessary since all accounts are deemed fully collectible.)

F-20 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE E - PROPERTY AND EQUIPMENT Property and equipment consist of the following:

The Company, in its fiscal year ended March 31, 2001, charged an impairment loss of $2,261,486 on the disposal of software acquired when the Company purchased all of the outstanding common stock in NDSCo. This software provides dealer-to-dealer Internet trading for the exchange of used automobiles and is not included in the Company's current business plan which is focused on the remarketing of off-lease and program vehicles . NOTE F - GOODWILL AND INTANGIBLES

NOTE G - LONG-TERM DEBT AND NOTES PAYABLE:

1. Subject to the bank's approval, the loan may be increased to the lessor of 85% of the eligible accounts receivable or $3 million. The amount of the average unused line as of year-end is $1,765,895. The bank charges a fee on the amount of the unused line by taking the average unused portion times .25% divided by 360 times the days in the month. This calculated into a fee of $380 for the month of March 2000. In addition, the loan requires net income and equity limits be met and limits capital expenditures, officers' pay and additional indebtedness. At March 31, 2000, the Company was in violation of various provisions of the loan agreement. These provisions apply to the amount of net loss incurred and the amount of capital expenditures incurred. The lender subsequently waived these Events of Default. The line of credit was repaid in full in February 2001. NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS The methods and assumptions used to estimate the fair value of each class of financial instrument are as follows: CASH AND CASH EQUIVALENTS, RECEIVABLES, AND ACCOUNTS PAYABLE The carrying amount approximates fair value due to the short-term maturity of these instruments. LONG-TERM DEBT The fair value of long-term debt was based upon market prices where available or current borrowing rates available for financing with similar terms and maturities.

F-22 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE I - INCOME TAXES The income tax provision (benefit) shown in the consolidated income statement is detailed for each year.

The income tax provision (benefit) for continuing operations varied from the federal statutory rate as follows for each year.

The Company has a federal tax loss carryforward of approximately $14,300,000 of which approximately $1,450,000 expires in 2020 and $12,850,000 expires in 2021. The Company has undergone a change in ownership of over 50% during the preceding 36 months. Accordingly, Section 382 of the Internal Revenue Code will limit the Company's annual utilization of its net-operating loss carryforward to an amount equal to the pre-change value of the Company multiplied by the federal long-term tax exempt interest rate. The application of Section 382 also may result in a portion of the Company's net operating loss carryforwards to expire unused. The following summarizes the tax effects of the significant temporary differences which comprise the deferred tax asset or liability for each year.

F-23 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE J - EARNINGS PER SHARE Basic earnings per common share are based on the weighted average number of common shares outstanding in each year. Diluted earnings per common share assume that any dilutive convertible preferred shares and convertible debt outstanding during each year were converted at the first available conversion date, with related interest and outstanding common shares adjusted accordingly. It also assumes that outstanding common shares were increased by shares issuable upon exercise of those stock options and warrants for which market price exceeds exercise price, to the extent they are not anti-dilutive.

The effects of convertible debt and preferred stock along with the stock options and warrants have not been included in the calculation of diluted earnings per share for the years ended March 31, 2001 and March 31, 2000, because they are anti-dilutive. As described in Notes G, L and M, the Company has convertible debt, contingently issuable stock, options, warrants and convertible preferred stock. F-24 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE K - COMMITMENTS The Company leases its facility in Scottsdale, Arizona from an unrelated third party under an operating lease expiring September 30, 2002 at an annual cost of $87,737. It also is obligated to pay annual net rentals of approximately $33,497 for a land-based facility in Denver, Colorado. Reserves established at March 31, 2001, should be adequate to cover such expenses in the event the Company is unable to further sub-lease this property. Both of these leases require the Company to pay all maintenance, insurance, and taxes on the leased property. The following schedule shows the future minimum lease payments required by year under the various operating leases: Year ending March 31, 2002 $286,387 2003 96,162 2004 38,548 2005 31,397 2006 5,233 -------- $457,727 ======== The Company sub-leases a portion of its former land-based Scottsdale facility to two unrelated third parties. One of the sub-leases is a $3,000 month-to-month rental. The other third party's sub-lease is a non-cancelable agreement that expires on September 30, 2002 and calls for annual rentals of $62,064. Neither of these sub-leases have been used to reduce the Company's minimum annual operating lease obligation (see above table). Rental expense was $435,938, $192,296, and $195,312 for the years ended March 31, 2001, 2000, and 1999 respectively. The Company also has contracted with a vendor to host its remarketing websites for a base fee of $10,900 per month through April 30, 2002. NOTE L - BUSINESS ACQUISITIONS AUTO NETWORK GROUP OF NEW MEXICO, INC. ("ANET-NM") On June 1, 1998, the Company entered into a Purchase of Goodwill Agreement with JBS, LLC, an entity whose members comprise the management team of ANET-NM. In consideration for the goodwill which ANET-NM is receiving from JBS, JBS was granted a total of 800,000 contingently issuable restricted shares of the Company's common stock valued at $.20 per share as follows: 266,667 shares issued upon execution of the Agreement, held in escrow, and subject to forfeiture if ANET-NM is not doing business as of June 1, 1999: 266,667 shares to be earned for the period June 1, 1998 through March 31, 1999 if pre-tax earnings of ANET-NM are at least $60,000; and 266,666 shares to be earned for the period April 1, 1999 through March 31, 2000 if pre-tax earnings of ANET-NM are at least $120,000. In addition, JBS may earn options to purchase restricted shares of the Company's common stock at the rate of 5 options for every dollar of pre-tax earnings of ANET-NM in excess of $60,000 for the period ending March 31, 1999, and 5 options for every dollar of pre-tax earnings of ANET-NM in excess of $120,000 for the year ended March 31, 2000. The options are to be exercisable for a period of 3 years from date of grant at the bid price as of March 31, 1999 or 2000, respectively. In accordance with the terms of the Purchase of Goodwill Agreement, 266,667 shares of contingently issuable shares of common stock were granted to JBS, LLC as ANET-NM was doing business at June 1, 1999. For the period from June 1, 1998 through March 31, 1999, ANET-NM had pre-tax earnings of $107,962 resulting in JBS LLC, earning 266,667 shares and earning 239,810 options, exercisable at $3.00 per share. For F-25 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE L - BUSINESS ACQUISITIONS (CONTINUED) the period ending March 31, 2000, ANET-NM had pre-tax earnings of $70,395 resulting in no shares being earned by JBS, LLC. However, in an amendment to the purchase agreement entered into during the year ended March 31, 2001, the Company issued the 266,666 remaining contingently issuable shares to JBS, LLC and increased purchased goodwill by $53,333. All purchased goodwill was being amortized over 10 years. When the company exchanged all of its interest in ANET-NM, on December 29, 2000, for its interest in ADM, the balance of unamortized goodwill of $136,889 was charged to loss on discontinuance of land-based operations. AUTO NETWORK GROUP NORTHWEST, INC. ("ANET-NW") On July 20, 1999, the Company entered into an Exchange of Common Stock Agreement with ANET-NW. In consideration for the stock which the Company is receiving from ANET-NW, ANET-NW was granted a total of 500,000 contingently issuable restricted shares of the Company's common stock valued at $1.50 per share as follows: up to 83,333 shares shall no longer be forfeitable on July 1, 2000 under the following conditions: if audited pre-tax earnings are less than $30,000 all 83,333 shares shall be forfeited. If the audited pre-tax earnings are between $30,000 and $50,000 a pro-rata amount of shares shall be issued and the balance shall be forfeited. If the audited pre-tax earnings are $50,000 or over the restricted stock will be issued and any earnings in excess of $50,000 shall cause options to be earned at a ratio of 5 options for every $1.00 of excess earnings. These options shall be priced at the closing bid price of the Company's common stock on April 1 following the March 31 year end. As of July 1, 2001, 166,667 shares can be earned at the following levels: less than $50,000 of pre-tax audited earnings then shares are forfeited, $50,000 to $100,000 a pro-rata amount of shares will be issued, over $100,000 the shares will be issued and options will be earned with the above formula. As of July 1, 2002, 250,000 shares can be earned at the following levels: less than $75,000 of pre-tax audited earnings then shares are forfeited, $75,000 to $150,000 a pro-rata amount of shares will be issued, over $150,000 the shares will be issued and options will be earned with the above formula. For the period from July 20, 1999 through March 31, 2000, ANET-NW had pre-tax earnings of $41,721 resulting in ANET-NW earning 69,535 shares. The goodwill purchased of $193,391 was being amortized on a straight-line basis over 10 years. On December 31, 2000, the balance of unamortized goodwill of $176,886 was charged to loss on disposition of land-based operations. Subsequent Events. In April, 2001 ADM the then parent of ANET-NW entered into an agreement with ANET-NW management under which ANET-NW reacquired all of its outstanding common shares from ADM and among other things agreed to return to ADM 430,465 shares of the Company's stock that were being held in escrow pending the results of the original earn-out agreement. The Company's Board of Directors has directed management to exercise its option to exchange these shares for 8.55% of its interest in Automotive Disposition Management Company ("ADM") based upon an agreement between the parties to the transaction wherein ADM acquired certain of the operating subsidiaries of the Company (See Note C). Effective July 1, 2001 all options previously issued to ANET-NW management and employees as well as rights to earn new options expired unexercised. F-26 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE L - BUSINESS ACQUISITIONS (CONTINUED) AUTO GROUP OF SAN ANTONIO, LTD. Effective April 1, 2000, the Company opened an office and warehouse wholesale operation in San Antonio, Texas. Auto Group of San Antonio Ltd., a Texas limited partnership, conducts business in San Antonio. The Company is the sole limited partner and the sole owner of a newly formed limited liability Company which serves as the general partner. The Company loaned the limited partnership $450,000, which is evidenced by an unsecured promissory note with interest at the rate of 12% per annum payable monthly, in arrears. This note, which may be prepaid at any time, has a final maturity on March 31, 2005. The limited partnership has entered into a management agreement with JRB AutoBrokers, L.P. ("JRB"), a Texas limited partnership. JRB also loaned $100,000 to the limited partnership on similar terms to the Company's advance. This promissory note is subordinate to our loan. When ADM acquired the limited partnership they repaid the note to the Company in full. Under the terms of the management agreement, JRB is responsible for all day-to-day management of the limited partnership with complete autonomy, subject only to reasonable review by the general partner. In addition, the Company granted a total of 468,750 contingently issuable restricted shares of the Company's common stock to JRB. At that time the shares were assigned a value of $2.00 per share. The issuance of 93,750 of the shares is subject only to the continuation of the business at March 31, 2001. Annually beginning March 31, 2001, 93,750 additional shares or a portion thereof will be released subject to the limited partnership achieving pre-determined pre-tax earnings. For example, if the limited partnership earns $100,000 for the year ended March 31, 2001, 93,750 of such shares will be issued to JRB. In the event earnings for the year fall below $100,000, a portion of these shares may still be issued After March 31, 2001, the pre-tax earnings floor increases through March 31, 2004. As part of the stock-for-stock agreement with ADM, 93,750 of the contingently issuable shares were issued to JRB in April of 2001. The balance of the contingently issuable shares, 375,000, were placed in escrow subject to the earn-out agreement. For the fiscal year ended March 31, 2001, JRB reported earnings of $78,157 entitling the managers of JRB to receive 73,272 earn-out shares for the year then ended. No additional future losses from discontinued operations has been accrued respecting the balance of the earn-out shares as the number of shares, if any, to be issued is not determinable. AUTO NETWORK GROUP OF EASTERN PA., INC. Effective April 1, 2000 the Company opened an office and warehouse wholesale operation in the Philadelphia, Pennsylvania area. The business in Pennsylvania is conducted by Auto Network Group of Eastern Pa., Inc., a Pennsylvania corporation. The Company is the sole shareholder of this Pennsylvania operation. The Company loaned $300,000 to the Pennsylvania operation, which is evidenced by a secured promissory note with interest at the rate of 12% per annum payable monthly, in arrears. The note may be prepaid at any time and has a final maturity on March 31, 2006. Mr. Edward G. McCusker had agreed to loan $100,000 to the Pennsylvania operation on terms similar to our advance, on or before June 30, 2000. This loan was to be subordinate to the debt owed to us. Mr. McCusker did not advance such funds for the Pennsylvania operations and for this reason as well as others, the Company ceased its operations in Pennsylvania in the third quarter of 2000. The Company has filed a law-suit in the Courts of Pennsylvania naming Mr. and Mrs. McCusker as defendants in an effort to recover all or part of its $300,000 loan plus interest and costs. Although the Company believes that it is entitled to full recovery, it has charged the unpaid balance of its loan to the Pennsylavnia operations in the current year. F-27 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE L - BUSINESS ACQUISITIONS (CONTINUED) PINNACLE DEALER SERVICES, INC. ("PDS") On August 20, 1998, the Company acquired PDS, an Arizona corporation, by issuing to the shareholders of PDS a total 300,000 restricted shares of common stock, valued at $0.20 per share, in exchange for the outstanding shares of PDS. PDS provides financing programs for dealers who purchase vehicles from the Company. The excess of the purchase price over the fair value of the net assets acquired (goodwill) was $47,813 and was being amortized on a straight-line basis over 10 years. At December 31, upon its decision, to close all land-based operations, the Company charged the balance of the PDS unamortized goodwill of $36,657 to loss on discontinuance of land-based operations. NATIONAL DEALER SERVICES CO. ("NDSCO") On March 1, 2000, the Company acquired NDSCo, a Utah corporation, by issuing to the shareholders of NDSCo a total 1,100,000 restricted shares of common stock, valued at $2.55 per share, in exchange for the outstanding shares of NDSCo. 100,000 shares of stock were held in escrow pending the successful completion of the new NDSCo software. The software was subsequently completed. NDSCo was a privately held corporation involved in the development of an electonic vehicle distribution system. They utilized a network of auto buying websites that empowered auto dealerships to research, finance and purchase vehicles online. They also provided manufacturers with the ability to list vehicles for sale to dealers in all parts of the country almost instantly from their own lots. Please refer to Notes B and E for information regarding the reclassification to software of the excess paid over book-value for the NDSCo. Common stock. Subsequent to the reclassification, the Company determined that this software is impaired, and accordingly has charged the remaining unamortized balance to expense. AUTOTRADECENTER REMARKETING SERVICES INC. & WALDEN REMARKETING SERVICES, INC. ("WALDEN REMARKETING") On March 31, 1999, the Company acquired Walden Remarketing, a Minnesota corporation by issuing the shareholders of Walden Remarketing a total of 2,050,000 restricted shares of common stock, cash of $125,000, and a promissory note in the principal amount of $425,000. The Company valued the common stock at its estimated fair market value of $0.71 per share or $1,450,000. The promissory note accrues interest at the rate of 12% per annum and requires the Company to make 18 equal monthly payments of principal and interest beginning May 1, 1999. The excess of the purchase price over the fair value of the net assets acquired (goodwill) was $1,985,383 and is being amortized on a straight-line basis over 10 years. On April 20, 1999, the Company entered into a Consulting Agreement with the former majority shareholder of Walden Remarketing as part of the Company's acquisition of Walden Remarketing. The consulting services agreement is for a period of three years ending April 20, 2002. As consideration for the agreement, the Company has granted to the shareholder an option to purchase 3,000,000 shares of the Company's common stock at $3.00 per share. The options, which expire April 20, 2009, vest according to a schedule that is based on the trading price of the common stock. On December 1, 1999, the Company entered into an agreement which provides for the termination and unwinding of all oustanding obligations and agreements that arose when the Company acquired Walden Remarketing. The balance on the promissory note issued as part of the acquistion in the amount of $314,475 F-28 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE L - BUSINESS ACQUISITIONS (CONTINUED) was converted into common stock at a price of $1.00 per share. The Company changed the name from Walden Remarketing to AutoTradeCenter Remarketing Services Inc. and moved the operation to a new office in Scottsdale, Arizona. The consulting services agreement entered into with the former majority shareholder of Walden Remarketing as part of the Company's acquisition of Walden Remarketing was also terminated. As a result the option to purchase 3,000,000 shares of the Company's common stock at $3.00 per share expired. BUSINESSTRADECENTER.COM INC. ("BTC") On January 7, 1999, the Company incorporated BTC in Arizona to facilitate the buying and selling of vehicles at wholesale between dealers on the Internet. BTC has developed the technology and systems necessary to make the Company's inventory, as well as the inventory of member dealers, available for purchase and sale on the Company's Internet site. On March 23, 2000 it acquired the remaining 45% minority interest of BTC by issuing 5,000,000 shares of common stock, valued at $1.88 per share, which represents management's estimate of the fair market value of the common stock on the date of the transaction, and paying off a convertible $200,000 note, thereby making BTC a wholly-owned subsidiary. The excess of the purchase price over the fair value of the net assets acquired (goodwill) was $9,374,550 and was being amortized on a straight-line basis over 10 years. Please refer to Note B for information regarding the reclassification of the purchase price paid by the Company for BTC from goodwill to software and the subsequent change in the estimate of its useful life from 10 years to 3 years. The acquisitions described above were accounted for by the purchase method of accounting for business combinations. Accordingly, the accompanying consolidated statements of operations do not include any revenues or expenses related to these acquisitions prior to the respective closing dates. The cash portions of the acquisitions were financed through available cash and borrowings from the Company's line of credit. The following schedule shows the pro-forma results for continuing operations for the years ended March 31, 2000 and March 31, 1999 assuming the acquisitions the Company acquired during the year ended March 31, 2000 occurred on April 1, 1998. Year ended March 31, ------------------------------ 2000 1999 ---- ---- Net revenues $ 291,587 $ - Net loss $(3,117,304) $(2,534,363) Year ended March 31, ------------------------------ 2000 1999 ---- ---- Basic loss per common share $ (0.11) $ (0.13) Diluted loss per common share $ (0.11) $ (0.13) These pro-forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually resulted had the combinations been in effect on April 1, 1998, or of future results of operations. F-29 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE L - BUSINESS ACQUISITIONS (CONTINUED) As a result of the acquisitions, the Company had the following non-cash activity:

NOTE M - STOCKHOLDERS' EQUITY COMMON STOCK On July 10, 1997 (inception) the Company issued 9,000,000 shares of no-par value common stock for $30,000 to its founders. In December 1997, the Company sold 1,002,500 common shares for $25,062 pursuant to Rule 503 of Regulation D under the Securities Act of 1933 (commonly referred to as a "504 offering"). On March 31, 2001, the Company, in a private placement, sold 5,865,210 units at $0.25 per unit. Each unit consists of one share of no par common stock and one warrant (expiring March 31, 2006) enabling the warrant holder to acquire one share of common stock at $0.3125 per share, for each two warrants tendered. Subsequent to March 31, 2001 an additional 186,702 units were sold, under similar terms. The private placement subscription agreement contains an anti-dilution provision. Refer to Note R - Subsequent Events for additional disclosures related to the issuance of the number of shares of Common Stock to be issued pursuant to this private placement. PREFERRED STOCK SERIES C During February, 2000 the Company issued 20,800 shares of Series C preferred stock ("Series C") for $2,080,000. Each share of Series C preferred stock is convertible, at the option of the holder, at any time, into 80 shares of Common Stock of the Corporation, which is based on the initial conversion price of $1.25. The Company assigned an intrinsic value of $1,697,280 to this conversion feature. As a result, a constructive dividend in this amount was recorded in the accompanying financial statements. Each share of Series C preferred stock is entitled to a $100 liquidation preference over common stockholders. The Series C preferred stock is non voting. F-30 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE M - STOCKHOLDERS' EQUITY (CONTINUED) The Company shall have the right and option upon notice to the holders of the Series C preferred stock to call, redeem, and acquire any or all of the shares of Series C preferred stock at a price equal to $110.00 per share, at any time to the extent such shares have not previously converted to common stock pursuant to the terms described above; provided, however, that the holders of the Series C preferred stock shall, in any event, have the right during the 30-day period immediately following the date of the Notice of Redemption, which shall fix the date for redemption, to convert their shares of Series C preferred stock in accordance with the terms described above. On May 17, 2000 the Company filed Form S-1 Registration Statement under the Securities Act of 1933 to register the common shares to be issued upon conversion of the Series C preferred stock. On May 14, 2001 the Company filed Form S-1 Registration Statement Amendment Number 5 under the Securities Act of 1933 to register the common shares to be issued upon conversion of the Series C preferred stock. In accordance with terms of the Series C preferred stock and a subsequent agreement with shareholders the Company issued an additional 2% (416 Shares) Series C preferred shares to its shareholders. As the additional shares are considered to be a cost of issuance, their cost is capitalized to the related equity account. Furthermore, the conversion price for the Series C preferred shares has been reduced to $0.75. No additional constructive dividend was recorded upon the reduction of the conversion price as there is no additional intrinsic value resulting from the reduction. SERIES D During February, 2000 the Company issued 31,200 shares of Series D preferred stock ("Series D") for $3,120,000. Each share of Series D preferred stock is convertible, at the option of the holder, at any time, into shares of Common Stock of the Corporation equal to $100.00 divided by the conversion price which shall be a price equal to 65% of the average closing bid price for the common stock for the 10 trading days immediately preceding the date of conversion. Shareholders of Series D are limited to owning at any given time no more than 5% of the total issued and outstanding Common Stock of the Corporation after giving effect to the issuance of the Common Stock to be received from any Series D conversion. The maximum conversion price shall be $4.00 per share. The Company assigned an intrinsic value of $1,680,000 to this conversion feature. As a result, a constructive dividend in this amount was recorded in the accompanying financial statements. Each share of Series D preferred stock is entitled to a $100 liquidation preference over common stockholders. The Series D preferred stock is non voting. The Company shall have the right and option upon notice to the holders of the Series D preferred stock to call, redeem, and acquire any or all of the shares of Series D preferred stock at a price equal to $110.00 per share, at any time to the extent such shares have not previously converted to common stock pursuant to the terms described above; provided, however, that the holders of the Series D preferred stock shall, in any event, have the right during the 30-day period immediately following the date of the Notice of Redemption, which shall fix the date for redemption, to convert their shares of Series D preferred stock in accordance with the terms described above. On May 17, 2000 the Company filed Form S-1 Registration Statement under the Securities Act of 1933 to register the common shares to be issued upon conversion of the Series D preferred stock. On May 14, 2001 the Company filed Form S-1 Registration Statement Amendment Number 5 under the Securities Act of 1933 to register the common shares to be issued upon conversion of the Series D preferred stock. In accordance with terms of the Series D preferred stock the Company has deemed to issue an additional 2% (624 Shares) Series D preferred shares to its shareholders. As the additional shares are considered to be a cost of issuance, their cost is capitalized to the related equity account. F-31 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE M - STOCKHOLDRS' EQUITY (CONTINUED) STOCK OPTION PLANS 1997 STOCK OPTION PLAN: On August 5, 1997, the shareholders of the Company adopted the 1997 Stock Option Plan ("Plan"), which provides for the granting of both incentive stock options and non-qualified options to eligible employees (including independent wholesale brokers), officers, and directors of the Company. Initially, a total of 1,000,000 shares of common stock were reserved for issuance pursuant to the exercise of stock options under this Plan (the "Option Pool"). The Option Pool is adjusted annually on the beginning of the Company's fiscal year to a number equal to 10% of the number of shares of common stock of the Company outstanding at the end of the Company's last completed fiscal year, or 1,000,000 shares, whichever is greater. For the fiscal years' beginning April 1, 1999, April 1, 2000, and April 30, 2001 the Option Pool was 2,038,508, 2,765,261 and 3,732,551 shares, respectively. The Plan is administered by the Compensation Committee of the Board of Directors or, if there is no Committee, by the Board of Directors. The Plan provides that disinterested directors, defined as non-employee directors or persons who are not directors of one of the Company's subsidiaries, will receive automatic option grants to purchase 10,000 shares of common stock upon their appointment or election to the Board of Directors of the Company. Options shall have an option price equal to 100% of the fair market value of the common stock on the grant date and shall have a minimum vesting period of one year from the date of grant. The following table reflects activities in the Company's 1997 Option Plan:

These shares vest according to length of service provided that the recipient is still employed by the Company or under contract pursuant to a work-for-hire agreement as of the vesting date. The vesting period for options issued to brokers who were performing services for the Company at the time of its disposition of land-based operations remain unchanged. The option prices range from $0.15 to $4.88. F-32 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE M - STOCKHOLDRS' EQUITY (CONTINUED) 2000 EQUITY INCENTIVE COMPENSATION PLAN: On November 29, 2000, the board of directors adopted the 2000 Equity Incentive Compensation Plan, which provides for granting stock options, stock appreciation rights, restricted and deferred stock, bonus stock, and other stock-based awards to officers, directors, employees, and independent contractors. The shareholders must still adopt this plan. The total number of shares of common stock that may be subject to the granting of awards under this plan at any time during the term of the plan is equal to 3,500,000 shares, plus the number of shares with respect to which awards previously granted under the plan that terminate without being exercised, and the number of shares that are surrendered in payment of any awards or any tax withholding requirements. During any fiscal year the number of options, stock appreciation rights, restricted shares of common stock, deferred shares of common stock, shares as a bonus or in lieu of other company obligations, and other stock-based awards granted to any one participant may not exceed 450,000 for each type of such award, subject to adjustment in certain circumstances. The maximum amount that may be paid out as an annual incentive award or other cash award in any fiscal year to any one participant is $2,000,000, and the maximum amount that may be earned as a performance award or other cash award in respect of a performance period by any one participant is $5,000,000. Unless earlier terminated by the board of directors, this plan will terminate at such time as no shares of common stock remain available for issuance under this plan and we have no further rights or obligations with respect to outstanding awards under this plan. Subject to approval of this plan by the stockholders, options have been granted under this plan as follows: Granted ............................... 2,365,496 Exercised.................................. 0 Cancelled/expired.......................... 0 -------- Balance, March 31, 2001.................... 2,365,496 ========== SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") requires the Company to disclose pro forma information regarding option grants made to its employees. SFAS No. 123 specifies certain valuation techniques that produce estimated compensation charges that are included in the pro forma results below. These amounts have not been reflected in the Company's Statement of Operations, because "APB 25", "Accounting for Stock Issued to Employees," specifies that no compensation charge arises when the stock price of the options granted to the Company's employees is equal to or greater than the fair market value of the stock price at the date of grant. Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following average assumptions: Year Ended March 31, ------------------------- 2001 2000 1999 ----- ----- ----- Expected divident yield 0.00% 0.00% 0.00% Risk-free interest rate 5.74% 6.02% 4.67% Expected volatility 168% 166% 149% Expected life (in months) 16 32 43 F-33 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE M - STOCKHOLDRS' EQUITY (CONTINUED) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimates, in management's opinion the existing models do not necessarily provide a reliable single measure of the fair value of the Company's options. The weighted average estimated fair value of employee stock options granted during the years ending March 31, 2001 and 2000 and March 31, 1999 were $1.07, $0.80, and $0.52 per share, respectively. SFAS 123 pro-forma numbers are as follows:

F-34 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE M - STOCKHOLDRS' EQUITY (CONTINUED) OTHER STOCK OPTIONS The Company has also granted stock options to other third parties as part of the issuance of stock, debt and in business acquisitions. Some options vest according to various agreed upon conditions; while others vested on the date granted. Following is a table reflecting activities regarding other stock options:

The fair value of the options issued during the years ended March 31, 2001, 2000 and 1999 was determined using the Black-Scholes option pricing model. Options granted for services were valued at $23,083 and options granted for loan guarantees were valued at $56,355 in 1999. For the years ended March 31, 2001 and 2000 options granted for services were valued at $193,186 and $351,280, respectively. No other options were granted for the year ended March 31, 2001. NOTE N - RELATED PARTY TRANSACTIONS Certain of the following related party transactions refer to prior tranactions with the disposal of land-based subsidiaries and operations. Effective June 1, 1998 ANET-NM entered into a lease agreement with G & B Investments, LLC, an entity owned by two of the principals managing the Albuquerque operations. The lease terminates on May 31, 1999 but is automatically renewed unless a 30-day cancellation notice is received by either party. The lease is an operating lease whereby ANET-NM is responsible for all operating costs. The amount of the lease is $2,500 per month. Effective May 1, 2000 the amount of the lease increased to $3,600 per month. As described in Note L, on August 20, 1998 the Company acquired Pinnacle Dealer Services ("PDS") for 300,000 restricted shares of common stock. PDS was owned by three officers of the Company. The value assigned to the transaction was $47,813. On March 26, 1999, the Company obtained a $3,000,000 line of credit from a financial institution. The note is due March 31, 2000, and is secured by a first lien on all inventory accounts receivable, equipment, and general intangibles. Messrs. Stuart, Moldenhauer, and Butterwick personally guaranteed the note. In F-35 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE N - RELATED PARTY TRANSACTIONS (CONTINUED) consideration of the personal guarantees, the Company granted each of Messrs. Stuart, Moldenhauer, and Butterwick three-year options to purchase 250,000 restricted shares of common stock at a price of $1.00 per share. On April 3, 2000, the Company extended its $3,000,000 line of credit from a financial institution. The note is due June 30, 2000, and is secured by a first lien on all inventory accounts receivable, equipment, and general intangibles. Messr. Butterwick personally guaranteed a portion of the note. No options were granted in consideration of his personal guarantee. The note was further extended through the first two months of 2001 when it was repaid in full. Pursuant to a Financial Services Agreement with Cambridge Management Associates, LLP, an entity whose managing partner became an officer of the Company on April 2, 1999, 300,000 stock options vested on March 26, 1999. The options are exercisable at $0.32 per share. The Company has entered into various lending arrangements with officers, directors and other affiliated entities owned or controlled by officers, directors and other key personnel of the Company. As more fully detailed in Note G, at March 31, 2001, March 31, 2000 and March 31,1999 the outstanding balance on these notes was $738,807, $528,807, and $528,807, respectively. The total interest paid to these entities on all financing activities for the years ended March 31, 2001, 2000, and 1999 was $106,888, $63,456, and $63,456, respectively. The outstanding balances on related party notes respecting discontinued operations were $0, $5,166,821, and $3,342,639 at March 31, 2001, 2000, and 1999, respectively. Total interest paid to these entities on all financing activities for discontinued operations was $699,288, $704,665, and $233,368 for the years ended March 31, 2001, 2000, and 1999, respectively. NOTE O - CONCENTRATIONS Remarketing off-lease and program vehicles, primarily using the Internet, represents the Company's primary business segment. For the fiscal year ended March 31, 2001, 100% of its revenue was earned under a three year contract with American Honda Finance Corporation to remarket used Honda and Accura vehicles. NOTE P - LEGAL PROCEEDINGS The Company and certain of its subsidiaries have been named as defendants in various claims, complaints and other legal actions arising in the normal course of business. In the opinion of management, the outcome of these matters will not have a material adverse effect upon the financial condition, results of operations or cash flows of the Company. F-36 NOTE Q - AUTOTRADECENTER.COM INC. - CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001

F-37 AUTOTRADECENTER.COM INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE R - SUBSEQUENT EVENTS On May 16, 2001 a director of the Company loaned the Company $150,000. On May 31, 2001, the note was rewritten and increased to $200,000 and is due upon the Company's receipt of specific trade accounts receivable. The note bears interest at the rate of 12% per annum and is secured by these specific trade accounts. On July 16, 2001, this director loaned the Company an additional $65,000 under a new note with the same terms and conditions as the original note. Subsequent principal payments have reduced the balances due at July 26, 2001 on both notes to approximately $115,000. As part of the financing arrangement with Eagle Capital Group, LLC as described below, the due dates on the notes have been extended until after August 31, 2001. On July 26, 2001, the Company entered into a financing arrangement with Eagle Capital Group, LLC ("Eagle"), a private company, which provides for a line of credit up to $1,300,000. The loan provides for an initial advance of $250,000, followed by a thirty-day review period during which Eagle will complete its legal due diligence with respect to, among other items, the Company's intellectual property. The review period grants Eagle the right to discontinue funding of the line of credit if the Company's intellectual property is deficient in certain material respects. The loan is due June 30, 2002 bearing interest at the rate of 12% per annum that is payable monthly. The Company paid a commitment fee of $13,000 and is obligated to pay a one percent (1%) facility fee of up to $13,000 each quarter. The Company is also required to pay monthly principal payments of not less than 5% of the outstanding loan balance once the Company achieves positive cash flow. The loan is secured by all assets including but not limited to furniture, fixtures, leasehold, personal property, and intellectual property. The loan is convertible into common stock of the Company at any time before the due date thereof, including any extensions, at the lesser of the average bid price following the date of the first advance and the earlier of the conversion date or the termination date or $0.10 per share. The Company also issued Eagle a warrant which allows Eagle, for a period of 90 days from the termination date of the loan, to purchase common shares at $0.10 per share in an amount equal to the difference between (a) 13,000,000 and (b) the number of shares of common stock issued upon prior conversion of any amounts under the loan. In addition, the Company issued a warrant to Eagle that allows Eagle to purchase, for a period of up to five years, up to 6,500,000 shares of common stock at an exercise price of $0.125 per share. If the Company prepays the loan in full at any time prior to December 31, 2001, the Company will issue to Eagle 1,500,000 shares of Common Stock as consideration. In addition, the Company issued to Eagle 1,300 shares Series E Preferred Stock, at a par value of $0.10 per share. The Series E Preferred Stock grants Eagle the right to vote an equivalent of 13,000,000 common shares. Eagle will have two representatives on the Company's board of directors. The Company also entered into a Facilities Use and Administrative Services Agreement with an affiliate of Eagle for the use of office facilities, software development, marketing, accounting, and other management services that may vary from time to time. The fee for these services will be negotiated between the parties in good faith as business practices and circumstances change. On July 26, 2001, as part of the agreement with Eagle, the Company consolidated the notes payable to Pinnacle Financial and Mark Moldenhauer in the amounts of $336,807 and $402,000, respectively. The consolidated note bears interest at 12% payable monthly. In addition, the Company is obligated to make principal payments of $25,000 per month in November and December 2001, and $50,000 per month principal payments from January 2002 through May 2002. The balance of the note is due June 30, 2002. Any principal payment may be converted into Common Stock at the sole discretion of the lender at the rate of $0.10 per share, upon three days written notice. The Company also issued a warrant to purchase one share of Common Stock for every two shares of Common Stock received upon conversion. The warrant exercise price is $0.125 per share and expires five years from issuance. The note is subordinated to the first lien of Eagle. As a result of this transaction, the Company is required to reset the pricing of the units sold in March through April, 2001 pursuant to a private placement. The anti-dilution clause contained in the private placement requires the Company to issue 9,948,027 shares of its common stock and 4,959,013 additional stock purchase warrants exercisable at $0.125 per share. F-38 NOTE S - LIQUIDITY ISSUES The Company has sustained operating losses and negative cash flow since its inception, resulting in little tangible net worth at March 31, 2001. Without the new financing, as discussed in Note R, the Company could not have funded its day-to-day operations or service its long term debt. The Company and its management have addressed these concerns by: (1) Obtaining a new line of credit, effective July 26, 2001, for up to $1,300,000 (see Note R) to fund the Company's operating needs until the projected future revenue sources are fully developed; (2) Continuing our efforts to raise up to an additional $500,000 under terms similar to those of the private placement of equity securities in March and April of 2001; (3) Implementing plans to generate positive cash flow and operating profits by increasing revenues through the expansion of its Internet remarketing of off-lease and program vehicles with its current customers and others and develop new products and services for its current customer base and others and; (4) the Company intends to further reduce its cash requirements for software and website development and continue to reduce its costs of operations. There is no assurance, however, that the Company will be able to implement its business plan as outlined above. In the event that the Company is unable to obtain positive cash flow prior to exhausting its new line of credit, it must obtain additional financing in the form of equity or debt to continue operations. F-39

AUTOTRADECENTER COM INC 10-K