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

                                   FORM 10-KSB

       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2004

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

            For the transition period from ___________ to ___________

                        Commission file number 000-15216

                         HOMELAND SECURITY NETWORK, INC.
                                    (FORMERLY
                            AUTOCORP EQUITIES, INC.)

                 (Name of small business issuer in its charter)

              Nevada                                    86-0892913
   (State or other jurisdiction                      (I.R.S. Employer
 of incorporation or organization)                   Identification No.)

 2500 Legacy Drive
 Suite 226
 Frisco, Texas                                             75034
 (Address of principal executive offices)                (Zip Code)

                    Issuer's telephone number: (214) 618-6400

         Securities registered under Section 12(b) of the Exchange Act:

          Title of each class Name of each exchange on which registered

                                      NONE

         Securities registered under Section 12(g) of the Exchange Act:

                   Common Stock, Par Value of $0.001 Per Share
                                (Title of class)

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

   Check if there is no disclosure of delinquent  filers in response to Item 405
of Regulation S-B contained in this form,  and no disclosure  will 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-KSB or any
amendment to this Form 10-KSB.  [ ] State issuer's  revenues for its most recent
fiscal year: $542,374.

   State the aggregate  market value of the voting and non-voting  common equity
held by  non-affiliates  computed by  reference to the price at which the common
equity was sold,  or the average bid and asked price of such common equity as of
a  specified  date within the past 60 days:  $2,723,242,  based on the $0.08 per
share price at which common equity was sold on August 29, 2005.

   State the number of shares  outstanding  of each of the  issuer's  classes of
common equity, as of the latest  practicable date:  141,820,353 shares of Common
Stock, $0.001 par value, as of August 29, 2005.

   Transitional Small Business Disclosure Format (check one): Yes |_|   No |X|
<PAGE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS                                                                  PAGE
<S>            <C>                                                                 <C>
PART I

     Item 1.   Description of Business                                               2
     Item 2.   Description of Property                                               9
     Item 3.   Legal Proceedings                                                     9
     Item 4.   Submission of Items to a Vote of Security Holders                     9

PART II

     Item 5.   Market for Common Equity and Related Stockholder Matters               9
     Item 6.   Management's Discussion and Analysis or Plan of Operation             11
     Item 7.   Financial Statements                                                  16
     Item 8.   Changes in and Disagreements with Accountants on Accounting
               and Financial Disclosure                                              16
     Item 8A.  Controls and Procedures                                               17
     Item 8B.  Other Information                                                     18

PART III

    Item 9.    Directors, Executive Officers, Promoters and Control Persons;
               Compliance with Section 16(a) of the Exchange Act                     18
     Item 10.  Executive Compensation                                                19
     Item 11.  Security Ownership of Certain Beneficial Owners and Management        20
     Item 12.  Certain Relationships and Related Transactions                        22
     Item 13.  Exhibits                                                              24
     Item 14.  Principal Accountants Fees and Services                               24

INDEX TO FINANCIAL STATEMENT                                                        F-1
SIGNATURES                                                                          S-1
</TABLE>

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS:

   Certain  of  the  statements  contained  in  this  Annual  Report  should  be
considered "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities  Exchange Act of 1934, as amended (the "Exchange Act"), which reflect
the current views of Homeland Security Network, Inc., formerly known as AutoCorp
Equities, Inc. (collectively,  with its direct and indirect subsidiaries, "HSNI"
or the "Company") with respect to future events and financial  performance.  You
can identify these statements by forward-looking  words such as, but not limited
to, "may," "will,"  "expect,"  "intend,"  "anticipate,"  "believe,"  "estimate,"
"plan,"   "could,"   "should,"   and   "continue"   or  similar   words.   These
forward-looking  statements may also use different  phrases.  From time to time,
HSNI also provides  forward-looking  statements  in other  materials the Company
releases  to the public or files with the United  States  Securities  & Exchange
Commission, as well as oral forward-looking statements.

   This report  includes  statements  that are based on forecasts and intentions
concerning Company operations,  capital  requirements,  economic performance and
financial  condition,  in particular,  statements  regarding  intended plans for
future  operations  and  expectations  of  future  operating  performance.  Such
statements  are subject to various risks and  uncertainties.  Actual results may
differ, and could differ materially,  from those currently  anticipated due to a
number of factors, including those under the Risk Factors set forth below.

   Statements  in this annual  report and the exhibits to this report  should be
evaluated in light of these important factors.  The Company is not obligated to,
and undertakes no obligation to, publicly update any  forward-looking  statement
due to actual results, changes in assumptions,  new information or as the result
of future events.


                                       1
<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

INTRODUCTION

   Homeland Security Network,  Inc., formerly known as AutoCorp Equities,  Inc.,
(collectively,  with its  subsidiaries,  "HSNI"  or the  "Company")  is a Nevada
corporation formed in 1993. HSNI's principal executive office is located at 2500
Legacy  Drive,  Suite  226,  Frisco,  Texas.  HSNI's  telephone  number is (214)
618-6400. HSNI's website is www.hsni.us.

   This report,  quarterly  reports on Form 10-QSB,  current reports on Form 8-K
and amendments to these reports filed or furnished  pursuant to Section 13(a) of
the Exchange Act are made  available  free of charge  through the SEC's  website
(www.sec.gov),  which contains  reports,  proxy and  information  statements and
other information  regarding issuers that file  electronically  with the SEC. In
addition,  these  documents  are made  available  on HSNI's  website  as soon as
reasonably  practicable  after the  material is  electronically  filed with,  or
furnished to, the SEC. The public may read and copy any material HSNI files with
the SEC at the SEC's Public  Reference  Room located at 450 Fifth Street,  N.W.,
Washington,  D.C. 20549.  The public may obtain  information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330.

   Until the third quarter of 2004, the Company provided  financial products and
related  services to the new and  pre-owned  automotive  finance  industry.  The
Company primarily purchased and subsequently sold automobile finance receivables
collateralized   by  new  and  pre-owned   automobiles.   The  receivables  were
predominately  purchased from automobile  retailers nationwide and sold to banks
and credit unions.  In August 2004, the Company entered into a plan to "run-off"
its  operations in this  industry by not accepting new business and  terminating
its  business  relationships.  Its new focus is to  transition  into several new
markets with new products. See "Planned Business Operation".

2003 MERGER

   On June 30, 2003,  HSNI (when  operating as AutoCorp  Equities,  Inc.) issued
100,000,000  shares of its  Common  Stock and  4,086,586  shares of its Series A
convertible stock to Pacific Holdings Group, Inc. ("PHG"), the parent company of
Pacific Auto Group, Inc. ("PAG"), resulting in PHG owning approximately 94.0% of
the  outstanding  HSNI  shares.  The  form  of  the  transaction  was a  reverse
triangular merger,  whereby a newly formed, wholly owned acquisition  subsidiary
of HSNI merged with and into PAG,  with PAG being the surviving  corporation  in
the merger.  PHG was 100% owned by Pacific USA Holdings  Group,  Inc.  ("PUSA").
PUSA was the primary domestic parent company of the entire group,  owning all of
the outstanding  stock of PHG. The ultimate parent company was Pacific  Electric
Wire & Cable Co. in Taiwan ("PEWC"). On December 2, 2002, PUSA filed a voluntary
petition under Chapter 11 of the U.S. Bankruptcy Code. On November 24, 2004 (the
"Effective  Date"),  the  PUSA  Debtors'  joint  plan of  reorganization  became
effective and the PUSA Debtors  emerged from Chapter 11 of the Bankruptcy  Code.
Neither  PHG nor PAG were  party to  PUSA's  petition  under  Chapter  11 of the
Bankruptcy Code.

ACQUISITION BY AUTOCORP ACQUISITION PARTNERS

   On August 20, 2004, PHG, the then controlling shareholder of the Company, and
one of its affiliates,  Pacific  Financial Group ("PFG") and,  collectively with
PHG, the ("Sellers"),  sold their stock to a partnership,  AutoCorp  Acquisition
Partners  ("AAP",  the  "Purchaser")  formed by the then President (and CEO) and
Executive Vice President of the Company.


                                       2
<PAGE>

   The Purchaser  designated two persons (the  "Purchaser  Designees")  who were
elected to the Board of Directors.  The Purchaser Designees became a majority of
the Board  after  the tenth day  subsequent  to the  mailing  and  filing of the
Information  Statement  pursuant to Section  14(f) of the  Exchange Act and Rule
14f-1  promulgated there under. The Purchaser is now the beneficial owner of the
majority of the Company's stock and the Purchaser  Designees  constitute 100% of
the Company's Board of Directors.

PLANNED BUSINESS OPERATIONS

   The Company changed its name to Homeland Security  Network,  Inc. (OTC: HSYN)
on March 1, 2005 to reflect the direction of a new course of business, which the
Company is currently  transitioning into. The Company intends `Homeland Security
Network, Inc.' to be recognized as a leading provider of technology products and
services  for  tracking  and  recovering  valuable  mobile  assets.  The Company
anticipates  its new course of business  will  capitalize  on rapidly  emerging,
largely under-served, GPS tracking markets. HSNI plans to serve the concerns and
requirements  of  the  individual   consumer,   corporations  and  the  security
operations of government.  These markets could have a potential demand in excess
of 100  million  units in the United  States,  Canada  and Mexico  over the next
decade.  HSNI's plan  further  incorporates  engaging and  developing  strategic
alliances with third parties that have a distinct marketing presence in the auto
retail industry, the commercial sector and the government sector.

   On April 14, 2005, HSNI completed  negotiations  and entered into a Licensing
and   Exclusive   Distribution   Agreement  and  a  Sales   Purchase   Agreement
(collectively   "Agreements")   with   Advantra   International   NV,   a  major
international  electronics  developer  and  manufacturer,   to  manufacture  its
products.  Under the terms of the Agreements,  the Company has certain rights to
distribute, develop, market, and sell select hardware devices.

   The Company expects to impact the GPS tracking industry with state-of-the-art
software (contingent on the `Rodwell Software Systems,  Inc.  acquisition' noted
below),  its ability to provide low cost tracking  hardware,  and its ability to
offer a cost-effective  data  transmission  fee. The Company's GPS products will
then  incorporate map tracking and trailing,  geo-fencing  alerts for designated
parameter infringements, and the ability to control vehicle functions with voice
commands from its customer's  web-enabled  mobile phones or personal  computers,
via the company's internet website system software.

   The  Company  entered in two  letters of intent  both dated as of January 31,
2005 with Rodwell Software Systems, Inc. (`Rodwell") and ComTrak Solutions, Inc.
("ComTrak")  regarding  the  Company's  acquisition  of all of  the  issued  and
outstanding  capital stock of Rodwell and ComTrak subject to certain adjustments
at the closing of the  acquisition  plus  assumption of certain  transaction and
related  costs and  expenses.  The  Letters  of Intent  are  subject  to various
conditions and approvals and contemplates that the acquisition would be effected
through the merger of ComTrak and Rodwell  with and into the  Company,  with the
Company as the surviving  corporation in each merger. The Company's intention to
acquire Rodwell is to significantly  increase its software/firmware  development
capabilities,  which  combines GPS tracking  with a web  interface in one simple
device working in tandem with a cell phone, PDA or computer. The acquisition has
not been  consummated.  Currently,  it is pending  and is subject to further due
diligence.

   The Company's letter of intent to acquire ComTrak has been withdrawn.

   Additionally,  the Company is in the process of developing a business  model,
in  which  it  plans  to  incorporate  the  re-introduction  of  its  automated,
web-based,   installment  loan  application   processing   system  that  enables
automobile   dealers  to  underwrite  motor  vehicle  retail   installment  sale
contracts.  This system,  which was utilized in the Company's past business,  is
structured  as an  application  service  provider  and  has  the  capability  of
providing for the  automobile  retailer  continually  without being  affected by
conflicting hours of operation.  This system will provide the independent dealer
and financial  institutions with system capabilities  comparable to those of new
car  franchises and  technologically  progressive  lenders.  The system has been
developed to provide the automobile  retailer and financial  institutions with a
full range of web delivered services and products,  which would include internet
vehicle  auctions,  vehicle  flooring,   internet  banking,  management  systems
(accounting, reporting, inventory, cash management, payroll, etc),


                                       3
<PAGE>

advertising programs,  websites,  insurance and retail insurance products.  This
system is proprietary to the Company.  The Company has not yet  ascertained  the
capital requirements necessary for the implementation of its plan.

RISK FACTORS

LIMITED OPERATING HISTORY OF PRESENT BUSINESS

   In August 2004, as described under Part I, Item 1, the heading "Acquisition",
the Company's  stock was acquired by a partnership  formed by the then President
(and CEO) and Executive  Vice  President of the Company.  Although the Company's
current  management has extensive  operating  experience in the consumer finance
industry,  the brief operating history of the planned and "refocused" operations
provides only a limited basis for evaluation. The prospects for the Company must
be  considered  in light  of the  risks,  expenses,  difficulties  and  problems
frequently encountered in transitioning a company.

THERE CAN BE NO ASSURANCE OF FUTURE PROFITABILITY

   The ability to operate  profitably  will  depend  primarily  on  management's
ability to:

o     successfully complete its' diversification and restructuring activities;

o     maintain  adequate  liquidity and produce  sufficient cash to meet capital
      expenditure plans;

o     overcome significant operating losses;

o     enter into strategic alliances or other business relationships;

o     complete  acquisitions  or  divestitures  and to integrate any business or
      operation acquired;

o     maintain pace with technological developments and changes in the industry;

o     develop products and services;

o     collect the  payments  ("run-off")  due on the  portfolios  of  automobile
      receivables;

o     obtain an adequate credit facility for product inventory requirements;

o     retain  existing and secure new financing with favorable terms to fund the
      expansion of operations;

o     control the overall cost structure of the organization;

o     adapt to a competitive  marketplace  and to  consistently  increase market
      penetration; and

o     manage the risks discussed in "Risk Factors" under item 1 below.

   The failure to achieve and/or maintain any or all of these  objectives  could
have a materially adverse impact on the business,  results of operations and the
financial condition of the Company.

LIQUIDITY AND NEED FOR ADDITIONAL FUNDING

   Due to recurring  operating losses and the Company's  current working capital
deficit, there is a need to obtain additional funding of working capital for the
Company to operate as a going concern.  Various types of additional funding such
as issuance of additional common or preferred stock, additional lines of credit,
or issuance of  subordinated  debentures on other forms of debt will be pursued.
The Company is  currently  negotiating  additional  investments  in the Company.
However,  there can be no assurance  that  additional  funding will be available
when needed or, if available, that its terms will be favorable or acceptable.


                                       4
<PAGE>

SUBSTANTIAL LEVERAGE

   Although substantially  leveraged at the end of fiscal year 2004, in order to
meet  the  ongoing  working  capital  requirements  of the  Company,  additional
indebtedness  may  have  to be  incurred,  perhaps  resulting  in a more  highly
leveraged  capital  structure.  A highly leveraged  capital structure could have
adverse consequences, including:

o     limiting the ability to obtain additional financing;

o     requiring  the use of operating  cash flow to meet  interest and principal
      repayment obligations;

o     increasing  the  Company's  vulnerability  to changes in general  economic
      conditions and competitive pressures; and

o     limiting the  Company's  ability to realize some or all of the benefits of
      significant business opportunities.

   In addition,  any indebtedness  that would be incurred is expected to contain
covenants  that limit,  among  other  things,  the  ability to incur  additional
indebtedness,  engage in mergers and  acquisitions,  pay dividends or take other
actions. These covenants may also require the meeting of certain financial tests
and the maintenance of a minimum level of collateral and may give the lender the
right to  perform  periodic  audits to ensure  compliance  with the terms of the
applicable  loan.  Non-compliance  with any of the terms of such  covenants  may
result in a  suspension  of  funding,  acceleration  and  consequent  demand for
repayment  and a  foreclosure  on  collateral,  as well as the  pursuit of other
rights and remedies,  all of which could have a materially adverse effect on the
financial condition, results of operations and prospects of the Company.

INTEREST RATE FLUCTUATIONS

Prior to its "run off" of operations,  the Company's profitability was based, in
part, on the interest  rate charged on interest  bearing  liabilities.  Interest
rates with  respect to  outstanding  indebtedness  or  indebtedness  that may be
incurred in the future  are,  or will be, as the case may be,  based on interest
rates prevailing in the market at the time the debt is incurred.  In some cases,
the rates may be floating rates. Increases in interest rates paid on outstanding
indebtedness would adversely affect the profitability of the Company and consume
cash allocated for other operating activities.

POOR CREDITWORTHINESS OF BORROWERS; HIGH RISK OF CREDIT LOSSES

      Loans to persons with non-prime credit involve an increased probability of
delinquency  and/or default and involve greater  servicing costs than loans made
to  borrowers  with prime  credit  profiles.  The ability to operate  profitably
depends, in part, on an accurate evaluation of the creditworthiness of customers
and the minimization of losses  following  defaults.  As a result,  it is likely
that  delinquency  and loss  rates in the  Company's  remaining  portfolio  will
fluctuate  in the  near  term  and may  increase  as a  greater  portion  of the
portfolio of automobile  receivables  matures.  A  significant  variation in the
timing  of or  increases  in  credit  losses  experienced  on the  portfolio  of
automobile  receivables  could have a materially  adverse effect on the Company.
There can be no  assurance  that any loans made to  customers  will be repaid in
whole or in part or that  reserves for such credit  risks will be adequate.  Any
loans  that are in default  may need to be charged  off  against  the  reserves.
Further, any default that is with recourse to a credit union or bank may require
the Company to repurchase the receivable.

   Extending credit to retail car buyers with such credit standing is inherently
risky.  The  borrowers  on such loans will either be first time buyers or buyers
with poor credit ratings. Such buyers may be more likely to default on their car
loans than buyers with higher credit ratings.


                                       5
<PAGE>

ENFORCEMENT OF VEHICLE INSTALLMENT CONTRACTS

   Various   federal  and  state  statutes  impose  certain   requirements   and
restrictions  applicable to the origination and servicing of vehicle installment
contracts,  which include state statutes  relating to foreclosure  sales and the
recovery of deficiency  balances  following such a sale, and that  violations of
those statutes may give rise to claims and defenses by a borrower.

RISKS RELATING TO SECURITY INTERESTS AND REPOSSESSION OF COLLATERAL

   The procedure for  perfecting a security  interest on a motor vehicle  varies
from state to state. In most states, perfection of security interests in a motor
vehicle requires that the lien be noted on the vehicle's title certificate.

   Failure  to  properly  perfect  a  lien  or  to  otherwise  comply  with  the
requirements  of relevant  statutes  would  impair the  priority of the security
interest and the ability to enforce  those liens.  Such  security  interests may
also be subject to a number of federal  and state  laws,  including  the Uniform
Commercial  Code as in effect in various states.  Under such statutes,  liens of
third  parties,  as for example,  caused by unpaid storage or repair of financed
vehicles,  which are beyond the control of the Company,  may have  priority over
the  security  interest  granted  even if such  liens  arise  subsequent  to the
granting of a security interest.

   Further,  limitations  imposed by  bankruptcy  laws or other federal or state
laws may limit or delay the Company's ability to:

(a)   repossess  and resell cars in which there is a valid,  perfected  security
      interest;

(b)   enforce a deficiency judgment; or

(c)   collect the amount due.

RISK ASSOCIATED WITH EXPANSION

   The Company's growth strategy may include future mergers or acquisitions,  or
expansion  of services  and products  offered.  There can be no  assurance  that
management  will  successfully  integrate the current  operations of the Company
with those that may be acquired  or  established  in the future and  effectively
manage  the  combined  enterprise.  There  will be a need to limit  overhead  as
additional  operations are acquired while still  maintaining  sufficient  staff.
Failure  to do so  would  have a  materially  adverse  effect  on the  business,
financial  condition  and  results of  operations  of the  Company  (See Item 1,
Description of Business - Planned Business Operations).

COMPETITION

   Although  high-profile  losses in  non-prime  lending have caused many of the
most  substantial  conventional  lenders to exit this  market,  competition  for
financing  customers  with  non-prime  credit  is quite  strong.  The  Company's
competitors included local, regional and national automobile dealers,  secondary
finance companies and other sources of financing for automobile purchases,  such
as lease  financing and dealer  self-financing.  Many of these  competitors  are
larger and have greater  financial  and  marketing  resources  than the Company.
Historically,  commercial banks,  savings and loan associations,  credit unions,
captive  finance  subsidiaries  of automobile  manufacturers  and other consumer
lenders have not competed for financing for  credit-impaired  car buyers. To the
extent that such lenders expand their activities in the credit-impaired  market,
the Company's financial condition,  results of operations or cash flows could be
materially and adversely affected.

   The Company  will  compete  with other  product and service  suppliers in the
automotive  and  other   industries.   The  GPS  tracking   industry  relies  on
coordinating the merging of four separate components in


                                       6
<PAGE>

order to operate as a GPS  tracking  system.  They are;  hardware,  firmware,  a
software or  application  system,  and  wireless  communication  providers.  The
Company is a GPS  tracking  company  that has adapted its  hardware and software
capabilities  to operate on what is  currently  the least costly type of airtime
network  provider in the  industry.  It is possible that our  competitors  could
adapt their hardware and software to also utilize the Company's  current airtime
provider. This event could reduce the size of the Company's targeted markets. It
is also  possible  that new emerging  technologies  could  render the  Company's
product  obsolete or that  procurement  of supplies  could become scarce or more
costly to acquire should suppliers drop from the market place.

GENERAL ECONOMIC CONDITIONS

   The Company's "run-off" business was related to financing cars.  Financing is
affected by  employment  rates,  prevailing  interest  rates,  and other general
economic  conditions.  Economic  slowdown or  recession  could lead to increased
delinquencies,  repossessions,  and credit losses. Because of the Company's past
focus on non-prime borrowers,  the actual rate of delinquencies,  repossessions,
and credit losses on contracts  could have been higher under adverse  conditions
than those experienced in the car finance industry in general.  Economic changes
are uncertain, and sluggish sales of cars and weakness in the economy could have
had an adverse effect on the business.

   The Company's  new business is also related,  in part, to the sale of new and
pre-owned  automobiles.  Sales are  affected  by  employment  rates,  prevailing
interest rates,  and other general  economic  conditions.  Economic  slowdown or
recession  could lead to Company  product  inventory and  production  decreases.
Adverse economic changes and sluggish sales of new and pre-owned automobiles and
weaknesses  in the  economy  could  lead to a  decline  in the sale of  tracking
devices.

SEASONALITY; VARIABILITY OF QUARTERLY OPERATING RESULTS

   The new and  pre-owned  automobile  sales and finance  industry is subject to
substantial  seasonal  variations  in  revenues.  Demand  for new and  pre-owned
automobiles is generally  lower in the winter than in other seasons.  Sales tend
to be lower during the holiday and back-to-school  seasons,  while sales tend to
be higher  during the late  spring and through  the summer  months.  The planned
growth  strategy  may subject the  Company's  operating  results to  substantial
variables and changes each quarter.  Accordingly,  given the possibility of such
fluctuations,  management believes that quarterly  comparisons of the results of
operations  during  any  fiscal  year are not  necessarily  meaningful  and that
results for any one fiscal quarter should not be relied upon as an indication of
future performance.

SUPERVISION, REGULATION AND LICENSING

   The  automobile  financing  industry  is  subject  to  extensive  regulation,
supervision and licensing  under various  federal,  state and local laws.  Among
other things, these laws require that dealership  operations obtain and maintain
certain  licenses  and  qualifications;  limit or  prescribe  terms of sales and
financing contracts;  require specified  disclosures to customers and borrowers;
impose  finance  charge  ceilings;  limit  the  right to  repossess  and  resell
collateral; and restrict where car sales operations may locate.

   The Company  terminated its  dealership  operations at December 31, 2005. The
decision to terminate its dealership operations was elective and not as a result
of any federal, state or local agency directive nor as a result of noncompliance
or a qualification issue. The intent has been to comply with all laws, rules and
regulations applicable to the Company's ongoing operations.  The Company applied
this standard in its dissolution of its dealership operations as well.

CONSUMER PROTECTION AND USURY LAWS

   Numerous federal and state consumer  protection laws impose requirements upon
the  origination  and  collection of retail  installment  contracts.  State laws
impose finance charge ceilings and other  restrictions on consumer  transactions
and may require certain contract disclosures in addition to those required under
federal law. These  requirements  impose  specific  statutory  liabilities  upon
creditors  who fail to comply with these  provisions.  There can be no assurance
that any state will not lower their usury  limits or that these  states or other
jurisdictions  into which the Company lent, or may lend in the future,  will not
(i) by judicial


                                       7
<PAGE>

decision  change the  interpretation  of existing  precedents  and/or (ii) adopt
additional laws, rules and regulations that could adversely effect the business,
financial condition and results of operations of the Company.

DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS

   The Company's  future  success  depends in part on the ability to continue to
adapt technology on a timely and cost-effective  basis to meet changing customer
and industry standards and requirements.

DEPENDENCE ON KEY PERSONNEL

   The Company is highly dependent on the services of certain key employees. The
Company has entered into an  employment  agreement  with some,  but not all such
employees.  The loss of certain key employees'  services could have a materially
adverse  effect on the  business  and  operations  of the  Company  (see Item 9,
Directors,  Executive Officers,  Promoters and Control Persons;  Compliance with
Section  16(a) of the  Exchange  Act).  In addition,  the future  success of the
Company  depends  upon its  ability to  attract  and  retain  qualified  general
personnel, which have sufficient and suited expertise in either the GPS tracking
industry or the  indirect  auto finance  industry.  There can be no assurance of
success in attracting and retaining qualified personnel in the future.

MARKET FOR COMMON STOCK; VOLATILITY OF PRICES

   There has been a limited  public  trading  market  for  Common  Shares of the
Company.  There can be no assurance that a regular trading market for the Common
Shares  will  ever  develop  or, if  developed,  that it will be  sustained.  No
assurance  can be  given  that  the  Common  Shares  will  be  re-listed  on the
Over-The-Counter-Bulletin-Board  (OTCBB).  The market price of the Common Shares
could also be subject to significant fluctuations in response to such factors as
variations in the  anticipated or actual results of operations of the Company or
other companies in the automotive finance and GPS tracking  industries,  changes
in conditions affecting the economy generally,  analyst reports,  general trends
in industry, and other political or socioeconomic events or factors.

LACK OF PROSPECTIVE DIVIDENDS

   The Company has not paid any  dividends on its Common  Stock and  anticipates
that future  earnings,  if any,  will be used to reduce  debt or finance  future
growth  and that  dividends  will not be paid to  shareholders.  There can be no
assurance  that  operations  will  result in  sufficient  revenues to enable the
Company to operate  at  profitable  levels or to  generate  positive  cash flow.
Accordingly,  the Company does not  anticipate  the payment of any  dividends on
Common Stock for the  foreseeable  future (see Item 5, Market for Common  Equity
and Related Stockholder Matters).

INFLATION

   Higher  interest rates,  which generally occur with inflation,  would tend to
increase  the cost of  credit  used by the  Company  and  would  thus,  decrease
profits.

POSSIBLE OTHER RISKS

   In addition to all risks and assumptions including, but not limited to, those
identified  under the "Risk  Factors"  section,  businesses are often subject to
risks not foreseen or fully appreciated by management. In reviewing this report,
investors and potential  investors should keep in mind other possible risks that
could be  important.  Among key  factors  that may have a direct  bearing on the
Company's  results are competitive  practices in the automotive and GPS tracking
industries,  the ability to meet existing financial  obligations in the event of
adverse industry or economic  conditions or to obtain additional capital to fund
future


                                       8
<PAGE>

commitments  and  expansion,  and the  impact of  current  and  future  laws and
governmental regulations on operations.

EMPLOYEES

   At December 31, 2004, the Company employed a total of 6 people.  No employees
are covered by a collective  bargaining  agreement.  The Company  considers  its
relations with its employees to be good.

ITEM 2. DESCRIPTION OF PROPERTY

   The principal  executive office of the Company is located at 2500 Legacy Dr.,
Suite 226,  Frisco,  Texas  75034.  Approximately  4,069  square  feet of leased
premises are at this location.  The rent is approximately  $86,000 per year. The
lease expires in June 2009.

   The Company also leased three  properties  in California  and Dallas,  Texas,
which expired through September 2004 and required total monthly rent payments of
$16,400.

   Management believes the Company's facilities and equipment are in good repair
and are adequate for current needs.

ITEM 3. LEGAL PROCEEDINGS

   The Company is a defendant in a lawsuit for non-payment of a partial purchase
price for certain retail motor vehicle loan  contracts.  The Company has accrued
approximately  $116,000 for this  potential  liability.  The Company has filed a
counter claim for approximately $175,000. The Company expects this lawsuit to be
settled in the near future.

   The Company was a defendant in a lawsuit for breach of a lease.  A Motion for
Summary Judgment had been filed against the Company. In March, 2005 a settlement
has  been  agreed  to  under  a  promissory  note  totaling   $28,000  of  which
approximately $14,000 has been paid.

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

   Not Applicable

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

   The Common Stock of the Company is  categorized  as "Other OTC" as a security
that is neither  listed on NASDAQ or any stock  exchange,  nor quoted on the OTC
Bulletin  Board;  bids and offers are not centrally  collected.  The name of the
Company was changed to Homeland Security Network, Inc. on March 1, 2005, and the
symbol  was  changed to "HSYN"  effective  March 16,  2005.  It can be viewed at
http://quotes.nasdaq.com.

   Trading in the Company's  securities was suspended from April 5, 2005 through
April 18, 2005 by the Securities and Exchange Commission because the Company was
delinquent  in its  periodic  filing  obligations  under  Section  13(a)  of the
Exchange Act of 1934 and because of possible  manipulative  conduct occurring in
the market for the Company's stock.

   To reinstitute trading, the Company filed the March, June, and September 2004
10QSB on April 27, 2005,  which include interim  financial  statements that have
been  reviewed  by a  certified  public  accountant  but not by its  independent
registered public accounting firm.


                                       9
<PAGE>

   The table  below  lists the high and low bid prices  for each  quarter of the
last two fiscal years, as best can be determined by combining  information  from
several sources.

                                                Bid Quotations*
               Fiscal 2004:                   Low            High

         First Quarter                       $0.06           $0.10
         Second Quarter                       0.05            0.45
         Third Quarter                        0.02            0.06
         Fourth Quarter                       0.015           0.30

         Fiscal 2003:

         First Quarter                        0.16            0.37
         Second Quarter                       0.14            0.45
         Third Quarter                        0.16            0.28
         Fourth Quarter                       0.11            0.16

*     These  quotations  reflect  inter-dealer  prices,  without retail mark-up,
      markdown, or commission and thus may not represent actual transactions.

    At December 31, 2004, there were  approximately 441 holders of record of the
Common Shares of the Company.

   The Company has not paid any  dividends on its Common  Stock and  anticipates
that future earnings, if any, will be retained to finance future growth.

   As part of the June 30, 2003 merger transaction,  of the 10,000,000 Preferred
Shares  authorized  in the  Company's  Articles  of  Incorporation,  a total  of
4,086,856 of those shares were designated as Series "A".

   The terms of the Series "A" Preferred Shares are:

o     they have no voting rights,  sinking fund provision or redemption  rights;
      and

o     they are convertible into Common Shares on a 10-for-1 basis at any time at
      the option of the holder.

   When or if the  Company's  Common Stock is accepted for trading in the NASDAQ
National  Marketing  System,  the  Company  will obtain  conversion  rights with
respect to the preferred stock.

   The Company has authorized  2,000,000 shares of Series "B" Preferred Stock of
which 1,621,642 shares have been issued.

   The terms of the Series "B" Preferred Shares are:

o     they pay non-cumulative dividends at the rate of 5% per year;

o     they have a liquidation preference of $14.64 per share;

o     they have no voting rights,  sinking fund provisions or redemption rights;
      and

o     they are convertible into Common Shares on a 1-for-1 basis.


                                       10
<PAGE>

   A required  conversion at the Company's  election will occur if either of the
following events takes place:

(a)   When or if the  Company's  Common  Stock is  accepted  for  trading in the
      NASDAQ National Marketing System,

(b)   When or if the Company's  Common Stock is publicly traded at a price equal
      to $14.64 per share or more.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD LOOKING STATEMENTS

   As  previously  stated  on  page  1,  this  report  contains  forward-looking
statements. Additional written or oral forward-looking statements may be made by
the  Company  from time to time in  filings  with the  Securities  and  Exchange
Commission or otherwise. Such forward-looking  statements are within the meaning
of that term in  section  27A of the  Securities  Act,  and  Section  21E of the
Securities  Exchange  Act  of  1934,  as  amended  (the  "Exchange  Act").  Such
statements may include,  but not limited to, projections of revenue,  income, or
loss, estimates of capital expenditures,  plans for future operations, products,
or services,  financing needs or plans,  as well as assumptions  relating to the
foregoing. The words "believe," "expect," "anticipate,"  "estimate," and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made.

   Forward-looking  statements are inherently  subject to risks,  uncertainties,
some of which  cannot be  predicted  or  quantified.  Future  events  and actual
results  could  differ  materially  from  those set forth  herein.  The  Company
undertakes  no  obligation  to  publicly  update or revise  any  forward-looking
statements, whether as a result of new information, future events, or otherwise.
Aforementioned  disclosures,  as well as other statements in this Report on Form
10-KSB,  including  those in the notes to the Company's  consolidated  financial
statements,  describe factors,  among others,  that could contribute to or cause
such differences, or that could affect the Company's stock price.

   Management's  Discussion  and Analysis of Financial  Condition and Results of
Operations should be read in conjunction with the Audited Consolidated Financial
Statements and related notes.

REVENUES

   For the year ended December 31, 2004, revenues decreased by 43%, or $717,002,
as compared to the same period a year ago, primarily due to:

o     A decrease in revenue of  $652,773,  or 36%,  primarily  resulting  from a
      reduction  of  interest  income  earned  on  the  Company's  portfolio  of
      automobile   finance   receivables.   The  overall  reason  being  several
      terminations of servicing loan pools and several sales of loan pools.

o     An increase of $263,947,  or 53%, in revenue  recognized  from the sale of
      the Company's finance receivable  portfolio.  Proceeds received from sales
      of loan pools in 2003 totaled $8,228,222,  which produced losses amounting
      to  $172,530,  whereas,  proceeds  from loan pools  sold in 2004  [totaled
      $816,779 and] produced  gains of $91,417.  The primary  differences in the
      gains and losses are related to the amounts of costs such as  professional
      fees,  finder fees,  and loan loss  provisions  assigned to each loan pool
      sold.

o     A  decrease  of  $213,769,  or 26% in other  loan  fees is the  result  of
      terminations of the servicing of loan pools with various credit unions.

o     A decrease of  $114,407,  or 100%,  in direct mail revenue as our emphasis
      shifted from these  services,  which were  totally  phased out by December
      2003.


                                       11
<PAGE>

OPERATING EXPENSES
-------------------

   The loss from  operations for the year ended December 31, 2004 was $2,595,316
compared to $6,590,070  for the year ended December 31, 2003. The Company's loss
from operations decreased by $3,994,754 in fiscal year 2004 from its fiscal year
2003 level predominantly due to:

o     Compensation  and Benefits  expenses  decreased by $1,011,933,  or 63%, as
      compared  to  the  same  period  a year  earlier  primarily  due to  staff
      reductions as a result of selling a large portion of the Company's finance
      receivable  portfolio and elimination of the sales staff. The Company also
      closed its office locations in California,  which reduced compensation and
      benefit costs significantly.

o     Professional  Fees expense decreased by $217,418 or 37% as compared to the
      same period a year  earlier.  This was  primarily  due to decreased  legal
      expenses  associated with the reduced loan pools and the decrease in costs
      related to state licensing and servicing of the finance receivables.

o     Provision  for  Loan  Losses  decreased  by  $2,251,774,   or  36%,  to  a
      recoverability of $593,467,  as compared to the same period a year earlier
      due to the loan loss  reserve  valued for the large  number of  automobile
      installment  loans receivable the Company serviced in 2003, which averaged
      1,511  compared  to  loans  receivable  of  644 in  2004.  The  number  of
      installment loans being serviced in 2004 was dramatically  reduced by loan
      pool sales and the Company's plan to run off its loan  portfolio,  and not
      to accept new  business.  The average  automobile  installment  receivable
      amount to value in 2004 was $2,099,969, which was approximately $4,760,235
      less than 2003.

o     Software  development  costs relating to an installment  loan  application
      processing system, recorded at cost, were being amortized over five years,
      the expected useful life of the asset.  Intangible assets are reviewed for
      impairment  whenever events or  circumstances  indicate  impairment  might
      exist or at least annually. The Company assesses the recoverability of its
      assets in  accordance  with SFAS No. 142  "Goodwill  and Other  Intangible
      Assets," comparing projected undiscounted cash flows associated with those
      assets against their respective carrying amounts.  Impairment,  if any, is
      based on the excess of the  carrying  amount  over the fair value of those
      assets.  The balance of intangible  assets was deemed to be fully impaired
      after  performing the annual  impairment  test in accordance with SFAS No.
      142,  therefore an impairment was recorded on the statements of operations
      in the amount of $546,275.

o     Interest  Expense and Deferred  Financing Costs decreased by $599,045,  or
      approximately  53%, as compared to the same period a year earlier due to a
      decrease in  interest  expense of  $235,113  and a decrease  in  amortized
      financing costs of $363,932. The overall decrease was due to the reduction
      of amounts  payable  related to the Company's  credit facility and amounts
      payable related to credit union participation transactions.

o     Loan  Servicing  expense  decreased by $156,728 or 56%, as compared to the
      same period a year earlier as a direct result of the  Company's  sale of a
      significant  portion  of  the  finance   receivables   portfolio  and  its
      termination of the servicing of loan pools with various credit unions.

o     Other Operating expense decreased by $391,074,  or 75%, as compared to the
      same period a year earlier due to a significant  reduction in travel, data
      processing,  and direct mail expenses.  These decreases in other operating
      expenses are  primarily a result of the reduction of staff and lower costs
      to service the remaining finance  receivable  automobile  portfolios.  The
      Company also closed its office  locations  in  California,  which  reduced
      operating costs significantly.


                                       12
<PAGE>

LIQUIDITY

   The Company's  consolidated  financial  statements  have been prepared on the
assumption  that the Company will  continue as a going  concern.  Management  is
seeking  various  types of  additional  funding  such as issuance of  additional
common  or  preferred  stock,   additional  lines  of  credit,  or  issuance  of
subordinated debentures or other forms of debt. The funding should alleviate the
Company's working capital deficiency and increase profitability.  However, it is
not  possible  to  predict  the  success  of  management's  efforts  to  achieve
profitability.  Also, there can be no assurance that additional  funding will be
available  when needed or, if  available,  that its terms will be  favorable  or
acceptable.

   These factors raise substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include adjustments relating
to  the   recoverability   and  realization  of  assets  and  classification  of
liabilities  that might be necessary should the Company be unable to continue in
operation.  Management is seeking to raise additional capital and to renegotiate
certain liabilities in order to alleviate the working capital deficiency.

   The Company incurred net losses of $3,141,591 for the year ended December 31,
2004 and $7,625,977 for the year ended December 31, 2003.

   In 2005, the Company has been able to minimally  sustain its working  capital
needs based on capital derived  primarily from:  issuances of additional  common
stock;  notes  payable;  proceeds  from the sales of auto  finance  receivables;
interest  income and service fees related to auto finance  receivables  and from
the  sale of  tracking  devices.  Common  stock  issued  relieved  approximately
$826,056 of notes payable and accrued expenses.

   In January  2005,  the Company  obtained  funds after  issuing a note payable
bearing interest at 8% per annum from a related third party. The note provides a
line of credit totaling  $500,000.  On August 31, 2005, the Company has utilized
approximately  $229,000 for working capital.  The note is  uncollateralized  and
matures in January 2006.

   In March 2005,  the Company  obtained  funds of $134,500 under a note payable
bearing  interest  at 7% per  annum  from a  related  third  party.  The note is
uncollateralized  and  matured in June 2005.  The  proceeds  were  utilized  for
working  capital.  The Company is presently in  negotiations  to extend maturity
date of the note.

   In August 2005, the Company issued  2,500,000 shares of Common Stock at $0.08
per share under a subscription  agreement  (Regulation S Investment) whereby the
Company received $200,000. The proceeds were utilized for working capital.

   The Company's  debt to certain  executives at December 31, 2004 was $309,026,
which represented unpaid  compensation for fiscal years 2003 and 2004. The Board
of  Directors  approved  these  amounts to be converted  to notes  payable.  The
interest  rate was 6% and  maturity  date was July 2,  2005.  On April 5,  2005,
2,207,327  shares  of  Common  Stock  were  issued  to its  executives  in  full
satisfaction of the notes.

   The  Company's  debt to a former  director  consisted of two  obligations  in
default at December  31, 2004  totaling  $286,874.  The  obligations  matured in
October 2004 and June 2005 with  interest  rates at 12% and 18%. The Company and
its former  director are  presently in  negotiations  to extend the terms of the
obligation.

   In November 2003,  the Company  executed a revolving  credit  facility in the
amount of $10,000,000 with a financial  institution that bore interest at a rate
of prime  plus 2% and  matured  in  November  2004.  The  purpose  of the credit
facility  was  to  provide  funding  for  the  purchase  of  automobile  finance
installment  contracts for sale to banks and credit  unions.  The balance of the
credit line was $193,751 at December 31, 2004. The balance at August 30, 2005 of
$166,085 is presently in default.  However, the Company is presently negotiating
revised payment terms with the lender.


                                       13
<PAGE>

   The Company's cash flows from operating,  investing and financing activities,
as reflected in the consolidated statements of cash flows, are summarized in the
following table:


                                 Year Ended December 31,
                              ----------------------------
                                  2004            2003
                              ------------    ------------

Cash provided by (used in):

      Operating
         activities           $ (2,388,784)   $  4,331,310

      Investing
         activities                 15,878          29,047

      Financing
         activities              1,398,472      (6,137,942)
                              ------------    ------------

Decrease in cash              $   (974,434)   $ (1,777,585)
                              ============    ============

  The Company  provided  collection and servicing  activities on a fee basis for
finance receivables sold to credit unions on a non-guaranteed  basis in addition
to  providing  such  services to credit  unions for  financing  receivables  not
purchased from the Company.  At December 31, 2004, the total outstanding balance
of finance  receivables for which collection,  asset  management,  and servicing
activities were performed was approximately $458,800.

   Net cash used in operating activities during the year ended December 31, 2004
decreased to $2,388,784  from cash provided by  operations  of  $4,331,310.  The
overall  decrease is due to the Company's  reduction of the volume of automobile
installment  receivables  (the downsizing of portfolios)  held for servicing and
its  participation  of loan pools held by and  between  the  Company  and credit
unions. The decrease is essentially comprised of the following specifics:

1.    Proceeds from loans sold  decreased by $7,411,443  due to the reduction of
      the finance receivable portfolio size from the year 2003;

2.    Principal   payments  collected  on  finance   receivables   decreased  by
      $2,448,159  due  to  the  reduction  of the  automobile  installment  loan
      portfolio from sales to financial institutions;

3.    Consumer loan originations  decreased by $1,478,460 due to the termination
      of point-of-sale acquisitions; and

4.    The  provision for loan losses  decreased by  $2,079,935  due to loan pool
      sales reducing the need for a large loan loss provision.

   Net cash provided by financing activities was $1,398,472 for fiscal year 2004
compared to cash used by financing activities of $6,137,942 in fiscal year 2003.
In  2003,  the  Company  remitted  principal  payments  totaling  $8,703,734  to
financial  institutions whereas in 2004, only $78,606 was remitted primarily due
to the payoffs  obtained from loan pool sales.  Also,  advances of $986,423 from
affiliates  and $306,900  received  from notes  payable  financed the  Company's
working capital needs. Advances of $183,755 from


                                       14
<PAGE>

the Company's  credit facility  provided funding for the purchases of automobile
receivables.  In  2003,  the  Company  received  $3,000,000  from  the  sale  of
securitization assets and paid a $1,000,000 dividend to its parent. There was no
such activity in 2004.

CRITICAL ACCOUNTING POLICIES

   The Company's critical accounting policies are as follows.

FINANCE RECEIVABLES

   Finance receivables consist of purchased  automobile  installment  contracts,
which  were  assigned  to  the  Company  upon  acquisition.  The  titles  to the
automobiles, which serve as security for the payment of the purchased contracts,
are held  either  by the  company  or the  financial  institution  for which the
finance receivables serve as collateral.

   Finance  receivables  that  management has the intent and ability to hold for
the  foreseeable  future or until  maturity  of  payoff  are  reported  at their
outstanding gross contractual balances, net of allowance for losses and unearned
finance  revenue.  Unearned  finance revenue  consists of unearned  interest and
discounts realized on contract purchases. Discounts are amortized as adjustments
of the yields on the related contracts.

   Allowance  for credit  losses is  increased  by  allocating  a portion of the
discount recorded on the acquisition of contracts. The Company performs periodic
evaluations   of  the  adequacy  of  the   allowance   for  losses  taking  into
consideration  the  past  loss  experience,  known  and  inherent  risks  in the
portfolio,  adverse  situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral,  as well as recovery potential
of any underlying  collateral and current economic conditions.  Any increases in
the  allowance  for losses  subsequent  to the  acquisition  of the contract are
charged to earnings.  In  conjunction  with the  Company's  contract  purchases,
dealers make certain  representations  and warranties  regarding the validity of
the contract  and the  enforceability  of the  security  interest in the related
vehicle.  Consequently,  the Company has recourse to the dealer in the event the
dealer's  representations and warranties are false.  Furthermore,  the Company's
standard  form  agreement  with all of its  dealers  requires  that  the  dealer
repurchase  any  contract  where the  borrower  has failed to make the first two
payments.  In such  cases,  it is the  Company's  responsibility  to return  the
related  vehicle to the dealer.  Consumer loans are ordinarily  charged off when
they are 120 - 180 days contractually past due.

INTANGIBLE ASSETS

   Software development costs,  recorded at cost, are amortized over five years,
the  expected  useful  life of the asset.  Intangible  assets are  reviewed  for
impairment whenever events or circumstances  indicate impairment might exist, or
at least  annually.  The Company  assesses the  recoverability  of its assets in
accordance with SFAS No. 142 "Goodwill and Other Intangible  Assets,"  comparing
projected  undiscounted  cash flows  associated  with those assets against their
respective carrying amounts.  Impairment,  if any, is based on the excess of the
carrying amount over the fair value of those assets. The Company determined that
an  impairment  existed at December 31, 2004 and has  recorded  such loss on the
statement of operations.

DEFERRED TAX VALUATION

   The Company  continues to incur tax net operating  losses (NOL's),  which are
available to carry forward and offset future  taxable  income.  These NOL's were
generated,  principally  as a result of losses  resulting from the operations of
the Company.  A deferred tax asset results from the benefit of utilizing the NOL
carry-forwards in future years.

   Due to the  current  uncertainty  of  realizing  the  benefits of the tax NOL
carry-forward,  a valuation allowance equal to the tax benefits for the deferred
taxes has been established.  The full realization of the tax benefit  associated
with the  carry-forward  depends  predominately  upon the  Company's  ability to
generate taxable income during future periods, which is not assured.


                                       15
<PAGE>

OFF BALANCE SHEET ARRANGEMENTS

   The Company does not have any  transactions,  agreements or other contractual
arrangements that constitute off-balance sheet arrangements.

ITEM 7. FINANCIAL STATEMENTS

   The following audited  consolidated  financial statements are attached to and
filed as part of this report:

o     Consolidated Balance Sheet - December 31, 2004;

o     Consolidated  Statements  of Operations  for the Years Ended  December 31,
      2004 and 2003;

o     Consolidated  Statement of Changes in  Shareholders'  Equity (Deficit) For
      the Years Ended December 31, 2004 and 2003;

o     Consolidated  Statements  of Cash Flows for the Years Ended  December  31,
      2004 and 2003; and

o     Notes to Consolidated Financial Statements.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

(a)   The Company  has  discharged  its  Certifying  Accountant,  KBA Group LLP,
      effective October 29, 2003.

(b)   The principal  accountant's  reports for the last two fiscal years did not
      contain adverse opinions as to the Company's financial statements but were
      modified  to report as to the  Company's  ability to  continue  as a going
      concern.

(c)   The  decision  to change the  Company's  accountants  was  approved by the
      Company's Board of Directors.

(d)   During the last two most recent fiscal years or in the  subsequent  period
      ended  June 30,  2003,  there have been no  disagreements  with the former
      accountants on any matter of accounting principles or practices, financial
      statement disclosure, or auditing scope or procedure.

(e)   Effective  October  29,  2003,  Ehrenkrantz  Sterling & Co.,  LLC had been
      retained as the independent  auditor of Homeland Security  Network,  Inc.,
      the Registrant,  and was retained as independent auditor of the registrant
      for the fiscal year ending December 31, 2003. Prior to the engagement, the
      Registrant did not consult with Ehrenkrantz  Sterling & Co., LLC regarding
      the application of accounting  principles to a specified  transaction,  or
      the type of  audit  opinion  that  may be  rendered  with  respect  to the
      Registrant's  financial  statements.  In addition,  the Registrant did not
      consult with  Ehrenkrantz  Sterling & Co., LLC, as to the  application  of
      accounting principles to a specific completed or contemplated transaction,
      or the type of audit opinion that might be rendered on the small  business
      issuer's  financial  statements  and  either  written  or oral  advice was
      provided that was an important  factor  considered  by the small  business
      issuer in reaching a decision as to the accounting,  auditing or financial
      reporting issue.

(f)   On June 1, 2004,  Ehrenkrantz  Sterling & Co., LLC merged with the firm of
      Friedman  Alpren & Green LLP,  which changed its name to Friedman LLP. The
      new entity, Friedman LLP, has been


                                       16
<PAGE>

(g)   retained as the independent  auditor of Homeland Security  Network,  Inc.,
      the Registrant,  and was retained as independent auditor of the registrant
      for the fiscal year ending December 31, 2004.

(h)   For the period since Ehrenkrantz  Sterling & Co., LLC appointment  through
      May 31, 2004 and Friedman LLP through  December 31, 2004,  there have been
      no disagreements  with Ehrenkrantz or Friedman on any matter of accounting
      principles or practices, financial statement disclosure, or auditing scope
      or procedure,  which  disagreements if not resolved to the satisfaction of
      Ehrenkrantz  Sterling & Co., LLC would have caused them to make  reference
      thereto in their report.

(i)   For the period since Friedman LLP appointment  through  December 31, 2004,
      Homeland  Security  Network,  Inc.  did  not  consult  with  Friedman  LLP
      regarding  any  matter  that  was the  subject  of a  "disagreement"  with
      Ehrenkrantz,  as that term is defined in Item  304(a)(1)(iv) of Regulation
      S-K and the related  instructions  to Item 304 of Regulation  S-K, or with
      regard  to any  "reportable  event,"  as  that  term  is  defined  in Item
      304(a)(1)(v) of Regulation S-K, except as such  consultations  as may have
      been made with former  employees of  Ehrenkrantz  who are now employees of
      Friedman.  The Company filed the March,  June, and September 2004 10QSB on
      April 27, 2005, which include interim  financial  statements that have not
      been  reviewed  by its  independent  registered  public  accounting  firm,
      Friedman LLP.

ITEM 8A. CONTROLS AND PROCEDURES

   HSNI's Chief Executive  Officer and Chief Financial  Officer,  have evaluated
the  effectiveness  of the  Company's  "disclosure  controls and  procedures"(as
defined in Rules  13a-15(e) and 15d-15(e)  under the Securities  Exchange Act of
1934, as amended) as of the end of the period  covered by this report.  Based on
that  evaluation,  the Company's  Chief  Executive  Officer and Chief  Financial
Officer have identified the following material weaknesses:

o     Less than adequate staff to prepare financial footnotes in accordance with
      generally accepted accounting principles;

o     Lack of certain internal controls over period-end reporting related to the
      identification of significant transactions, primarily equity transactions,
      and accounting for them in the proper periods; and

o     Lack  of  certain  internal  controls  related  to the  identification  of
      contractual transactions.

   The Company is beginning to undertake a review of its  disclosure,  financial
information  and internal  controls  and  procedures.  The Company  believes the
appropriate direction to be undertaken is as follows:

o     The Company will  augment,  as  necessary,  such  procedures  by obtaining
      concurrence  with  independent   outside   accounting   experts  prior  to
      finalizing financial reporting;

o     A process will be established whereby accounting and operational personnel
      and  an  executive  management  member  will  collectively  determine  the
      appropriate accounting and disclosure review of material agreements; and

o     The  Company  will  institute  regular  quarterly  meetings to review each
      department's significant activities and respective disclosure controls and
      procedures.

   The Chief  Executive  Officer and the Chief  Financial  Officer believe these
actions will strengthen the internal controls of the Company and to have such in
place by the end of the first quarter of 2006.


                                       17
<PAGE>

ITEM 8B. OTHER INFORMATION:

None applicable.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

   Members of the Board of Directors  are elected to serve until the next annual
meeting or until  their  successor  is elected and  qualified.  As of August 30,
2005, the date of the next annual meeting has not been selected.

   The  Executive  Officers and  Directors of the Company as of August 30, 2005,
are:

Name              Age       Position                      Director Since
-------------     ----      ---------------------         --------------

Charles Norman     47       Chief Executive Officer;           2003
                            Director; Chairman

Peter Ubaldi       59       President; Director;               2004
                            Chief Financial Officer;
                            Treasurer

   A brief  statement  setting forth the principal  occupation and certain other
information for each of them is set forth below.

   CHARLES  NORMAN'S  experience  includes  consumer  banking,  consumer finance
companies,  and the automobile industry. Mr. Norman has been involved in raising
capital and has served in successful  turnaround  executive  management roles in
private and publicly help companies, as well as extensive  entrepreneurship as a
passive  investor  and/or  managing  partner.  Mr.  Norman  has  nine  years  of
experience in various senior capacities running publicly traded companies.

   In April 2003,  (amended  and  restated  January  2004,  amended and restated
January  2005) HSNI  entered into an  Employment  Agreement  ("Agreement")  with
Charles W. Norman.  The  Agreement  provides  that Mr. Norman shall serve as the
Chief  Executive  Officer  of HSNI to  January  1,  2007.  The  duration  of the
Agreement is for a period of two years  marked by the amended and restated  date
of January 1, 2005. At any time prior to the expiration of the  Agreement,  HSNI
and Mr. Norman may mutually agree to extend the duration of employment under the
terms of the  Agreement  for an  additional  period or  periods.  As payment for
services,  HSNI agrees to pay Mr.  Norman,  as the Chief  Executive  Officer,  a
minimum base salary of $250,000  per annum.  As provided in the  Agreement,  Mr.
Norman is eligible to be paid bonuses,  from time to time, at the  discretion of
HSNI's Board of Directors,  of cash,  stock or other valid form of compensation.
Upon  termination of and under the terms of the  Agreement,  Mr. Norman shall be
entitled to severance  compensation in an amount equal to twenty-four months' of
base salary as shall exist at the time of such termination.

   PETER  UBALDI has worked in the finance  industry  for 35 years.  Mr.  Ubaldi
began his  career  with a major CPA firm and has since  specialized  in  various
finance-related  industries as an investment banker and executive  manager.  Mr.
Ubaldi has  extensive  experience  with major banking  institutions,  as well as
specialty finance and equipment leasing  companies.  Mr. Ubaldi has two years of
experience in various senior capacities running publicly traded companies.

   In May 2004,  (amended  and  restated  January  2005)  HSNI  entered  into an
Employment  Agreement  ("Agreement")  with Peter Ubaldi.  The Agreement provides


                                       18
<PAGE>

that Mr.  Ubaldi shall serve as the  President  of HSNI to January 1, 2007.  The
duration of the Agreement is for a period of two years marked by the amended and
restated  date of January 1, 2005.  At any time prior to the  expiration  of the
Agreement,  HSNI and Mr.  Ubaldi may  mutually  agree to extend the  duration of
employment under the terms of the Agreement for an additional period or periods.
As payment for services,  HSNI agrees to pay Mr.  Ubaldi,  as the  President,  a
minimum base salary of $250,000  per annum.  As provided in the  Agreement,  Mr.
Ubaldi is eligible to be paid bonuses,  from time to time, at the  discretion of
HSNI's Board of Directors,  of cash,  stock or other valid form of compensation.
Upon  termination of and under the terms of the  Agreement,  Mr. Ubaldi shall be
entitled to severance  compensation in an amount equal to twenty-four months' of
base salary as shall exist at the time of such termination.

   The Company  presently  contemplates  that  should a 2005  Annual  Meeting of
Shareholders  be held,  the newly elected  Directors  will hold a regular annual
meeting  of the Board of  Directors.  If a  regular  meeting  is not  held,  the
Directors will sign a unanimous  consent in lieu of holding the meeting and will
re-elect the current officers to the same positions for the coming year.

CODE OF ETHICS

   The  Company  has not  yet  adopted  a code of  ethics  that  applies  to its
principal executive officer,  principal financial officer,  principal accounting
officer, or controller, or persons performing similar functions.

   The Company  deferred  its adoption of a code of ethics due to events such as
the  change of  control,  the  Company's  contraction,  and the  refocus  of the
Company's business.

   The Company anticipates adopting a code of ethics as soon as is practical and
will be posted on the Company's Web Site.

ITEM 10. EXECUTIVE COMPENSATION

   The following table sets forth, for each of the last three fiscal years, cash
and certain  other  compensation  paid by the  Company  for its Chief  Executive
Officer.  None of the next four most  highly  compensated  officers  serving  on
December 31, 2004, received more than $100,000 for fiscal 2004.


<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
                                      Annual Compensation      Awards and Payouts
                                      -------------------      ----------------------------
Name/Principal         Fiscal         Salary      Bonus        Stock      Options      LTIP
Position                Year                                   Awards     SARs
<S>                    <C>            <C>         <C>          <C>        <C>          <C>
Charles Norman
--------------

CEO                     2004          $250,000

CEO & President         2003          $250,000   $ 25,000

CEO & President         2002          $ 93,135                $ 16,380

Peter Ubaldi

CFO                     2004          $206,458

    --                  2003

    --                  2002
</TABLE>

                                       19
<PAGE>


STOCK OPTION PLAN

   The Company has a  non-qualified  Stock  Option  Plan (the  "Plan")  that was
adopted  by the Board of  Directors  in March  1997.  The Plan,  as  authorized,
provides  for the  issuance of up to 2,000,000  shares of the  Company's  stock.
Persons  eligible to  participate  in the Plan as  recipients  of stock  options
include  full and  part-time  employees  of the  Company,  as well as  officers,
directors,  attorneys,   consultants  and  other  advisors  to  the  Company  or
affiliated corporations.

   Options  issued  under the Plan are  exercisable  at a price that is not less
than twenty  percent  (20%) of the fair market value of such shares (as defined)
on the date the  options  are  granted.  The  non-qualified  stock  options  are
generally  non-transferable  and are exercisable over a period not to exceed ten
(10) years from the date of the grant.  Earlier  expiration  is operative due to
termination  of  employment  or death of the issuee.  The entire Plan expires on
March 20, 2007, except as to non-qualified stock options then outstanding, which
will remain in effect until they have expired or have been exercised.

   As of December  31,  2004,  1,890,289  shares had been issued under the Plan,
109,711 shares were available for future issuance.


          Shares            Exercise Price

          Outstanding, beginning of year         75,689           --

          Granted                                    --           --

          Waived                                 75,689           --

          Exercised                                  --           --
          ------------------------------------------------------------------
          Outstanding, end of year                   --           --
          ==================================================================
          Options exercisable at year-end            --           --
          ==================================================================

   No options were granted during 2004. There were no warrants authorized during
2004.

COMPENSATION OF DIRECTORS

   No Directors fees were paid during fiscal 2004.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The following  table sets forth certain  information,  as of August 30, 2005,
concerning  the  beneficial  ownership  of  Common  Stock by all  Directors  and
nominees,  certain executive  officers,  all Directors and executive officers of
the Company,  as a group, and each person who beneficially  owns more than 5% of
the 141,820,353  outstanding  shares of Common Stock,  $0.001 par value.  Unless
otherwise indicated, each person named has sole voting and investment power over
the shares indicated;


                                       20
<PAGE>

DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS

   Number of Shares Beneficially Owned and Percent of Class

<TABLE>
<CAPTION>
Directors, Named
Executive
                    Common Stock    Percent of                 Percent                Percent     Percent
Officers and 5%                      Common        Series A   of Series   Series B       of        Voting
Stockholders                          Stock       Preferred              Preferred     Series      Power
<S>                 <C>             <C>           <C>         <C>        <C>          <C>         <C>
AutoCorp
Acquisition
Partners                      --          --      4,086,856      100%    1,621,642      100%         --



Charles Norman*       49,017,922        34.6%     2,043,428       50%      810,821       50%       34.6%

Peter Ubaldi*         47,761,905        33.7%     2,043,428       50%      810,821       50%       33.7%

William Merritt       11,000,000         7.7%            --       --            --       --         7.7%

Securities
Acquisition New
York, LLC **          15,429,359        11.0%            --       --            --       --        11.0%

All directors,
director
nominees and
executive
officers as a
group                 96,779,827        68.2%     4,086,856      100%    1,621,642      100%       68.2%

All 5% beneficial
owners               123,309,186        87.0%     4,086,856      100%    1,621,642      100%       87.0%

</TABLE>

   *Messrs.  Norman and Ubaldi each own a 50%  interest in AutoCorp  Acquisition
Partners.

  **The Company shareholder records reflect that this block of shares is held as
follows:  Market  Connexxions LLC,  (8,429,355  shares);  W-Two LTD,  (5,000,000
shares); and ProMark,  Inc.,  (2,000,000 shares). The Company believes,  but has
not been able to ascertain  that these parties are  affiliated  with  Securities
Acquisition New York, LLC. Therefore,  any of these parties may wish to disclaim
beneficial ownership of any of such shares.




SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.

   Section  16(a)  of  the  Securities  Exchange  Act  of  1934  and  the  rules
promulgated  there under require that  directors  and executive  officers of the
Company and beneficial  owners of greater than 10% of the Company's Common Stock
file various reports with the Securities and Exchange Commission (the "SEC").


                                       21
<PAGE>

   The Company  does not file on these  individuals'  behalf and solely  reviews
reports  furnished  to HSNI.  The Company has reviewed its files with respect to
fiscal 2004.

   The following  persons failed to file timely or did not file a Form 3, Form 4
or Form 5 within fiscal year 2004: Charles Norman, once; Peter Ubaldi, twice.

ITEM 12. CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS

   On June 30, 2003,  Pacific  Auto Group,  Inc.  ("PAG")  became a wholly owned
subsidiary of Homeland Security Network, Inc. ("HSNI"),  and the HSNI securities
described below were issued to Pacific Holdings Group,  Inc.  ("PHG"),  the sole
stockholder of PAG. The form of the transaction was a reverse triangular merger,
whereby a newly formed, wholly owned, acquisition subsidiary of HSNI merged with
and into PAG,  with PAG being the  surviving  corporation  in the  merger  and a
subsidiary of HSNI.

   On June 30, 2003, PHG was 100% owned by PUSA. On December 2, 2002, PUSA filed
a voluntary petition under Chapter 11 of the U.S.  Bankruptcy Code. The ultimate
parent  company  was PEWC.  PAG is the  holding  company  for its  wholly  owned
subsidiary American Finance Company, Inc. ("AFCO").  AFCO's principal operations
consisted of the purchase of automobile finance  receivables,  collateralized by
new and  pre-owned  automobiles,  from  franchised  and  independent  automotive
dealers throughout the United States.

   PUSA was the primary domestic parent company of the entire group,  owning all
of the outstanding stock of PHG.

   Effective June 30, 2003, HSNI issued  100,000,000  shares of its Common Stock
and  4,086,586  shares of its  Series A  convertible  stock to PHG,  the  parent
company of PAG, resulting in PHG owning  approximately  94.0% of the outstanding
HSNI shares.

   Pacific Financial Group,  Inc. ("PFG"),  an affiliate of PHG, owned 1,621,642
shares of Series B Non-Cumulative Convertible Preferred Stock of HSNI; par value
$0.001 per share (the  "Series B Preferred  Shares").  Those  Series B Preferred
Shares  were  convertible  at  any  time,  at the  option  of  the  holder  on a
one-for-one  basis, into 1,621,642 HSNI Common Shares. The Series B Preferred is
non-voting stock.

   Subsequent to the June 30, 2003 merger transaction, on a fully-diluted basis,
PFG  immediately  beneficially  owned  1,621,642  HSNI  Common  Shares,  and PHG
beneficially owned 136,490,202 HSNI Common Shares. On a fully diluted basis, PHG
and PFG  together  beneficially  owned  142,490,202  HSNI Common  Shares,  which
represented  95.66% of the  148,953,873  HSNI  Common  Shares that would then be
outstanding.

   On  June  30,  2003,  Pacific  USA  Holdings  Corp.  ("PUSA")  was  the  sole
stockholder  of PFG  and PHG and as such  beneficially  owned  142,490,202  HSNI
Common Shares. Pacific Electric Wire and Cable ("PEWC") was the sole shareholder
of PUSA and as such  beneficially  owned  142,490,202 HSNI Common Shares,  which
represented 95.66% of the 148,953,873 HSNI Common Shares then, outstanding.

   On August 20, 2004, PHG, the then controlling shareholder of the Company, and
one of its affiliates,  Pacific  Financial Group ("PFG") and,  collectively with
PHG, the ("Sellers"),  sold their stock to a partnership,  AutoCorp  Acquisition
Partners  ("AAP",  the  "Purchaser")  formed by the then President (and CEO) and
Executive Vice President of the Company.

   The Purchaser  designated two persons (the  "Purchaser  Designees")  who were
elected to the Board of Directors.  The Purchaser Designees became a majority of
the Board  after  the tenth day  subsequent  to the  mailing  and  filing of the
Information  Statement  pursuant to Section  14(f) of the  Exchange Act and Rule
14f-1  promulgated there under. The Purchaser is now the beneficial owner of the
majority of the Company's stock and the Purchaser  Designees  constitute 100% of
the Company's Board of Directors.


                                       22
<PAGE>

BACKGROUND OF TRANSACTION AND CHANGE IN CONTROL

   Pursuant to an  acquisition  agreement  entered into as of August 20, 2004 by
and among the Sellers,  the Purchaser  and the Company,  the Sellers sold all of
the  stock  of  the  Company  held  by it to  the  Purchaser.  Pursuant  to  the
acquisition  agreement,  the Board members, all of who had been appointed by PHG
as controlling shareholder of the Company,  appointed the Purchaser Designees to
the Board. Two of the PHG-appointed  directors then resigned immediately and the
remaining two PHG-appointed directors resigned on September 13, 2004, being more
than ten days after the mailing and filing of the Information Statement pursuant
to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated there under.

   AAP acquired  the stock of the Sellers and by its  principles  (1)  delivered
their  personal  guarantee  to Far East  National  Bank  ("FENB")  to obtain the
release of the  guarantee by PEWC  discussed  below;  and (2) agreed the Company
could make the  transfers  and give the  releases to PHG  described  (and in the
amounts  indicated)  below;  simultaneously  with PHG funding and  canceling the
obligations of the Company  described (and in the amounts  indicated) below. The
Purchasers paid no cash to the Sellers for the stock.

   PEWC is PHG's  indirect  parent.  PEWC had  provided a  guarantee  to FENB in
connection  with a $10  million  revolving  credit  facility  from  FENB to AFCO
Receivables  Funding Corp, an indirect subsidiary of the Company. At the date of
the closing of the acquisition  agreement,  there was $661,796 outstanding under
the revolving  credit  facility.  It was a condition to the closing that PEWC be
released from its guarantee.

   The Company  transferred to PHG (i) the entire  ownership of certain residual
interests  in  securitization  assets,  which were then on the books of American
Finance  Company,  a PAG  subsidiary,  in the  amount  of $2  million;  (ii) the
balances in certain  bank  accounts of the Company and its  subsidiaries  in the
amount of $404; and (iii) a 1993 Lexus  automobile  owned by AutoCorp  Financial
Services,  Inc., a wholly owned  subsidiary of HSNI; along with the agreement of
the Company to transfer  subsequent to the closing any other assets not directly
associated  with the Company's  then primary  business of  automobile  sub-prime
receivable acquisition.

   The Company released PHG and its affiliates from certain receivables due from
them to the Company in the amount of $37,395.

   Simultaneously  with the  transfers  and releases by the Company,  PHG funded
certain  payroll  obligations  in the  amount  of  $173,852  and loan  portfolio
obligations  of the  Company in the  amount of  $56,000,  and to cancel  certain
obligations  owed to PHG and its  affiliates  by the Company  and the  Company's
subsidiaries in the amount of $4,139,880.

   As part of the  transaction,  PHG secured the release of 35 million shares of
restricted   Company  Common  Stock  pledged  to  FENB  in  connection  with  an
outstanding  loan to PHG and an  affiliate  of PHG.  Such shares are part of the
94,000,000 Common Shares Sellers sold to Purchaser.

INFORMATION RELATING TO THE COMPANY'S VOTING SECURITIES

   Shares of Common Stock are the only voting securities of the Company. Holders
of the  Common  Stock  are  entitled  to one vote on all  matters  presented  to
stockholders for each share  registered in their respective  names. As of August
30, 2005, there were 141,820,353 shares of Common Stock outstanding.  The Series
A and Series B Preferred Stock have no voting rights.


                                       23
<PAGE>

ITEM 13. EXHIBITS

EXHIBIT INDEX

   The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission.

Exhibit Number         Description
--------------         -----------

3.1                    Amendments to Articles of Incorporation  (incorporated by
                       reference  to  Exhibit C of HSNI's  February  7, 2005 DEF
                       14C)

10.1                   Acquisition  Agreement   (incorporated  by  reference  to
                       Exhibit 2.1 of HSNI's August 31, 2004 8-K)

21.1                   List  of  Subsidiaries   (incorporated  by  reference  to
                       Exhibit 10.1 of HSNI's May 18, 2004 10-KSB)

31.1                   Rule  13a-14(a)  Certification  by  the  Chief  Executive
                       Officer

31.2                   Rule  13a-14(a)  Certification  by  the  Chief  Financial
                       Officer

32.1                   Section 1350 Certification by the Chief Executive Officer

32.2                   Section 1350 Certification by the Chief Financial Officer

ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES

AUDIT FEES

   Fees for audit services totaled approximately $40,000 and $49,000 in 2004 and
2003,  respectively.  There were no audit related, tax or other fees paid to the
Company's principal registered public accounting firm.



                                       24
<PAGE>

HOMELAND SECURITY NETWORK, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

                                                                  Page No.
                                                                  --------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             F-2

CONSOLIDATED FINANCIAL STATEMENTS

   Consolidated Balance Sheet                                       F-3

   Consolidated Statements of Operations                            F-5

   Consolidated Statement of Changes in
     Shareholders' Equity (Deficit)                                 F-6

   Consolidated Statements of Cash Flows                            F-7

   Notes to Consolidated Financial Statements                       F-8


                                      F-1
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Homeland Security Network, Inc.
Frisco, TX

   We have  audited  the  accompanying  consolidated  balance  sheet of Homeland
Security Network, Inc., formerly AutoCorp Equities,  Inc., and Subsidiaries,  as
of December  31, 2004 and the related  consolidated  statements  of  operations,
shareholders  deficit and cash flows for the years ended  December  31, 2004 and
2003. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

   We  conducted  our  audits in  accordance  with the  standards  of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial statements are free of material  misstatement.  We were not engaged to
perform  an audit of  internal  control  over  financial  reporting.  Our  audit
included  consideration of internal control over financial  reporting as a basis
for designing audit  procedures that are appropriate in the  circumstances,  but
not for the  purpose  of  expressing  an  opinion  on the  effectiveness  of the
Company's' internal control over financial reporting. Accordingly, we express no
such  opinion.  An audit also  includes  examining,  on a test  basis,  evidence
supporting the amounts and disclosure in the financial statements, assessing the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

   In our  opinion,  the  consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Homeland Security Network, Inc. and subsidiaries as of December 31, 2004 and the
results of its  operations  and its cash flows for the years ended  December 31,
2004 and 2003 in conformity with accounting principles generally accepted in the
United States of America.

   The  accompanying   consolidated  financial  statements  have  been  prepared
assuming that the Company will continue as a going concern. As discussed in Note
3 to the consolidated financial statements, the Company has suffered losses from
operations  and has a working  capital  deficit  at  December  31,  2004.  These
conditions raise  substantial doubt about the Company's ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 3. The consolidated  financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

Friedman LLP
East Hanover, New Jersey

August 23, 2005


                                      F-2
<PAGE>

                HOMELAND SECURITY NETWORK, INC. AND SUBSIDIARIES

                       (FORMERLY AUTOCORP EQUITIES, INC.)

                           CONSOLIDATED BALANCE SHEET


                                DECEMBER 31, 2004

                                     ASSETS



CURRENT ASSETS
   Cash                                      $     21,339
   Finance receivables, net of allowances
    of $322,213                                   412,932
   Other Current Assets                            11,846
                                             ------------
           Total current assets                   446,117

PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
   DEPRECIATION OF $427,772                        21,439



OTHER ASSETS
   Security deposits                               20,750
   Miscellaneous receivable                        24,185
                                             ------------

           Total assets                      $    512,491
                                             ============

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


                                      F-3
<PAGE>

                HOMELAND SECURITY NETWORK, INC. AND SUBSIDIARIES

                       (FORMERLY AUTOCORP EQUITIES, INC.)

                     CONSOLIDATED BALANCE SHEET (CONTINUED)

                                DECEMBER 31, 2004

                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)



CURRENT LIABILITIES
    Accounts payable and accrued expenses             $    861,894
    Notes payable to related parties                       657,438
    Amounts payable to credit unions                       547,144
    Line of credit                                         193,751
                                                      ------------
          Total current liabilities                      2,260,227

COMMITMENTS AND CONTINGENCIES                                   --

SHAREHOLDERS' EQUITY (DEFICIT):
Series A cumulative convertible preferred stock,
    $.001 par value, 10,000,000 shares authorized,
    4,086,856 shares issued and outstanding                  4,087

Series B convertible preferred stock, no par value,
    5% non-cumulative; liquidation  preference of
    $14.64 per share; 10,000,000 shares authorized,
    1,621,642 shares issued and outstanding                352,643

Common Stock, par value $.001; 110,000,000
    shares authorized,
    106,463,671 shares issued
    and outstanding                                        106,464
Additional paid-in-capital                              14,491,850
Accumulated deficit                                    (16,303,040)
                                                      ------------
                                                        (1,347,996)
    Less treasury at cost, 1,817,000 shares               (399,740)
                                                      ------------

    Total shareholders' equity (deficit)                (1,747,736)
                                                      ------------

           Total liabilities and shareholders'
              equity (deficit)                        $    512,491
                                                      ============

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


                                      F-4
<PAGE>

                HOMELAND SECURITY NETWORK, INC. AND SUBSIDIARIES

                       (FORMERLY AUTOCORP EQUITIES, INC.)

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                          For the Years Ended December 31,
                                          --------------------------------
                                               2004              2003
                                          --------------    --------------
REVENUES
   Interest Income                        $      374,037    $    1,026,810
   Gain (Loss) on Sale of Loans                   91,417          (172,530)
   Other income                                   76,920           405,096
                                          --------------    --------------
       Total revenues                            542,374         1,259,376
                                          ==============    ==============
 Expenses
   Interest expense and
     deferred financing costs                    663,062         1,262,107
   Compensation and Benefits                   1,755,412         2,767,345
   Office Occupancy and Equipment                627,440           673,504
   Professional Fees                             128,286           345,704
   Loan Servicing                                124,582           281,310
   Depreciation and Amortization                 302,601           340,321
   Provision for Loan Losses                    (593,467)        1,658,307
   Other Operating Expense                       129,774           520,848
                                          --------------    --------------

       Total expenses                          3,137,690         7,849,446
                                          --------------    --------------

LOSS FROM OPERATIONS                          (2,595,316)       (6,590,070)
OTHER INCOME (DEDUCTIONS)                 ==============    ==============
   Forgiveness of indebtedness                        --           150,000
   Impairment of goodwill                             --        (1,185,907)
   Impairment of Intangible Asset               (546,275)               --
                                          --------------    --------------
       Total other deductions                   (546,275)       (1,035,907)
                                          --------------    --------------
NET LOSS                                  $   (3,141,591)   $   (7,625,977)
                                          ==============    ==============

NET LOSS PER SHARE, basic and diluted $            (0.03)   $        (0.07)
                                          ==============    ==============

WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING,
   basic and diluted                         106,463,671       106,452,986
                                          ==============    ==============

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


                                      F-5
<PAGE>

                HOMELAND SECURITY NETWORK, INC. AND SUBSIDIARIES
                       (FORMERLY AUTOCORP EQUITIES, INC.)
       CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                                             Preferred Stock
                                                   Common Stock          Additional             Series A
                                          ---------------------------     Paid-in       ---------------------------
                                             Shares         Amount        Capital          Shares         Amount
                                          ------------   ------------   ------------    ------------   ------------

<S>                                        <C>           <C>            <C>                <C>         <C>
Balance at December 31, 2002               106,413,671   $    106,414   $ 16,948,644       4,086,856   $      4,087

Return of capital                                   --             --     (1,000,000)             --             --

Capital contribution                                --             --        120,441              --             --

Return of capital of Undivided Interest
in Securitization assets                            --             --     (4,000,000)             --             --

Common Stock issuances                          50,000             50         10,950              --             --

Net Loss                                            --             --             --              --             --
                                          ------------   ------------   ------------    ------------   ------------
Balance at December 31, 2003               106,463,671   $    106,464   $ 12,080,035       4,086,856   $      4,087
                                          ------------   ------------   ------------    ------------   ------------
Return of capital                                   --             --             --              --             --

Capital contribution                                --             --             --              --             --

Forgiveness of related entities'
liabilities and receivables                         --             --      4,411,815              --             --

Return of capital of Undivided Interest
in Securitization assets                            --             --     (2,000,000)             --             --

Common Stock issuances                              --             --             --              --             --
                                          ------------   ------------   ------------    ------------   ------------
Balance at December 31, 2004               106,463,671   $    106,464   $ 14,491,850    $  4,086,856   $      4,087
                                          ============   ============   ============    ============   ============
</TABLE>


<TABLE>
<CAPTION>
                                                Preferred Stock                                                           Total
                                                   Series B                    Treasury Stock                          Stockholders'
                                          ---------------------------   ---------------------------    Accumulated      Equity
                                             Shares         Amount         Shares         Amount          Deficit        (Deficit)
                                          ------------   ------------   ------------   ------------    ------------    ------------
<S>                                          <C>         <C>               <C>         <C>             <C>             <C>
Balance at December 31, 2002                 1,621,642   $    352,643      1,817,000   $   (399,740)   $ (5,535,472)   $ 11,476,576

Return of capital                                   --             --             --             --              --      (1,000,000)

Capital contribution                                --             --             --             --              --         120,441

Return of capital of Undivided Interest
in Securitization assets                            --             --             --             --              --      (4,000,000)

Common Stock issuances                              --             --             --             --              --          11,000

Net Loss                                            --             --             --             --      (7,625,977)     (7,625,977)
                                          ------------   ------------   ------------   ------------    ------------    ------------
Balance at December 31, 2003                 1,621,642   $    352,643      1,817,000   $   (399,740)   $(13,161,449)   $ (1,017,960)
                                          ------------   ------------   ------------   ------------    ------------    ------------

Return of capital                                   --             --             --             --              --              --

Capital contribution                                --             --             --             --              --              --

Forgiveness of related entities'
liabilities and receivables                         --             --             --             --              --       4,411,815

Return of capital of Undivided Interest
in Securitization assets                            --             --             --             --              --
                                                                                                                         (2,000,000)

Common Stock issuances                              --             --             --             --              --              --

Net Loss                                            --             --             --             --      (3,141,591)     (3,141,591)
                                          ------------   ------------   ------------   ------------    ------------    ------------
Balance at December 31, 2004              $  1,621,642   $    352,643      1,817,000   $   (399,740)   $(16,303,040)   $ (1,747,736)
                                          ============   ============   ============   ============    ============    ============
</TABLE>

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


                                      F-6
<PAGE>

                HOMELAND SECURITY NETWORK, INC. AND SUBSIDIARIES
                       (FORMERLY AUTOCORP EQUITIES, INC.)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                For the Years Ended December 31,
                                                                  ----------------------------
                                                                      2004            2003
                                                                  ------------    ------------
<S>                                                               <C>             <C>
Cash Flows From Operating Activities:
Net loss                                                          $ (3,141,591)   $ (7,625,977)
Adjustments to reconcile net loss to net
cash used by operating activities:
    (Gain)/Loss on sale of loans                                       (91,417)        172,530
    Forgiveness of debt                                                     --        (150,000)
    Depreciation and amortization                                      310,135         857,561
    Amortization of deferred financing fees                            355,306              --
    Provision for loan loss                                           (421,628)      1,658,307
    Impairment of intangible asset                                     546,275              --
    Impairment of goodwill                                                  --       1,185,907
Changes in:
    Other current assets                                               (10,854)        499,305
    Other assets                                                        15,803          (8,677)
    Accounts payables and accrued expenses                             258,836         (26,336)
    Consumer loans originated                                       (1,315,730)     (2,794,190)
    Deferred financing fees paid                                       (71,617)       (511,190)
    Principal payments collected on consumer loans                     923,425       3,371,584
    Payments to credit unions                                         (562,506)       (525,736)
    Proceeds from loans sold                                           816,779       8,228,222
                                                                  ------------    ------------
Net cash provided by (used in) operating activities                 (2,388,784)      4,331,310

Cash flows from investing activities:
    Capitalized software costs                                              --          (1,700)
    Purchases of property and equipment                                     --         (26,193)
    Sale of fixed assets                                                15,878              --
    Acquisitions, net of cash acquired                                      --          56,940
                                                                  ------------    ------------
Net cash provided by investing activities                               15,878          29,047

Cash flows from financing activities:
    Borrowings (repayment) under line of credit                        183,755         (14,909)
    Advances from affiliated entities                                  986,423         467,650
    Principal payments of long-term debt                               (78,606)     (8,703,734)
    Proceeds from sale of securitization assets                             --       3,000,000
    Notes payable                                                      306,900          (7,387)
    Capital contributions                                                   --         120,438
    Return of capital                                                       --      (1,000,000)
                                                                  ------------    ------------
Net cash provided by (used in) financing
activities                                                           1,398,472      (6,137,942)
                                                                  ------------    ------------
Net decrease in cash                                                  (974,434)     (1,777,585)

Cash, beginning of year                                                995,773       2,773,358
                                                                  ------------    ------------
Cash, end of year                                                 $     21,339    $    995,773
                                                                  ============    ============
</TABLE>


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


                                      F-7
<PAGE>

                HOMELAND SECURITY NETWORK, INC. AND SUBSIDIARIES
                       (FORMERLY AUTOCORP EQUITIES, INC.)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


Supplemental disclosures of cash flow information:


                                   For the Years Ended December 31,
                                     ---------------------------
                                         2004           2003
                                     ------------   ------------
Cash paid for interest               $    196,672   $    493,355

Non-cash Investing and financing
activites

In March 2003, the Company issued
50,000 shares to a Director for
services rendered                    $         --   $     11,000

Forgiveness of related entities'
liabilities and receivables          $  4,411,815   $         --

Return of undivided interest in
Securitization assets                $  2,000,000   $  4,000,000

Finance receivables surrendered in
satisfaction of amounts due credit
unions                               $  1,359,810   $         --
                                     ============   ============


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


                                      F-8
<PAGE>

HOMELAND SECURITY NETWORK, INC. AND SUBSIDIARIES
(FORMERLY AUTOCORP EQUITIES, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

INTRODUCTION

   Homeland Security Network,  Inc., formerly known as AutoCorp Equities,  Inc.,
(collectively,  with its  subsidiaries,  "HSNI"  or the  "Company")  is a Nevada
corporation formed in 1993.

   Until the third quarter of 2004, the Company provided  financial products and
related  services to the new and  pre-owned  automotive  finance  industry.  The
Company primarily purchased and subsequently sold automobile finance receivables
collateralized   by  new  and  pre-owned   automobiles.   The  receivables  were
predominately  purchased from automobile  retailers nationwide and sold to banks
and credit unions.  In August 2004, the Company entered into a plan to "run-off"
its  operations in this  industry by not accepting new business and  terminating
its  business  relationships.  Its new focus is to  transition  into several new
markets with new products. See "Planned Business Operations".

PLANNED BUSINESS OPERATIONS

   The Company changed its name to Homeland Security  Network,  Inc. (OTC: HSYN)
on March 1, 2005 to reflect the direction of a new course of business, which the
Company is currently  transitioning into. The Company intends `Homeland Security
Network, Inc.' to be recognized as a leading provider of technology products and
services  for  tracking  and  recovering  valuable  mobile  assets.  The Company
anticipates  its new course of business  will  capitalize  on rapidly  emerging,
largely under-served, GPS tracking markets. HSNI plans to serve the concerns and
requirements  of  the  individual   consumer,   corporations  and  the  security
operations of governments. HSNI's plan also incorporates engaging and developing
strategic  alliances with third parties that have a distinct  marketing presence
in the auto retail industry, the commercial sector and the government sector.

   On April 14, 2005, HSNI completed  negotiations  and entered into a Licensing
and   Exclusive   Distribution   Agreement  and  a  Sales   Purchase   Agreement
(collectively   "Agreements")   with   Advantra   International   NV,   a  major
international  electronics  developer  and  manufacturer,   to  manufacture  its
products.  Under the terms of the Agreements,  the Company has certain rights to
distribute, develop, market, and sell select hardware/tracking devices.

   The Company expects to impact the GPS tracking industry with state-of-the-art
software,  its ability to provide low cost tracking hardware, and its ability to
offer a cost-effective  data  transmission  fee. The Company's GPS products will
then  incorporate map tracking and trailing,  geo-fencing  alerts for designated
parameter infringements, and the ability to control vehicle functions with voice
commands from its customer's  web-enabled  mobile phones or personal  computers,
via the company's internet website system software.

   The Company currently services a portfolio of automobile  receivables,  which
volume is  significantly  less than prior years due to the Company' planned exit
from the business.

PRINCIPLES OF CONSOLIDATION

   The consolidated  financial  statements  include the accounts of HSNI and its
subsidiaries.  All material  inter-company  transactions  and balances have been
eliminated in consolidation.

USE OF ESTIMATES

   The preparation of financial statements in conformity with generally accepted
accounting  principles  ("GAAP")  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. When sources of information regarding the carrying values of
assets, liabilities and reported amounts of revenue and expenses are not readily
apparent, HSNI bases its estimates on historical experience and on various other
assumptions  that  HSNI's  management  believes  to  be  reasonable  for  making
judgments.  HSNI  evaluates  all of its  estimates on an on-going  basis and may
consult  outside experts to assist in HSNI's  evaluations.  Actual results could
differ from those estimates.

FINANCE RECEIVABLES

   Finance receivables consist of purchased  automobile  installment  contracts,
which  were  assigned  to  the  Company  upon  acquisition.  The  titles  to the
automobiles, which serve as security for the payment of the purchased contracts,
are held  either  by the  Company  or the  financial  institution  for which the
finance receivables serve as collateral.


                                      F-9
<PAGE>

   Finance  receivables  that  management has the intent and ability to hold for
the  foreseeable  future or until  maturity  of  payoff  are  reported  at their
outstanding gross contractual balances, net of allowance for losses and unearned
finance  revenue.  Unearned  finance revenue  consists of unearned  interest and
discounts realized on contract purchases. Discounts are amortized as adjustments
of the yields on the related contracts.

   Allowance  for credit  losses is  increased  by  allocating  a portion of the
discount recorded on the acquisition of contracts. The Company performs periodic
evaluations   of  the  adequacy  of  the   allowance   for  losses  taking  into
consideration  the  past  loss  experience,  known  and  inherent  risks  in the
portfolio,  adverse  situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral,  as well as recovery potential
of any underlying  collateral and current economic conditions.  Any increases in
the  allowance  for losses  subsequent  to the  acquisition  of the contract are
charged to earnings.  In  conjunction  with the  Company's  contract  purchases,
dealers make certain  representations  and warranties  regarding the validity of
the contract  and the  enforceability  of the  security  interest in the related
vehicle.  Consequently,  the Company has recourse to the dealer in the event the
dealer's  representations and warranties are false.  Furthermore,  the Company's
standard  form  agreement  with all of its  dealers  requires  that  the  dealer
repurchase  any  contract  where the  borrower  has failed to make the first two
payments.  In such  cases,  it is the  Company's  responsibility  to return  the
related  vehicle to the dealer.  Consumer loans are ordinarily  charged off when
they are 120 - 180 days contractually past due.

DEPRECIATION AND AMORTIZATION

   Furniture and equipment are carried at cost net of accumulated  depreciation.
Depreciation and amortization is calculated using the straight-line  method over
the estimated useful life of the assets.

   The Company  capitalizes certain computer software costs, after technological
feasibility   has  been   established,   which  are   amortized   utilizing  the
straight-line  method over the economic life of the related  software  which has
been estimated at five years.

   Deferred  financing  costs are amortized over the term of the associated debt
using the straight-line method, which was one year.

REVENUE RECOGNITION

   Interest  income from finance  receivables  is recognized  using the interest
method. Accrual of income on finance receivables is suspended when a contract is
contractually  delinquent  for ninety days or more.  The accrual is resumed when
the contract becomes  contractually  current, and past due interest and discount
income is recognized at that time.

   The following is included in other income:

   Origination  Fees  are  recognized  for  services  provided  during  the loan
origination  process at the point in time the loan is funded by the  third-party
lender.

   Service Fees are based on a percentage of  collections  and are recognized as
collected on a monthly basis from the Obligor of the receivable.

   Participation  Income  is  based  on  a  percentage  of  collections  and  is
recognized as collected on a monthly basis from the obligor of the receivable.

INTANGIBLE ASSETS

SOFTWARE DEVELOPMENT COSTS

   Software  development  costs  relating  to an  installment  loan  application
processing system, recorded at cost, are amortized over five years, the expected
useful life of the asset. Intangible assets are reviewed for


                                      F-10
<PAGE>

impairment whenever events or circumstances  indicate impairment might exist, or
at least  annually.  The Company  assesses the  recoverability  of its assets in
accordance with SFAS No. 142 "Goodwill and Other Intangible  Assets,"  comparing
projected  undiscounted  cash flows  associated  with those assets against their
respective carrying amounts.  Impairment,  if any, is based on the excess of the
carrying amount over the fair value of those assets.  The Company fully impaired
the balance of intangible  assets after performing the annual impairment test in
accordance  with SFAS No. 142,  which  resulted in a charge on the  statement of
operations totaling $546,275.

GOODWILL

   The merger  acquisition  in June 2003 was  accounted  for using the  purchase
method of accounting.  As such, the assets and liabilities of HSNI were recorded
at their estimated fair value.

   In December 2003, Goodwill was tested by management for impairment due to the
continuing  significant  losses  of HSNI.  As a  result,  management  determined
goodwill to be fully  impaired,  which  resulted in a charge to the statement of
operations totaling $1,185,907.

INCOME TAXES

   Income taxes are accounted for under the asset and  liability  method.  Under
this method,  deferred tax assets and liabilities  are generally  recognized for
the future tax  consequences  attributable to differences  between the financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective tax basis, and net operating loss carry forwards.

   Deferred  tax assets and  liabilities  are measured  using  enacted tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized in income in the
period that includes the enactment date. In addition,  a valuation allowance has
been  established  to reduce any  deferred tax asset in which the Company is not
able to  determine  on a more likely than not basis that the  deferred tax asset
will be realized.

LONG-LIVED ASSETS

   HSNI  accounts for its  long-lived  assets in  accordance  with SFAS No. 144,
"Accounting  for the  Impairment or Disposal of Long-Lived  Assets,"  ("SFAS No.
144") which  requires that  long-lived  assets be evaluated  whenever  events or
changes  in  circumstances   indicate  that  the  carrying  amount  may  not  be
recoverable. If the total of the undiscounted future cash flows is less than the
carrying  amount of the asset or asset group,  an impairment  loss is recognized
for the  difference  between the estimated  fair value and the carrying value of
the asset or asset group.

FAIR VALUE OF FINANCIAL INSTRUMENTS

   The fair value of a financial  instrument  represents the amount at which the
instrument could be exchanged in a current  transaction between willing parties,
other  than a forced  sale or  liquidation.  Significant  differences  can arise
between the fair value and  carrying  amount of financial  instruments  that are
recognized at  historical  cost amounts.  The carrying  value of cash,  accounts
payable and accrued liabilities  approximate the fair value because of the short
maturity of those  instruments.  The finance  receivables  have been  reduced to
their estimated fair value.

CONCENTRATIONS OF CREDIT RISK

   The  Company   maintains  its  cash  with  high  credit   quality   financial
institutions.  The Federal Deposit Insurance  Corporation up to $100,000 secures
each account.

   Loans to persons with non-prime  credit  involve an increased  probability of
delinquency  and/or default and involve greater  servicing costs than loans made
to  borrowers  with prime  credit  profiles.  The ability to operate  profitably
depends, in part, on an accurate evaluation of the creditworthiness of customers


                                      F-11
<PAGE>

and the minimization of losses  following  defaults.  As a result,  it is likely
that delinquency and loss rates in the Company's portfolio will fluctuate in the
near term and may increase as a greater  portion of the  portfolio of automobile
receivables  matures.  A significant  variation in the timing of or increases in
credit losses experienced on the portfolio of automobile  receivables could have
a materially  adverse effect on the Company.  There can be no assurance that any
loans made to customers  will be repaid in whole or in part or that reserves for
such credit risks will be adequate. Any loans that are in default may need to be
charged off against the reserves.  Further, any default that is with recourse to
a Credit Union may require the Company to  repurchase  the  receivable  from the
Credit Union.

NOTE 2. ACQUISITION BY AAP

   On August 20, 2004, PHG, the then controlling shareholder of the Company, and
one of its affiliates,  Pacific Financial Group ("PFG"),  the ("Sellers"),  sold
their  stock  (totaling  94 million  shares of common  stock) to a  partnership,
AutoCorp  Acquisition  Partners  ("AAP",  the  "Purchaser")  formed  by the then
President  (and CEO) and Executive  Vice  President of the Company in a non-cash
transaction.

   The Purchaser  designated two persons (the  "Purchaser  Designees")  who were
elected to the Board of Directors.  The Purchaser Designees became a majority of
the Board  after  the tenth day  subsequent  to the  mailing  and  filing of the
Information  Statement  pursuant to Section  14(f) of the  Exchange Act and Rule
14f-1  promulgated there under. The Purchaser is now the beneficial owner of the
majority of the Company's stock and the Purchaser  Designees  constitute 100% of
the Company's Board of Directors.

   AAP acquired  the stock of the Sellers and by its  principles  (1)  delivered
their  personal  guarantee  to Far East  National  Bank  ("FENB")  to obtain the
release of the guarantee by Pacific Electric Wire & Cable Co. in Taiwan ("PEWC")
discussed  below; and (2) agreeing the Company could make the transfers and give
the  releases  to  PHG  described   (and  in  the  amounts   indicated)   below;
simultaneously  with PHG funding and  canceling the  obligations  of the Company
described (and in the amounts  indicated)  below. The Purchasers paid no cash to
the Sellers for the stock.

   PEWC is PHG's  indirect  parent.  PEWC had  provided a  guarantee  to FENB in
connection  with a $10  million  revolving  credit  facility  from  FENB to AFCO
Receivables  Funding Corp, an indirect subsidiary of the Company. At the date of
the closing of the acquisition  agreement,  there was $661,796 outstanding under
the revolving  credit  facility.  It was a condition to the closing that PEWC be
released from its guarantee.

   The Company  transferred to PHG (i) the entire  ownership of certain residual
interests  in  securitization  assets,  in the  amount of $2  million;  (ii) the
balances in certain bank accounts in the amount of $404;  and (iii) a 1993 Lexus
automobile along with the agreement of the Company to transfer subsequent to the
closing any other assets not directly associated with the Company's then primary
business of automobile sub-prime receivable acquisition.

   The Company released PHG and its affiliates from certain receivables due from
them to the Company in the amount of $37,395.

   Simultaneously  with the  transfers  and releases by the Company,  PHG funded
certain  payroll  obligations  in the  amount  of  $173,852  and loan  portfolio
obligations  of the  Company in the  amount of  $56,000,  and to cancel  certain
obligations  owed to PHG and its  affiliates  by the Company  and the  Company's
subsidiaries in the amount of $4,139,880.

   As part of the  transaction,  PHG secured the release of 35 million shares of
restricted   Company  Common  Stock  pledged  to  FENB  in  connection  with  an
outstanding  loan to PHG and an  affiliate  of PHG.  Such shares are part of the
94,000,000 Common Shares the Sellers sold to Purchaser.


                                      F-12
<PAGE>

NOTE 3. GOING CONCERN UNCERTAINTY

   The Company has incurred net losses totaling $3,141,591 and $7,625,977 in the
years ended  December 31, 2004 and 2003 and has had working  capital  deficiency
both years.

   The Company's  consolidated  financial  statements  have been prepared on the
assumption  that the Company will  continue as a going  concern.  Management  is
seeking  various  types of  additional  funding  such as issuance of  additional
common  or  preferred  stock,   additional  lines  of  credit,  or  issuance  of
subordinated  debentures  or other forms of debt.  Management is also seeking to
raise  additional  capital and to  renegotiate  certain  liabilities in order to
alleviate  the working  capital  deficiency.  The funding  would  alleviate  the
Company's working capital deficiency and increase profitability.  However, it is
not  possible  to  predict  the  success  of  management's  efforts  to  achieve
profitability or to secure additional  funding.  Also, there can be no assurance
that additional funding will be available when needed or, if available, that its
terms will be favorable or acceptable.

   If the additional  financing or arrangements cannot be obtained,  the Company
would be materially and adversely  affected and there would be substantial doubt
about the Company's  ability to continue as a going  concern.  The  consolidated
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  realization  of assets and  classifications  of liabilities
necessary if the Company becomes unable to continue as a going concern.

   These factors raise substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include adjustments relating
to  the   recoverability   and  realization  of  assets  and  classification  of
liabilities  that might be necessary should the Company be unable to continue in
operation.

NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS AND NEW ACCOUNTING STANDARDS

   The FASB issued Staff Position FIN46(R)-5,  Implicit Variable Interests under
FASB  Interpretation No. 46 (revised December 2003), in March 2005. It addresses
whether a  reporting  enterprise  should  consider  whether it holds an implicit
variable  interest in a variable  interest  entity ("VIE") or potential VIE when
specific  conditions  exist.  The  Company  does not  expect  any  impact on its
financial  position or results of  operations as a result of its adoption of FIN
46(R)-5 in the second quarter of 2005.

   The FASB issued  Staff  Position FIN 47,  Accounting  for  Conditional  Asset
Retirement  Obligations,  an  interpretation of FASB Statement No. 143, in March
2005.  The  Interpretation  is  effective  no later than the end of fiscal years
ending after  December 15, 2005. The statement  clarifies the term  "conditional
asset  retirement  obligation" as used in FASB 143. The Company believes that it
is already in  compliance  with the  statement and does not expect any impact on
financial position or results of operations when adopted.

  The FASB issued  Statement of Financial  Accounting  Standard No. 123 (revised
2004),  Share-Based Payment ("SFAS 123(R)"),  in December 2004; it replaces SFAS
123,  and  supersedes  APB 25.  Under  SFAS  123(R),  companies  would have been
required to  implement  the standard as of the  beginning  of the first  interim
reporting  period that begins after June 15, 2005.  However,  in April 2005, the
SEC  announced  the adoption of an Amendment to Rule 4-01(a) of  Regulation  S-X
regarding the compliance  date for SFAS 123(R) that amends the compliance  dates
and allows  companies to implement  SFAS 123(R)  beginning with the first annual
reporting  period  beginning on or after June 15, 2005.  The Company  intends to
adopt SFAS 123(R) in its fiscal year beginning January 1, 2006.

    The  Company  currently  uses the  intrinsic  value  method  to value  stock
options, and accordingly,  no compensation expense has been recognized for stock
options since the Company grants stock options with exercise prices equal to the
Company's  common  stock  market  price on the date of the  grant.  SFAS  123(R)
requires the expensing of all stock-based compensation,  including stock options
and  restricted  shares,  using the fair value  method.  The Company  intends to
expense  stock  options  using the  Modified  Prospective  Transition  method as
described in SFAS 123(R). This method will require expense to be recognized for


                                      F-13
<PAGE>

stock options over their respective  remaining vesting periods.  No expense will
be recognized  for stock options vested in periods prior to the adoption of SFAS
123(R).  The Company is evaluating  the impact of its adoption of SFAS 123(R) on
its results of operations  and financial  position.  Adoption is not expected to
have a  material  effect on the  Company's  financial  position  or  results  of
operations.

   The FASB issued Statement of Financial Accounting Standard No. 151, Inventory
Costs  -- an  amendment  of ARB No.  43,  Chapter  4 ("SFAS  151").  SFAS 151 is
effective, and will be adopted, for inventory costs incurred during fiscal years
beginning  after  June 15,  2005 and is to be  applied  prospectively.  SFAS 151
amends the  guidance in ARB No. 43,  Chapter 4,  Inventory  Pricing,  to require
current  period  recognition  of  abnormal  amounts  of idle  facility  expense,
freight, handling costs and wasted material (spoilage). Adoption is not expected
to have a material  effect on the  Company's  financial  position  or results of
operations.

   The FASB issued Statement of Financial Accounting Standard No. 153, Exchanges
of Nonmonetary  Assets -- an amendment of APB Opinion No. 29 ("SFAS 153").  SFAS
153 is effective, and will be adopted, for nonmonetary asset exchanges occurring
in  fiscal  periods  beginning  after  June  15,  2005  and  is  to  be  applied
prospectively.  SFAS 153  eliminates  the exception for fair value  treatment of
nonmonetary  exchanges  of  similar  productive  assets and  replaces  it with a
general  exception  for  exchanges  of  nonmonetary  assets  that  do  not  have
commercial  substance.  A nonmonetary  exchange has commercial  substance if the
future cash flows of the entity are expected to change significantly as a result
of the  exchange.  Adoption  is not  expected  to have a material  effect on the
Company's financial position or results of operations.

   The  FASB  issued  Statement  of  Financial  Accounting  Standards  No.  154,
Accounting  Changes and Error Corrections -- a replacement of APB Opinion No. 20
and FASB  Statement  No.  3 ("SFAS  154").  SFAS 154 is  effective,  and will be
adopted,  for accounting  changes made in fiscal years  beginning after December
15,  2005  and  is  to  be  applied  retrospectively.  SFAS  154  requires  that
retroactive  application  of a change in accounting  principle be limited to the
direct effects of the change. Adoption is not expected to have a material effect
on the Company's financial position or results of operations.

   In December  2004,  the FASB issued FSP FAS No. 109-1,  "Application  of FASB
Statement No. 109,  Accounting for Income Taxes, for the Tax Deduction  Provided
to U.S. Based Manufacturers by the American Jobs Creation Act of 2004" ("FSP FAS
No.  109-1").  This  statement  requires  the  qualified  production  activities
deduction as defined in the American  Jobs Creation Act of 2004 (the "Jobs Act")
to be  accounted  for as a special  deduction in  accordance  with SFAS No. 109,
"Accounting  for Income  Taxes." The  statement  also  requires that the special
deduction  should be considered in measuring  deferred  taxes when graduated tax
rates are a significant factor and when assessing whether a valuation  allowance
is necessary.  FSP FAS No. 109-1 was effective upon issuance. In accordance with
the Jobs Act,  determination of the qualified production activities deduction is
not required until 2005. Due to the projected tax losses for the next few years,
management  does not believe that this statement will have a material  effect on
the Company's results of operations, financial condition and liquidity.

   In December  2004,  the FASB issued SFAS No. 153  "Exchanges of  Non-monetary
Assets--an  amendment of APB Opinion No. 29." This Statement amended APB Opinion
No.  29 to  eliminate  the  exception  for  non-monetary  exchanges  of  similar
productive  assets and  replaces it with a general  exception  for  exchanges of
non-monetary  assets  that do not  have  commercial  substance.  A  non-monetary
exchange  has  commercial  substance  if the future cash flows of the entity are
expected to change  significantly  as a result of the  exchange.  The Company is
currently evaluating the impact of this new standard,  but believes that it will
not have a material  impact upon the Company's  financial  position,  results of
operations or cash flows.

   In  November  2004,  the FASB  issued SFAS No. 151  "Inventory  Costs".  This
Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing",  to
clarify the accounting for abnormal amounts of idle facility  expense,  freight,
handling costs,  and wasted  material  (spoilage).  In addition,  this Statement
requires that allocation of fixed production overhead to the costs of conversion
be based on the normal


                                      F-14
<PAGE>

capacity of the production facilities.  The provisions of this Statement will be
effective  for the  Company  beginning  with its fiscal year  ending  2005.  The
Company is currently  evaluating  the impact of this new standard,  but believes
that it will not have a material  impact on the  Company's  financial  position,
results of operations or cash flows.

NOTE 5. FINANCE RECEIVABLES

   Finance receivables consist of the following:


                                          2004
----------------------------------------------
Finance receivables                $   735,145

Allowance for credit losses           (322,213)
----------------------------------------------
Finance receivables, net           $   412,932
==============================================

NOTE 6. PROPERTY AND EQUIPMENT

   The  components  of property  and  equipment  as of December  31, 2004 are as
follows:


-----------------------------------------------------
Furniture and office equipment             $  356,933
Software                                       92,278
-----------------------------------------------------
                                              449,211
Accumulated depreciation                     (427,772)
-----------------------------------------------------
Property and Equipment, net                $   21,439
=====================================================

NOTE 7. UNDIVIDED INTEREST IN SECURITIZATION ASSETS

   The Company had an undivided interest in securitization assets. The rights to
these  assets were  contributed  to the Company by its prior major  shareholder,
PHG. In May 2003, PAG returned an undivided interest of $4,000,000 of this asset
to PHG. In June 2003,  PAG  received  proceeds of  $3,000,000  under a sale to a
third  party  and  recorded  no  gain or  loss.  In  August  2004,  the  Company
transferred the balance of the securitization asset of $2,000,000 to PHG as part
of the acquisition by AAP. See Note 2.

NOTE 8. LINE OF CREDIT

In November 2003, the Company executed a revolving credit facility in the amount
of  $10,000,000  with a financial  institution  that bore  interest at a rate of
prime plus 2% and matured in November 2004.  The purpose of the credit  facility
was to provide  funding  for the  purchase  of  automobile  finance  installment
contracts for sale to banks and credit unions. The outstanding  balance totaling
$193,751  at  December   31,  2004  is  in  default.   The  line  of  credit  is
collateralized  by  automobile  finance  installment   contracts   approximating
$276,000.  However,  the Company is presently  negotiating revised payment terms
with the lender.


                                      F-15
<PAGE>

NOTE 9. NOTES PAYABLE

   Notes Payable consists of the following:

<TABLE>
<CAPTION>
<S>                                                                                 <C>
An obligation  payable to a related entity that was assigned this  obligation in
December  2004.  The  obligation  bears interest at 12% per annum and was due in
October  2004.  The terms  require the entity to remit  payments to the original
note holder.  The entity has the right to convert every dollar of principal paid
into 10,000 shares of common stock,  limited to 15,429,355.  In 2005, the entity
remitted  $1,530  and  obtained  common  shares  through   conversion   totaling    $   61,538
15,429,355. The Company is currently negotiating an extension of terms.

   Two notes payable, presently in default, to a former director of the Company.
One bears interest at 12% and the other at 18% per annum.  The notes were due in       286,874
October 2004 and June 2005.

   Note payable,  unsecured, to an Executive, bears interest at 6% per annum and       106,667
is due on July 2, 2005.

   Note payable,  unsecured, to an Executive, bears interest at 6% per annum and       202,359
is due on July 2, 2005.                                                             ----------
                                                                                    $  657,438
                                                                                    ==========

</TABLE>

   See Note 18 relating to subsequent events relating to these notes.

NOTE 10. BUSINESS COMBINATION

   On  June  30,  2003,  HSNI  (when  operating  as  AutoCorp  Equities,   Inc.)
("AutoCorp")  and PAG entered into a merger  agreement,  whereby a newly created
wholly  owned  subsidiary  of  AutoCorp  was  merged  with and into PAG with PAG
surviving as a wholly owned  subsidiary of AutoCorp.  AutoCorp  acquired 100% of
the  outstanding  shares  of PAG in  exchange  for  issuance  of  securities  of
AutoCorp. The securities consisted of: (1) 100,000,000 shares of AutoCorp Common
Stock,  par value $0.001 per share,  and (2) 4,086,856  shares of a new Series A
Convertible  Preferred  Stock,  par value $0.001 per share of AutoCorp  that are
convertible  at any  time,  at the  option  of the  holder,  into not less  than
40,868,560 AutoCorp Common shares.

   The acquisition was accounted for using the purchase method of accounting. As
such,  the  assets and  liabilities  of  AutoCorp  have been  recorded  at their
estimated  fair value and the results of  operations  have been  included in the
consolidated  results of  operations  from the date of  acquisition.  The excess
purchase  price  over  the fair  value of the  tangible  and  intangible  assets
acquired in the acquisition totaled $1,185,907 and was allocated to goodwill.

   Because  the former  stockholder  of PAG owned a  majority  of the issued and
outstanding  shares of the  Common  Stock of  AutoCorp  after the  merger,  this
transaction  was accounted for as a reverse  merger whereby PAG was deemed to be
the acquirer of AutoCorp.  Therefore, all financial information included in this
report  prior to the merger are those of PAG as if PAG had been the  registrant.
The  financial  information  since the merger are those of AutoCorp and PAG on a
consolidated basis.

   As a result of the merger,  AutoCorp triggered a change in control, which now
has limited its ability to utilize all of its  cumulative  net operating  losses
used to offset future taxable income for Federal and State income tax reporting.


                                      F-16
<PAGE>

PRO FORMA RESULTS

   The following audited pro forma consolidated  results of operations have been
prepared as if the acquisition discussed above had occurred January 1, 2003:

                            Twelve Months Ended
                             December 31, 2003
                             ----------------

Revenue                      $      1,937,449
Net loss attributed
to common stockholders       $     (8,111,884)


Net loss per share,
basic and diluted            $           (.08)
                             ================

Weighted average number of
Shares outstanding,
basic and diluted                 106,452,986
                             ================

NOTE 11. CREDIT UNION LOAN PARTICIPATIONS

   At December  31,  2003,  six credit  union  participation  transactions  were
payable to credit unions in the amount of $2,284,030.  This amount represented a
90% interest  purchased by credit unions in six portfolios of automobile finance
receivables.  The  Company  guaranteed  the  principal  and  interest  of  these
particular participations.  The participation yields to the credit unions ranged
from 7% to 8%.

   On August  31,  2004,  the  Company  entered  into a Mutual  Termination  and
Separation  Agreement  with a credit  union and  received a full  release of all
guarantees  and  servicing  obligations  in  connection  with  four  of the  six
guaranteed participations totaling $1,359,810.

   At December 31, 2004,  loan  participations  payable to credit  unions in the
amount of $547,144  represented  the remaining 90% interest  purchased by credit
unions in two pools of automobile finance receivables guaranteed by the Company.

   On February  28, 2005,  the Company  entered  into a Mutual  Termination  and
Separation  Agreement with an additional  credit union and again received a full
release of all guarantees and servicing  obligations in connection  with a fifth
participation totaling $297,809.

   On March 1, 2005,  one final  credit  union  participation  transaction  with
guarantee provisions and servicing obligations remained. The Company anticipates
a release of the same or of similar nature as those stated above.

   The Company  also  provided,  on a fee basis,  collection  and  servicing  of
automobile  finance  receivables  sold to  credit  unions  by the  Company  as a
non-guaranteed  participation  transaction.  At  December  31,  2004,  the total
outstanding  balance  of  finance   receivables  for  which  collection,   asset
management, and servicing activities were performed was approximately $458,800.


                                      F-17
<PAGE>

NOTE 12. INCOME TAXES

   The Company  continues to incur tax net operating  losses (NOL's),  which are
available to carry forward and offset future  taxable  income.  These NOL's were
generated,  principally  as a  result  of the  tax  losses  resulting  from  the
operations  of the  Company.  A deferred  tax asset  results from the benefit of
utilizing the NOL carry-forwards in future years.

   Due to the  current  uncertainty  of  realizing  the  benefits of the tax NOL
carry-forward,  a valuation allowance equal to the tax benefits for the deferred
taxes has been established.  The full realization of the tax benefit  associated
with the  carry-forward  depends  predominately  upon the  Company's  ability to
generate taxable income during future periods, which is not assured.

   The components of income taxes are comprised as follows:



Year Ended December 31,                         2004           2003
-----------------------------------------------------------------------
Deferred
     Federal                               $ (1,156,500)  $   (138,800)
     State                                     (143,800)       (51,400)
-----------------------------------------------------------------------
                                             (1,300,300)      (190,200)
     Effect of Valuation Allowance            1,300,300        190,200
-----------------------------------------------------------------------
                                           $         --   $         --
=======================================================================

   The  difference  between the U.S.  Federal  statutory  rate and the Company's
effective rate is:


                                      F-18
<PAGE>

Year Ended December 31,                        2004             2003
-----------------------------------------------------------------------
Federal statutory tax rate                     34.0%            34.0%
Valuation allowance                           (34.0%)          (34.0%)
-----------------------------------------------------------------------
Effective tax rate                              0.0%             0.0%
=======================================================================
Deferred tax assets are comprised of the following:

Year Ended December 31,                        2004            2003
-----------------------------------------------------------------------
Deferred Tax Summary

Net operating loss carry-forward          $ 8,529,700      $ 7,128,000

Impairment of goodwill                          --             428,000
Provision for finance receivable losses       125,700          123,000
Compensation Accruals                          22,800            --
                                            ---------        ---------
                                            8,678,200        7,679,000
Valuation allowance                        (8,678,200)      (7,679,000)
-----------------------------------------------------------------------
                                          $     --         $      --
=======================================================================

NOTE 13. RELATED PARTY TRANSACTIONS

   See Notes 2, 9, and 18 for related party transactions.

NOTE 14. INCOME (LOSS) PER SHARE

   Basic loss per share is computed  based on net loss  divided by the  weighted
average number of shares of common stock outstanding during the period.

   Diluted loss per share is computed  based on net loss divided by the weighted
average  number of shares of common  stock  outstanding  during the period after
giving effect to convertible  securities  considered to be dilutive common stock
equivalents.  The  conversion of preferred  stock and stock  options  during the
periods in which the Company  incurs a loss from  continuing  operations  before
giving  effect  to gains  from the sale of the  discontinued  operations  is not
assumed  since the effect is  anti-dilutive.  The number of shares of  preferred
stock , which would have been assumed to be converted and have a dilutive effect
if the Company had income from continuing operations, is 42,490,202 for 2004 and
2003. See Note 18 for common stock transactions subsequent to December 2004.

NOTE 15. STOCK OPTION PLAN

   The Company has a  non-qualified  Stock  Option  Plan (the  "Plan")  that was
adopted  by the Board of  Directors  in March  1997.  The Plan,  as  authorized,
provides  for the  issuance of up to 2,000,000  shares of the  Company's  stock.
Persons  eligible to  participate  in the Plan as  recipients  of stock  options
include  full and  part-time  employees  of the  Company,  as well as  officers,
directors,  attorneys,   consultants  and  other  advisors  to  the  Company  or
affiliated corporations.


                                      F-19
<PAGE>

   Options  issued  under the Plan are  exercisable  at a price that is not less
than twenty  percent  (20%) of the fair market value of such shares (as defined)
on the date the  options  are  granted.  The  non-qualified  stock  options  are
generally  non-transferable  and are exercisable over a period not to exceed ten
(10) years from the date of the grant.  Earlier  expiration  is operative due to
termination  of  employment  or death of the issuee.  The entire Plan expires on
March 20, 2007, except as to non-qualified stock options then outstanding, which
will  remain in effect  until they have  expired or have been  exercised.  As of
December  31, 2004,  1,890,289  shares had been  exercised  and issued under the
Plan, 109,711 shares were available for future issuance.

   No options were granted during 2004. There were no warrants authorized during
2004.

   The following table summarizes  stock options  outstanding and exercisable at
December 31, 2004:

                              Weighted
                              Average               Average    Expired
  Exercise          Options   Remaining  Options    Exercise   Options
  Price    Range              Life                  Price
----------------------------------------------------------------------
Outstanding, beginning of year
  $0.03    $0.03    75,689    7 years    75,689     $0.03         --
Granted
    --       --       --        --          --        --          --
Waived
    --       --     75,689      --          --        --          --
Exercised
    --       --       --        --          --        --          --
-----------------------------------------------------------------------
Options, end of year  --        --          --        --          --
=======================================================================


NOTE  16. COMMITMENTS AND CONTINGENCIES

LITIGATION

   The Company is a defendant in a lawsuit for  non-payment  of a total purchase
price paid for certain  retail  motor  vehicle loan  contracts.  The Company has
accrued  approximately  $116,000 for this potential  liability.  The Company has
filed a counter  claim for  approximately  $175,000.  The Company  expects  this
lawsuit to be settled in the near future.

   The Company was a  defendant  in a lawsuit for breach of lease.  A Motion for
Summary Judgment has been filed against the Company. In March 2005, a settlement
has  been  agreed  to  under  a  promissory  note  totaling   $28,000  of  which
approximately $14,000 has been paid.

OPERATING LEASES

   The Company leases its principal  executive  office in Frisco,  Texas under a
lease which commenced in September 2004 and expires in October 2009.  Commencing
in August  2005,  the annual rent  increased to  approximately  $86,000 per year
($46,000 previously).  The Company is responsible for its proportionate share of
operating  expenses of the premises.  The Company's  prior lease for its offices
required monthly rents of approximately $15,400.

   The Company also leased three  properties  in California  and Dallas,  Texas,
which expired through


                                      F-20
<PAGE>

September 2004 and required total monthly rent payments of $16,400.  The Company
also leased two automobile retail facilities under operating leases. One expired
in February 2004 and the other in June 2004.

   Rent  expense  totaled  $235,753  for the year ended  December  31,  2004 and
$248,627 net of  sub-leasing  income of $15,000 for the year ended  December 31,
2003 .

   Future minimum annual payments under the operating leases are as follows:


Year Ending December 31,                        Amount
-------------------------------------------------------
2005                                          $ 61,850
2006                                            86,127
2007                                            90,196
2008                                            93,839
2009                                            79,680
-------------------------------------------------------
 Total                                        $411,692
=======================================================

EMPLOYMENT CONTRACTS

   In April 2003,  (amended  and  restated  January  2004,  amended and restated
January  2005) HSNI  entered into an  Employment  Agreement  ("Agreement")  with
Charles W. Norman.  The  Agreement  provides  that Mr. Norman shall serve as the
Chief  Executive  Officer  of HSNI to  January  1,  2007.  The  duration  of the
Agreement is for a period of two years  marked by the amended and restated  date
of January 1, 2005. At any time prior to the expiration of the  Agreement,  HSNI
and Mr. Norman may mutually agree to extend the duration of employment under the
terms of the  Agreement  for an  additional  period or  periods.  As payment for
services,  HSNI agrees to pay Mr.  Norman,  as the Chief  Executive  Officer,  a
minimum base salary of $250,000  per annum.  As provided in the  Agreement,  Mr.
Norman is eligible to be paid bonuses,  from time to time, at the  discretion of
HSNI's Board of Directors,  of cash,  stock or other valid form of compensation.
Upon  termination of and under the terms of the  Agreement,  Mr. Norman shall be
entitled to severance  compensation in an amount equal to twenty-four months' of
base salary as shall exist at the time of such termination.

   In May 2004,  (amended  and  restated  January  2005)  HSNI  entered  into an
Employment  Agreement  ("Agreement")  with Peter Ubaldi.  The Agreement provides
that Mr.  Ubaldi shall serve as the  President  of HSNI to January 1, 2007.  The
duration of the Agreement is for a period of two years marked by the amended and
restated  date of January 1, 2005.  At any time prior to the  expiration  of the
Agreement,  HSNI and Mr.  Ubaldi may  mutually  agree to extend the  duration of
employment under the terms of the Agreement for an additional period or periods.
As payment for services,  HSNI agrees to pay Mr.  Ubaldi,  as the  President,  a
minimum base salary of $250,000  per annum.  As provided in the  Agreement,  Mr.
Ubaldi is eligible to be paid bonuses,  from time to time, at the  discretion of
HSNI's Board of Directors,  of cash,  stock or other valid form of compensation.
Upon  termination of and under the terms of the  Agreement,  Mr. Ubaldi shall be
entitled to severance  compensation in an amount equal to twenty-four months' of
base salary as shall exist at the time of such termination.

NOTE 17.  PENSION PLANS

   The employees of a subsidiary were covered under the Pacific USA, Inc. 401(K)
Savings Plan. Upon  completion of certain  eligibility  requirements,  employees
were  allowed  to  contribute  up to  15%  of  their  annual  compensation.  The
subsidiary  matched 50% of such  contributions  up to 6%.  Contributions  by the
subsidiary totaled $3,892 at December 31, 2004 and $17,671 at December 31, 2003.
The coverage  terminated under this plan for Company  employees in 2004 when the
Acquisition Agreement became effective in August of 2004.


                                      F-21
<PAGE>

   The employees of Homeland  Security  Network,  Inc. and its subsidiaries were
covered  under a 401(K)  Savings  Plan.  The  Company  did not elect a  matching
contribution provision in this plan. This plan was terminated in 2004.

NOTE 18. SUBSEQUENT EVENTS

1.    In January  2005,  the Company  amended its Articles of  Incorporation  to
      increase the authorized shares of common stock to 400,000,000 shares.

2.    Trading  in the  Company's  securities  was  suspended  from April 5, 2005
      through April 18, 2005 by the Securities and Exchange  Commission  because
      the Company is delinquent in its periodic filing obligations under Section
      13(a) of the  Exchange  Act of 1934 and because of  possible  manipulative
      conduct  occurring  in the market for the  Company's  stock.  Trading  was
      resumed after the suspension period.

3.    On April 14,  2005,  HSNI has  completed  negotiations  and entered into a
      Licensing  and  Exclusive  Distribution  Agreement  and a  Sales  Purchase
      Agreement  (collectively  "Agreements") with Advantra  International NV, a
      major international electronics developer and manufacturer, to manufacture
      its products.  Under the terms of the Agreements,  the Company has certain
      rights to distribute, develop, market, and sell select hardware devices.

4.    In 2005,  under rights  obtained  pursuant to an Assignment and Assumption
      Agreement  entered into December  2004,  the note holder of a $61,538 note
      elected to convert  principal  payments  remitted  into common  stock.  In
      January  2005,  the  Company  issued  3,429,355  shares at $0.11 per share
      valued at $377,229. In March 2005, the Company issued 12,000,000 shares at
      $0.18 per share valued at $2,160,000,  totaling $2,537,229  resulting in a
      charge in the statement of operations.

5.    Subsequent to January 1, 2005, the Company issued the following securities
      without  registration  under the Securities Act of 1933. These shares were
      issued under the Section 4(2) exemption of the Securities Act:

      a.    In January 2005,  100,000  Common Shares were issued to an executive
            as a hiring bonus accrued in the consolidated  financial  statements
            at $0.15 per share ($15,000)

      b.    In April 2005, 2,070,000 Common Shares were issued to executives and
            other  employees in payment of  performance  bonuses  accrued in the
            consolidated  financial  statements;   70,000  shares  @  $0.11  and
            2,000,000 shares @ $0.02 (totaling $47,000)

      c.    In April 2005, 380,091 Common Shares were issued as payment for past
            due  interest  due  on  certain   notes   payable   accrued  in  the
            consolidated financial statements at $0.11 per share ($41,810)

      d.    In April  2005,  50,000  Common  Shares were issued as payment to an
            executive as a hiring bonus  accrued in the  consolidated  financial
            statements at $0.11 per share ($5,500)

      e.    In April  2005,  2,207,327  Common  Shares were issued as payment to
            officers in full  satisfaction of notes payable in the  consolidated
            financial statements at $0.11 per share ($242,806)

   The  issuance of common  shares  noted above  (A-E) were in  satisfaction  of
liabilities accrued by the Company as of December 31, 2004.

      f.    In April 2005,  1,000,000  Common  Shares were issued in payment for
            financing costs at $0.175 per share ($175,000)


                                      F-22
<PAGE>

      g.    In June 2005,  11,000,000  Common Shares were issued to an executive
            in lieu of compensable  salary for the 2005 year at $0.045 per share
            ($495,000)

      h.    In July 2005, the Company approved at a special meeting of the Board
            of Directors  the  issuance of  2,500,000  shares of common stock at
            $0.08  per  share  under  a  Subscription  Agreement  (Regulation  S
            Investment) whereby the Company received $200,000

6.    In January 2005, the Company  obtained funds under a note payable  bearing
      interest at 8% per annum from a related  entity.  The note provides a line
      of credit  totaling  $500,000.  On August 31,  2005,  the Company has used
      approximately  $229,000 for working capital.  The note is uncollateralized
      and matures in January 2006.

7.    In March 2005, the Company obtained  $134,500 under a note payable bearing
      interest  at 7% per  annum  from  an  related  third  party.  The  note is
      uncollateralized  and matures in June 2005. The proceeds were utilized for
      working capital.

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 thereto duly authorized.


                                HOMELAND SECURITY NETWORK, INC.
                                ---------------------------------------
                                (Registrant)


                                /s/ Charles Norman
                                ---------------------------------------
                                By: Charles Norman
                                Chief Executive Officer
                                Date:  August 30, 2005

                                ---------------------------------------


                                /s/ Peter Ubaldi
                                ---------------------------------------
                                By: Peter Ubaldi
                                Chief Financial Officer
                                Date:  August 30, 2005
                                ---------------------------------------


   Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  the
following  persons on behalf of the  Registrant and in the capacities and on the
dates indicated have signed this report below:

                               /s/ Charles Norman
                               ---------------------------------------
                               By: Charles Norman
                               Director
                               Date: August 30, 2005
                               ---------------------------------------


                               /s/ Peter Ubaldi
                               ---------------------------------------
                               By: Peter Ubaldi
                               Director
                               Date: August 30, 2005
                               ---------------------------------------


                                      F-23