================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-KSB
(MARK ONE)
   |X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003.
                                   OR
   |_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.


                        COMMISSION FILE NUMBER 000-29927

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

                                IMPROVENET, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              DELAWARE                                      77-0452868
  -------------------------------                        ----------------
  (State or other jurisdiction of                        (I.R.S. Employer
   incorporation or organization)                      Identification Number)

                         10799 N. 90TH STREET, SUITE 200
                            SCOTTSDALE, ARIZONA 85260
                    ----------------------------------------
                    (Address of principal executive offices)

                                 (480) 346-0000
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


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

                     Common Stock, $.001 par value per share
                     ---------------------------------------
                                (Title of class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   YES |X|   NO |_|

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of the 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. $3,223,587.

     The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the closing sale price of the common stock on March 30,
2004 was approximately $1,000,000.00. Shares of common stock held by each
current executive officer and director and by each person who is known by the
registrant to own 5% or more of the outstanding common stock have been excluded
from this computation in that such persons may be deemed to be affiliates of the
Company. This determination of affiliate status is not a conclusive
determination for other purposes.

     The number of shares outstanding of the registrant's common stock, $.001
par value, was 39,210,315 as of March 30, 2004.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE.
================================================================================
<PAGE>

                                IMPROVENET, INC.

FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 2003

INDEX
                                                                            PAGE

PART I

Item 1.   Description of Business ........................................    1
Item 2.   Description of Property ........................................   22
Item 3.   Legal Proceedings ..............................................   23
Item 4.   Submission of Matters to a Vote of Security Holders ............   23


PART II

Item 5.   Market for Common Equity and Related Stockholder Matters .......   23
Item 6.   Management's Discussion and Analysis or Plan of Operation ......   24
Item 7.   Financial Statements ...........................................   31
Item 8.   Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure .....................................   32
Item 8A.  Controls and Procedures ........................................   32


PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
            Compliance With Section 16(a) of the Exchange Act ............   33
Item 10.  Executive Compensation .........................................   35
Item 11.  Security Ownership of Certain Beneficial Owners and
            Management and Related Stockholder Matters ...................   36
Item 12.  Certain Relationships and Related Transactions .................   37


PART IV

Item 13.  Exhibits and Reports on Form 8-K ...............................   37
Item 14.  Controls and Procedures ........................................   37


SIGNATURES ...............................................................   38
<PAGE>

SUBSEQUENT EVENTS

         Our customer service and operations for the service provider matching
service are performed under terms of a services agreement with a Canadian
corporation in Nova Scotia, Canada which provides for termination without cause
upon 180 days notice by the Canadian corporation. In January 2004, the Canadian
corporation provided written notice to us of termination of the services
agreement. We have staffed our Scottsdale, Arizona offices for the customer
service and operations for the service provider matching service. In late March
2004, the transition of our customer service and operations was made to our
Scottsdale, Arizona offices. It is unclear if the transition has been
implemented smoothly or if the customer service and operations will be performed
adequately in the new location. There is an element of goodwill associated with
the customer relationship aspect of the customer service center and it is
unclear if this will be maintained through this transition. We have experienced
some disruption in customer support, collections of accounts receivable and
revenues.


RECENT DEVELOPMENTS

         In December 2003, we completed a private placement of $400,000 of 8%
unsecured convertible promissory notes, each with a maturity of December 15,
2005, issued to a limited group of accredited investors. The issuance was made
under applicable registration exemptions from both state and federal securities
laws including section 4(2) of the Securities Act of 1933.

         The notes will accrue 8% interest per year payable quarterly commencing
March 15, 2004. The principal of each note and all accrued but unpaid interest
is convertible into shares of our common stock at the rate of five shares for
each one dollar of debt represented by each note. Proceeds received from the
issuance of the notes are being used for working capital and general corporate
purposes. In addition, approved finders of the participating accredited
investors were collectively issued warrants to purchase 520,000 shares of the
Company's common stock. The warrants were also issued under applicable
registration exemptions from both state and federal securities laws including
section 4(2) of the Securities Act of 1933.


SPECIAL NOTE REGARDING FINANCIAL RESULTS RELATIVE TO THE BUSINESS OF THE ISSUER

         As a result of the Merger which occurred late in 2002, eTechLogix is
deemed to be the "acquiring" entity and ImproveNet the "acquired" entity for
accounting and financial reporting purposes. The financial reporting in the
report on Form 10-KSB for year 2002 primarily and almost exclusively reflected
only the activity of eTechLogix, the Company's wholly owned subsidiary, during
the designated periods. However, the report on Form 10-KSB for year 2003
reflects the activity of both eTechLogix, and the parent company ImproveNet. The
activities of eTechLogix comprise sales of the business management software and
of the offerings to the manufacturers and distributors in the building materials
industry. The primary activities of ImproveNet include the service provider
matching services and marketing services. The activities of ImproveNet are a
major focus for us and the service provider matching services of ImproveNet are
the primary revenue-generating component of the combined businesses of
ImproveNet and eTechLogix. ImproveNet and eTechLogix will together be referred
to as the "Company".


SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

         In addition to historical information, this Annual Report on Form
10-KSB contains forward-looking statements based on our current expectations
about our company and our industry. You can identify these forward-looking
statements when you see us using words such as "expect," "anticipate,"
"estimate," "project" and other similar expressions. These forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in these
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations, Risk
Factors that May Affect Our Results of Operations and Financial Condition" and
elsewhere in this report. We undertake no obligation to publicly update any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.


PART I

ITEM 1. DESCRIPTION OF BUSINESS

COMPANY OVERVIEW AND BUSINESS DEVELOPMENT

         We started business in January 1996 as a regional contractor matching
service. Originally ImproveNet was a California corporation but reincorporated
in Delaware in 1998. We spent most of 1996 and 1997 building our service
provider database, developing our services and technology, recruiting personnel
and raising capital. We launched our Web site and homeowner/service provider
matching service on a national scale in August 1997. In December 1998, we began
selling Web site advertising and direct marketing services to suppliers of home
improvement products as a way to send targeted messages about their products,
including

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<PAGE>

product promotions, to homeowners at the time of purchase, as well as
to our network of service providers. In March 1999, we began to hire a new
senior management team. In April 1999, we introduced Powered by ImproveNet, a
service that allows third parties to offer the ImproveNet matching services and
content on their Web sites. We completed the acquisition of two regional
contractor referral companies, Contractor Referral Service, LLC and The J.L.
Price Corporation, in September and November 1999, respectively. These entities
were integrated into our operations during the course of calendar year 2000.

         On March 15, 2000, we completed our initial public offering. We sold
2,760,000 shares of our common stock in the offering at $16.00 per share and
received approximately $44,160,000 in gross proceeds. Shares of our common stock
were listed for trading on the Nasdaq National Market System. From January
through June 2000, we spent substantial amounts primarily on marketing and
marketing related activities, as well as the development and expansion of our
service and operations infrastructure.

         On June 10, 2002 we entered into a letter of intent with eTechLogix
which outlined the substantive terms of an agreement and plan of merger
involving the companies. The resulting Merger Agreement was entered into on July
30, 2002. On December 23, 2002, eTechLogix became our wholly-owned subsidiary by
way of a merger of a newly created and wholly owned subsidiary, Etech
Acquisition, Inc., with and into eTechLogix pursuant to terms of the Merger
Agreement. With regard to ImproveNet, it was anticipated that as a result of the
merger our stockholders would be offered a share buyback at a price to be
finalized on or before the closing that would represent a premium over what they
would receive upon a liquidation and dissolution of the company.

         The board of directors of ImproveNet based its decision to enter into
the letter of intent, in part, upon a liquidation analysis which it prepared
which projected the anticipated proceeds to the stockholders were the company to
dissolve and liquidate. The liquidation analysis necessarily made assumptions
concerning numerous important factors relevant to the amount of proceeds which
would be available, such as the revenues which would be generated by ImproveNet
during the dissolution process, the extent to which it could resolve long term
liabilities on a reasonable basis and the costs associated with the process of
dissolution and liquidation. While the board recognized that its liquidation
analysis involved many uncertainties, the board nevertheless concluded that the
analysis provided a basis for its anticipation that the proposed transaction
with eTechLogix would likely provide a premium to the stockholders over the
proceeds of a possible dissolution and liquidation.

         The board of directors of ImproveNet also based its decision upon its
belief that that it was unlikely that ImproveNet could be sold as an entity to a
party other than eTechLogix on a basis more favorable to the stockholders of
ImproveNet than the transaction with eTechLogix. During the second quarter of
2002, the chairman of ImproveNet contacted five substantial companies in the
building materials industry with which he had previous business relationships in
order to discuss the possibility of their acquiring ImproveNet as a company or
purchasing some or all of its assets. None of the five companies indicated any
interest in pursuing a transaction with ImproveNet which would have provided
value to the stockholders of ImproveNet comparable to the value they were to be
entitled to receive in the proposed transaction with eTechLogix.

         The primary reason for eTechLogix entering into the Merger Agreement
was to extend its business to include consumers and contractors in the building
materials industry. The company has, to date, directed its business to
manufacturers and distributors in that industry. Early in 2002, the board of
directors of eTechLogix concluded that eTechLogix would benefit if it could
include consumers and contractors in its target market as well as manufacturers
and distributors. With the approval and support of the board, the chief
executive officer of eTechLogix began a search for companies which eTechLogix
could acquire to provide it with a means of reaching consumers and contractors.
In February 2002, the chief executive officer identified ImproveNet as a
potential candidate and made contact with the chairman of ImproveNet, who was
then its chief executive officer. A letter of intent was executed between the
parties on June 10, 2002, and the Merger Agreement was executed the following
month.

         eTechLogix advised us that the board of directors of eTechLogix
approved the Merger Agreement and the Merger for a variety of reasons, including
the following:

     o    The combination of eTechLogix with ImproveNet will create a combined
          company with access to strategic relationships not currently available
          to eTechLogix with companies in the building materials industry which
          could become key business partners.

     o    eTechLogix has developed intellectual property which it has marketed
          under the brand name Smart FusionSM to manufacturers and distributors
          in the building materials industry. The combination with ImproveNet
          will enable the combined company to market this intellectual property
          to consumers and contractors as well as distributors and
          manufacturers.

     o    eTechLogix has developed intellectual property, marketed under the
          brand name of SmartDistributorSM, that has been designed to meet the
          specific needs of distributors and contractors. The board of
          eTechLogix believes that the combination of eTechLogix and ImproveNet
          will enable the combined company to generate additional revenue by

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<PAGE>

          marketing the software to new potential customers to whom the combined
          company will have access as a result of the operations of ImproveNet.

     o    eTechLogix was a privately held company. The board of eTechLogix
          believed that the combined company, by continuing to file reports with
          the SEC and remaining a public company, will be better positioned to
          raise additional capital under current market conditions than is
          eTechLogix as a private company.

     o    Since the combined company will be a public reporting company,
          eTechLogix believes that the combined company may be able to utilize
          its stock to make strategic acquisitions, something which is more
          difficult for eTechLogix to do as a privately held company.


BUSINESS OF ISSUER

         ImproveNet, Inc. is a nationally recognized provider of home
improvement services. There are two major categories of home improvement
services. The first category is service provider matching services and marketing
services, and the second, offered through our wholly-owned subsidiary
eTechLogix, is as a developer of and marketer of Enterprise Commerce Management
("ECM") software sold under the product servicemark of Smart FusionSM for the
Building Materials Industry ("BMI"), which is segmented into many vertical
markets.


SERVICE PROVIDER MATCHING SERVICES

         Our service provider matching service is the process by which
homeowners are matched to our network of pre-screened ImproveNet contractors.
This was the core business model upon which the Company was founded and has been
the primary source of our revenue. Since its inception, we have invested quite
heavily in establishing a pool of national remodeling contractors. We consider
this to be the core of our business and we anticipate the major portion of the
Company's resources and efforts in the foreseeable future will be devoted to
further this service.


MARKETING SERVICES

         We provide advertising and marketing services on behalf of home
improvement suppliers and marketing programs for building materials
manufacturers, distributors, contractors and trade professionals, as well as
other companies who wish to communicate to our consumer and service provider
audiences. We also provide content and on-line tools on behalf of companies to
assist them in serving their own customers on-line.


DEVELOPER AND MARKETER OF BUSINESS MANAGEMENT SOFTWARE

         With regard to our business management software offerings, we have
initially focused our business strategy on the window and door manufacturers and
distributors ("WND") niche of the BMI, which accounts for over $25 billion in
industry wide annual sales. It encompasses a finite universe of prospective
customers with a distinct multi-tiered distribution channel and supply chain
procurement processes that can be significantly enhanced with web based
Enterprise Commerce Solutions ("ECM"). We provide a comprehensive, integrated
software platform that enables manufacturers to quickly create a "Pure Internet"
true eCommerce solution specifically with regard to their product order
configuration packages and electronic catalogs. We anticipate becoming a leading
Enterprise Commerce Software provider in that space, delivering solutions that
integrate seamlessly with legacy IT systems. Our solutions enable customers to
increase profitability through improved sales processes and reduce costs by
minimizing operating inefficiencies.


INDUSTRY BACKGROUND

THE HOME IMPROVEMENT INDUSTRY

         According to the United States Census Bureau, there were an estimated
122 million housing units in the United States of America as of the second
quarter of 2001. Approximately 107 million housing units were occupied: 73
million by owners and 34 million by renters. Expenditures for improvements and
repairs of residential properties in the second quarter 2001, the most recently
reported period were at a seasonally adjusted annual rate of $256.3 billion,
divided 77% on larger discretionary projects and 23% for maintenance and repair
projects. According to the "Improving America's Housing" study from the Joint
Center for Housing Studies at Harvard University, the residential remodeling
industry accounts for about 2% of gross domestic product.

         The participants in the home improvement market include homeowners,
service providers, manufacturers, distributors, and suppliers of home
improvement products. These participants face distinct challenges in meeting
their objectives.

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<PAGE>

         HOMEOWNERS

         The appearance and general working condition of their home is highly
important to homeowners. Maintaining and improving the home involves an ongoing
financial and emotional investment to design, budget, hire service providers,
and successfully complete repair and remodeling projects. Traditionally,
homeowners must rely upon books, magazines, local newspaper articles and
advertisements, Yellow Pages and word-of-mouth recommendations to accomplish
these tasks. None of these resources provides immediate, objective, reliable and
personalized information. As a result, homeowners are often poorly informed and
uncertain about how best to identify and locate reputable, experienced and
competitively priced service providers for their projects.


         SERVICE PROVIDERS

         Based upon a compilation of industry sources, we believe there are up
to 800,000 service providers including contractors, architects, designers, and
handymen in the United States. These service providers have few channels to
communicate effectively with homeowners or with one another. There is no
industry-wide certification based on work quality or a code of conduct and
ethics for contractors as there is for architects and designers. As a result,
reputable contractors are often unable to differentiate themselves based on
reliability, adequate capitalization and areas of specialization. Service
providers currently rely on word-of-mouth recommendations, the Yellow Pages and
other traditional mass media advertising that require them to pay upfront fixed
costs. Therefore, service providers must allocate significant time, money and
energy to qualifying and verifying the leads they receive. Typically, small
independent contractors experience difficulty in predicting lead flow, managing
staffing and working capital requirements and systematically building a stable
business.


         MANUFACTURERS, DISTRIBUTORS, AND SUPPLIERS OF HOME IMPROVEMENT PRODUCTS

         There are many well-known brand names supplying a wide array of home
improvement products on a national basis. There are also a large number of
regional firms with limited means to distribute and market their products
effectively to homeowners. Currently, the majority of supplier advertising
dollars is spent on co-marketing and co-branding advertising and print and
broadcast advertising. Although suppliers have often used traditional media
effectively to build brand recognition, they have difficulty using traditional
media to target homeowners who are in the process of making time-critical
purchasing decisions regarding home improvement products. These traditional
media lack a centralized database of information that can be searched based on
specified terms, and the ability to conduct two-way communications.

THE INTERNET HOME IMPROVEMENT OPPORTUNITY

         According to a study published by the National Telecommunications and
Information Administration and the Economics and Statistics Administration, 143
million Americans were online in September 2001 and 239 million will be online
by 2005. According to a study done in 2001 by the Pew Internet And American Life
Project, 82 percent of people in households earning more than $75,000 per year
have Internet access.

         We believe that an opportunity exists for an online home improvement
service that provides a central repository of information for the benefit of
homeowners, service providers and suppliers. This service would enable
homeowners to access design and planning tools, find service providers and
obtain other project management services. This service would also enable service
providers to access job leads, differentiate themselves from competitors and
communicate with fellow professionals. Finally, this service would enable
suppliers to market their products to a targeted audience of homeowners and
service providers at the time they are making time-critical purchasing
decisions.


BUSINESS OBJECTIVES AND STRATEGIES

THE IMPROVENET STRATEGY

         ImproveNet's strategy is to become one of America's premiere building
materials services company. The key elements of our strategy are:

DELIVER A SATISFYING HOME IMPROVEMENT PROJECT EXPERIENCE FOR HOMEOWNERS, SERVICE
PROVIDERS AND SUPPLIERS

         The core of our strategy is to make it easy for homeowners, service
providers, and suppliers to work together effectively throughout the entire home
improvement project experience to deliver a successful result for all of the
participants. Our focus on identifying homeowners that are highly interested in
undertaking and completing a home improvement project and screened service
providers interested in providing such services, in addition to providing
homeowners quick and easy access to information on service providers and
improved project support allows us to change the current approach and execution
of a home improvement project.

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<PAGE>

         Access to this marketplace allows service providers in our network to
increase their own business and financial efficiencies and differentiate
themselves from their competitors. Similarly, this access allows suppliers to
market their home improvement products and services within a cost effective
advertising medium. We believe that the execution of our ongoing strategy
requires us to:

     o    Strengthen the pool of high quality information and content on our Web
          sites;

     o    Strengthen the size and capabilities of our network of service
          providers;

     o    Strengthen our relationships with suppliers through enhanced
          co-branded opportunities and highly targeted advertising products; and

     o    Strengthen and improve the business management software solutions and
          marketing programs we offer to manufacturers and distributors in the
          BMI.


         We believe that achieving these goals will improve the level of
professionalism and reliability among service providers as well as the
perception of the home improvement industry in general.


ATTRACTING MORE SCREENED SERVICE PROVIDERS TO OUR NETWORK

         We continue our efforts to develop and implement initiatives that will
result in additional screened service providers participating in our network by:
o Upgrading and improving our Web based content to create better quality home
improvement jobs;

     o    Increasing participation by interested, responsive and screened
          service providers;

     o    Offering tools and incentives to help ImproveNet service providers
          compete more successfully;

     o    Developing tracking systems and procedures to identify wins that are
          not reported to us by either the service provider or the homeowner;
          and

     o    Initiating service provider recruitment programs to increase
          participation in our network by utilizing call center operations.


         We have invested heavily in the development of content design tools and
services and have refined our submission process to increase the quality of the
homeowner experience and the quality and number of jobs submitted. We have also
invested in a more highly targeted matching program, increasing the
project-types from 28 broad categories to more than 50 specific home improvement
project types. This action should permit us to more closely match prospective
service providers to each specific home improvement project lead we receive.
Again, we require each homeowner to evaluate, on his own, the prospective
service providers identified before selecting one for his home improvement
project.


COMMERCIAL RELATIONSHIPS WITH SUPPLIERS OF HOME IMPROVEMENT PRODUCTS, SERVICES
AND RELATED HOME SERVICES

         For businesses selling to remodeling contractors, ImproveNet provides
marketing and loyalty solutions to its service provider network. The network has
approximately 27,000 professionals representing, by our estimates, approximately
$10 billion in annual product and services purchases. The number of service
providers that actually receive leads each month is dependent upon the number of
home improvement project leads submitted to us and the type of work required for
each project submitted. The number of service providers receiving leads from us
in any given month is less than the total number of those service providers
actually enrolled in our network. Through electronic communications tools such
as pager, e-mail, and ImproveNetPRO.com we can deliver a targeted personalized
marketing campaign on behalf of manufacturers, retailers and other service and
product providers to our network. In addition, we can supply co-branded content
and services to enhance their Internet offering.


BUSINESS MANAGEMENT SOLUTIONS AND MARKETING PROGRAMS FOR THE BUILDING MATERIALS
INDUSTRIES

         We recognize the tremendous untapped need within the BMI for technology
solutions to solve critical business needs. The Company's strategy for success
is to:

     o    Target the BMI one vertical segment at a time such as, WND, roofing,
          plumbing, lumber, etc., providing a highly targeted solution;

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<PAGE>

     o    Continually develop and possess an extensive knowledge base of the
          vertical market served that is equal to the customer's and unsurpassed
          by the competition;

     o    Develop and market the best web-based solutions that solve pervasive,
          urgent problems for customers;

     o    Ensure seamless integration to the BMI supply chain from end user to
          manufacturer, enabling companies to leverage their existing IT
          Infrastructure investment;

     o    Define a specific niche market segment utilizing a direct sales model,
          while leveraging vertical partnerships to penetrate enterprise
          customers;

     o    Deliver customer-driven value propositions based on deep domain
          experience and understanding of our target market;

     o    Maintain technological expertise and competitive advantage to deliver
          open solutions that are "Pure Internet"; and

     o    Create options for significant expansion (geographically, vertically
          and with new products).

     o    Leverage existing relationships and favorable cost and expense
          structure with companies in India and Bangladesh for continued
          research and development of business management software, e-commerce
          and e-distribution technology solutions.


PRINCIPAL SERVICES AND PRODUCTS

THE IMPROVENET SOLUTION

         We provide home improvement information and services leveraging our
Internet presence and our network of highly qualified service providers. We
aggregate and organize information and design tools for homeowners, generate job
leads for our network of service providers and provide value chain management
solutions, channel development services, strategic market research services, and
e-commerce software solutions on behalf of home improvement manufacturers,
distributors, and suppliers. We have built and currently maintain a national
network of service providers. We independently screen and monitor to ensure that
our homeowners' qualified job leads are matched with pre-screened service
providers.

         Our solution offers the following benefits:

         For Homeowners:
         ---------------

          o    ONLINE PROJECT PLANNING ASSISTANCE. We believe our online
               services, including our product showcase, our design gallery and
               our planning and estimating tools, provide answers to homeowners'
               diverse questions and needs regarding home improvement and
               repairs. Our Web site allows each homeowner to generate ideas
               from the product showcase and design gallery and access the
               personal project folder, an archive of previous product ideas. In
               addition, we offer homeowners the ability to search for home
               improvement services and to plan their current projects using our
               interactive planning tools.

          o    ACCESS TO QUALITY SERVICE PROVIDERS. ImproveNet has built a
               network of qualified service providers covering most US markets
               and home improvement trade categories. Our screening process is
               designed to identify high quality service providers in each local
               market nationwide. To pass our screening criteria, a service
               provider must have been in business for a minimum of three (3)
               years, have no adverse legal or credit actions against it,
               appropriate general liability insurance and the appropriate
               licenses (if required by law), and no significant negative
               references from customers or other service providers. By creating
               a national network of screened service providers, we improve the
               likelihood that homeowners who contact us will hire qualified,
               experienced and reputable service providers.

          o    CONVENIENT AND COST EFFECTIVE SERVICES. We choose the service
               providers by matching their geographical, job type and job size
               preferences, with the homeowner's job specification. We encourage
               the selected service providers to contact the homeowner directly
               to discuss the job in detail within 48 hours. Our matching
               process typically provides more than one service provider,
               creating a competitive marketplace for their home improvement
               bid.

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<PAGE>

         For ImproveNet Service Providers:
         ---------------------------------

          o    QUALITY JOB LEADS. Service providers who receive leads through
               our proprietary matching service benefit from the likelihood that
               the homeowner's interest is real and that the potential project
               is correctly characterized. In addition, service providers give
               us geographic, job type and job size preferences, which enable us
               to match the jobs that meet their preferences and expertise.
               Service providers can change their preferences at any time to
               reflect their changing needs and circumstances. Through our
               ImproveNetPro.com website, we communicate job leads in near
               real-time to the selected service providers.

          o    COMPETITIVE DIFFERENTIATION. We believe service providers can
               differentiate themselves from their competitors by successfully
               completing our proprietary screening process and joining our
               network. Approximately 50% of the service providers that we have
               screened meet our selection standards of professionalism and
               reliability. Currently, we have approximately 27,000 eligible
               service providers in our network who may receive qualified job
               leads from us.

          o    BUSINESS AND FINANCIAL EFFICIENCIES. Service providers who
               participate in our matching service pay only for job leads that
               they accept and for jobs that they win, allowing them to reduce
               their upfront marketing costs. New job leads from our matching
               service supplement the flow of work that contractors, architects
               and designers receive from their traditional sources, which
               allows them to plan and operate their businesses more
               efficiently.

         For Manufacturers, Distributors, and Suppliers Of Home Improvement
         ------------------------------------------------------------------
         Products:
         ---------

          o    TARGETED ADVERTISING TO HOMEOWNERS. ImproveNet.com is designed to
               attract visitors who are focused on remodeling, repairing and
               maintaining their homes. We believe that this audience is a
               valuable target for suppliers of home improvement products and
               services. Co-branding programs surrounding content and site
               integration allow these suppliers to target their message more
               efficiently and cost-effectively to a highly responsive and
               focused audience

          o    CO-BRANDED WEB SITES. We offer suppliers the opportunity to place
               our content and services on their own Web sites or link to
               co-branded Web sites, without having to expend development time
               or resources. These co-branded Web sites allow suppliers to offer
               our content and services to their customers. In many of these
               arrangements, the suppliers' share in the revenues from jobs
               referred through their site or the co-branded Web site.

          o    LEAD GENERATION PROGRAMS. From our targeted advertising to
               homeowners, we generate targeted leads for suppliers of home
               improvement products and services as well as service providers.

          o    CHANNEL MARKETING SOLUTIONS. We offer a channel marketing
               solution that allows manufacturers and distributors entree to a
               $1.3B+ annual renovation and remodeling market. This channel
               marketing solution has our wholly-owned subsidiary's
               SmartFusionSM configuration, ecommerce and cataloging software on
               the backend making it easier for contractors to buy building
               materials and products from their favorite manufacturers and
               distributors. This program also allows manufacturers and
               distributors to build and reinforce their brand, provide
               discount, rebate and other types of incentives, and allows them
               to market and sell directly into a market rich with contractors
               and homeowners who are spending over $2M dollars per day on
               remodeling and renovation projects and processing their requests
               through our site(s). In addition, the communications between our
               customer service center representatives and homeowners and
               service providers who utilize our service provider matching
               services offers a personal touch that can help to enhance the
               effectiveness of the channel marketing solution.

          o    ECOMMERCE SOFTWARE SOLUTIONS. Initially targeted for the window
               and door manufacturers and distributors, our Smart FusionSM
               ("SF") provides WND manufacturers with an efficient, easy to
               deploy and manage, sales oriented eCommerce solution. SF is a
               fully developed product that integrates seamlessly into any
               enterprise back office (ERP, CRM) system, allowing
               Application-to-Application (A2A) capability throughout the entire
               supply chain. An order placed through SF automatically updates
               the back-office system without additional input, eliminating
               errors and reducing order-processing time. SF is scalable to meet
               the needs of any size company, whether the volume is 10 or
               100,000 orders per day, enabling manufacturers to sell
               off-the-shelf, standard products, as well as complex configurable
               products and services. SF proves the concept of
               "mass-customization," completely automating the transaction
               process, with orders placed based on individual options and
               specifications. Customers can access a manufacturer's eCommerce
               site to check availability, evaluate options and obtain pricing
               in real-time, eliminating delays and errors in the ordering
               process. They can define a virtually unlimited number of
               applicable options such as size, model, configurable components
               and services.

          o    EDISTRIBUTION SOFTWARE SOLUTIONS. We recognize that WND
               distributors required an integrated back-office solution to
               facilitate eCommerce as well. Therefore, we developed
               SmartDistributorSM , a comprehensive web-based ERP solution
               designed specifically to meet the needs of wholesale
               distributors. It includes: Order Entry, Purchasing (procurement),
               Inventory Management, Accounts Receivable and Payable, General
               Ledger, Sales Analysis. It also fully integrates to ETechLogix's
               SF. Modules are highly open and scalable for communications to
               other eBusiness products as well as future growth. All
               applications are fully written in Pure Java and Enhanced Java
               Beans (EJB) with Oracle or SQL as the back end databases and are
               fully web enabled. Modules are designed specifically for BMI and
               allow multi-location distributors to conduct business over a
               private network or the Internet. Functional security has been
               provided throughout the product for control and eligibility.

                                        7
<PAGE>

         COMPLEMENTARY SERVICE PROVIDERS

         From our targeted advertising to homeowners, we also generate leads for
complement services such as home equity financing, and home improvement design
planning.

         Our key service offerings and capabilities include:


PRODUCTS AND SERVICES

         FOR HOMEOWNERS

IMPROVENET.COM

         Our consumer Web site, www.ImproveNet.com, enables homeowners to
browse, free of charge, pages of ideas and information for use in their home
improvement projects and to use our project tools to help them better understand
their home improvement project. Our design gallery on our Web site
www.ImproveNet.com features color images of the work of leading architects and
designers. For most designs, we provide images, comments from both the designer
and our editors and a detailed list of products used in the design. Our product
showcase on ImproveNet.com contains images of a full range of more than 5,000
distinct home improvement products and includes brands such as Armstrong,
DuPont, General Electric Appliances, Owens Corning, Price-Pfister, Masco's
KraftMaid and Merrillat. Our eight interactive estimators designed to assist
homeowners through the planning and budgeting stage of the home improvement
process allow homeowners to calculate prices for a project based on parameters
such as physical dimensions, styles and the homeowner's location.

         Homeowners can register as members, which entitle them to access to
additional products and services. As part of the on-site registration process,
we create a customized interface for each registered member, known as the
personal project folder. The personal project folder permanently stores all
information related to that homeowner's project and allows us to present
custom-tailored information to that homeowner. Homeowners can store ideas they
get from our design gallery, product showcase and product estimator, in addition
to their own thoughts, as they plan and design their home improvement project.

         Our Web site gives homeowners access to a community of fellow Web site
visitors and to service providers and industry professionals who can respond to
home improvement questions. Visitors may read discussions currently on our
message boards, and registered members may join in the discussions or post a new
question. This feature gives homeowners who are now in the home improvement
process a friendly environment in which to educate themselves further and to
reduce their anxiety related to home improvement.

IMPROVENET'S NETWORK OF SERVICE PROVIDERS

         ImproveNet has built a network of screened service providers covering
most U.S. markets and home improvement trade categories. Approximately 27,000
are enrolled in our network. The number of service providers that actually
receive leads each month is dependent upon the number of home improvement
project leads submitted to us and the type of work required for each project
submitted. The number of service providers receiving leads from us in any given
month is less than the total number of those service providers actually enrolled
in our network. Service Providers join our network by coming directly to our Web
site and completing an application and consenting to and undergoing our
screening process. In addition, we recruit service providers via direct
telemarketing activities. In order to qualify to participate, a service provider
must maintain a clear credit history and have no legal judgments for at least
three years. They must also provide proof of insurance and valid professional
licenses in those jurisdictions that require such licenses. Finally, they must
maintain good references with the consumers and suppliers from whom we receive
feedback. We offer no warranty or guaranty of the work of any service provider
and serve only to identify contractors that meet our screening criteria. Each
homeowner must make his own decision regarding the hiring of any service
provider.

         We believe that these qualifications make ImproveNet's service
providers more likely to deliver quality professional work to our customers. We
also believe that ImproveNet service providers are more likely to be successful,
making them highly attractive customers for our home improvement supplier
partners.


IMPROVENET'S MATCHING SERVICES

         We offer homeowners through our network an opportunity to submit to us
a home improvement project that we match with local service providers, who want
to bid on the project. Homeowners who are starting home improvement projects
begin the process by clicking on our homepage links to "Find a Contractor" or
"Find a Designer" and are then asked to complete a brief project request form
that specifies the type of job the homeowner desires.

                                        8
<PAGE>

         Our proprietary matching service uses the homeowner's project
description to select the ImproveNet service providers in the homeowner's
geographic area that do the type of work required by the project description. We
deliver job leads to selected service providers by email or by posting the leads
on ImproveNetPro.com. Currently, we have approximately 27,000 eligible service
providers in our network who have indicated an interest in continuing to receive
qualified job leads from us. The interested service providers who first contact
us get the opportunity to bid on the project. We allow up to four service
providers to be matched to each project depending upon the project size and
type.

         Service providers contact the homeowner to discuss the job in detail,
ideally within 48 hours of receipt of our e-mail. Once the homeowner and service
provider have been matched, the service provider is able to bid on the project
at any time after meeting with the homeowner. Following the completion of the
project, we send a quality-assurance survey form to the homeowner to determine
the outcome of the project and the level of homeowner satisfaction.

         We invoice service providers for a win fee based on a pre-determined
percentage of the job's value for every job they win through our matching
service. We ask our service providers not to charge the win fee in the bid quote
to the homeowner. We currently collect our win fees directly from service
providers once the service provider or the homeowner informs us that the
homeowner has hired a service provider through our matching service.


         FOR SERVICE PROVIDERS, CONTRACTORS AND BUILDERS

         A. SERVICES

SERVICE PROVIDER MATCHING SERVICES

         With one of the most robust web-based matching services for
professional builders, general and remodeling contractors available in the
market, we have over 350,000 registered contactors in our national network. Over
27,000 of them are activated in our Membership Program. The number of service
providers that actually receive leads each month is dependent upon the number of
home improvement project leads submitted to us and the type of work required for
each project submitted. The number of service providers receiving leads from us
in any given month is less than the total number of those service providers
actually enrolled in our network. This elite group of trade professionals
receives over 10,000 renovation and home improvement project leads each month
that have been qualified by our highly skilled, professional staffed customer
service center located in Canada.

         Leads are qualified and opened daily by our highly-skilled customer
service center staff, some of whom are former trade professionals and
contractors themselves. We qualify these leads to ensure they are authentic and
reliable, and so we don't waste time of contractors participating in our
Membership Program. Better leads equal more work for participating contractors,
and an expected increase in revenues.


IMPROVENETPRO.COM

         Our commercial Web site, www.ImproveNetPro.com, provides new or
enhanced services to our service providers. ImproveNetPro.com allows us to
communicate in near real-time with participating service providers who are
online. ImproveNetPro.com provides our contractors, architects and designers
with immediate access to new job postings. Once a service provider enters the
password-protected section of ImproveNetPro.com, he or she is immediately
presented with the status of new jobs available to the service provider that
matches their location, preferences and expertise. ImproveNetPro.com also has
information similar to our consumer design gallery and product showcase to help
our service providers be better informed. Finally, ImproveNetPro.com includes
supplier information and special offers or products and services that are
relevant to their business. We believe that ImproveNetPro.com assists us to
enhance the loyalty of our contractors, architects and designers.


CUSTOMER SERVICE AND OPERATION FUNCTIONS

         All of our customer service and operation functions for homeowners and
service providers regarding the service provider matching services have been
relocated in-house to our headquarters in Scottsdale, Arizona. The functions
performed in Scottsdale include (i) receipt and processing of homeowner projects
leads, (ii) verification of homeowner project leads, (iii) distribution of
homeowner project leads to screened service providers, (iv) screening of service
provider applicants for participation in our network, and (v) collection of
accounts receivable from participating service providers. The communications
activities with homeowners and service providers that is performed as part of
the customer service and operations functions provides a personal touch that we
believe enhances the effectiveness of the service provider matching services.

                                        9
<PAGE>

         FOR MANUFACTURERS AND DISTRIBUTORS

DISTRIBUTION METHOD - The service offerings and programs for manufacturers and
distributors set forth below are distributed through our in-house direct sales
force.

IMPROVENET MARKETMAKERSM - Is a value chain management solution for building
materials manufacturers and distributors. Comprised of hosted and enterprise
web-based business management software, online services, and marketing programs,
Market Maker provides building materials manufacturers and distributors direct
access to a $1.3B+ annual renovation and remodeling market.

MarketMaker helps companies to:

          o    Define strategic marketing and product launch activities through
               our state-of-the-art market research services that tap into tens
               of thousands of contractors and hundreds of thousands of
               consumers who spend over $2M dollars per day on remodeling and
               renovation projects

          o    Define, develop and optimize your channel marketing efforts to
               deploy best practice go-to-market activities and increase
               revenues

          o    Save money, increase revenues and maximize distribution by
               streamlining critical manufacturing processes like product
               configuration, bill of material generation and order entry, and
               by commerce-enabling your business with seamless integration into
               your back-office system

          o    Increase profitability, reduce inefficiencies, and effectively
               manage your distribution processes by leveraging leading edge
               web-based back office business management and e-commerce
               technology that provides end-to-end accounting, sales analysis,
               market trending, inventory, channel management functionality and
               more


MarketMaker contains five modules:

          o    Strategic market research services

          o    Channel development services

          o    Channel management services

          o    E-commerce software for manufacturers

          o    Web-based business management software for distributors



         B. SOFTWARE

         According to Harris Information, a leading market research authority
for the building materials and construction trade industry, "Early adopters of
technology that supports web-based back-office automation and provides
e-commerce front-end access to trade partners and customers, will leapfrog
dominant brands who continue to do business as they always have. "Expensive
software based supply chain solutions, coupled with traditionally extended
implementation times and costs, will be replaced by niche, best of breed
web-based systems. The need for building materials manufacturers to web-enable
critical manufacturing and go-to-market processes, necessitates that the
traditionally fragmented software providers to the industry find better ways of
consolidating their offerings and moving the industry toward the same economies
e-commerce applications afford other industries." Our focus in our software
offerings is to address our customers' needs for web-enabled and web-based
e-commerce systems that better automate their business processes. We have two
primary software offerings that target those needs as follows:

         SMARTFUSIONSM - Web-based configuration, order entry and e-commerce
software SmartFusionSM is a web-based software solution that allows
manufacturers to increase revenues and profitability by streamlining order
entry, simple and complex product configuration, and bill of material generation
(complete with product visualizers). SmartFusionSM allows manufacturers the
ability to leverage e-commerce functionality to provide an `always on' sales and
support infrastructure to their customers. SmartFusionSM integrates seamlessly
into any enterprise back office (ERP, CRM) system, allowing
Application-to-Application (A2A) capability throughout the entire supply chain.
An order placed through SmartFusionSM automatically updates the back-office
system without additional input, eliminating errors and reducing
order-processing time.

         SmartFusion's web-based infrastructure takes the business of our
clients to the next level, a level that exceeds the limitations of many
client-server software systems available today. Customers are migrating to the
Internet at a rapid pace. SmartFusionSM ensures customer loyalty for channel
participants, and ongoing support for sales of products offered. SmartFusionSM
ensures that our clients will deliver value to your customers that exceeds their
expectations.

                                       10
<PAGE>

         SMARTDISTRIBUTORSM - Web-based business management and e-commerce
software SmartDistributorSM is a web-based business management and e-commerce
software solution that provides distributors with a fully integrated sales and
order entry, purchase order management, inventory control and management,
accounts receivable, accounts payable and general ledger management, sales
analysis, product configuration, bar code interface, channel management,
marketing program management, and lead management. SmartDistributorSM is an
entirely web-based solution that improves productivity and accelerates
profitability.


         Our Smart FusionSM software has been developed with best of class
technologies including JAVA, Enterprise JAVA Beans, Oracle DB, and WebLogix, and
integrates seamlessly to any back office technology platform using Extensible
Markup Language (XML).

         SMARTSERVICE

         The SmartService platform is a turnkey hardware and software solution
         that streamlines operations, inventory management and sales processes
         for manufacturers and sales representatives who stock products in large
         reatil home stores such as Home Depot and others.

         SmartServce provides sales management, logistics and reporting software
         on a secure web-based platform.  The task management software, with its
         graphical user interface, operates on most wireless devices, turning
         daily responsibilities into manageable tasks. By using SmartService,
         all calls, activities, events, even digital images of retail displays
         taken by the wireless device, are captured.  They are instantly
         uploaded into into the SmartService platform.

         o  Tasks can be entered and organized into appropriate categories for
            action, which may include store service calls, custom projects,
            field claims and new store openings.
         o  Digital images are captured and stored for comparison.
         o  Management reports can be generated for both manufacturers and
            retailers.

         COMPETITION

         Our current competitors with regard to home improvement projects
         include:

          o    LOCAL, PRIMARILY PHONE-BASED, CONTRACTOR REFERRAL BUSINESSES.
               These are generally small operations that take phone requests
               from homeowners that they attract through Yellow Pages
               advertising or direct marketing initiatives and that refer
               projects to contractors with whom they often have a personal
               relationship.

          o    ONLINE REFERRAL COMPANIES. Some of our competitors such as
               ServiceMagic.com offer a publicly accessible online database and
               other companies such as Contractor.com have matching services but
               do not have national coverage. Homestore.com, also offers a
               matching service

          o    SUPPLIERS OF HOME IMPROVEMENT PRODUCTS. Retailers and
               manufacturers of home improvement products such as The Home
               Depot, Lowe's, Masco, and Sears Roebuck & Co. offer installation
               services.


Additional information on some of the competitors identified above.

--------------------------------------------------------------------------------
SERVICE MAGIC.COM
Headquartered in Golden, Colorado and founded in 1998, ServiceMagic.com provides
an online marketplace connecting homeowners to prescreened contractors and
service professionals. ServiceMagic.com's service is designed to provide
consumers with up to three qualified and interested home service professionals
in their local areas within one business day. All of ServiceMagic.com
contractors are pre-screened for licensing, bankruptcy and insurance.
ServiceMagic.com addresses more than 500 different home service needs in more
than 40 markets nationwide. ServiceMagic.com also offers educational online
tools to homeowners including; expert advice, design ideas, quick tips, over
thousands of articles and a homeowner toolbox containing estimating tools,
example contracts and guides on licensing and insurance.

Strategic Partners include: Certainteed Building Solutions, HomeStore, Maytag,
Quest, Sequel, Mobius and Tango.

Funding: (1) $16M in October 1999 from SOFTBANK, Sequel and Tango, (2) $29M in
May 2000 from CertainTeed, Maytag, QwestDex, SOFTBANK, Sequel and Tango and (3)
$5M in early 2002.
--------------------------------------------------------------------------------

ICASTLE
Headquartered in Walnut Creek, California, iCastle is a division of Next Phase
Media, a referral source for qualified business services, leads and
professionals. iCastle is a one-stop resource providing property owners with a
complete archive of original articles, tips on home improvement topics and
access to qualified contractors for residential and commercial property
improvement projects. All of iCastle.com contractors are prescreened for proper
insurance, licensing and must offer a warranty.

iCastle is in the process of building an internal network of qualified service
professional and leverages ServiceMagic.com to provide service coverage in areas
where they are currently weak.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONTRACTOR.COM
Headquartered in Denver, Colorado, Contractor.com maintains a comprehensive
nationwide directory of service providers allowing homeowners the ability to
search by trade and zip code, on their own, for home improvement service
providers in their area (a customer rates system has been put in place to
provide a quasi "word of mouth environment"). Contractor.com contractors are

                                       11
<PAGE>

prescreened for liability insurance and must provide business references in
order to be listed in the Contractor.com directory. Contractor.com also provides
homeowners with tips on how to find and hire the right contractor for their home
improvement projects.

Contractor.com offers membership programs to contractors which provide access to
free home improvement leads and unlimited use of business solutions including;
sales and marketing tools, information on the construction industry, cost
estimators, and business management and financing tools.

Partners include: HomePlanFinder, Eloan, NetClerk, 4Spec.com, YellowPages.com
and Respond.com.
--------------------------------------------------------------------------------

         In addition, parties with which we have commercial relationships and
other suppliers of home improvement products could choose to develop their own
Internet strategies or competing home improvement services. Many of our existing
and potential competitors have longer operating histories, greater name
recognition, larger homeowner bases and significantly greater financial,
technical and marketing resources than we do. We believe that we and any
competitor seeking to establish web enabled home improvement services confront
significant challenges, including:

     o    The number of visitors to the Web sites, the number of home
          improvement jobs submitted by those visitors, the time spent by those
          visitors at those Web sites and the resultant loyalty created among
          those visitors, the degree to which Web site content and loyalty
          create allegiance to the service provider, and, ultimately, the
          ability to generate repeat customers;

     o    The ability to cost effectively recruit and retain a network of
          quality service providers that have broad trade and geographical
          coverage so that a large number of jobs can be successfully completed;

     o    The ability to generate significant traffic from online homeowners and
          qualify their projects so that they can be efficiently handled by a
          network of service providers;

     o    The ability to develop an effective process for handling a large
          volume of homeowner requests and delivering a high level of customer
          service;

     o    The ability to develop and maintain an excellent performance record on
          repair and remodeling jobs in which we act as the contractor of
          record; and

     o    The ability to develop commercial relationships with suppliers of home
          improvement products and services that provide value to consumers and
          service providers, as well as revenue from advertising.

         Nevertheless, the service provider matching services operate on a
localized basis and it is challenging for one company to dominate in all
locations. Various locations where we experience service provider matching
opportunities are greater in number than others. We believe that because of our
web site presentation and our customer service and operation center, we compare
favorably with others offering service provider matching services.

     Our current competitors with regard to business management software and
marketing programs for the BMI include:

--------------------------------------------------------------------------------
SOFTTECH
SoftTech offers configuration software ("V6 Manufacturer") designed to enable
manufacturers of framed products to configure, price and fabricate their
products. The program can be interfaced with other programs to accommodate
ERP/MRP, distribution and accounting functions. In addition to V6, manufacturers
can distribute a scaled-down version, "V6 Dealer", to their distribution channel
or customers, enabling clients to configure and price products remotely. Orders
can then be sent directly to the manufacturer's V6 program.
--------------------------------------------------------------------------------
EDGENET
EdgeNet is focused on electronic catalog development. m2o is EdgeNet's custom
configuration software for the WND industry. Customers include: The Home Depot,
Anderson Windows, Pella Windows.
--------------------------------------------------------------------------------
BIDMASTER
BidMaster develops electronic catalogs. Their software products incorporate an
electronic catalog with quoting functions. The program prompts the user for all
options available for any selected unit.
--------------------------------------------------------------------------------

                                       12
<PAGE>
--------------------------------------------------------------------------------
SELECTICA, INC. (NASDAQ: SLTC)
Selectica ISS is a comprehensive software application that accelerates the
process of selecting, configuring, pricing, and purchasing complex products with
efficiency and accuracy. Three primary functions include: knowledge capture;
information dissemination; configuration and ordering. Software suggests product
configurations based on business rules, sales objectives, marketing information,
and product constraints and connects with Siebel, SAP and Oracle applications.

Services account for 45% of sales. The company targets financial services and
manufacturing industries. Clients include: Dell, BMW, Cisco, Fireman's Fund,
Hewlett-Packard. Revenue: FY 2001 = $53.9 million up from $16.1 million in 2000.
--------------------------------------------------------------------------------
CALICO COMMERCE, INC. (NASDAQ: CLIC)
Calico is a provider of interactive selling software for manufacturers. With its
advanced configuration and recommendation technology, Calico enables clients to
better understand and best serve their customers. The company recently filed for
bankruptcy protection and its software assets have been acquired by PeopleSoft.

Calico targets telecommunications, financial services, retail, industrial
manufacturing, electronic finished goods, and medical industries. Customers
include: Telia, Nortel, Best Buy, Staples, and Honeywell. Recent alliance with
Toshiba Information Systems. Revenue: FY 2001 = $29.7 Million down from $35.6
Million FY 2000.
--------------------------------------------------------------------------------
SOFTWARE SOLUTIONS
Software Solutions provides custom and turnkey eCommerce solutions native on the
AS/400 computer system for all industries, including manufacturing and wholesale
or retail distribution applications. AS/400 Platform. Software installed at
hundreds of sites throughout the US. Not a business partner of any of the large
software providers.
--------------------------------------------------------------------------------
NXTREND
NxTrend provides software solutions for supply-chain management designed to
enable the distributor to implement best practices for inventory management,
order processing, sales, customer service, warehouse logistics, and strategic
business analysis. The company targets electrical, building materials,
industrial, PHAC, paper and medical industries. Installed base of over 1000.
Includes Huttig Building Products - the largest distributor of building products
in the nation. Its expanding list of products include: doors, windows, moldings,
lumber, house wrap, decking, fencing, trusses, dry wall, paneling, installation.

In 2000, NxTrend was acquired by BuildNet (an industry vertical exchange), which
provides software to homebuilders and suppliers in the residential construction
industry. BuildNet's objective was to become the B2B eCommerce solution for the
residential construction industry. In August of 2001 BuildNet filed under
Chapter 11 - NxTrend was not included in the filing.
--------------------------------------------------------------------------------
WINDOWMAKER
Provides solutions for the window industry supply chain. Solutions include a
comprehensive product suite made up of a number of integrated modules.
Manufacturers pick and choose elements most appropriate to their requirements.
Drag and drop design tools allow creation of custom design on the fly with
engineering rules and limitations automatically checked.
--------------------------------------------------------------------------------

         OUR WEB ENABLED AND BASED BUSINESS MANAGEMENT SOFTWARE OFFERINGS ARE
PROPRIETARY IN NATURE, FOCUSED ON THE BUILDING MATERIALS INDUSTRY, AND WE
BELIEVE COMPARE MORE FAVORABLY TO OUR CUSTOMERS THAN THOSE OF MANY OF OUR
COMPETITORS.

CUSTOMER CONCENTRATION - Almost all of the revenues generated from our
manufacturer and distributor customer base are concentrated among eight primary
customers.

OTHER BENEFICIAL RELATIONSHIPS

POWERED BY IMPROVENET AND FIND A CONTRACTOR

                                       13
<PAGE>

         We provide a customized product superimposing ImproveNet.com content
including our matching services on third-party Web sites so that the content
looks like the third party's own content but is actually Powered by ImproveNet.
This customized product allows our logo and our products and services to be
placed across a broad spectrum of third-party Web sites related to home
improvement, from online versions of traditional media properties to Web sites
related to manufacturing, finance, real estate and local and regional guides. If
a customer of these third parties uses our matching services, we pay the
supplier a portion of any service revenue from that match. We also advertise on
third party Web sites through our Find a Contractor service. We place a "Find a
Contractor" banner or button on third party Web sites that links the user to
ImproveNet.com. We pay these third parties either a flat fee or on a per
referral basis. Since many of the third-party Web sites that use Powered by
ImproveNet and Find a Contractor are related to the home improvement industry,
we believe these programs will deliver more qualified traffic to our Web site.
We also believe that Web sites that are related to the home improvement industry
and that participate in these programs will benefit from the access to our
service provider matching services.


THIRD PARTY PROVIDERS

         We believe that contracting with the best companies in the Internet and
home improvement space is an important component in ImproveNet's effort to be
America's home improvement destination. Our primary means of creating demand for
ImproveNet services has been through interactive marketing. We have entered into
these arrangements, which are generally performance based, long term in length
but cancellable with reasonable notice, that obligate us to pay based upon
performance including revenue sharing and cost per acquisition :

     o    Frequently visited portals, such as Yahoo!, Google, Overture and MSN;
          and

     o    Web sites related to home improvements, such as HomeTime and Mills
          Pride.

         In addition, we have supplemented our online advertising with offline
advertising in print media and through customary public relations initiatives.


TECHNOLOGY INFRASTRUCTURE

         Our Web sites are designed to provide fast, reliable, high quality
access to our online services. Our hardware and software systems must assimilate
and process large volumes of visitor traffic and store, process and disseminate
large amounts of user data, and process interactive applications.

         We have implemented a broad array of site management, customer
interaction and processing systems using our own proprietary technologies and,
where appropriate, commercially available licensed technologies. Our systems use
Windows NT, Linux, Unix, SQL, BEA WebLogix, and Oracle and are designed for a
high level of automation and performance. We have redundant power supplies,
fail-over machines and fully clustered databases and Web servers to optimize
up-time and user experience. We monitor our network and machines 24 hours a day
for reliability.

         Our Web sites have been developed internally using a Microsoft
platform. In developing our Web sites we use a variety of tools to support rapid
database/Web application development. Our ability to successfully receive
homeowner job submissions online, provide high-quality homeowner service, and
serve a high volume of advertisements largely depends on the efficient and
uninterrupted operation of our computer and communications hardware systems. Our
Web sites and databases are hosted by AT&T in Phoenix, Arizona. All of our
computer, communications systems and database back-ups are located in our
administrative headquarters in Scottsdale, Arizona. Visitor traffic to our Web
sites varies significantly. Spikes in visitor traffic and user demand can affect
expected performance of our Web sites and could cause outages. Since we have
been keeping logs on our Web sites, we believe that our ImproveNet.com Web site
has been unintentionally interrupted for periods ranging from two minutes to one
hour, except that on one occasion, some users experienced interruptions in part
of our service for a period of 48 hours. We believe that we have had no
unintentional interruptions or outages of our ImproveNetPro.com Web site since
its inception in December 1999. The primary reason for interruptions in service
relate to new content introductions onto our Web sites, such as our visualizer
or estimator tools, which involve a complex code base. Implementation of
increased security measures, such as additional firewalls, has caused
interruptions in our Internet-based services. Having fatal system failures or
serious catastrophe to the systems could result in a significant downtime.

         We seek to maintain and advance our market position by continually
enhancing the performance of our Web sites and expanding the features that we
offer homeowners, service providers and suppliers. We expect that enhancements
to our Web sites and services will continue.

                                       14
<PAGE>

INTELLECTUAL PROPERTY RIGHTS

         Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights, including our
databases of homeowners, service providers, distributors and manufacturers and
our matching criteria and algorithms. We rely primarily on a combination of
contractual provisions, confidentiality procedures, trade secrets, and copyright
and trademark laws to accomplish these goals. Our databases are trade secrets,
and our matching service is protected by trade secret and copyright laws.

         In addition, we seek to avoid disclosure of our trade secrets by
requiring employees, customers and others with access to our proprietary
information to execute confidentiality agreements. We also seek to protect our
software, documentation and other written materials under trade secret and
copyright laws.

         Despite our efforts to protect our proprietary rights, existing laws
afford only limited protection. Attempts may be made to copy or reverse engineer
aspects of our services or to obtain and use information that we regard as
proprietary. Accordingly, there can be no assurance that we will be able to
protect our proprietary rights against unauthorized third-party copying or use.
Use by others of our proprietary rights could materially harm our business.
Furthermore, policing the authorized use of our product is difficult and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.

         In the ordinary course of business, we have received, and may receive
in the future, notices from third parties claiming infringement of their
proprietary rights. Any claims, with or without merit, could be time-consuming,
result in costly litigation, cause delays or require us to enter into royalty or
licensing agreements, any of which could harm our business. Patent litigation in
particular has complex technical issues and inherent uncertainties. In the event
an infringement claim against us were successful and we could not obtain a
license on acceptable terms, license a substitute technology or redesign to
avoid infringement, our business would be harmed.


GOVERNMENT REGULATION

         Our business is subject to rapidly changing laws and regulations.
Although our operations are currently based in Arizona, the United States of
America government and the governments of other states and foreign countries
have attempted to regulate activities on the Internet. The following are some of
the evolving areas of law that are relevant to our business:

     o    PRIVACY LAW. Current and proposed federal, state and foreign privacy
          regulations and other laws restricting the collection, use and
          disclosure of personal information could limit our ability to leverage
          our databases to generate revenues; and

     o    BUILDING REQUIREMENTS. The Company's activities and that of our
          service providers are subject to various federal, state and local
          laws, regulations and ordinances relating to, among other things, the
          licensing of home improvement contractors, OSHA standards, building
          and zoning regulations and environmental laws and regulations relating
          to the disposal of demolition debris and other solid wastes. In
          addition, many jurisdictions require the contractor of record to
          obtain a building permit for each home improvement project.


         Because of this rapidly evolving and uncertain regulatory environment,
we cannot predict how these laws and regulations might affect our business. In
addition, these uncertainties make it difficult to ensure compliance with the
laws and regulations governing the Internet. These laws and regulations could
harm us by subjecting us to liability or forcing us to change how we do
business.

EMPLOYEES

         As of December 31, 2003, we employed 15 full-time persons. None of our
employees are represented by a labor union. We have experienced no work
stoppages and believe that our employee relations are good.

FACTORS AFFECTING FUTURE PERFORMANCE, RESULTS OF OPERATION AND FINANCIAL
CONDITION

         This document contains certain forward-looking statements. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as
"anticipates', "believes", "continue", "could", "estimates", "expects",
"intends", "plans", "potential", "predicts", "should" or "will" or the negative
of these terms or other comparable terminology which are intended to identify
certain of these forward-looking statements. The cautionary statements made in
this document should be read as being applicable to all related forward-looking
statements wherever they appear in this document. The Company's actual results
could differ materially from those discussed in this document. Factors that
could cause or contribute to such differences include those discussed below, as
well as those discussed elsewhere in this Annual Report on Form 10-KSB.

                                       15
<PAGE>

WE HAVE A RECENT HISTORY OF LOSSES, AND WE MAY NOT ACHIEVE OR MAINTAIN
PROFITABILITY.

         The Company has continued to sustain losses for the past two years and
has negative working capital and negative net worth.

         Our operating losses have limited our ability to obtain vendor credit
or extended payment terms and bank financing on favorable terms; accordingly, we
depend on our cash and cash equivalent balances to fund our operations.

         As a result of the merger with ImproveNet in late 2002, both revenue
and operating expenses increased significantly in 2003. Prior to the Merger, the
ImproveNet business operated at a significant loss. The ImproveNet business has
been moved from California to Arizona and has been integrated into the
infrastructure of eTechLogix, leveraging existing technical, marketing and
administrative personnel. We believe that during 2004 ImproveNet will reach
profitability.

         However, due to the significant level of current liabilities and the
history of operating losses, there is no assurance that our available cash
resources will be sufficient to meet our anticipated needs for operations and
capital expenditures during the next 12 months. We will strive to make ongoing
realignments, if required, to achieve positive cash flow with our existing cash
resources. We are additionally decreasing our marketing and other operating
expenditures to assist us in maintaining our available cash resources. We may
need to raise additional funds, however, if results of operations for 2003 do
not meet our expectations, or in order to develop new or enhance existing
services, to respond to competitive pressures or to acquire complementary
businesses, services or technologies. If we raise additional funds by selling
equity securities, the percentage ownership of our stockholders will be reduced.
We cannot be sure that additional financing will be available on terms favorable
to us, or at all. If adequate funds were not available on acceptable terms, our
ability to fund expansion, react to competitive pressures, or take advantage of
unanticipated opportunities would be substantially limited. If this occurred,
our business would be significantly harmed. We will continue to evaluate our
needs for funds based on our assessment of access to public or private capital
markets and the timing of our need for funds. Although we have no present
intention to conduct additional public equity offerings, we may seek to raise
these additional funds through private or public debt or equity financings.

OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO RAISE ADDITIONAL CAPITAL AND THERE
ARE NO ASSURANCES WE WILL FIND ADDITIONAL CAPITAL RESOURCES.

         Our need for additional capital in the near term is critical. The
necessity for additional capital to support continued operations is essential.
Since inception we have funded operations with debt and equity capital. Our
ability to operate profitably under our current business plan is largely
contingent upon success in obtaining additional sources of debt and equity
capital. There can be no assurance that sources of capital will be available on
satisfactory terms or at all. Without additional capital we may not be able to
fully implement our business or operating and development plans. No assurance
can be given that any such financing, if obtained, will be adequate to meet our
ultimate capital needs. If adequate capital cannot be obtained or obtained on
satisfactory terms, our operations could be negatively impacted. In addition, we
may seek to raise additional funds, finance acquisitions or develop commercial
relationships by issuing equity or convertible debt securities, which would
reduce the percentage ownership of existing stockholders. Furthermore, any new
securities could have rights, preferences or privileges senior to those of our
common stock.

WE FACE CONTINUED CHALLENGES IN THE INTEGRATION OF THE SEPARATE BUSINESSES OF
IMPROVENET AND ETECHLOGIX FOLLOWING THE MERGER.

         We have not experienced the anticipated synergistic results from the
integration of the separate businesses of ImproveNet and eTechLogix following
the Merger. The strategies of cross-marketing service offerings, the
opportunities of expanded markets, the development of additional revenue
streams, the enhanced ability to raise capital, and the availability of public
currency for making strategic acquisitions have had limited success to date. It
is unknown how successful these efforts will be in the future. This could affect
the results of our operations, negatively impact our financial performance and
harm our business.

BECAUSE WE ARE NO LONGER LISTED ON THE NASDAQ NATIONAL MARKET SYSTEM, THE
LIQUIDITY OF OUR COMMON STOCK HAS BEEN SERIOUSLY LIMITED.

         On June 29, 2001, we received a Nasdaq Qualification Panel Decision
indicating that we have failed to comply with the minimum bid price requirement
for continued listing, and we were delisted from the Nasdaq National Market
System. Our stock is currently being traded on the Nasdaq Over-The-Counter
Bulletin Board; however, the liquidity of our common stock is significantly
lower than when it was listed on the Nasdaq National Market System.

THERE IS A LIMITED MARKET FOR OUR COMMON STOCK.


         Currently only a very limited trading market exists for ImproveNet
common stock. Our common stock trades on the OTC Bulletin Board under the symbol

                                       16
<PAGE>

"IMPV.OB." The Bulletin Board is a limited market and subject to substantial
restrictions and limitations in comparison to the NASDAQ system. Any
broker/dealer that makes a market in our stock or other person that buys or
sells our stock could have a significant influence over its price at any given
time.


OUR COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION.

         Our shares are subject to the provisions of Section 15(g) and Rule
15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be penny stock unless
that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
The NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
registrant's net tangible assets; or exempted from the definition by the
Commission. Since our shares are deemed to be "penny stocks", trading in the
shares will be subject to additional sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors.


OUR MARKETS ARE COMPETITIVE AND VOLATILE AND WE MAY SUFFER PRICE REDUCTIONS, BE
UNABLE TO ATTRACT HOMEOWNERS TO OUR WEB SITE, BE UNABLE TO MAINTAIN OUR SERVICE
PROVIDER NETWORK OR ENTER INTO NEW MULTI-YEAR COMMERCIAL CONTRACTS IF WE DO NOT
COMPETE EFFECTIVELY.

         The market for our services is intensely competitive, evolving and
subject to rapid technological change. To remain competitive, we must continue
to enhance and improve the ease of use, responsiveness, functionality and
features of our online and offline services in order to attract homeowners to
our Web site and maintain our service provider network. We expect the intensity
of competition to increase in the future. Increased competition may result in
changes in our pricing model, fewer homeowners visiting our Web site, service
providers leaving our network, less marketing revenue, reduced gross margins and
loss of market share, any one of which could significantly reduce any future
profitability. In addition, technological barriers to entry are relatively low.
As a result, current competitors, including local referral businesses and online
referral companies including ServiceMagic.com, and Contractor.com as well as
potential competitors such as The Home Depot, Lowe's and Sears Roebuck & Company
who have launched Web sites similar to ours that could gain broader market
acceptance based on content, products and services. Because of the localized
nature of the service provider matching services, our Web site presentation, and
the personalized approach of our customer service and operations center, we
believe that we distinguish our service provider matching service from that of
our competitors but cannot assure that our customers will recognize such
distinctions or that this will sustain our business.

         The business management software, e-distribution and e-commerce markets
are intensely competitive, and we face increasing competition in every aspect of
this business. E-commerce distribution is a relatively new fragmented industry
and is anticipated to attract significant competition. We may not be able to
compete effectively in such an environment.

         Some of our competitors have more resources and broader and deeper
customer access than we do. In addition, several of these competitors have or
can readily obtain extensive knowledge of the home improvement industry. Our
competitors may be able to respond more quickly than we can to new technologies
or changes in Internet user preferences and devote greater resources than we can
to the development, promotion and sale of their services. We may not be able to
maintain our competitive position against current and future competitors,
especially those with significantly greater resources and brand recognition.


HOMEOWNERS AND SERVICE PROVIDERS MAY BE RELUCTANT TO ACCEPT AN INTERNET-BASED
SERVICE PROVIDER MATCHING SERVICE.

         Currently most homeowners use traditional means including word-of-mouth
referrals, Yellow Pages and local contractor matching services to obtain service
providers for their home improvement projects. In addition, many service
providers do not use the Internet for business purposes and may be reluctant to
become part of a network of service providers on an Internet-based service
provider matching service. If homeowners do not use our matching service or
service providers do not join our network, we will not be able to generate
significant revenues from either services or advertising.


IF WE DO NOT ATTRACT AND RETAIN A NETWORK OF HIGH QUALITY SERVICE PROVIDERS, OUR
BUSINESS COULD BE HARMED.

         We expect to derive the majority of our revenues from our network of
service providers in the form of payments for each homeowner referral that we
provide to them and for each home improvement project that they win. Our
business is highly dependent on homeowners' use of our Web site to find service
providers for their home improvement projects so that service providers will
achieve a satisfactory return on their participation in the ImproveNet program.

         A key element of the growth of our business is the pace at which
service providers adopt the ImproveNet matching process. This adoption includes
responding to homeowner inquiries within 72 hours, providing a competitive, firm
quote to homeowners

                                       17
<PAGE>

quickly, and paying the service fees to ImproveNet. We devote significant effort
and resources to screening and supporting participating service providers and to
developing programs that monitor service providers' job wins and that collect
service fees from service providers for these wins. Our inability to screen and
support service providers effectively, or the failure of our service providers
to respond professionally and in a timely manner to homeowner inquiries, could
result in low homeowner satisfaction and harm our business. In addition, the
failure of our service providers to win home improvement projects, report their
wins to us, or pay us service fees could harm our business.

         We must actively recruit new service providers and retain and motivate
our current service providers to ensure that we continually have adequate
coverage. We believe that service providers in the home improvement industry
suffer from a relatively high failure or turnover rate that makes it difficult
for us to retain service providers. Accordingly, we expect that not all of our
service providers will remain active participants in our network. If we are
unable to achieve low turnover among our network of service providers our
business could be harmed.


THE MARKETS IN WHICH WE COMPETE ARE CYCLICAL WHICH CAN AFFECT OUR FINANCIAL
PERFORMANCE AND RESULTS.

         The demand for our service provider matching services is cyclical and
fluctuates from season to season during the year. Historically during the spring
and summer, the demand of homeowners to proceed with home improvement projects
is stronger than at other times of the year. Numerous factors may account for
this increased demand. As a result, the quantity and quality of the home
improvement project leads we receive at various times of the year fluctuates.
This directly affects the number of home improvement project leads we provide.
Therefore, revenues from lead fees and win fees may be negatively impacted at
times when the demand is less. Our financial performance and results can be
impacted.

         In a similar way, the demand from our manufacturer and distributor
customer base for our business management software, e-commerce and
e-distribution solutions is cyclical. During the late fall and winter when
demand for building materials decreases, manufacturers and distributors in the
BMI are more receptive to the business management software, e-commerce and
e-distribution solutions we offer. We believe this is primarily due to a less
demanding schedule for the manufacturers and distributors affording them time to
focus on our solutions. The result of this fluctuation can negatively impact our
financial performance and results.


IF HOMEOWNERS FAIL TO REPORT, AND SERVICE PROVIDERS FAIL TO REPORT AND TO PAY TO
US WIN FEES, DIRECTLY OR INDIRECTLY, OUR BUSINESS WOULD BE HARMED.

         Our service providers are responsible for paying us a win fee for each
job that they obtain from us. We ask service providers not to pass on the cost
of the win fee to the homeowner. However, we do not currently provide any
guarantee to the homeowner that our service providers have not raised their
rates to cover the win fee nor do we audit or plan to audit our service
providers to confirm that they have not raised their rates. Homeowners may
believe that they are indirectly paying us our win fee through the higher rates
of service providers and, therefore, choose to select service providers through
word-of-mouth referrals, Yellow Pages, local contractor matching services or
other means rather than using our matching service. If homeowners choose not to
use our service, we will lose service revenues and visitors to our Web sites and
our business will be harmed.

         We depend on our service providers to report that they have won a job,
report the correct contract amount, and pay us our win fee. We rely on our
relationships with our service providers and the incentive to receive future
leads from us to encourage service providers to report wins and pay win fees.
Currently, we do not have a control or an oversight mechanism in place with
either service providers or homeowners to ensure that they report wins and pay
win fees. If service providers do not report wins, the correct contract amounts,
or pay us win fees, we will lose service revenues and our business will be
harmed.


WE DEPEND ON THIRD-PARTY RELATIONSHIPS TO ATTRACT VISITORS TO OUR WEB SITES.

         We have entered into commercial contracts with Web based search engine
companies and suppliers of home improvement products and services to generate
revenues and increase the number of visitors to our Web sites. Under these
contracts, search engine companies link search requests to our Web site, and
suppliers have placed links to our Web site from their Web sites to allow their
customers to visit our Web site if the customers are interested in obtaining
home improvement information or searching for a service provider. We believe
that increasing the number of visitors to our Web sites will increase the number
of job submissions. We cannot assure you that these contracts will lead to
increased visits to our Web sites or that increased visits to our Web sites will
result in increased job submissions. If we do not maintain our existing
contracts on terms as favorable as currently in effect or if we are not able to
establish new contracts on commercially reasonable terms, our business could be
harmed.

         Companies that we may pursue for a commercial contract may offer
services competitive with suppliers with which we currently have contracts. As a
result, these suppliers may be reluctant to enter into commercial contracts with
us.

         We purchase preferential placement on high-traffic Web sites. We
believe these Web sites can help us to increase the number of visitors to
www.ImproveNet.com. There is intense competition for preferential placements on
these Web sites. If we lose our

                                       18
<PAGE>

relationships with any one of these Web sites, job submissions on ImproveNet.com
may decrease and we may not be able to enter into commercially reasonable
contracts with replacement high-traffic Web sites, if at all.


WE DEPEND ON THIRD-PARTY RELATIONSHIPS TO PROVIDE SOFTWARE TOOLS AND
INFRASTRUCTURE.

         We integrate third-party software into our service offerings on our Web
sites. We would be harmed if the providers from which we license software ceased
to deliver and support reliable products, to enhance their current products, or
to respond to emerging industry standards. In addition, third-party software may
not continue to be available to us on commercially reasonable terms or at all.
The loss of, or inability to maintain or obtain, this software could limit the
features available on our Web sites, which could harm our business.


IN 2003 WE WERE DEPENDENT UPON A THIRD-PARTY RELATIONSHIP FOR THE CUSTOMER
SERVICE AND OPERATIONS OF OUR SERVICE PROVIDER MATCHING SERVICE. ALTHOUGH THESE
FUNCTIONS WERE RECENTLY MOVED IN-HOUSE, IT IS UNCLEAR IF THE TRANSITION HAS BEEN
IMPLEMENTED SMOOTHLY.

         Our customer service and operations for the service provider matching
service are performed under terms of a services agreement with a Canadian
corporation in Nova Scotia, Canada which provides for termination without cause
upon 180 days notice by the Canadian corporation. In January 2004, the Canadian
corporation provided written notice to us of termination of the services
agreement. We have staffed our Scottsdale, Arizona offices for the customer
service and operations for the service provider matching service. In late March
2004, the transition of our customer service and operations was made to our
Scottsdale, Arizona offices. It is unclear if the transition has been
implemented smoothly or if the customer service and operations will be performed
adequately in the new location. There is an element of goodwill associated with
the customer relationship aspect of the customer service center which could be
lost if the services agreement was terminated. We could experience a disruption
in customer support, collections of accounts receivable and revenues.


WE ARE DEPENDENT UPON CORPORATE ACCEPTANCE OF OUR SERVICES AND PRODUCTS NARROWLY
TARGETED TO THE MANUFACTURERS AND DISTRIBUTORS IN THE BUILDING MATERIALS
INDUSTRY.

         Acceptance of technology based solutions within the building materials
industry is an unproven strategy and may not materialize despite our marketing
and sales efforts. Our focus on a narrow market for these offerings could harm
our business if the pace of acceptance is slower than we anticipate.


WE ARE DEPENDENT UPON A FEW MAJOR CUSTOMERS FOR REVENUE RECEIVED FROM SALES OF
E-COMMERCE AND E-DISTRIBUTION SOFTWARE.

         Our reliance on a few major customers for revenue currently generated
by eTechLogix leaves our business vulnerable to the ability of those customers
to pay us timely. Although our efforts are focused on increasing our customer
base, there can be no assurances that we will be successful. Almost all of the
revenue generated by eTechLogix is received from eight primary customers.


WE CANNOT GUARANTEE THAT WE WILL BE ABLE TO MANAGE FUTURE GROWTH.

         Any future growth we may experience will present many challenges and
place additional pressure on our already limited resources and infrastructure.
No assurances can be given that we will be able to execute our business plans
and strategies and effectively manage future growth. Our future growth may place
a significant strain on our managerial, operational, financial and other
resources. Our success will depend upon our ability to manage growth
effectively, which will require that we continue to implement and improve our
operational, administrative, financial and accounting systems and controls and
continue to expand, train and manage our employees. Our systems, procedures and
controls may not be adequate to support operations and we may not be able to
achieve the rapid execution necessary to successfully penetrate the building
materials industry. Our inability to manage internal or acquisition based growth
effectively would cause a significant strain on our resources and our resulting
financial performance would be materially adversely affected.


WE HAVE EXPERIENCED DIFFICULTY IN ACCURATELY FORECASTING OUR SALES, WHICH
RESULTS IN OUR SALES REVENUES TO VARY FROM OUR ESTIMATES.

         As a result of our limited operating history, it is difficult to
accurately forecast our net sales and we have limited meaningful historical
financial data upon which to base operating expenses. We base our current and
future expense levels on our operating plans and estimates of future net sales,
and our expenses are to a large extent fixed. Sales and operating results are
difficult to forecast because they generally depend on the volume and timing of
the orders we receive. As a result, we may be unable to adjust our spending in a
timely manner to compensate for any unexpected revenue shortfall. This inability
could cause our net losses in a given quarter to be greater than expected.

                                       19
<PAGE>

OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND MAY RESULT IN
CONTINUED LOSSES.

         As a result of our limited operating history, rapid growth and change
in business focus, and because of the emerging nature of the market in which we
compete, our historical financial data is of limited value in planning future
operating expenses. Our expense levels will be based in part on expectations
concerning future revenues. Our revenue is derived primarily from service and
product sales, which are difficult to forecast accurately. Revenues from our
service provider matching services are subject to credits made to the service
providers from time to time, and the amount of credits made during any
particular period are difficult to forecast. We account for credits as they are
actually made. We may be unable to adjust spending in a timely manner to
compensate for any unexpected shortfall in revenues. A significant shortfall in
demand for our products could have an immediate and material adverse effect on
our business, results of operations and financial condition. Our business
development and marketing expenses will increase significantly as we expand our
operations. To the extent that such expenses precede or are not rapidly followed
by increased revenue, our business, results of operations and financial
condition may be materially adversely affected.


OUR INABILITY TO COLLECT ACCOUNTS RECEIVABLE ON A TIMELY BASIS COULD CAUSE OUR
CASH FLOW TO BE IMPAIRED AND REDUCE OUR PROFITABILITY.

         While we have gained significant expertise in dealing with Internet
distribution and collection issues and have instituted credit review and
approval procedures, no assurances can be given that future unexpected problems
and collection risks will not develop from these and other customers which could
reduce our profitability or increase our losses.


IF WE FAIL TO RETAIN QUALIFIED PERSONNEL, OUR ABILITY TO CONTINUE TO OPERATE
COULD BE HARMED.

         We depend on the continued service of our key technical, operational
and administrative personnel. In particular, the loss of the services of any of
the remaining personnel, individually or as a group, could cause us to incur
increased operating expenses and divert other personnel time in searching for
their replacements. We do not have employment agreements with any employee, and
we do not maintain any key person life insurance policies for any of our
employees. The loss of any of our remaining personnel could harm our business.


THREE OF OUR EMPLOYEE BOARD MEMBERS HOLD A CONTROLLING INTEREST IN US, WHICH
LIMITS THE ABILITY OF OTHER SHAREHOLDERS TO INFLUENCE CORPORATE DECISIONS.

         Three of the current members of our Board of Directors who also serve
in senior management positions, collectively hold a controlling interest in our
outstanding common stock and can effectively control the election of our Board
of Directors. As a practical matter, these three members of our Board will
continue to control ImproveNet into the foreseeable future.


IF WE FAIL TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, WE COULD LOSE THESE
RIGHTS AND OUR BUSINESS COULD BE HARMED.

         We depend upon our ability to develop and protect our intellectual
property rights, including our databases of homeowners and service providers and
our internally-developed matching criteria and algorithms, to distinguish our
services from our competitors' services. We rely on a combination of copyright,
trademark and trade secret laws, as well as confidentiality agreements and
licensing arrangements, to establish and protect our proprietary rights. We have
no issued patents. Our databases are protected by trade secret laws and our
matching service is protected primarily by trade secret and copyright laws.
Existing laws afford only limited protection of intellectual property rights.
Attempts could be made to copy or reverse engineer aspects of our processes or
services or to obtain and use information that we regard as proprietary.
Accordingly, we may not be able to protect our intellectual property rights
against unauthorized third-party copying or use. Furthermore, policing the
unauthorized use of our intellectual property is difficult, and expensive
litigation may be necessary in the future to enforce our intellectual property
rights. The use by others of our proprietary rights could harm our business.


OUR SERVICES COULD INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS CAUSING
COSTLY LITIGATION AND THE LOSS OF SIGNIFICANT RIGHTS.

         Third parties could claim that we have infringed their intellectual
property rights by claiming that our matching service infringes their patents,
trade secrets or copyrights. In the ordinary course of business, we have
received, and may receive in the future, notices from third parties claiming
infringement of their proprietary rights. In addition, providers of goods and
services over the Internet are increasingly subject to claims that they infringe
patents that cover basic elements of electronic commerce. The resolution of any
claims could be time-consuming, result in costly litigation, delay or prevent us
from offering our services or require us to enter into royalty or licensing
agreements, any of which could harm our business. In the event an infringement
claim against us is successful and we cannot obtain a license on acceptable
terms, license a substitute technology or redesign our services, our business
would be harmed. Furthermore, former employers or our current and future
employees may assert that our employees have improperly disclosed to us or are
using confidential or proprietary information in our business.

                                       20
<PAGE>

IF WE EXPERIENCE SYSTEM FAILURES, OUR REPUTATION WOULD BE HARMED AND USERS MIGHT
SEEK ALTERNATIVE SERVICE PROVIDERS, CAUSING US TO LOSE REVENUES.

         We depend on the efficient and uninterrupted operation of our computer
and communications hardware and software systems. Substantially all of our
computer hardware for operating our Web sites is currently located at AT&T in
Phoenix, Arizona with backups located at our facility in Scottsdale, Arizona.
These systems and operations are vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures and similar
events. They are also subject to break-ins, sabotage, intentional acts of
vandalism and similar misconduct. We do not have fully redundant systems, have a
limited formal disaster recovery plan and have no alternative providers of
hosting services, and we do not carry business interruption insurance to
compensate us for losses that could occur. Despite any precautions we may take,
the occurrence of a natural disaster or other unanticipated problems either at
AT&T or at our facility could result in interruptions in our services. Any
damage to or failure of our systems could result in interruptions in our
service. In addition to placing an increased burden on our engineering staff,
any system failure could create user questions and complaints that must be
responded to by our customer support personnel. The system failures of various
third-party Internet service providers, online service providers and other Web
site operators could result in interruptions in our service to those users who
require the services of these third-party providers and operators to access our
Web sites. These interruptions could reduce our revenues and profits, and our
future revenues and profits will be harmed if our users believe that our system
is unreliable. Since we have been keeping logs of our Web sites, our
ImproveNet.com Web site has been unintentionally interrupted for periods ranging
from two minutes to one hour, the latter prior to February 2000.


WE MAY HAVE CAPACITY RESTRAINTS THAT COULD LIMIT THE GROWTH OF OR REDUCE OUR
REVENUES.
         The satisfactory performance, reliability and availability of our Web
sites, processing systems and network infrastructure are critical to our
reputation and our ability to attract and retain large numbers of users. If the
volume of traffic, including at peak times, on our Web sites increases, we may
need to expand and upgrade our technology, transaction processing systems and
network infrastructure. We may not be able to accurately project the rate or
timing of these increases, if any, in the use of our services or to expand or
upgrade our systems and infrastructure in a timely manner to accommodate these
increases.

         We use internally developed systems for operating our services and
processing our transactions, including billing and collections processing. We
must continually improve these systems in order to accommodate the use of our
Web sites. If we add new features and functionality to our services, we could be
required to develop or license additional technologies. Our inability to add
additional software and hardware or upgrade our technology, transaction
processing systems or network infrastructure could cause unanticipated system
disruptions, slower response times, degradation in levels of customer support,
impaired quality of the users' experience, delays in accounts receivable
collection or losses of recorded financial information. Our failure to provide
new features or functionality also could result in these consequences. The
required hardware may not be readily available or affordable and we may be
unable to effectively upgrade and/or expand our systems in a timely manner or to
integrate smoothly any newly developed or purchased technologies with our
existing systems. These difficulties could harm or limit our ability to expand
our business.


WE COULD BE HELD LIABLE FOR PRODUCTS AND SERVICES.

         We could be subject to claims relating to products and services that we
perform on behalf of homeowners or referrals to selected contractors through our
Web site. Homeowners may bring claims against us or our service providers, who
may have among other things, provided them with poor workmanship or caused
bodily injury or damage to property. Currently we have no insurance coverage for
such potential claims. In addition, claims, with or without merit, would result
in diversion of our financial resources and management resources.


WE DEPEND ON THE USE OF THE INTERNET. IF THE USE OF THE INTERNET DOES NOT GROW,
OUR REVENUES MAY NOT GROW AND COULD DECLINE AND OUR BUSINESS COULD BE HARMED.

         We depend on increased acceptance and use of the Internet. In
particular, our matching service depends upon service providers being willing to
use the Internet to find jobs through our service. We believe that service
providers generally have not traditionally used computers or the Internet to
operate their businesses. Demand and market acceptance for recently introduced
products and services over the Internet are subject to a high level of
uncertainty. As a result, acceptance and use of the Internet may not develop or
a sufficiently broad base of users may not adopt or continue to use the Internet
as a medium of commerce.


THE INTERNET IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGIES, FREQUENT NEW
PRODUCT AND SERVICE INTRODUCTIONS AND EVOLVING INDUSTRY STANDARDS.

         To succeed, we will need to adapt effectively to rapidly changing
technologies and continually improve the performance features and reliability of
our services. We could incur substantial costs in modifying our products,
services or infrastructure to adapt to these changes, and we may also lose
customers and revenues if our services fail to adapt to the rapid changes
characteristic of the Internet.

         Conversely, if the Internet experiences increased growth in number of
users, frequency of use and bandwidth requirements, the Internet infrastructure
may be unable to support the demands placed on it. The success of our business
will rely on the Internet providing a convenient means of interaction and
commerce. Our business depends on the ability of users to access information
without significant delays or aggravation.

                                       21
<PAGE>

FUTURE GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES PERTAINING TO THE INTERNET
COULD DECREASE THE DEMAND FOR OUR SERVICES OR INCREASE THE COST OF DOING
BUSINESS.

         There is, and will likely continue to be, an increasing number of laws
and regulations pertaining to the Internet. These laws and regulations may
relate to liability for information retrieved from or transmitted over the
Internet, online content, user privacy, taxes or the quality of services. Any
new law or regulation pertaining to the Internet, or the adverse application or
interpretation of existing laws, could decrease the demand for our services or
increase our cost of doing business.

         We are not certain how our business may be affected by the application
of existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of these laws were adopted prior
to the advent of the Internet. As a result, they do not contemplate or address
the unique issues created by the Internet and related technologies. Changes in
laws intended to address these issues could create uncertainty for or adversely
affect companies doing business on the Internet. This could reduce demand for
our services or increase the cost of doing business.


GENERAL ECONOMIC CONDITIONS MAY CHANGE DRAMATICALLY FROM YEAR TO YEAR.

         General economic conditions, which affect consumer confidence and home
improvement and home-building spending, including interest rates, the overall
level of economic activity, the availability of consumer credit and mortgage
financing and unemployment rates may change dramatically and impact our ability
to operate.


LEGISLATIVE AND REGULATORY INITIATIVES REGARDING THE COLLECTION AND USE OF OUR
USERS' PERSONAL INFORMATION MAY RESULT IN LIABILITY AND EXPENSES.

         Current computing and Internet technology allows us to collect personal
information about our users. In the past, the Federal Trade Commission has
investigated companies that have sold personal information to third parties
without permission or in violation of a stated privacy policy. Currently, we
collect personal information only with the users' consent and under our privacy
policy. If we begin collecting or selling personal information without
permission or in violation of our privacy policy, we could face potential
liability for compiling and providing information to third parties.


THE IMPOSITION OF ADDITIONAL STATE AND LOCAL TAXES ON INTERNET-BASED
TRANSACTIONS WOULD INCREASE OUR COST OF DOING BUSINESS AND HARM OUR ABILITY TO
BECOME PROFITABLE.

         We file state tax returns as required by law based on principles
applicable to traditional businesses. However, one or more states could seek to
impose additional income tax obligations or sales and use tax collection
obligations on out-of-state companies such as ours that engage in or facilitate
Internet-based commerce. A number of proposals have been made at state and local
levels that could impose taxes on the sale of products and services through the
Internet or the income derived from those sales. These proposals, if adopted,
could substantially impair the growth of Internet-based commerce and harm our
ability to become profitable.

         United States of America federal law limits the ability of the states
to impose taxes on Internet-based transactions. Until October 21, 2001, state
and local taxes on Internet-based commerce that are discriminatory against
Internet access are prohibited, unless the taxes were generally imposed and
actually enforced before October 1, 1998. It is possible that this tax
moratorium will not be renewed by October 21, 2001 or at all. Failure to renew
this legislation would allow various states to impose taxes on Internet-based
commerce. The imposition of state and local taxes could harm our ability to
become profitable.


ITEM 2. PROPERTIES

         Our principal administrative offices and part of our business and
systems operations are located in Scottsdale, Arizona in approximately 3,529
square feet of office space under a lease agreement with gross lease payments of
$5,000.00 per month plus tax at 1.9% for a two year term commencing June 15,
2003.

         We believe that our facilities are adequate for our current operations
and that additional office space, if required, can be readily obtained. See Note
6 of the Notes to the Consolidated Financial Statements for information
regarding the Company's lease obligations.

         At this time, the registrant has no policy in terms of investment in
real estate nor does it have any investment in real estate. The registrant has
no immediate plans to invest in real estate mortgages.

                                       22
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

         From time to time, we may be involved in routine litigation relating to
claims arising out of or incidental to our operations. As of the date of this
filing, we are engaged in various legal proceedings that are incidental to our
business. As of the date of this filing, we are engaged in legal proceedings
that could materially affect our business should an adverse judgment be entered
against us. Should a third party in any of the ongoing litigation matters obtain
a judgment against the Company or its subsidiary, it is unlikely the Company or
its subsidiary would have sufficient working capital available to timely pay any
such judgment. In addition, we have received preliminary information regarding
possible erroneous cancellation of health insurance benefits for former
employees under COBRA for which we may have potential liability.

         One arbitration matter in Phoenix, Arizona involved First Systech
International, Inc., a predecessor to Etech, our wholly-owned subsidiary. This
proceeding concerns the 1998 sale of an ERP software product to a client who is
demanding a refund of the purchase price, and First Systech International
counterclaimed for the balance due on the contract plus additional work
performed and professional expenses of the litigation. The matter was before an
arbitrator who recently entered an award against First Systech for $116,886 plus
simple interest at 10% per year. Currently, the amount owing is approximately
$170,000 including interest to date. First Systech is unable to pay the amount
owed and is negotiating a payout over a several year period of the amount owing.
It is not clear if a satisfactory payment arrangement can be made.


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

         No matters were submitted to a vote of security holders during the
fourth quarter of our fiscal year ended December 31, 2003.


PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our Common Stock began trading on the Nasdaq National Market System
under the symbol "IMPV" on March 16, 2000 and subsequently, on the Over The
Counter Bulletin Board on June 29, 2001. The following table sets forth the high
and low sales prices of the Company's Common Stock for the periods indicated as
reported on the Over-The-Counter Bulletin Board:

                                                   HIGH    LOW
                                                   SALE    SALE
                                                   PRICE   PRICE
                                                   -----   -----
         Year Ended December 31, 2002
         First Quarter                             $0.11   $0.06
         Second Quarter                            $0.23   $0.03
         Third Quarter                             $0.13   $0.04
         Fourth Quarter                            $0.16   $0.08

         Year Ended December 31, 2003
         First Quarter                             $0.27   $0.07
         Second Quarter                            $0.12   $0.07
         Third Quarter                             $0.37   $0.09
         Fourth Quarter                            $0.30   $0.12

         As of December 31, 2003, we had approximately 403 stockholders of
record.

         We have never paid any cash dividends on our stock, and we anticipate
that we will retain any future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
<TABLE><CAPTION>

                                  Number of securities                           Number of securities
                                    to be issued upon       Weighted-average     remaining available
                                       exercise of         exercise price of     for future issuance
                                  outstanding options,    outstanding options,       under equity
                                   warrants and rights    warrants and rights     compensation plans
                                   -------------------    -------------------     ------------------
<S>                                    <C>                      <C>                   <C>
Equity compensation plans
approved by security holders            2,005,991                $0.31                 5,286,809
                                        =========                =====                 =========
</TABLE>

                                       23
<PAGE>

         In June 2003, we borrowed $75,000 for a 90-day period represented by a
promissory note that we issued to an accredited investor. Warrants to purchase
200,000 shares of our common stock were also issued in that transaction. The
promissory note was renewed in September 2003 for $80,000 including accrued but
unpaid interest, and a warrant to purchase an additional 150,000 shares of our
common stock was issued at that time. The promissory note was paid in full in
December 2003. The issuances of the promissory notes and the warrants were made
under applicable registration exemptions from both state and federal securities
laws including section 4(2) of the Securities Act of 1933.

         In December 2003, we completed a direct private placement of $400,000
of 8% unsecured convertible promissory notes, each with a maturity of December
15, 2005, issued to a limited group of accredited investors. The issuance was
made under applicable registration exemptions from both state and federal
securities laws including section 4(2) of the Securities Act of 1933.

         The notes will accrue 8% interest per year payable quarterly commencing
March 15, 2004. The principal of each note and all accrued but unpaid interest
is convertible into shares of our common stock at the rate of five shares for
each one dollar of debt represented by each note. Proceeds received from the
issuance of the notes are being used for working capital and general corporate
purposes. In addition, approved finders of the participating accredited
investors were collectively issued warrants to purchase 520,000 shares of the
Company's common stock. The warrants were also issued under applicable
registration exemptions from both state and federal securities laws including
section 4(2) of the Securities Act of 1933.

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

         The following discussion and analysis should be read with our
consolidated financial statements and notes included elsewhere in this Annual
Report on Form 10-KSB. The discussion in this Annual Report on Form 10-KSB
contains forward-looking statements that involve risks and uncertainties, such
as statements of our plans, objectives, expectations and intentions. The
cautionary statements made in this Annual Report on Form 10-KSB should be read
as applying to all related forward-looking statements wherever they appear in
this Annual Report on Form 10-KSB. Our actual results could differ materially
from those discussed here. Factors that could cause or contribute to these
differences include those discussed in "Factors Affecting Future Performance,
Results of Operations and Financial Condition" in Part I--Item 1. Description of
Business as well as those discussed elsewhere.

OVERVIEW

BASIS OF PRESENTATION

         On December 23, 2002, eTech merged into Etech Acquisition, Inc., (the
"Merger") an Arizona corporation and wholly owned subsidiary of ImproveNet.
Through this merger, the former shareholders of eTech acquired a controlling
interest in ImproveNet and accordingly, the Merger is accounted for as a reverse
merger, with eTech being the accounting acquirer of ImproveNet. The Company has
treated the merger as being effective December 31, 2002 as ImproveNet had de
minimus operations from December 23, 2002 to December 31, 2002. As such, the
financial statements present the historic financial position, operations and
cash flows of eTech for all periods up to December 31, 2002 but include both
ImproveNet and eTech for year 2003. Refer to Note 8, Merger with eTech, for
additional information and disclosures related to the Merger.


         The Company's financial statements are presented on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has continued to
sustain losses for the past two years and has negative working capital and
negative net worth.


         The financial statements do not include any adjustments to reflect the
possible future effects of the recoverability and classification of assets or
the amounts and classifications of liabilities that may result from the
uncertainty of the Company's ability to continue as a going concern.

ACQUISITION

         On December 23, 2002, eTech merged with eTech Acquisition, Inc., an
Arizona corporation and wholly-owned subsidiary of ImproveNet, that was created
during 2002 to merge eTech and ImproveNet. This Merger occurred pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated July 30, 2002. Under
the terms of the Merger Agreement, eTech paid $500,000 to ImproveNet and
incurred $19,000 in costs directly related to the merger. At the time of the
Merger, each outstanding share of eTech Common Stock, no par value per share,
was converted into the right to receive and became exchangeable for 5,555.555556
shares of ImproveNet Common Stock, par value $.001 per share. A total of
35,417,750 shares of ImproveNet common stock were issued in the Merger to eleven
(11) different shareholders of eTech. Through the merger, the former directors
of eTech collectively received 30,310,740 shares of ImproveNet Common Stock and
as a result, acquired control of the Company.

                                       24
<PAGE>

         Each unexpired outstanding option to purchase eTech Common Stock was
converted, on the same vesting schedule, into an option to purchase a number of
shares of ImproveNet Common Stock equal to the number of shares of eTech Common
Stock that could have been purchased under such option multiplied by
5,555.555556, at a price per share of ImproveNet Common Stock equal to the per
share exercise price of $.05 per share. Options to acquire 788,889 shares of
ImproveNet Common Stock were issued in the Merger as a result of these
outstanding options, of which, 222,222 had vested as of the date of the Merger.


         Warrants to purchase 1,500,000 shares of ImproveNet were issued as a
result of the Merger. These warrants were issued in conjunction with
subordinated convertible notes payable, as discussed below.


TENDER OFFER

         Under the terms of the Merger Agreement, the Company agreed to present
a cash tender offer ("Tender Offer") to pre-merger shareholders of ImproveNet.
The price per share was based in part on ImproveNet's available cash balance at
the closing of the merger. The Tender Offer was available from the time of the
merger through January 2, 2003.


         Prior to the closing of the merger, ImproveNet deposited approximately
$2,557,000 with its stock transfer agent for payments to be made under the
Tender Offer. In conjunction with the Tender Offer, the Company disbursed a
total of approximately $1,962,000 to various pre-merger ImproveNet shareholders
in January 2003 resulting in the acquisition of 13,913,975 treasury shares in
January 2003. Funds remaining with the stock transfer agent in excess of
disbursements of approximately $595,000 are classified as receivable from stock
transfer agent on the accompanying balance sheets.


CONVERSION OF SUBORDINATED CONVERTIBLE NOTES PAYABLE

         During July 2002, eTech issued an aggregate of $150,000 of subordinated
convertible notes payable to two accredited investors. The notes are secured by
substantially all of the Company's assets and are subordinated to the eTech's
9.00% note payable to a bank (Refer to Note 5, Notes Payable). In conjunction
with the issuance of these subordinated convertible notes payable, eTech also
issued one-year warrants to purchase an aggregate of 1,500,000 shares of
ImproveNet at a purchase price of $0.15 per share. The subscription of the
warrants was expressly conditioned upon the closing of the Merger. The Company
expensed approximately $81,000 in connection with these warrants to recognize
the fair value of the warrants.

         During August 2002, eTech issued an aggregate of $100,000 of
subordinated convertible notes payable to accredited investors and officers of
eTech (refer to Note 7, Related Party Transactions). The notes are secured by
substantially all of eTech's assets and are subordinated to the $150,000 of
aggregate subordinated notes payable discussed above and to the 9.00% note
payable to a bank (Refer to Note 5, Notes Payable).

         All of the subordinated convertible notes payable described above bear
interest at a rate of 10.00% per annum and are due two years after the date of
issue, provided they are not converted prior to this date. The notes are
convertible into common shares of eTech in whole, or in part, at the option of
the lender at any time during the term of the note at a rate of one share for
every $555.5555556 of debt converted. The notes will automatically be converted
if there is a transfer of more than 50% of the voting control of the Company, in
one transaction or a series of transactions with ImproveNet directly or by
merger or consolidation in which the existing shareholders of eTech do not
directly retain more than 50% of the voting control of eTech, or a sale of all
or substantially all assets of eTech to ImproveNet or one of ImproveNet's
subsidiaries. The shares of eTech that will be received by the note holders if
automatic conversion occurs will be converted to shares of ImproveNet using the
same conversion rate as all other eTech shares converted in a merger
transaction. Immediately prior to the closing of the Merger, all of the
subordinated convertible notes payable were converted into shares of Etech
common stock and upon closing of the Merger were exchanged into shares of
ImproveNet common stock.

         The proceeds of the subordinated notes payable of $250,000 were to be
used for a portion of a $500,000 deposit by Etech with ImproveNet. This deposit
was made prior to the Merger and in accordance with the Merger Agreement.


SHORT TERM PROMISSORY

         In June 2003 following the closing of the Merger, we borrowed $75,000
for a 90-day period represented by a promissory note that we issued to an
accredited investor. Warrants to purchase 200,000 shares of our common stock
were also issued in that transaction. The promissory note was renewed in
September 2003 for $80,000 including accrued but unpaid interest, and a warrant
to purchase an additional 150,000 shares of our common stock was issued at that
time. The promissory note was paid in full in December 2003.

                                       25
<PAGE>

ISSUANCE OF UNSECURED CONVERTIBLE PROMISSORY NOTES

         In December 2003, we completed a private placement of $400,000 of 8%
unsecured convertible promissory notes, each with a maturity of December 15,
2005, issued to a limited group of accredited investors.

         The notes will accrue 8% interest per year payable quarterly commencing
March 15, 2004. The first quarterly payment was made on March 15, 2004. The
principal of each note and all accrued but unpaid interest is convertible into
shares of our common stock at the rate of five (5) shares for each one dollar of
debt represented by each note. Proceeds received from the issuance of the notes
are being used for working capital and general corporate purposes. In addition,
approved finders of the participating accredited investors were collectively
issued warrants to purchase 520,000 shares of our common stock.


ACCOUNTING FOR THE MERGER

         The Company accounted for this merger in accordance with SFAS No. 141,
"Business Combinations." As discussed above, the former shareholders of eTech
acquired a controlling interest in the Company, accordingly, the transaction has
been accounted for as a reverse merger and the total consideration given by
eTech of $519,000 has been allocated to the fair values of the pre-merger assets
and liabilities of ImproveNet. At the time of the acquisition, the fair value of
the net assets of ImproveNet was $361,351 in excess of the consideration given
by eTech after all applicable reductions of amounts that otherwise would have
been assigned to the acquired assets were considered. This excess is reported in
the statement of operations as an extraordinary gain.

         ImproveNet, Inc. ("ImproveNet" or the "Company") was incorporated in
California in January 1996, was reincorporated in Deleware in September 1998 and
is headquartered in Scottsdale, Arizona. The Company is a source for home
improvement information services for homeowners, service providers and suppliers
nationwide.

         eTechLogix, Inc. ("eTech"), a wholly-owned subsidiary of ImproveNet,
licenses, installs and maintains its proprietary e-commerce software products to
companies primarily operating in the building material industry. eTech was
formerly known as First Systech International, Inc. and was originally
incorporated in March 1989 in the State of Texas. In July of 1994, eTech
relocated to the State of Arizona and incorporated itself under the laws of the
State of Arizona.

         The following discussion should be read in conjunction with the
consolidated financial statements provided under Part II, Item 7 of this Form
10-KSB. Certain statements contained herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially, as discussed more
fully herein.

         The forward-looking information set forth in this Form 10-KSB is as of
April 15, 2003, and ImproveNet, Inc. undertakes no duty to update this
information. Should events occur subsequent to April 15, 2003 that make it
necessary to update the forward-looking information contained in this Form
10-KSB, the updated forward-looking information will be filed with the SEC in a
Quarterly Report on Form 10-QSB or as an earnings release included as an exhibit
to a Form 8-K, each of which will be available at the SEC's website at
www.sec.gov. More information about potential factors that could affect our
business and financial results is included in the section entitled "Factors
Affecting Future Performance, Results of Operations and Financial Condition" in
Part I--Item 1. Description of Business.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         ImproveNet, Inc.'s discussion and analysis of its financial condition
and results of operations are based upon ImproveNet, Inc. consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires ImproveNet to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis,
ImproveNet evaluates its estimates, including those related to customer
programs, bad debts, income taxes, contingencies and litigation. ImproveNet
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

         ImproveNet believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
consolidated financial statements.


SOFTWARE DEVELOPMENT AND SALES FOR THE BUILDING MATERIALS INDUSTRY SEGMENT

         The Company recognizes revenue in accordance with SOP 97-2, "Software
Revenue Recognition." This SOP provides guidance on revenue recognition of
software transactions. The Company recognizes revenue principally from the
development and

                                       26
<PAGE>

licensing of its software and from consulting and maintenance services rendered
in connection with such development and licensing activities. Maintenance
contract revenue is recognized on a straight-line basis over the life of the
respective contract. The Company also derives revenue from the sale of third
party hardware and software which is recognized based on the terms of each
contract. Consulting revenue is recognized when the services are rendered. No
revenue is recognized prior to obtaining a binding commitment from the customer.

         Revenue from fixed price software development contracts, which require
significant modification to meet the customer's specifications, is recognized on
the percentage-of-completion method using the units-of-work-performed method to
measure progress towards completion. Revisions in cost estimates and recognition
of losses on these contracts are reflected in the accounting period in which the
facts become known. Revenue from software package license agreements without
significant vendor obligations is recognized upon delivery of the software.
Contract terms may provide for billing schedules that differ from revenue
recognition and give rise to costs and estimated earnings in excess of billings
on uncompleted software contracts, and billings in excess of costs and estimated
earnings on uncompleted software contracts.

         Deferred revenue represents revenue billed and collected but not yet
earned.

         The cost of maintenance and research and development related revenues,
which consist principally of staff payroll and applicable overhead, are expensed
as incurred.


HOME IMPROVEMENT SERVICES SEGMENT

         Revenues in the home improvement services segment are derived from two
sources: Service revenues and marketing revenues.


Service revenues:
-----------------

         Service revenues include lead fees and win fees from ImproveNet's
contractor matching service paid by service providers in the ImproveNet
membership network. Lead fees are recognized at the time we match a homeowner
and service provider and the service provider becomes obligated to pay such fee.
Win fees are recognized at the time the service provider or the homeowner
notifies us that a job has been sold and the service provider becomes obligated
to pay such fee. Refunds and credits against the lead fees and win fees are
recognized when actually made.

Marketing revenues:
-------------------

         Marketing revenues include co-branding programs surrounding content and
site integration. Currently marketing revenues are comprised of cash co-branding
programs.

     CASH ADVERTISING

         Cash co-branding revenues generally are derived from flat rate
co-branding engagements in which all impressions delivered to our Web site in a
particular home improvement category will be delivered to the co-branding
participant over a specified period of time for a fixed monthly fee. Cash
co-branding revenues are recognized on a monthly basis.

         We follow the allowance method of recognizing uncollectible accounts
receivable. The allowance method recognizes bad debt expense as a percentage of
accounts receivable based on a review of the individual accounts outstanding and
our prior history of uncollectible accounts receivable. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.

         Deferred income taxes are provided for on an asset and liability
method, whereby deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
basis.

         Deferred tax assets are reduced by a valuation allowance, when in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.

                                       27
<PAGE>

     BUSINESS SEGMENTS

         We follows SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information." SFAS No. 131 requires publicly held companies to
report financial and other information about key revenue segments of an entity
for which this information is available and is utilized by the chief operating
decision maker. We operate in two segments: Software development and sales for
the building materials industry through eTechLogix. and home improvement
information services through ImproveNet. Our consolidated statements of
operations and cash flows do not reflect operations for year 2002 of the home
improvement services segment as this segment was acquired effective December 31,
2002 through the Merger between ImproveNet and eTech but do reflect both
segments for year 2003.


RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2003 AND 2002

REVENUES

         Our revenues increased from $777,257 to $3,223,587 in the years ended
December 31, 2002 and 2003. The increases from 2002 to 2003 were achieved
primarily by revenues from the home improvement information services segment
reported in the current year but not included in the prior year. The addition of
the service provider matching service resulted in lead fees and win fees from
service providers in 2003 that were not included in 2002.


         The following table and discussion highlights our revenue for the years
ended December 31, 2003 and 2002.

                                        2003           2002         % CHANGE
                                     ----------     ----------     ----------
Revenues:
eTechLogix software revenues         $  548,042     $  777,257        (29)%

ImproveNet service revenues           2,675,545            --          --
                                     ----------     ----------
Total revenues                       $3,223,587     $  777,257         315%
                                     ==========     ==========


SOFTWARE (ETECHLOGIX) REVENUES

         For the year ended December 31, 2003, eTechLogix revenue decreased 29%
to $548,042 compared to $777,257 in 2002. The decrease in eTechLogix's revenue
resulted from a decrease in sales of the company's products and consulting
services. ETechLogix relies on eight primary customers for its revenue.


INFORMATION SERVICES (IMPROVENET) REVENUES

         ImproveNet reported revenue of $2,675,545 for the year ended December
31, 2003. No ImproveNet revenue was reported in 2002, as the Merger occurred
effective December 31, 2002. ImproveNet revenue consists almost entirely of
service revenues from its contractor matching services.


OPERATING EXPENSES

COST OF REVENUES

         Cost of revenues increased from $240,394 to $1,787,449 in the years
ended December 31, 2002 and 2003, an increase of $1,547,055. The increase is
primarily due to cost of revenues from the newly acquired home improvement
information services segment.

         The following table and discussion highlights our cost of revenues for
the years ended December 31, 2003 and 2002.

                                       2003           2002         % CHANGE
                                    ----------     ----------     ----------
Cost of revenues:
Software (eTechLogix)               $  109,609     $  240,394        (54)%

Information Services (ImproveNet)    1,677,840            --          --
                                    ----------     ----------
Total                               $1,787,449        240,394         644%
                                    ==========     ==========

                                       28
<PAGE>

SOFTWARE (ETECHLOGIX) COST OF REVENUE

         For the year ended December 31, 2003, eTechLogix cost of revenue
decreased 54% to $109,609 compared to $240,394 in 2002. The decrease in
eTechLogix's cost of revenue is primarily a result of a decrease in sales in the
current year over the prior year reported. Upon further evaluation, management
has determined that variable costs associated with software revenue approximates
twenty percent (20%) of revenues and has been applied as a cost of revenue from
selling, general, and administrative expenses, and we will re-evaluate on a
regular basis moving forward, the allocation of variable costs of revenue.


INFORMATION SERVICES (IMPROVENET) COST OF REVENUE

         ImproveNet reported cost of revenue of $1,677,840 for the year ended
December 31, 2003. No ImproveNet cost of revenue was reported in 2002, as the
Merger occurred effective December 31, 2002. ImproveNet cost of revenue consists
primarily of the cost of home improvement leads and the cost for the outsourced
project service group, which through year 2003 has been responsible for all
phases of our proprietary matching services.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expense increased from $855,282 to
$1,888,746 in the years ended December 31, 2002 and 2003, an increase of
$1,033,464. The increase in selling, general and administrative expenses in 2003
was primarily attributable to the acquisition of the home improvement
information services segment. The Company's overall infrastructure was enlarged
to properly handle increased responsibilities associated with the Merger.

         Our selling, general, and administrative expenses include payroll and
related costs, travel, recruiting, professional and advisory services and other
general expenses for our executive, sales, finance, legal, and human resource
departments.


RESEARCH AND DEVELOPMENT EXPENSES

         Our research and development expenses increased from $86,801 to
$399,045 in the years ended December 31, 2002 and 2003.

         Our research and development costs include payroll and related costs of
our technology staff, other costs of Web site design and new technologies
required to enhance the performance of our Web sites.

         The increase in research and development expenses in 2003 was primarily
attributable to increased payroll and related costs improving the functionality
and features of www.improvenet.com and working on integration and improvement of
the eTechLogix software products which management believes will benefit the
Company longer-term if it is able to implement its sales and marketing strategy.


OTHER REVENUES AND EXPENSES

         The following table highlights our other revenues (expenses) for the
years ended December 31, 2003 and 2002.

                                           2003          2002       CHANGE
                                         ---------    ---------    ---------
Other Revenues (Expenses):
Interest income                             $3,848         $220       $3,628
Interest expense and financing costs      ($69,416)   ($204,773)    $135,357
Loss on disposal of fixed assets                       ($51,294)     $51,294
Relief of debt                            $103,876                  $103,876
Miscellaneous income                        27,157        6,034      $21,123
                                         ---------    ---------    ---------
Total                                      $65,465    ($249,813)    $315,278
                                         =========    =========    =========

                                       29
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         Cash and cash equivalents totaled $382,415 at December 31, 2003,
including $400,000 raised by issuance of the unsecured convertible promissory
notes in December 2003, a decrease of $64,418 from $446,833 at December 31,
2002. Most of the decrease came from cash used in operating activities and
reducing indebtedness.

         Net cash provided by operating activities was $77,238 in 2002 as
compared to net cash used in operating activities of $403,587 in 2003. Net cash
provided by operating activities in 2002 primarily represented increases in
accrued liabilities, the proceeds from the prior year's income taxes receivable
partially offset by the net loss for the period. Net cash used in 2003 operating
activities resulted primarily from our net loss.

         Net cash used in investing activities was $102,088 in 2002 and $22,104
in 2003. The purchase of pre-merger net assets of ImproveNet by eTech accounts
for $519,000 of the cash used in investing activities in 2002 offset by cash
acquired in the merger of $418,000. Net cash used in investing activities was
used to purchase property and equipment.

         Net cash provided by financing activities was $446,833 in 2002 and
$361,273 in 2003. Net cash provided by financing activities in 2002 was
primarily due to proceeds from the convertible notes payable and the sale of
eTech common stock partially offset by debt payments on capital lease
obligations, notes payable and the line of credit. Net cash provided by
financing activities in 2003 was primarily due to proceeds from the unsecured
convertible promissory notes issued in December 2003.

         We have continued to sustain losses for the past two years and have
negative working capital and negative net worth.

         During 2003 the Company procured contracts for software sales of its
products with existing customers. We look to increase sales volume of our
primary software products throughout 2004 and thereafter by adding new
customers. We anticipate increased revenues from the home improvement
information services segment as a result of increasing lead generation,
additional contractor participation in our membership network, and greater
efficiencies in our operations. We also intend to raise additional capital
either through a public or private offering of securities.

         The additional funds from continued software sales, home improvement
information services, and capital financing will be used to finance continued
operations and increase the Company's sales and marketing functions.

         Our operating losses have limited our ability to obtain vendor credit
or extended payment terms and bank financing on favorable terms; accordingly, we
depend on our cash and cash equivalent balances to fund our operations.

         As a result of the Merger, both revenue and operating expenses
increased significantly in 2004. Prior to the Merger, the ImproveNet business
operated at a significant loss. The ImproveNet business has been moved from
California to Arizona and has been integrated into the infrastructure of
eTechLogix, leveraging existing technical, marketing and administrative
personnel. We believe during year 2004 we will reach profitability.

         However, due to the significant level of current liabilities and the
history of operating losses, there is no assurance that our available cash
resources will be sufficient to meet our anticipated needs for operations and
capital expenditures during the next 12 months. We will strive to make ongoing
realignments, if required, to achieve positive cash flow with our existing cash
resources. We are additionally decreasing our marketing and other operating
expenditures to assist us in maintaining our available cash resources. We may
need to raise additional funds, however, if results of operations for 2004 do
not meet our expectations, or in order to develop new or enhance existing
services, to respond to competitive pressures or to acquire complementary
businesses, services or technologies. If we raise additional funds by selling
equity securities, the percentage ownership of our stockholders will be reduced.
We cannot be sure that additional financing will be available on terms favorable
to us, or at all. If adequate funds are not available on acceptable terms, our
ability to fund expansion, react to competitive pressures, or take advantage of
unanticipated opportunities would be substantially limited. If this occurred,
our business would be significantly harmed. We will continue to evaluate our
needs for funds based on our assessment of access to public or private capital
markets and the timing of our need for funds. Although we have no present
intention to conduct additional public equity offerings, we may seek to raise
these additional funds through private or public debt or equity financings.

         As a result of the above factors, among others, our auditors have
modified their opinion to our financial statements indicating there is
substantial doubt about our ability to continue as a going concern.

                                       30
<PAGE>

RECENT ACCOUNTING DEVELOPMENTS

         In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." SFAS No. 145 updates,
clarifies and simplifies existing accounting pronouncements, by rescinding SFAS
No. 4, which required all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item, net of any
related income tax effect. As a result, the criteria in APB No. 30 will now be
used to classify those gains and losses. Additionally, SFAS No. 145 amends SFAS
No. 13 to require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. Finally, SFAS No. 145 also makes technical
corrections to existing pronouncements. While those corrections are not
substantive in nature, in some instances, they may change accounting practice.
We adopted the provisions of SFAS No. 145 that amended SFAS No. 13, as required,
on May 15, 2002 for transactions occurring after such date with no material
impact on its financial statements. Our management currently does not expect
that the adoption of the remaining provisions of SFAS No. 145, as required, on
January 1, 2003 will have a material impact on its financial statements.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 was issued to address
the financial accounting and reporting for costs associated with exit or
disposal activities, unless specifically excluded. SFAS No. 146 requires that a
liability for a cost associated with a covered exit or disposal activity be
recognized and measured initially at its fair value in the period in which the
liability is incurred, except for a liability for one-time termination benefits
that is incurred over time. If employees are not required to render service
until they are terminated in order to receive the one-time termination benefits
or if employees will not be retained to render service beyond the minimum
retention period (as dictated by existing law, statute or contract, or in the
absence thereof, 60 days), a liability for the termination benefits shall be
recognized and measured at its fair value at the communication date. If
employees are required to render service until they are terminated in order to
receive the one-time termination benefits and will be retained to render service
beyond the minimum retention period, a liability for the termination benefits
shall be measured initially at the communication date based on the fair value of
the liability as of the termination date. The liability shall be recognized
ratably over the future service period. SFAS No. 146 also dictates that a
liability for costs to terminate an operating lease or other contract before the
end of its term shall be recognized and measured at its fair value when the
entity terminates the contract in accordance with the contract terms. A
liability for costs that will continue to be incurred under a contract for its
remaining term without economic benefit to the entity is to be recognized and
measured at its fair value when the entity ceases using the right conveyed by
the contract. SFAS No. 146 further dictates that a liability for other covered
costs associated with an exit or disposal activity be recognized and measured at
its fair value in the period in which the liability is incurred. Our management
currently does not expect that the adoption of SFAS No. 146, as required, on
January 1, 2003 will have a material impact on its financial statements.

         In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions." SFAS No. 147 requires that acquisitions of financial
institutions be accounted in accordance with SFAS Nos. 141 and 142. We adopted
SFAS No. 147 in October 2002, with no impact on its consolidated financial
statements.

         In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock
Based Compensation - Transition and Disclosure - an amendment of FASB Statement
No. 123." SFAS No. 148 amends SFAS No. 123 to provide methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation, as well as requiring prominent disclosure about the
method and effect of accounting for stock-based compensation. We adopted the
provisions of SFAS No. 145 as of December 31, 2002 with no material effect on
its consolidated financial statements

         In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," which clarifies the disclosure,
recognition, and measurement requirements related to certain guarantees. The
provisions related to recognizing a liability at the inception of the guarantee
for the fair value of the guarantor's obligations does not apply to product
warranties or to guarantees accounted for as derivative instruments. The
disclosure requirements are effective for financial statements issued after
December 15, 2002 and the recognition and measurement provisions apply on a
prospective basis to guarantees issued or modified after December 31, 2002. We
adopted the provisions of Interpretation No. 45 in December 2002, with no impact
on its consolidated financial statements.

         In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables." This issue addresses how revenue arrangements with multiple
deliverables should be divided into separate units of accounting and how the
arrangement consideration should be allocated to the identified separate
accounting units. Issue No. 00-21 is effective for fiscal periods beginning
after June 15, 2003. We do not expect the adoption of EITF 00-21 to have a
material impact on its financial position or results of operations.

         In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" (SFAS 150). This statement
affects the classification, measurement and disclosure requirements of the
following three types of freestanding financial instruments: 1) mandatory
redeemable shares, which the issuing company is obligated to buy back with cash
or other assets; 2) instruments that do or may require the issuer to buy back
some of its shares in exchange for cash or other assets, which includes put
options and forward purchase contracts; and 3) obligations that can be settled
with shares, the monetary value of which is fixed, tied solely or predominantly
to a variable such as a market index, or varies inversely with the value of the
issuers' shares. In general, SFAS 150 is effective for all financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 did not have an impact on the Company's consolidated
financial position or disclosures.

ITEM 7. FINANCIAL STATEMENTS

         Reference is made to the consolidated financial statements, the report
thereon and the notes thereto, and the supplementary data commencing at page F-1
of this Annual Report of Form 10-KSB, which financial statements, report, notes
and data are incorporated herein by reference.

                                       31
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         On January 13, 2003, PricewaterhouseCoopers LLP resigned as independent
accountants of ImproveNet, Inc. The reports of PricewaterhouseCoopers LLP on the
financial statements for the past two fiscal years contained no adverse opinion
or disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. However, the audit report for the financial
statements for the year ended December 31, 2001 contained an explanatory
paragraph in respect of substantial doubt about the Company's ability to
continue as a going concern. The resignation of PricewaterhouseCoopers LLP was
accepted by the board of directors. In connection with its audits for the two
most recent fiscal years and through January 13, 2003, there have been no
disagreements with PricewaterhouseCoopers LLP 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
PricewaterhouseCoopers LLP would have caused them to make reference thereto in
their report on the financial statements for such years. During the two most
recent fiscal years and through January 13, 2003, there have been no reportable
events (as defined in Regulation S-K Item 304(a)(1)(iv)).

         With the resignation of PricewaterhouseCoopers LLP as its principal
independent accountant, we engaged Semple & Cooper, LLP ("Semple") as the
Company's principal independent accountant. The Company's Board of Directors
approved the appointment of Semple as the Company's principal independent
accountants and auditors on January 15, 2003. During the two most recent fiscal
years and subsequent interim periods, the Company has not consulted with Semple
regarding (i) either the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements, or (ii) any matter that
was either the subject of disagreement on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures or a
reportable event (as defined in Item 304 (a) (1) (v) of Regulation S-K). Semple
has served as the principal independent accountant during the two most recent
fiscal years for eTechLogix, Inc. which is a wholly-owned subsidiary of
ImproveNet as a result of the merger transaction on December 23, 2002 and
described on Form 8-K filed by the Company on January 7, 2003.

ITEM 8A. CONTROLS AND PROCEDURES.

         The Company's management has responsibility for establishing and
maintaining adequate internal control over our financial reporting. Within the
90 days prior to the filing date of this report, the Company carried out an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. The
framework on which management's evaluation of our internal control over
financial reporting is based is a suitable, recognized control framework that is
established by a body or group that has followed due-process procedures,
including the broad distribution of the framework for public comment. This
evaluation was carried out under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer along
with the Company's Chief Financial Officer and Chief Accounting Officer. Based
upon that evaluation, the Company's Chief Executive Officer along with the
Company's Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company required to be included in the Company's
periodic SEC filings. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect internal
controls subsequent to the date the Company carried out its evaluation, and
there were no corrective actions with regard to significant deficiencies and
material weaknesses.

         Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed in Company
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include controls and procedures designed to ensure that information required to
be disclosed in Company reports filed under the Exchange Act is accumulated and
communicated to management, including the Company's Chief Executive Officer and
Chief Financial Officer as appropriate, to allow timely decisions regarding
required disclosure.
                                       32
<PAGE>
PART III

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

         Information concerning the directors and executive officers of
ImproveNet is set forth below:

         NAME                    AGE       POSITION
         ----                    ---       --------
         Jeffrey I. Rassas       41        Co-Chairman, Chief Executive Officer
         Homayoon J. Farsi       50        Co-Chairman, President & Acting CFO
         Naser Ahmad             50        Co-Chairman, Chief Technology Officer
         Ronald B. Cooper        49        Director
         Jay Stead               40        Director
         Jeffrey Perry           45        General Counsel & EVP, Mergers &
                                           Acquisitions

         The following is a brief summary of the directors and executive
officers including their business experience for at least the past five years.


NASER AHMAD

         Mr. Ahmad, 50, is the co-chairman, chief technology officer and a
co-founder of eTechLogix. He became chief technology officer, a director, and
co-chairman of ImproveNet on January 7, 2003. He has been active for over 25
years in the development of computer solutions for distribution and
manufacturing companies. Throughout his career, Mr. Ahmad has held technical
leadership positions with both entrepreneurial ventures as well as Fortune 100
companies including Caterpillar International, Inc., Sante Fe International and
Taylor Management Systems.

         In 1989, Mr. Ahmad and Mr. Farsi co-founded SysTech International,
Inc., a Texas corporation, which was the predecessor-in-interest to eTechLogix.
In 1994, SysTech International, Inc. was merged into an Arizona corporation
named First SysTech International, Inc. which changed its name to eTechLogix,
Inc. in 2000. Mr. Ahmad served as executive vice president and chief technology
officer of SysTech International, Inc. from 1989 to 1994 and has held the same
positions with eTechLogix since 1994.

         At Sante Fe International, Mr. Ahmad was a member of the task force for
evaluating and determining the next generation of application systems for the
organization. At Caterpillar, he was the software development manager and the
chief architect of the Company's enterprise resource planning (ERP) distribution
system.

         Mr. Ahmad has been instrumental in the development of technology
products throughout his career. He co-founded the National Institute of
Technology in Karachi, Pakistan, is a member of the Advisory council of the
Darul Islam University, Dhaka, Bangladesh and serves as a director of several
privately held U.S. and foreign corporations. Mr. Ahmad is a graduate of the
University of Karachi with a BA in Accounting and a postgraduate degree in
Computer Science.

HOMAYOON J. FARSI

         Mr. Farsi, 50, is the co-chairman, president and a co-founder of
eTechLogix. He became president, a director, and co-chairman of ImproveNet on
January 7, 2003. He has over 20 years experience as an entrepreneur in the
computer software industry. Mr. Farsi is knowledgeable concerning manufacturing,
distribution business processes and information systems and has been
instrumental in the development and launch of numerous software products
throughout his career. Mr. Farsi has held senior technical and operations
management positions with software and hardware companies including Taylor
Management Systems and Unisys, Inc.

                                       33
<PAGE>

         In 1989, Mr. Farsi and Mr. Ahmad co-founded SysTech International,
Inc., a Texas corporation, which was the predecessor-in-interest to eTechLogix.
In 1994, SysTech International, Inc. was merged into an Arizona corporation
named First SysTech International, Inc. which changed its name to eTechLogix in
2000. Mr. Farsi served as president of SysTech International, Inc. from 1989 to
1994 and has served as president of eTechLogix since 1994. Mr. Farsi has an MS
Degree in Computer Systems from the University of Salford, Manchester, England.

JEFFREY I. RASSAS

         Mr. Rassas, 41, has served as chief executive officer of eTechLogix
since October, 2001. He became chief executive officer, a director, and
co-chairman of ImproveNet on January 7, 2003. Mr. Rassas also helped launch and
fund two private Arizona companies, the TOLIS Group, Inc., a data back-up and
recovery software company supporting both the Linux and Unix operating systems,
and Channel Pros, Inc., a technology marketing and sales organization which
services clients across the country. Mr. Rassas founded EBIZ Enterprises, Inc.,
a Linux solution provider and computer cluster developer, in 1995. The common
stock of EBIZ Enterprises has been traded on the NASD Over-The-Counter Bulletin
Board. Mr. Rassas served as chief executive officer of EBIZ Enterprises from
1995 to October, 2000 and as its chairman of the board from 1995 until May 21,
2002. EBIZ Enterprises filed a voluntary petition to reorganize under Chapter 11
of the Bankruptcy Code on September 7, 2001. Its Plan of Reorganization was
confirmed on April 11, 2002, and became effective on May 21, 2002.

         Between 1989 and 1994, Mr. Rassas founded and operated The Wilsaac
Group, Inc. dba DLC Consulting, an office services outsourcing firm for large
corporations. The Wilsaac Group, Inc. was acquired by a division of Air Canada
in 1994. Mr. Rassas co-founded ITS Travel Group, Inc., in 1985 and was involved
in its management until it was sold in 1989. By the time of its sale, it had
become the third largest travel organization in Arizona. From 1982 to 1985, Mr.
Rassas held the position of Magnetics Design Engineer at CTM Magnetics.


RONALD B. COOPER

         Mr. Cooper, 49, has served as a director since September 1999 and as
chairman of the board of directors from August 2000 until January 7, 2003. He
served as chief executive officer and president of ImproveNet, Inc. from March
1999 until he stepped down from those positions on June 7, 2002. From July 1996
to March 1999, Mr. Cooper was president of Price Pfister, Black and Decker's
plumbing products division. From August 1992 to July 1996, Mr. Cooper was
president of three other Black and Decker divisions: Power Tool Accessories, PRC
Realty Systems and PRC Commercial Systems Group.


JAY STEAD

         Mr. Stead, 40, based in Auckland, New Zealand, became a director on
January 7, 2003. He is currently the managing director of Mokka Enterprises,
LLP, a technology-oriented private investment firm focused on emerging
companies, which he joined in 2001. From 1999 to 2000 Mr. Stead was the
President & CEO of Sagebrush Corporation, an educational software company, and
from 1994 to 1998 was a senior executive at Reynolds and Reynolds. In addition,
Mr. Stead has held key management positions with Allen-Bradley and McKinsey &
Company. His career includes general management, marketing and business
development roles across software, services, consulting, hardware and
manufacturing sectors.

         Mr. Stead holds a Bachelor of Science in Industrial Management from
Purdue University and received a Masters in Management from Northwestern's
Kellogg School of Management in 1989. Mr. Stead also serves on the board of
directors for MD Online and GolfLogix.


JEFFREY PERRY

         Mr. Perry, 45, has served as general counsel of eTechLogix since May
2002 and served as chief financial officer until December 2002. In January 2003,
he began his duties as executive vice-president mergers & acquisitions and
general counsel with ImproveNet. From October 2000 to April 2003 he has also
served as general counsel of EBIZ Enterprises, Inc., a Linux solution provider
and computer cluster developer. Shares of the common stock of EBIZ Enterprises
have been traded on the NASD Over-The-Counter Bulletin Board. Mr. Perry began
private law practice in 1988 and served as an investment manager and financial
advisor with Prudential Securities from 1997 to 2000. Mr. Perry previously
founded and held the position of president and principal financial officer for
several private companies involved in the development of proprietary consumer
sports products and sports themed gifts with distribution through a network of
national catalog companies.

         Mr. Perry holds business, political science, and law degrees from
Southern Methodist University. He holds law licenses in Arizona and Texas.

                                       34
<PAGE>

         None of the executive officers or directors of ImproveNet or eTechLogix
has, during the last five years, been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or has been a party to a
civil proceeding which resulted in a judgment, decree or final order enjoining
further violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws. All of the executive
officers and directors of ImproveNet and eTechLogix are citizens of the United
States.


AUDIT COMMITTEE FINANCIAL EXPERT

         The Company's Board of Directors has determined that Ronald B. Cooper
qualifies as an audit committee financial expert. Mr. Cooper has served in that
capacity since early 2003 and is independent. In addition, in January 2004, Alok
Mohan joined the Board of Directors and was seated as Chairman of the audit
committee. Mr. Mohan also qualifies as a financial expert and is also
independent.


SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         The Officers, Directors and those beneficially owning more than 10% of
small business registrant's class of equity securities registered under Section
12 of the Exchange Act, shall file reports of ownership and any change in
ownership with the Securities and Exchange Commission. Copies of these reports
are to be filed with the registrant.

         To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 2003, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that one
report, covering a single grant under the Company's 1999 Equity Incentive Plan
for each of the following, was filed late by Mr. Cooper, Mr. Stead and Mr.
Perry.

CODE OF ETHICS

         The Company has adopted a Code of Ethics that applies to our principal
executive officer, principal financial officer, and principal accounting officer
or controller and other personnel as set forth in the Code. The Code of Ethics
is included as Exhibit 14 to this report.


ITEM 10. EXECUTIVE COMPENSATION

         The following table sets forth the annual compensation paid by the
Company to certain of the Company's executive officers whose annual
compensation, including salary and bonus, exceeded $100,000 ("the Named
Executive Officers"). Note that the executive officers' employment during the
year of 2002 was solely as employees of eTechLogix, our wholly owned subsidiary.
The following table shows for the fiscal years ended December 31, 2001, 2002 and
2003 all compensation paid by ImproveNet, Inc. to Mssr. Rassas, Farsi and Ahmad
in all capacities:
<TABLE><CAPTION>

                           SUMMARY COMPENSATION TABLE
                                                                                   Long-Term Compensation
                                                                            ------------------------------------
                                              Annual Compensation                          Awards
                                       ----------------------------------   ------------------------------------
                                                             Other Annual    Restricted    Securities Underlying
Name and Principal Position    Year      Salary     Bonus    Compensation   Stock Awards      Options/SARS (#)
---------------------------    ----    ---------   -------   ------------   ------------   ---------------------
<S>                           <C>     <C>         <C>          <C>            <C>                  <C>
Jeffrey I. Rassas              2003    $ 174,166   $ --         $   --         $   --
Chief Executive Officer        2002    $  60,000   $ --(1)      $   --         $   --               --
                               2001    $     --    $ --         $   --         $   --               --

Homayoon J. Farsi              2003    $ 174,166   $ --         $   --         $   --
President and                  2002    $  67,500   $ --(1)      $   --         $   --               --
Acting CFO                     2001    $ 127,000   $ --(2)      $   --         $   --

Naser Ahmad                    2003    $ 174,166   $ --         $   --         $   --
Chief Technology Officer       2002    $  67,500   $ --(1)      $   --         $   --
                               2001    $ 127,500   $ --(2)      $   --         $   --               --
</TABLE>
---------------
   1.  Salary totaling $52,500 in 2002 was deferred and paid in 2003.
   2.  Salary totaling $47,000 in 2001 was deferred and paid 2002.

                                       35
<PAGE>

                        OPTION GRANTS IN LAST FISCAL YEAR

   Closing price on 12/31/03 was $0.12.


AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

<TABLE><CAPTION>
                                SHARES                      NUMBER OF SECURITIES    VALUE OF UNEXERCISED
                               ACQUIRED                    UNDERLYING UNEXERCISED       IN-THE-MONEY
                                  ON                       OPTIONS/SARS AT FY-END   OPTION/SARS AT FY-END
                               EXERCISE                       (#)EXERCISABLE/         ($)EXERCISABLE/
NAME                POSITION     (#)      VALUE REALIZED($)    UNEXERCISABLE          UNEXERCISABLE(1)
----                --------     ---      -----------------    -------------          ----------------
<S>                <C>           <C>            <C>           <C>                           <C>
Jay Stead           Director      0              0             106,111/13,889                0/0
                                          -----------------    --------------         ----------------
Ronald B. Cooper    Director      0              0             338,213/18,889                0/0
                                          -----------------    --------------         ----------------
</TABLE>


COMPENSATION OF DIRECTORS

         Directors currently receive no cash compensation from the Company for
their services as members of the Board or for attendance at committee meetings.
Members of the Board are reimbursed for some expenses in connection with
attendance at Board and committee meetings. Under the Company's 1999 Equity
Incentive Plan, each non-employee director is entitled to receive options to
purchase 100,000 shares of common stock for each year of service as a director
with an option to purchase an additional 50,000 shares of common stock for
chairman of the audit committee. For fiscal year 2003, Jay Stead and Ronald B.
Cooper, each received two grants of options to purchase a total of 120,000
shares of common stock.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table and footnotes set forth certain information
regarding the ownership of the common stock of ImproveNet as of March 30, 2004
by: (i) all those known by ImproveNet to be beneficial owners of more than five
percent of its common stock; (ii) each director of ImproveNet; and (iii) all
executive officers and directors of ImproveNet as a group. Unless indicated
below, the address for each listed stockholder is c/o ImproveNet, Inc., 10799 N.
90th Street, Suite 200 Scottsdale, AZ 85260.

                                                      NUMBER OF
                                                      SHARES OF
                                                     COMMON STOCK     PERCENT
                                                     BENEFICIALLY   BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNERS(1)                 OWNED        OWNED(1)
----------------------------------------             ------------   ------------

Jeffrey I Rassas                                       9,999,580       25.50%
Homayoon J. Farsi                                      9,669,580       24.66%

Naser Ahmad                                            9,685,580       24.70%
Jay Stead(2)                                           1,357,778        3.46%

Ronald B. Cooper(3)                                      339,778          *
All executive officers and directors as a group       31,052,296       79.19%
----------------
 * Less than one percent.

     1.   This table is based upon information supplied by officers, directors
          and principal stockholders and Forms 3, 4 and 5 as filed with the
          Securities and Exchange Commission (the "SEC"). Unless otherwise
          indicated in the footnotes to this table and subject to community

                                       36
<PAGE>

          property laws where applicable, ImproveNet believes that each of the
          stockholders named in this table has sole voting and investment power
          with respect to the shares indicated as beneficially owned. Applicable
          percentages are based on 39,210,315 shares outstanding on March 31,
          2004, adjusted as required by rules promulgated by the SEC. Such SEC
          rules require that shares of common stock subject to options or
          warrants that are currently exercisable or exercisable within 60 days
          of March 30, 2004 are deemed to be outstanding and to be beneficially
          owned by the person or entity holding the options or warrants but are
          not treated as outstanding for the purpose of computing the percentage
          ownership of any other person.

     2.   Includes 1,250,000 shares owned indirectly through Oxley Ventures,
          LLLP, and the right to directly acquire within 60 days, 7,778 shares
          at $0.12 per share and 100,000 at $0.15 per share upon the exercise of
          non-employee director options. Mr. Stead's family trust is a general
          partner of Mokka Enterprises Partnership, the general partner of Oxley
          Ventures, LLLP.

     3.   Includes 177,000 shares issuable at a per share exercise price of
          $0.25 pursuant to options that vest within 60 days and 55,000 shares
          issuable at a per share exercise price of $6.25,. Mr. Cooper retains a
          seat on the company's board of directors and has the right to acquire
          7,778 shares at $0.12 per share and 100,000 at $0.15 per share
          pursuant to non-employee director options that vest within 60 days.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         We subcontract a portion of our research and development to eTechLogix
Systems India Pvt. Ltd. and eTechLogix Systems Bangladesh Ltd., each owned
equally by Homayoon J. Farsi and Naser Ahmad, two of our officers and directors.
During the years ended December 31, 2003 and 2002, the Company incurred expenses
from these companies totaling approximately $102,000 and $38,000, respectively,
which is included in research and development expenses in the accompanying
financial statements.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a) The exhibits to this report are listed in the Exhibit Index at the
end of this report.

         (b) During the last quarter of the year ended December 31, 2003, we
filed no reports on Form 8-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

         For the fiscal year ending December 31, 2003, our Board of Directors
has selected Semple & Cooper, LLP as our independent auditors. In addition,
Semple & Cooper, LLP performed our audit for the fiscal year ended December 31,
2002. Fees paid for services rendered by Semple & Cooper, LLP are as follows:
<TABLE><CAPTION>

             AUDIT FEES     AUDIT RELATED FEES   TAX FEESOTHER FEES        TOTAL
<S>         <C>                 <C>                  <C>               <C>            <C>
YEAR 2002    $27,880.00          $0.00                $9,155.00         $42,546.00*    $79,581.00

YEAR 2003    $67,855.00          $0.00                $8,360.00          $2,030.00     $78,245.00
</TABLE>

* Other Fees incurred in 2002 by ImproveNet's wholly owned subsidiary eTechLogix
prior to the December 2002 while eTechLogix was a non reporting privately held
company.

         The functions and authority of the audit committee under its charter
with regard to the engagement of our auditors and the services to be rendered
are as follows:

     o    To recommend annually to the full Board the firm of certified public
          accountants to be employed by the Company as its independent auditors
          for the ensuing year.

     o    To review the engagement of the independent auditors, including the
          scope, extent and procedures of the audit and the compensation to be
          paid therefore, and all other matters the Committee deems appropriate.

     o    To review and approve all professional services provided to the
          Company by its independent auditors and consider the possible effect
          of such services on the independence of such auditors.

         The percentage of all other services rendered by our auditors other
than audit and audit related fees for fiscal year 2003 was 2.6%.


                                       37
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed, April 14, 2004 on
its behalf by the undersigned duly authorized.

                                          IMPROVENET, INC.
                                          (Registrant)

                                          By: /s/ JEFFREY I. RASSAS
                                              ------------------------
                                              Jeffrey I. Rassas
                                              CO-CHAIRMAN & CEO


                                POWER OF ATTORNEY

         Know All Persons By These Presents, that each person whose signature
appears below constitutes and appoints Jeffrey I. Rassas his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-KSB, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming our signatures as they may be signed by ours said attorney-in-fact
and any and all amendments to this Annual Report on Form 10-KSB.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-KSB has been signed by the following persons in
the capacities and on the dates indicated.

                                     By:   /s/ JEFFREY I. RASSaS
                                           -------------------------
                                           Jeffrey I. Rassas
                                           CO-CHAIRMAN & CEO

                                     By:   /s/ HOMAYOON J. FARSI
                                           -------------------------
                                           Homayoon J. Farsi
                                           CO-CHAIRMAN, PRESIDENT &
                                           ACTING CFO

                                      By:  /s/ NASER AHMAD
                                           -------------------------
                                           Naser Ahmad
                                           CO-CHAIRMAN & CTO

                                      By:  /s/ JAY STEAD
                                           -------------------------
                                           Jay Stead
                                           DIRECTOR

                                      By:  /s/ RONALD COOPER
                                           -------------------------
                                           Ronald Cooper
                                           DIRECTOR

                                      By:  /s/ ALOK MOHAN
                                           -------------------------
                                           Alok Mohan
                                           DIRECTOR


Date: April 14, 2004

                                       38
<PAGE>

                                    EXHIBITS

EXHIBIT
NUMBER                       DESCRIPTION OF DOCUMENT
------                       -----------------------

 2.1     Stock Purchase Agreement by and between the Registrant and The J.L.
         Price Corporation.(1)
 2.2     Asset Purchase Agreement by and between the Registrant and Contractor
         Referral Service, LLC.(1)
 2.3     Agreement and Plan of Merger by and between the Registrant, eTechLogix,
         Inc. and Etech Acquisition, Inc. dated July 30, 2002, as amended(2)
 2.4     Amendment No. 1 to Agreement and Plan of Merger dated October 1,
         2002(7)
 2.5     Amendment No. 2 to Agreement and Plan of Merger dated November 12, 2002
         (7)
 3.1     Fourth Amended and Restated Certificate of Incorporation of the
         Registrant.(1)
 3.2     Amended and Restated Bylaws of the Registrant.(1)
 4.1     Specimen Stock Certificate.(1)
10.1     Amended and Restated 1996 Stock Option Plan.(1)
10.2     Form of 1999 Equity Incentive Plan.(1)
10.3     Form of 1999 Employee Stock Purchase Plan.(1)
10.4     Commercial Office Lease by and between Florcor I Limited Partnership
         and the Registrant.(1)
10.5     Commercial Office Lease by and between Chestnut Bay LLC and the
         Registrant.(1)
10.6     Employment agreement by and between the Registrant and Ronald
         Cooper.(1)
10.7     Series A Preferred Stock and Warrant Purchase Agreement by and between
         the Registrant and certain investors of the Registrant dated June 30,
         1997.(1)
10.8     Series B Preferred Stock and Warrant Purchase Agreement by and between
         the Registrant and certain investors of the Registrant dated March 17,
         1998.(1)
10.9     Series C Preferred Stock Agreement by and between the Registrant and
         certain investors of the Registrant dated March 29, 1999.(1)
10.10    Series D Preferred Stock Purchase Agreement by and between the
         Registrant and certain investors of the Registrant dated September 10,
         1999.(1)
10.11    First Series E Preferred Stock Purchase Agreement by and between the
         Registrant and certain investors of the Registrant dated November 23,
         1999.(1)
10.12    Second Series E Preferred Stock Purchase Agreement by and between the
         Registrant and certain investors of the Registrant dated November 23,
         1999.(1)
10.13    Form of Warrant Purchase Agreement by and between the Registrant and
         certain investors of the Registrant dated December 7, 1999.(1)
10.14    Fourth Amended and Restated Voting Agreement by and between the
         Registrant and certain investors of the Registrant dated November 23,
         1999.(1)
10.15    Form of Indemnity Agreement by and between the Registrant and each of
         its directors and executive officers.(1)
10.16    Internet-based Service Agreement between the Registrant and Owens
         Corning dated October 1, 1999.(1)
10.17    Collaboration Agreement between the Registrant and E.I. du Pont de
         Nemours and Company dated December 3, 1999.(1)
10.18    Internet Development, Marketing and Distribution Agreement between the
         Registrant and General Electric Appliances dated September 10, 1999.(1)
10.19    Relationship Agreement between the Registrant and Microsoft HomeAdvisor
         dated December 7, 1999.(1)
10.20    Agreement between the Registrant and CompleteHome Operations, Inc.
         dated December 13, 1999.(1)
10.21    Form of 1996 Stock Option Plan Grant Notice.(1)
10.22    Form of 1999 Equity Incentive Plan Stock Option Agreement.(1)
10.23    Form of Warrant to Purchase an aggregate of 420,000 shares of common
         stock.(1)
10.24    Form of Warrant to Purchase an aggregate of 10,000 shares of common
         stock.(1)
10.25    Form of Warrant to Purchase an aggregate of 842,596 shares of common
         stock.(1)
10.26    Form of Warrant to Purchase an aggregate of 96,400 shares of Series A
         preferred stock.(1)
10.27    Form of Warrant to Purchase an aggregate of 47,009 shares of Series B
         preferred stock.(1)
10.28    Form of Warrant to purchase 47,167 shares of Series C preferred
         stock.(1)
10.29    Form of Warrant to purchase an aggregate of 326,000 shares of Series D
         preferred stock.(1)
10.30    Fourth Amended and Restated Investor Rights Agreement by and between
         the Registrant and certain investors of the Registrant dated November
         23, 1999.(1)
10.33    Commercial Office Lease by and between Bennett Center, LLC and the
         Registrant.(3)
10.34    Improvenet, Inc. Stock Repurchase Agreement dated July 12, 2001.(4)

                                       39
<PAGE>

10.35    Services Agreement dated December 16, 2002 regarding contractor
         matching operation (confidential treatment requested)(7)
14.1     Code of Ethics
16.1     Concurrence of PricewaterhouseCoopers LLP, former independent
         accountants, regarding resignation.(5)
23.1     Consent of PricewaterhouseCoopers LLP, Independent Accountants.(3)
24.1     Power of Attorney.(3)
31.1     Certification of CEO pursuant to Exchange Act Rules 13a-14 and 15d-14.
31.2     Certification of Acting CFO pursuant to Exchange Act Rules 13a-14 and
         15d-14.
32.1     Certification of CEO pursuant to 18 U.S.C. Section 1350
32.2     Certification of Acting CFO pursuant to 18 U.S.C. Section 1350
99.1     Tender Offer Statement and Offer to Purchase All Shares of Common
         Stock, as amended.(6)

------------------
(1) Incorporated by reference to the Registrant's Registration Statement on Form
    S-1 (No. 333-92873), as amended.

(2) Incorporated by reference to the Registrant's Form 8-K filed on August 6,
    2002.

(3) Incorporated by reference to the Registrant's Form 10-K for the fiscal year
    ended December 31, 2000.

(4) Incorporated by reference to the Registrant's Form 10-K for the fiscal year
    ended December 31, 2001.

(5) Incorporated by reference to the Registrant's Form 8-K filed on January 21,
    2003.

(6) Incorporated by reference to the Registrant's Schedule TO with exhibits and
    amendments thereto and eTechLogix's Schedule TO with exhibits and amendments
    thereto.

(7) Incorporated by reference to the Registrant's Form 10-K for the fiscal year
    ended December 31, 2002.




                                       40
<PAGE>









The following consolidated financial statements are filed as part of this
report:


                                                                            PAGE
                                                                            ----

Independent Accountants' Report ...........................................  F-1

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2003 and 2002 ..............  F-2

Consolidated Statements of Operations for the years ended
December 31, 2003 and 2002 ................................................  F-4

Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 2003 and 2002 ............................  F-5

Consolidated Statements of Cash Flows for the years ended
December 31, 2003 and 2002 ................................................  F-6

Notes to Consolidated Financial Statements ................................  F-8



<PAGE>












                  ============================================


                                IMPROVENET, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS


                  ============================================









<PAGE>
                         INDEPENDENT ACCOUNTANTS' REPORT




To the Stockholders and Board of
Directors of ImproveNet, Inc.

We have audited the accompanying consolidated balance sheets of ImproveNet, Inc.
as of December 31, 2003 and 2002, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the years then
ended. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe 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 financial position of ImproveNet, Inc. as
of December 31, 2003 and 2002, and the results of its consolidated operations,
stockholders' equity (deficit), and its cash flows for the years then ended, 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 1 to the
financial statements, the Company incurred net losses and had an accumulated
deficit and negative working capital as of December 31, 2003 and 2002. These
factors raise 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 1. The
accompanying consolidated financial statements do not include any adjustments to
the amounts and classifications of assets or liabilities that might result
should the Company be unable to continue as a going concern.

/s/ Semple & Cooper, LLP

Certified Public Accountants

Phoenix, Arizona
March 26, 2004



                                       F-1
<PAGE>
                                IMPROVENET, INC.
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2003 AND 2002




                                     ASSETS


<TABLE>
<CAPTION>

                                                        2003           2002
                                                     ----------     ----------
<S>                                                  <C>            <C>
Current Assets:
    Cash and cash equivalents                        $  382,415     $  446,833
    Accounts receivable, net                            330,472        329,657
    Receivable from stock transfer agent                     --        594,715
    Other receivables                                        --          1,000
    Prepaid expenses                                      7,833         55,054
    Costs and estimated earnings in excess of
      billings on uncompleted software contracts             --          4,100
                                                     ----------     ----------

        Total Current Assets                            720,720      1,431,359

Property and equipment, net                              99,800        157,994
                                                     ----------     ----------

        Total Assets                                 $  820,520     $1,589,353
                                                     ==========     ==========
</TABLE>










                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements

                                       F-2
<PAGE>
                                IMPROVENET, INC.
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                           DECEMBER 31, 2003 AND 2002




                      LIABILITIES AND STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>

                                                                       2003              2002
                                                                   ------------      ------------
<S>                                                                <C>               <C>
Current Liabilities:
    Notes payable - current portion                                $         --      $     12,592
    Obligations under capital leases - current portion                   17,824            15,843
    Line of credit                                                       65,619            77,755
    Accounts payable                                                    378,679           221,096
    Accrued compensation                                                  1,329           194,082
    Accrued customer claims                                             305,588           137,080
    Accrued furniture lease buyout - current portion                     60,000           216,376
    Accrued merger and tender offer redemption liabilities                   --         2,378,029
    Deferred revenue                                                     49,292            35,958
    Billings in excess of costs and estimated earnings
      on uncompleted software contracts                                      --            89,250
    Other liabilities and accrued expenses                              129,877            23,453
                                                                   ------------      ------------

        Total Current Liabilities                                     1,008,208         3,401,514

Long-Term Liabilities:
    Notes payable - long-term portion                                   400,000               605
    Obligations under capital leases - long-term portion                 10,900            26,275
    Accrued furniture lease buyout - long-term portion                    7,500                --
                                                                   ------------      ------------

        Total Liabilities                                             1,426,608         3,428,394
                                                                   ------------      ------------

Stockholders' Deficit:
    Common stock, $.001 par value, 100,000,000 shares
      authorized, 39,210,315 and 53,124,290 shares issued and
      outstanding at December 31, 2003 and 2002, respectively            53,124            53,124
    Additional paid-in capital                                          539,770           482,570
    Accumulated deficit                                              (1,198,982)         (412,794)
                                                                   ------------      ------------

                                                                       (606,088)          122,900
    Less:  Treasury stock subscribed, at cost,
             underlying 13,913,975 shares                                    --        (1,961,941)
                                                                   ------------      ------------

        Total Stockholders' Deficit                                    (606,088)       (1,839,041)
                                                                   ------------      ------------

        Total Liabilities and Stockholders' Equity                 $    820,520      $  1,589,353
                                                                   ============      ============
</TABLE>

                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements

                                       F-3
<PAGE>
                                IMPROVENET, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


<TABLE>
<CAPTION>
                                                                 2003              2002
                                                             ------------      ------------
<S>                                                          <C>               <C>
Revenues                                                     $  3,223,587      $    777,257
Cost of Revenues                                                1,787,449           240,394
                                                             ------------      ------------

Gross Profit                                                    1,436,138           536,863

Selling, General and Administrative Expenses                    1,888,746           855,282
Research and Development Expenses                                 399,045            86,801
                                                             ------------      ------------

Loss from Operations                                             (851,653)         (405,220)

Other Revenues (Expenses):
    Interest income                                                 3,848               220
    Interest expense and financing costs                          (69,416)         (204,773)
    Loss on disposal of fixed assets                                   --           (51,294)
    Relief of Debt                                                103,876
    Miscellaneous revenues                                         27,157             6,034
                                                             ------------      ------------

Loss from Operations before Income Taxes and
Extraordinary Gain                                               (786,188)         (655,033)

Benefit for Income Taxes                                               --                --
                                                             ------------      ------------

Loss before Extraordinary Gain                                   (786,188)         (655,033)

Extraordinary Items:
    Gain on Merger with eTech                                          --           361,357
                                                             ------------      ------------

Net Loss                                                     $   (786,188)     $   (293,676)
                                                             ============      ============

Net earnings (loss) per common share, basic and diluted:
    Loss before extraordinary gain on Merger with eTech      $      (0.02)     $      (0.02)
    Extraordinary gain on Merger with eTech                  $         --      $       0.01
                                                             ------------      ------------
Net loss per common share                                    $      (0.02)     $      (0.01)
                                                             ============      ============

Weighted average common shares: basic and diluted              39,210,315        28,909,573
                                                             ============      ============
</TABLE>

                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements

                                       F-4
<PAGE>
                                IMPROVENET, INC.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                                                                          TOTAL
                         COMMON STOCK                TREASURY STOCK         ADDITIONAL      TREASURY      RETAINED    STOCKHOLDERS'
                   -------------------------   -------------------------      PAID-IN         STOCK       EARNINGS        EQUITY
                      SHARES        AMOUNT        SHARES        AMOUNT        CAPITAL      SUBSCRIBED    (DEFICIT)      (DEFICIT)
                   -----------   -----------   -----------   -----------    -----------   -----------   -----------    -----------
<S>                <C>           <C>           <C>           <C>            <C>           <C>           <C>            <C>
Balance at
December 31, 2001        3,600        10,000         6,400      (110,000)            --            --      (119,118)      (219,118)

Conversion of a
related party note
payable for stock        1,800        12,000            --            --             --            --            --         12,000

Effect of Merger
with eTech          53,118,890        31,124        (6,400)      110,000        482,570            --            --        623,694

Tender offer of
common shares               --            --            --            --             --    (1,961,941)           --     (1,961,941)

Net loss                    --            --            --            --             --            --      (293,676)      (293,676)
                   -----------   -----------   -----------   -----------    -----------   -----------   -----------    -----------

Balance at
December 31, 2002   53,124,290        53,124            --            --        482,570    (1,961,941)     (412,794)    (1,839,041)

Detachable warrants
issued with
convertible debt            --            --            --            --         57,200            --            --         57,200

Payment of treasury
stock subscribed            --            --            -             --             --     1,961,941            --      1,961,941

Net loss                    --            --            --            --             --            --      (786,188)      (786,188)
                   -----------   -----------   -----------   -----------    -----------   -----------   -----------    -----------

Balance at
December 31, 2003   53,124,290   $    53,124            --            --    $   539,770            --  $(1,198,982)   $  (606,088)
                   ===========   ===========   ===========   ===========    ===========   ===========   ===========    ===========
</TABLE>



                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements

                                       F-5
<PAGE>
                                IMPROVENET, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


<TABLE><CAPTION>
                                                                      2003            2002
                                                                  ------------    ------------
<S>                                                               <C>             <C>
Cash flows from operating activities:
Net Loss                                                          $   (786,188)   $   (293,676)
    Adjustments to reconcile net loss to net cash provided by
    operations:
        Depreciation and amortization                                   80,298          95,695
        Loss on disposal of property and equipment                          --          51,294
        Consulting fees paid through the issuance of stock                              25,000
        Relief of Debt                                                (103,876)
        Treasury stock subscribed                                    1,961,941
        Extraordinary gain                                                  --        (361,357)
        Financing costs paid through the issuance of warrants           57,200          81,318
        Interest expense recognized through the conversion of
          convertible notes payable                                         --          17,376
    Changes in assets and liabilities:
        Accounts receivable, net                                          (815)        (33,158)
        Other receivables                                                1,000          (1,000)
        Prepaid expenses                                                47,221          43,910
        Income tax refund receivable                                                   134,180
        Receivable from stock transfer agent                           594,715
        Costs and estimated earnings in excess of billings on
          uncompleted software contracts                                 4,100          (4,100)
        Accounts payable                                               157,583          98,488
        Accrued compensation                                          (192,753)         60,082
        Accrued merger and tender offer redemption liabilities      (2,378,029)
        Accrued customer claims                                        168,508           6,634
        Accrued furniture lease buyout                                 (45,000)         67,563
        Deferred revenue                                                13,334          (6,042)
        Billings in excess of costs and estimated earnings on
          uncompleted software contracts                               (89,250)         89,250
        Income taxes payable                                                --              --
        Other liabilities and accrued expenses                         106,424           5,781
                                                                  ------------    ------------
    Net cash provided by (used in) operating activities               (403,587)         77,238
                                                                  ------------    ------------

Cash flows from investing activities:
    Purchase of property and equipment                                 (22,104)         (1,372)
    Purchase of the pre-merger net assets of ImproveNet by
      eTech through the Merger with eTech                                   --        (519,000)
    Cash and cash equivalents acquired in the Merger with eTech             --         418,284
                                                                  ------------    ------------
    Net cash used in investing activities                              (22,104)       (102,088)
                                                                  ------------    ------------
</TABLE>

                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements

                                       F-6
<PAGE>
                                IMPROVENET, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


<TABLE><CAPTION>
                                                              2003              2002
                                                          ------------      ------------
<S>                                                       <C>               <C>
Cash flows from financing activities:
    Proceeds from convertible notes payable                    400,000           250,000
    Proceeds from eTech Common Stock sale                           --           250,000
    Repayment of notes payable                                 (13,197)          (19,526)
    Payments on capital lease obligations                      (13,394)          (46,363)
    Line of credit, net                                        (12,136)            5,942
                                                          ------------      ------------
        Net cash provided by financing activities              361,273           440,053
                                                          ------------      ------------

Net increase (decrease) in cash and cash equivalents           (64,418)          415,203
Cash and cash equivalents at beginning of year                 446,833            31,630
                                                          ------------      ------------
Cash and cash equivalents at end of year                  $    382,415      $    446,833
                                                          ============      ============


Supplemental Disclosure of Cash Flow Information:

    Cash paid during the year for:
        Interest                                          $     16,189      $     81,080
                                                          ============      ============


        Income taxes                                      $         --      $         --
                                                          ============      ============

    Non-Cash Activity:
        Conversion of a related party note payable
        into Common Stock                                 $         --      $     12,000
                                                          ============      ============

        Assumption of notes payable on automobiles by
        related parties                                   $         --      $     80,444
                                                          ============      ============

        Conversion of convertible notes payable into
        Common Stock                                      $         --      $    250,000
                                                          ============      ============

        Transfer of capital lease obligations to
        current assets                                    $         --      $    148,813
                                                          ============      ============

        Extraordinary gain recognized on the Merger
        with eTech                                        $         --      $    361,357
                                                          ============      ============

        Relief of Debt recognized on furniture lease
        settlement                                        $    103,876      $         --
                                                          ============      ============

        Financing costs paid through the issuance of
        warrants                                          $     57,200      $         --
                                                          ============      ============
</TABLE>

                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements

                                       F-7
<PAGE>
                                IMPROVENET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

ImproveNet, Inc. ("ImproveNet" or the "Company") was incorporated in California
in January 1996 and was reincorporated in Delaware in September 1998. The
Company is headquartered in Scottsdale, Arizona. The Company is a source for
home improvement information services for homeowners, service providers and
suppliers nationwide.

eTechLogix, Inc. ("eTech"), a wholly-owned subsidiary of ImproveNet, licenses,
installs and maintains its proprietary e-commerce software products to companies
primarily operating in the building material industry. eTech was formerly known
as First Systech International, Inc. and was originally incorporated in March
1989 in the State of Texas. In July of 1994, eTech relocated to the State of
Arizona and incorporated itself under the laws of the State of Arizona.

BASIS OF PRESENTATION AND MERGER WITH ETECH

On December 23, 2002, eTech merged into Etech Acquisition, Inc., (the "Merger")
an Arizona corporation and wholly owned subsidiary of ImproveNet. Through this
merger, the former shareholders of eTech acquired a controlling interest in
ImproveNet and accordingly, the Merger is accounted for as a reverse merger,
with eTech being the accounting acquirer of ImproveNet. Accordingly, the
financial statements present the historic financial position, operations and
cash flows of eTech for all periods presented with the December 31, 2002 balance
sheet adjusted to consolidate and reflect the fair values assigned to the
acquisition balance sheet of ImproveNet. ImproveNet had de minimus operations
from December 23, 2002 to December 31, 2002. Refer to Note 8, Merger with eTech,
for additional information and disclosures related to the Merger.

GOING CONCERN

The Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has continued to sustain losses for
the past two years and has negative working capital and negative net worth.

During 2003 the Company procured contracts for sales of its software products
with existing clients. The Company looks for increased sales volume of their
primary software products throughout 2004 and thereafter by adding new clients.
The Company also anticipates increased revenues from the home improvement
information services segment as a result of increasing lead generation,
recruiting contractors to the ImproveNet membership network, and through
increased efficiencies in operations. The Company also intends to raise
additional capital either through a public or private offering of securities.

The additional funds from continued software sales and capital financing will be
used to finance continued operations and increase the Company's sales and
marketing functions.

The financial statements do not include any adjustments to reflect the possible
future effects of the recoverability and classification of assets or the amounts
and classifications of liabilities that may result from the uncertainty of the
Company's ability to continue as a going concern.

PRINCIPLES OF CONSOLIDATION

As discussed above, the consolidated financial statements include the accounts
of eTech for all periods presented and ImproveNet from the effective date of the
Merger. All material intercompany accounts and transactions have been eliminated
in the consolidated financial statements.

                                       F-8
<PAGE>
PERVASIVENESS OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid instruments purchased with an initial
maturity of three (3) months or less to be cash and cash equivalents.

CONCENTRATIONS OF RISK

The Company maintains its cash balances in a financial institution. Deposits not
to exceed $100,000 are insured by the Federal Deposit Insurance Corporation
(FDIC). At December 31, 2003 and 2002, the Company had unissued cash of
approximately $291,000 and $388,000 respectively.

The Company extends credit to customers, which results in accounts receivable
arising from its normal business activities. The Company does not require
collateral or other security to support financial instruments subject to credit
risk. The Company routinely assesses the financial strength of its customers
and, based upon factors surrounding the credit risk of those customers, believes
that its accounts receivable credit risk exposure is limited. The Company's
customers are not concentrated in any specific geographic region, but are
concentrated in the building material and home improvement service industries.

ACCOUNTS RECEIVABLE

The Company follows the allowance method of recognizing uncollectible accounts
receivable. The allowance method recognizes bad debt expense as a percentage of
accounts receivable based on a review of the individual accounts outstanding and
the Company's prior history of uncollectible accounts receivable. As of December
31, 2003, the Company has established an allowance for uncollectible accounts
receivable of approximately $275,000. As of December 31, 2002, the Company had
established an allowance for uncollectible accounts receivable of approximately
$37,000. The Company does not record interest income on delinquent accounts
receivable balances until it is received.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost less accumulated depreciation.
Depreciation of property and equipment is computed by the straight-line method
at rates adequate to allocate the cost of applicable assets over their expected
useful lives. Maintenance and repairs that neither materially add to the value
of the property and equipment nor appreciably prolong its life are charged to
expense as incurred. Betterments or renewals are capitalized when incurred.
Amortization of leasehold improvements is computed using the shorter of the
lease term or the expected useful life of the assets.

Estimated useful lives are as follows:

           Equipment                                  5 Years
           Furniture and fixtures                   5-7 Years
           Automobiles                                5 Years
           Leasehold improvements                     5 Years

The Company is the lessee of equipment and furniture and fixtures under various
capital lease agreements expiring through July, 2005. Assets under the capital
lease agreements are recorded at the lower of the present value of the minimum
lease payments or the fair value of the assets. The assets are being depreciated
over their estimated productive lives.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

The Company capitalizes software development costs in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed." Capitalization of
computer software development costs begins upon the establishment of

                                       F-9
<PAGE>
technological feasibility for the Company's computer software products.
Technological feasibility is generally based upon the achievement of a detail
program design free of high-risk development issues. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized computer software development costs requires considerable judgment
by management with respect to certain external factors, including, but not
limited to, technological feasibility, anticipated future gross revenues,
estimated economic life and changes in software and hardware technology.
Amortization of capitalized computer software development costs commences when
the related products become available for general release to customers.
Amortization is provided on a product-by-product basis and is the greater of the
amount computed using (a) the ratio that current gross revenues for a product
bear to the total of current and anticipated future gross revenues for that
product or (b) the straight-line method over the remaining estimated economic
life of the product.

During the years ended 2003 and 2002, the Company did not capitalize any
software development costs, as amounts related to internal software development
that could be capitalized under this statement were immaterial.

REVENUE RECOGNITION

SOFTWARE DEVELOPMENT AND SALES FOR THE BUILDING MATERIALS INDUSTRY SEGEMENT

The Company recognizes revenue in accordance with SOP 97-2, "Software Revenue
Recognition." This SOP provides guidance on revenue recognition of software
transactions. The Company recognizes revenue principally from the development
and licensing of its software and from consulting and maintenance services
rendered in connection with such development and licensing activities.
Maintenance contract revenue is recognized on a straight-line basis over the
life of the respective contract. The Company also derives revenue from the sale
of third party hardware and software which is recognized based on the terms of
each contract. Consulting revenue is recognized when the services are rendered.
No revenue is recognized prior to obtaining a binding commitment from the
customer.

Revenue from fixed price software development contracts, which require
significant modification to meet the customer's specifications, is recognized on
the percentage-of-completion method using the units-of-work-performed method to
measure progress towards completion. Revisions in cost estimates and recognition
of losses on these contracts are reflected in the accounting period in which the
facts become known. Revenue from software package license agreements without
significant vendor obligations is recognized upon delivery of the software.
Contract terms may provide for billing schedules that differ from revenue
recognition and give rise to costs and estimated earnings in excess of billings
on uncompleted software contracts, and billings in excess of costs and estimated
earnings on uncompleted software contracts.

Deferred revenue represents revenue billed and collected but not yet earned.

The cost of maintenance and research and development related revenues, which
consist principally of staff payroll and applicable overhead, are expensed as
incurred.

HOME IMPROVEMENT SERVICES SEGMENT

Revenues in the home improvement services segment are derived from two sources:
Service revenues and marketing revenues.

SERVICE REVENUES:
-----------------
Service revenues include lead fees and win fees from ImproveNet's contractor
matching service, enrollment fees from new contractors joining the ImproveNet
network, and project revenues from those jobs in which ImproveNet acts as the
contractor of record. Lead fees are recognized at the time a homeowner and
contractor are matched by the Company and the service provider becomes obligated
to pay such fee. Win fees are recognized at the time the service provider or the
homeowner notifies the Company that a job has been sold and the service provider
becomes obligated to pay such fee. Enrollment fees from service providers are
recognized as revenue ratably over the expected period they participate in our

                                      F-10
<PAGE>
contractor matching service, which is initially estimated to be between one and
two years. Payments of enrollment fees received in advance of providing services
are deferred until the period the services are provided. This deferred revenue
is included in current liabilities. Project revenues are recognized on the
completed contract method. The Company establishes a refund reserve at the time
of revenue recognition based on the Company's historical experience.

MARKETING REVENUES:

Marketing revenues include the sale of banner, SmartLeads and other Web site
advertisements. Revenues are generally derived from short-term advertising
contracts in which the Company typically guarantees that a minimum number of
impressions will be delivered to its Web site visitors over a specified period
of time for a fixed fee. Cash marketing revenues from banner, button and other
Web site advertisements are recognized at the lesser of the amount recorded
ratably over the period in which the advertising is delivered or the percentage
of guaranteed impressions delivered. SmartLeads revenues are also paid for in
cash and are recognized when the SmartLeads have been delivered to the customer.
Cash marketing is recognized when the Company has delivered the advertising,
evidence of an agreement is in place and fees are fixed, determinable and
collectible.

ADVERTISING COSTS

The Company recognizes advertising expenses in accordance with SOP 93-7,
"Reporting on Advertising Costs." As such, the Company expenses advertising
costs as they are incurred. Advertising expense totaled approximately $24,000
and $11,000 for the years ended December 31, 2003 and 2002, respectively.

BUSINESS SEGMENTS

The Company follows SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information." SFAS No. 131 requires publicly held companies to
report financial and other information about key revenue segments of an entity
for which this information is available and is utilized by the chief operating
decision maker. The Company operates in two segments: Software development and
sales for the building materials industry and home improvement information
services. As is discussed in the "Basis of Presentation" portion of this
footnote, the Company's consolidated statements of operations and cash flows do
not currently reflect operations for the home improvement services segment as
this segment was acquired effective December 31, 2002 through a merger between
ImproveNet and eTech. Refer to Note 8, Merger with eTech for additional
information and disclosures related to the Merger.

The following table highlights our revenue for the years ended December 31, 2003
and 2002.

                                    2003           2002    # CHANGE
                                 ----------    ----------  --------
Revenues:
eTechLogix software revenues     $  548,042    $  777,257    (29)%

ImproveNet service revenues       2,675,545          --       --
                                 ----------    ----------
Total Revenues                   $3,223,587    $  777,257    315%
                                 ==========    ==========



The following table highlights our cost of revenues for the years ended December
31, 2003 and 2002.

                                    2003           2002    # CHANGE
                                 ----------    ----------  --------
Cost of Revenues:
Software (eTechLogix)            $  109,609    $  240,394    (54)%

ImproveNet service revenues       1,677,840          --       --
                                 ----------    ----------
Total Revenues                   $1,787,449    $  240,394    644%
                                 ==========    ==========
INCOME TAXES

Deferred income taxes are provided for on an asset and liability method, whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax basis.

Deferred tax assets are reduced by a valuation allowance, when in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.

COMPREHENSIVE LOSS

The Company follows SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. There was no
difference between the Company's net loss and its comprehensive loss for any
periods presented in the accompanying consolidated financial statements.

STOCK-BASED COMPENSATION PLANS

The Company has adopted the disclosure requirements of SFAS No. 123, "Accounting
for Stock-Based Compensation" and SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB

                                      F-11
<PAGE>
Statement No. 123." The Company continues to recognize compensation costs using
the intrinsic value based method described in Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees."

For 2003 and 2002, there were no differences between net loss and net loss per
share as reported in these consolidated financial statements and on a pro forma
basis, as if the fair value based method described in SFAS No. 123 had been
adopted.

                                    YEAR ENDED
                             ------------------------
                                2003          2002
                             ----------    ----------
Net Loss:
As reported                  $ (786,188)   $ (293,676)
                             ----------    ----------
Pro Forma                      (814,488)     (293,676)
Loss Per Share
    As Reported                   (0.02)        (0.01)
                             ----------    ----------
    Pro Forma                $    (0.02)   $    (0.01)
                             ==========    ==========

NET EARNINGS (LOSS) PER COMMON SHARE

Basic net loss per common share is calculated by dividing net loss by the
average number of outstanding common shares during the period. Diluted net loss
per common share is calculated by adjusting the average number of outstanding
common shares assuming conversion of all potentially dilutive stock options and
warrants under the treasury stock method. For all fiscal years presented,
potentially dilutive securities, including stock options and warrants, were
excluded from the calculation of diluted net loss per common share, as their
effect would have been anti-dilutive.

For purposes of reporting shares outstanding and weighted average shares
outstanding, the financial statements reflect the conversion of eTech common
shares as if the Merger (recapitalization) were effective for all periods
presented.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of the Company's financial instruments included in current
assets and current liabilities approximated their respective fair values at each
balance sheet date due to the immediate or short-term maturity of these
financial instruments. The fair value of long-term notes payable and lease
obligations is based on current rates at which the Company could borrow funds
with similar remaining maturities.

RECLASSIFICATIONS

Certain items have been reclassified to be consistent with current presentation.
The reclassifications have no effect on previously disclosed net loss or
stockholders' equity (deficit).

RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." SFAS No. 145 updates, clarifies
and simplifies existing accounting pronouncements, by rescinding SFAS No. 4,
which required all gains and losses from extinguishment of debt to be aggregated
and, if material, classified as an extraordinary item, net of any related income
tax effect. As a result, the criteria in APB No. 30 will now be used to classify
those gains and losses. Additionally, SFAS No. 145 amends SFAS No. 13 to require
that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. Finally, SFAS No. 145 also makes technical
corrections to existing pronouncements. While those corrections are not
substantive in nature, in some instances, they may change accounting practice.
The Company adopted the provisions of SFAS No. 145 that amended SFAS No. 13, as
required, on May 15, 2002 for transactions occurring after such date with no
material impact on its financial statements. The Company's management currently
does not expect that the adoption of the remaining provisions of SFAS No. 145,
as required, on January 1, 2003 will have a material impact on its financial
statements.

                                      F-12
<PAGE>
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 was issued to address the
financial accounting and reporting for costs associated with exit or disposal
activities, unless specifically excluded. SFAS No. 146 requires that a liability
for a cost associated with a covered exit or disposal activity be recognized and
measured initially at its fair value in the period in which the liability is
incurred, except for a liability for one-time termination benefits that is
incurred over time. If employees are not required to render service until they
are terminated in order to receive the one-time termination benefits or if
employees will not be retained to render service beyond the minimum retention
period (as dictated by existing law, statute or contract, or in the absence
thereof, 60 days), a liability for the termination benefits shall be recognized
and measured at its fair value at the communication date. If employees are
required to render service until they are terminated in order to receive the
one-time termination benefits and will be retained to render service beyond the
minimum retention period, a liability for the termination benefits shall be
measured initially at the communication date based on the fair value of the
liability as of the termination date. The liability shall be recognized ratably
over the future service period. SFAS No. 146 also dictates that a liability for
costs to terminate an operating lease or other contract before the end of its
term shall be recognized and measured at its fair value when the entity
terminates the contract in accordance with the contract terms. A liability for
costs that will continue to be incurred under a contract for its remaining term
without economic benefit to the entity is to be recognized and measured at its
fair value when the entity ceases using the right conveyed by the contract. SFAS
No. 146 further dictates that a liability for other covered costs associated
with an exit or disposal activity be recognized and measured at its fair value
in the period in which the liability is incurred. The Company's management
currently does not expect that the adoption of SFAS No. 146, as required, on
January 1, 2003 will have a material impact on its financial statements.

In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions." SFAS No. 147 requires that acquisitions of financial
institutions be accounted in accordance with SFAS Nos. 141 and 142. The Company
adopted SFAS No. 147 in October 2002, with no impact on its consolidated
financial statements.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123 to provide methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation, as well as requiring prominent disclosure about the
method and effect of accounting for stock-based compensation. The Company
adopted the provisions of SFAS No. 148 as of December 31, 2002 with no material
effect on its consolidated financial statements

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," which clarifies the disclosure, recognition, and
measurement requirements related to certain guarantees. The provisions related
to recognizing a liability at the inception of the guarantee for the fair value
of the guarantor's obligations does not apply to product warranties or to
guarantees accounted for as derivative instruments. The disclosure requirements
are effective for financial statements issued after December 15, 2002 and the
recognition and measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002. The Company adopted the
provisions of Interpretation No. 45 in December 2002, with no impact on its
consolidated financial statements.

In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables." This issue addresses how revenue arrangements with multiple
deliverables should be divided into separate units of accounting and how the
arrangement consideration should be allocated to the identified separate
accounting units. Issue No. 00-21 is effective for fiscal periods beginning
after June 15, 2003. The Company does not expect the adoption of EITF 00-21 to
have a material impact on its financial position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS 150). This statement affects the classification,
measurement and disclosure requirements of the following three types of
freestanding financial instruments: 1) mandatory redeemable shares, which the
issuing company is obligated to buy back with cash or other assets; 2)
instruments that do or may require the issuer to buy back some of its shares in
exchange for cash or other assets, which includes put options and forward
purchase contracts; and 3) obligations that can be settled with shares, the
monetary value of which is fixed, tied solely or predominantly to a variable
such as a market index, or varies inversely with the value of the issuers'
shares. In general, SFAS 150 is effective for all financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. The adoption of SFAS
150 did not have an impact on the Company's consolidated financial position or
disclosures.

NOTE 2 - SOFTWARE CONTRACTS IN PROGRESS

At December 31, 2003, the Company did not have any contracts in progress that
resulted in costs and estimated earnings in excess of billings or billings in
excess of costs and estimated earnings on uncompleted software contracts.

NOTE 3 - PROPERTY AND EQUIPMENT

As of December 31, 2003 and 2002, property and equipment consist of the
following:

                                      F-13
<PAGE>
                                                    2003              2002
                                                ------------      ------------

Equipment                                       $    193,686      $    185,892
Furniture and fixtures                               234,123           231,985
Leasehold improvements                                12,171                --
                                                ------------      ------------
                                                     439,980           417,877
Less:  accumulated depreciation                     (340,180)         (259,883)
                                                ------------      ------------
                                                $     99,800      $    157,994
                                                ============      ============

NOTE 4 - LINE OF CREDIT

The Company has an unsecured $95,000 line of credit agreement with a bank. The
agreement calls for interest at the bank's prime rate plus 2.75%, (6.75% at
December 31, 2003) and is due on demand. The Company had outstanding balances on
the line of credit of approximately $66,000 and $78,000 as of December 31, 2003
and 2002, respectively.

NOTE 5 - NOTES PAYABLE

In December 2003, ImproveNet, Inc. completed a private placement of $400,000 of
8% unsecured convertible promissory notes, each with a maturity of December 15,
2005, issued to accredited investors.

The notes will accrue 8% interest per year payable quarterly commencing March
15, 2004. The principal of each note and all accrued but unpaid interest is
convertible into shares of the Company's common stock at the rate of five shares
for each one dollar of debt represented by each note. Proceeds received from the
issuance of the notes will be used for working capital and general corporate
purposes.

As of December 31, 2003 and 2002, notes payable consist of the following:

                                                    2003              2002
                                                ------------      ------------
9.00% note payable to a bank, monthly payments
of $1,100 including principal and interest,
secured by equipment, due May 2004              $        417      $     13,197

8.00% unsecured convertible promissory note to
accredited investors, due December 2005              400,000                --
                                                ------------      ------------
                                                     400,417            13,197
Less: current maturities                                (417)          (12,592)
                                                ------------      ------------
                                                $    400,000      $        605
                                                ============      ============


The long-term portion of notes payable as of December 31, 2003 of $400,000 is
due in 2005.

NOTE 6 - COMMITMENTS

CAPITAL LEASES

The Company leases phone equipment through 2005 under capital leases. The
following is an analysis of leased property under these capital leases:

                                      F-14
<PAGE>
                                                         DECEMBER 31,
                                                ------------------------------
                                                    2003              2002
                                                ------------      ------------
Capitalized cost                                $     72,259      $     72,259
Less: accumulated depreciation                       (54,244)          (39,792)
                                                ------------      ------------
Net carrying value                              $     18,015      $     32,467
                                                ============      ============


Depreciation expense on the equipment under the capital leases was approximately
$14,000 and $15,000 for the years ended December 31, 2003 and 2002,
respectively.

The following is a schedule of future minimum lease payments under the capital
leases described above, together with the present value of the net minimum lease
payments:

Year Ended
December 31,
------------
   2004                                               20,530
   2005                                               11,976
                                                ------------

Total minimum lease payments                          32,506
Less: imputed interest                                (3,782)
                                                ------------

Present value of net minimum lease payments           28,724
Less: current portion                                (17,824)
                                                ------------
Long-term portion                               $     10,900
                                                ============

The interest rates under the capital lease obligations range from approximately
13% to 14% per annum, and are imputed based on the lessor's implicit rate of
return at the inception of the lease.

During 2001, the Company ceased making payments under the terms of a furniture
lease agreement. This lease is being accounted for as a capital lease as of
December 31, 2001. During 2002, the Company decided to allow the leasing company
to obtain a judgment in the amount of $216,376. Accordingly, during 2002, the
Company has reclassified the total principal due under the furniture lease from
obligations under capital leases to accrued furniture lease buyout on the
accompanying balance sheets. The Company has adjusted the accrual for the amount
due the leasing company based on the amount of the judgment. The relief of debt
recognized in the first quarter 2003 of $103,876 is attributable to a favorable
settlement of a liability under the furniture lease agreement.

OPERATING LEASES

On May 1, 2000, the Company entered into a lease agreement for its operating
facility in Scottsdale, Arizona. The lease is with Apple Investments, LLC, a
Company wholly owned by two of the Company's officers. Rent expense under the
lease was approximately $10,000 and $102,000 for the years ended December 31,
2002 and 2001, respectively.

On January 31, 2002, the Company terminated the related party lease agreement
and entered into a new operating lease agreement with an unrelated third party
that calls for monthly payments of $4,060 expiring in March, 2003. Rent expense
under this agreement for the year ended December 31, 2002 was approximately
$45,000. Future minimum lease payments under the lease through March 2003 are
approximately $12,000.

In connection with the termination of the related party lease agreement, the
Company expensed the net carrying value of certain leasehold improvements of
approximately $66,000.

                                      F-15
<PAGE>
On June 1, 2003 the Company entered into a lease agreement for its operating
facility in Scottsdale, Arizona. The new operating lease agreement expires in
July, 2005. Rent expense under this agreement for the year ended December 31,
2003 was approximately $21,000. The future minimum lease payments under the
lease for the year ended December 31, 2003 are approximately $97,000.

NOTE 7 - RELATED PARTY TRANSACTIONS

RELATED PARTY NOTE PAYABLE

During 2001, the Company borrowed a total of $12,000 from a shareholder of a
related corporation under the same common control as that of the Company. During
the year ended December 31, 2002, this amount was converted to 1,800 shares of
Common Stock of eTech, which was converted to 10,000,000 Common Shares of
ImproveNet at the time of the Merger.

As described in Note 8, Merger with eTech, during 2002, eTech entered into
subordinated convertible notes payable. An aggregate of $30,000 of the $100,000
subordinated convertible notes payable issued during August 2002 were to
officers of eTech.

RELATED PARTY FACILITY LEASE

From May 1, 2001 to January 31, 2002, the Company leased office space for its
corporate headquarters under an operating lease from Apple Investments, a
company wholly owned by two of the Company's officers (Refer to Note 6,
Commitments).

ROYALTY FEE REVENUES

Included in revenues are royalty fees that were recognized by the Company from
Smart Fusion, Inc. ("Smart Fusion") a company wholly owned by two of the
Company's officers. The Company recognized royalty fees from Smart Fusion in the
amounts of approximately $285,000 and $26,000 for the years ended December 31,
2002 and 2001, respectively. The fees are based on a percentage of sales that
Smart Fusion generated as a result of sales of the Company's software products.
No royalty fees were recognized for 2003, as the license agreement to sell the
Company's software products expired.

RESEARCH AND DEVELOPMENT

The Company subcontracts a portion of its research and development to companies
wholly owned by two of the officers of the Company. During the years ended
December 31, 2003 and 2002, the Company incurred expenses from these companies
totaling approximately $102,000 and $38,000, respectively, which is included in
research and development expenses in the accompanying financial statements.

ACCRUED OFFICER SALARIES PAYABLE

For cash management purposes, some of the Company's officers have elected to
defer their regular salary payments. Total amounts deferred by these officers
are approximately $0, $190,000 and $134,000 at December 31, 2003, 2002 and 2001,
respectively and are included in accrued compensation in the accompanying
balance sheets.

NOTE 8 - MERGER WITH ETECH

OVERVIEW

On December 23, 2002, eTech merged with eTech Acquisition, Inc., an Arizona
corporation and wholly-owned subsidiary of ImproveNet, that was created during
2002 to merge eTech and ImproveNet. This Merger occurred pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated July 30, 2002. As
consideration for this merger, eTech paid $500,000 to ImproveNet and incurred
$19,000 in costs directly related to the merger. At the time of the Merger, each
outstanding share of eTech Common Stock, no par value per share, was converted
into the right to receive and became exchangeable for 5,555.555556 shares of
ImproveNet Common Stock, par value $.001 per share. A total of 35,417,750 shares
of ImproveNet common stock were issued in the Merger to eleven (11) different
shareholders of eTech. Through

                                      F-16
<PAGE>
the merger, the former directors of eTech collectively received 30,310,740
shares of ImproveNet Common Stock and as a result, acquired control of the
Company.

Un-expired outstanding options to purchase eTech Common Stock were converted, on
the same vesting schedule, into options to purchase a number of shares of
ImproveNet Common Stock equal to the number of shares of eTech Common Stock that
could have been purchased under such option multiplied by 5,555.555556, at a
price per share of ImproveNet Common Stock equal to the per share exercise price
of $0.05 per share. Options to acquire 788,889 shares of ImproveNet Common Stock
were issued in the Merger as a result of these outstanding options, of which,
222,222 had vested as of the date of the Merger and carried an exercise price of
$0.05 per share.

Warrants to purchase 1,500,000 shares of ImproveNet were issued as a result of
the Merger. These warrants were issued in conjunction with subordinated
convertible notes payable, as discussed below.

TENDER OFFER

Under the terms of the Merger Agreement, the Company agreed to present a cash
tender offer ("Tender Offer") to pre-merger shareholders of ImproveNet. The
price per share was based in part on ImproveNet's available cash balance at the
closing of the merger. The Tender Offer was available from the time of the
merger through January 2, 2003.

Prior to the closing of the merger, ImproveNet deposited approximately
$2,557,000 with its stock transfer agent for payments to be made under the
Tender Offer. In conjunction with the Tender Offer, the Company disbursed a
total of approximately $1,962,000 to various pre-merger ImproveNet shareholders
in January 2003 resulting in the acquisition of 13,913,975 treasury shares in
January 2003. Funds remaining with the stock transfer agent in excess of
disbursements of approximately $595,000 are classified as receivable from stock
transfer agent on the December 31, 2002 balance sheet.

CONVERSION OF SUBORDINATED CONVERTIBLE NOTES PAYABLE

During July 2002, eTech issued an aggregate of $150,000 of subordinated
convertible notes payable to two accredited investors. The notes are secured by
substantially all of the Company's assets and are subordinated to the eTech's
9.00% note payable to a bank (Refer to Note 5, Notes Payable). In conjunction
with the issuance of these subordinated convertible notes payable, eTech also
issued one-year warrants to purchase an aggregate of 1,500,000 shares of
ImproveNet at a purchase price of $0.15 per share. The subscription of the
warrants is expressly conditioned upon the closing of the Merger. The Company
expensed approximately $81,000 in connection with these warrants to recognize
the fair value of the warrants.

During August 2002, eTech issued an aggregate of $100,000 of subordinated
convertible notes payable to accredited investors and officers of eTech (refer
to Note 7, Related Party Transactions). The notes are secured by substantially
all of eTech's assets and are subordinated to the $150,000 of aggregate
subordinated notes payable discussed above and to the 9.00% note payable to bank
(Refer to Note 5, Notes Payable).

All of the subordinated convertible notes payable described above bear interest
at a rate of 10.00% per annum and are due two years after the date of issue,
provided they are not converted prior to this date. The notes are convertible
into Common Shares of eTech in whole, or in part, at the option of the lender at
any time during the term of the note at a rate of one share for every
$555.5555556 of debt converted. The notes will automatically be converted if
there is a transfer of more than 50% of the voting control of the Company, in
one transaction or a series of transactions with ImproveNet directly or by
merger or consolidation in which the existing shareholders of eTech do not
directly retain more than 50% of the voting control of eTech, or a sale of all
or substantially all assets of eTech to ImproveNet or one of ImproveNet's
subsidiaries. The shares of eTech that will be received by the note holders if
automatic conversion occurs will be converted to shares of ImproveNet using the
same conversion rate as all other eTech shares converted in a merger
transaction.

The proceeds of the subordinated notes payable of $250,000 were to be used for a
portion of a $500,000 deposit with ImproveNet. This deposit was made prior to
the Merger and in accordance with the Merger Agreement.

                                      F-17
<PAGE>
ACCOUNTING FOR THE MERGER

The Company accounted for this merger in accordance with SFAS No. 141, "Business
Combinations." As discussed above, the former shareholders of eTech acquired a
controlling interest in the Company, accordingly, the transaction has been
accounted for as a reverse merger and the total consideration given by eTech of
$519,000 has been allocated to the fair values of the pre-merger assets and
liabilities of ImproveNet. At the time of the acquisition, the fair value of the
net assets of ImproveNet was $361,351 in excess of the consideration given by
eTech after all applicable reductions of amounts that otherwise would have been
assigned to the acquired assets were considered. This excess is reported in the
statement of operations as an extraordinary gain.

A summary of the amounts assigned to the assets and liabilities of ImproveNet at
the time of the merger is as follows:

Consideration provided                                                  519,000

Assets
  Cash and cash equivalents                                $ 418,284
  Accounts receivable                                        293,924
  Receivable from stock transfer agent                       594,715
  Prepaid expenses and other current assets                   98,964
                                                           ---------
              Allocation to assets                                   (1,405,887)

Liabilities
  Accounts payable                                           109,442
  Accrued merger and tender offer redemption liabilities   2,378,029
                                                           ---------
              Allocation to liabilities                               2,487,471

Allocation to treasury stock subscribed                              (1,961,941)
                                                                     ----------
Extraordinary gain recognized                                          (361,357)
                                                                     ==========

NOTE 9 - STOCKHOLDERS' EQUITY

MERGER WITH ETECH

Refer to Note 8, Merger with eTech, for information related to the Merger with
eTech.

SALE OF ETECH COMMON STOCK

During October 2002, eTech issued an aggregate of 450 shares of eTech Common
Stock to accredited investors resulting in proceeds of $250,000. In conjunction
with this sale, eTech distributed 45 shares of its common stock to consultants
who assisted in the Common Stock sale and recognized financing expenses of
$25,000 related to the services performed. At the time of the Merger in December
2002, all 495 shares described above were converted into shares of ImproveNet at
a rate of 5,555.555556 per share of eTech Common Stock.

The proceeds of the eTech stock sale of $250,000 were to be used for a portion
of a $500,000 deposit with ImproveNet. This deposit was made prior to the Merger
and in accordance with the Merger Agreement.

COMMON STOCK OPTIONS

Prior to the Merger on May 1, 2002, eTech issued 142 common stock options to an
employee. The options vesting schedule is as follows: 10 options on June 1, 2002
and 5 options on July 1, 2002 and each succeeding month thereafter until
September 1, 2004 when all options shall be vested. The options expire on May 1,
2012 and have an exercise price of $277.78 per share. At the time of the Merger,
these options were converted to options to purchase a number of shares of
ImproveNet Common Stock equal to the number of shares of eTech Common Stock that
could have been purchased under such options multiplied by 5,555.555556, at a
price per share of ImproveNet Common Stock equal to the per share exercise price
of $.05 per share.
                                      F-18
<PAGE>
Subsequent to the Merger, the Company retained ImproveNet's already existing
stock option plans. These plans consist of the following:

1996 STOCK OPTION PLAN

Under the Company's 1996 Stock Option Plan, as amended, the Company may issue
incentive stock options or non-statutory stock options to purchase up to
2,700,000 shares of common stock. Incentive stock options may be granted to
employees at exercise prices not lower than fair market value at the date of
grant, as determined by the Board of Directors. Non-statutory stock options may
be granted to employees, directors and consultants, at exercise prices not lower
than 85% of fair market value at the date of grant, as determined by the Board
of Directors. The Board also has the authority to set the term of the options up
to a maximum of ten years. Options granted generally vest over four years.
Unexercised options expire three months after termination of employment with the
Company.

1999 EQUITY INCENTIVE PLAN

The Company's Board of Directors adopted the 1999 Equity Incentive Plan (the
"Incentive Plan") on December 3, 1999 under which 1,300,000 shares have been
reserved for issuance. The number of shares reserved under the Incentive Plan
will automatically increase on January 1 of each year by the lesser of 4% of the
total number of shares outstanding or 1,300,000 shares. The Board of Directors
implemented a program of automatic option grants to each non-employee director
such that each non-employee director will receive options to purchase 20,000
shares of common stock upon commencement of service as a director, which will
vest monthly over three years and 5,000 shares annually thereafter, which will
vest monthly over twelve months.

EMPLOYEE STOCK PURCHASE PLAN

The Company's Board of Directors adopted the Employee Stock Purchase Plan (the
"Purchase Plan") on December 3, 1999 under which 300,000 shares have been
reserved for issuance. The Purchase Plan was effected upon the effective date of
the Company's initial public offering ("IPO"). The number of shares reserved
under the Purchase Plan will automatically increase on January 1 of each year by
the lesser of an amount equal to 1% of the total number of shares outstanding,
or 300,000 shares. Under the Purchase Plan, eligible employees may purchase
common stock valued at the lesser of $25,000 or 15% of their compensation. The
purchase price per share will be 85% of the common stock fair value at the lower
of certain plan defined dates. The Purchase Plan was suspended on June 29, 2001.

A summary of stock option activity is as follows:



                                      F-19
<PAGE>
                                                                WEIGHTED
                                              NUMBER OF          AVERAGE
                                               SHARES        EXERCISE PRICE
                                            ------------      ------------
Outstanding - January 1, 2002                         --      $         --

Options granted by eTech                             142            277.78
Effect of eTech Merger
    - conversion of eTech options
    - reversal of eTech options                     (142)          (277.78)
    - conversion of eTech options                788,889              0.05
    - recognition of ImproveNet options
      existing prior to the merger               304,102              2.29

Outstanding - December 31, 2002                1,092,991      $       0.67

Options granted                                1,780,000              0.17
Options exercised                                     --
Options forfeited during 2003                   (867,000)            (4.15)
                                            ------------
Outstanding - December 31, 2003                2,005,991      $       0.31
                                            ============


As of December 31, 2003, there were 5,286,809 shares available for grant under
the various stock option and incentive plans described above.

The following table summarizes information with respect to stock options
outstanding at December 31, 2003:

                      Options Outstanding               Options Exercisable
            --------------------------------------    -----------------------
                             Weighted
                             Average      Weighted                   Weighted
                            Remaining     Average                    Average
Exercise       Number      Contractual    Exercise       Number      Exercise
 Price      Outstanding    Life (Years)    Price      Outstanding     Price
--------    -----------    -----------    --------    -----------    --------
$   0.05        788,889        8.4        $   0.05        555,558    $   0.05
$   0.12         40,000        9.1        $   0.12         12,222    $   0.12
$   0.15        540,000        9.1        $   0.15        200,000    $   0.15
$   0.20        400,000        9.9        $   0.20             --    $   0.20
$   0.25        177,102        5.3        $   0.25        177,102    $   0.25
$   6.25         60,000        6.3        $   6.25         55,000    $   6.25
            -----------                               -----------
              2,005,991                   $   0.31        999,882    $   0.45
            ===========                               ===========


FAIR VALUE DISCLOSURES

The fair value of each option granted by the Company during 2003 and 2002 has
been estimated on the date of grant using the minimum value method with the
following assumptions:

                                      F-20
<PAGE>
                                                     2003              2002
                                                 ------------      ------------
Weighted average fair values                     $       0.10      $       0.10

Assumptions:
      Risk - free interest rate                         3.00%             4.30%
      Expected lives                                 10 years           4 years
      Dividend yield                                       --                --
      Volatility                                      146.00%           138.00%


COMMON STOCK WARRANTS

The Company issued warrants to approved finders of the participating accredited
investors in conjunction with the private placement completed in December 2003.
These warrants have an exercise price of $0.20 and expire in December 2005.
Compensation expense related to the issuance of these warrants was $57,200.

A summary of common stock warrant activity is as follows:

                                                                     WEIGHTED
                                                   NUMBER OF          AVERAGE
                                                    SHARES        EXERCISE PRICE
                                                 ------------      ------------
Outstanding - January 1, 2002                              --      $         --

Effect of eTech Merger
   - grant of eTech warrants contingent
     on the occurrence of the merger                1,500,000              0.15
   - recognition of ImproveNet warrants
     existing prior to the Merger                   1,267,596              8.98

Outstanding - December 31, 2002                     2,767,596      $       4.19

Warrants issued                                     2,370,000              0.16
Warrants exercised                                         --
Warrants expired                                    1,500,000              0.15
                                                 ------------
Outstanding - December 31, 2003                     2,370,000      $       3.23
                                                 ============










                                      F-21
<PAGE>
The following table summarizes warrants outstanding at December 31, 2003:


    Number of         Exercise           Term              Expiration
      Shares            Price          (Years)                Date
    ---------         --------         -------         ------------------
    1,500,000         $   0.15            1.00         December 23, 2004
      200,000         $   0.10            1.50         June 27, 2005
      150,000         $   0.25            1.75         September 25, 2005
      500,000         $   0.16            2.00         December 4, 2005
       20,000         $   0.16            2.00         December 12, 2005
    ---------
    2,370,000
    =========


NOTE 10 - INCOME TAXES

The Company accounts for income taxes using an asset and liability approach.
Deferred income taxes arise from timing differences resulting from revenues and
costs reported for financial and tax reporting purposes in different periods. In
addition, a valuation allowance is recognized if it is more likely than not that
some or all of the deferred income tax assets will not be realized. A valuation
allowance is used to offset the related net deferred income tax assets due to
uncertainties of realizing the benefits of certain net operating losses.

Significant components of the Company's deferred income tax assets are as
follows:

                                                         DECEMBER 31,
                                                ------------------------------
                                                    2003              2002
                                                ------------      ------------
Deferred Income Tax Assets:
   Allowance for doubtful accounts              $    116,000      $     16,000
   Excess of book over tax depreciation              (12,000)          (27,000)
   Accrued officer's compensation                         --                --
   Federal net operating loss carryforwards          960,000           790,000
   State net operating loss carryforwards            108,000            68,000
                                                ------------      ------------
Total deferred income tax asset                    1,172,000           847,000
Valuation allowance                               (1,172,000)         (847,000)
                                                ------------      ------------
Net deferred income tax asset                   $         --      $         --
                                                ============      ============



At December 31, 2003 and 2002, the Company had state net operating loss
carryforwards of approximately $1,346,000 and $843,000, respectively which
expire through 2008. At December 31, 2003, the Company had a federal net
operating loss of approximately $2,825,000, which expire at various times
through 2023.

Due to the Merger with eTech, ImproveNet's pre-merger net operating losses are
limited in use subsequent to the merger. The amount of net operating losses that
can be used on an annual basis for the next twenty years is based on the value
of ImproveNet at the time of the merger and the adjusted applicable federal
long-term rate.

NOTE 11 - RETIREMENT PLAN

Effective April 16, 1997, the Company adopted a 401(k) retirement plan.
Employees are eligible to participate in the plan after four (4) months of
service. Salary deferral may range from 1% to 15%. The Company matches 100% of
the amounts deferred by employees, up to 6% of an employee's annual
compensation. The Company matched contributions totaling approximately $0, and
$1000 for the years ended December 31, 2002 and 2001 respectively.

                                      F-22
<PAGE>
Effective November 1, 2003 amended the 401(k) retirement plan. The Company
provides a 401(k) retirement plan, which allows participating employees to elect
to contribute up to 90% of their gross compensation. The 401(k) plan is subject
to certain government-mandated restrictions which limit the amount of each
employee's contribution. Employees are eligible to participate 90 days after
their date of hire. The Company will not make a matching contribution at this
time. The Company matched contributions totaling approximately $0 for the year
ended December 31, 2003.

NOTE 12 - CONTINGENCIES

As of December 31, 2003 and 2002, the Company had various pending claims arising
from former customer disputes. The Company intends to vigorously defend these
claims and expects to prevail in all cases. In conjunction with the defense of
these claims, the Company has accrued approximately $306,000 and $137,000 as of
December 31, 2003 and 2002, respectively, which represents the Company's best
estimate of future costs associated with defending the claims.

NOTE 13 - SERVICE AGREEMENT

The Company entered into an agreement with a third party service provider to
operate and manage the contractor matching operation of ImproveNet's home
improvement services segment. The agreement commenced on the date of the Merger,
has a term of two years, is cancelable by the Company with 90 days written
notice and cancelable by the service provider with 180 days written notice.

The agreement calls for the Company to remit, on a weekly basis, 25% of
collected revenues related to the contractor matching function that the service
provider manages and operates. On a monthly basis, the Company is required to
reconcile total revenues related to the service agreement. The Company is
required to pay the service provider an additional 2.5% of monthly revenues in
excess of $400,000 but less than $500,000 and an additional 5% of revenues
greater than $500,000. Subsequent to December 31, 2003 the service agreement was
terminated (See Note 15).

NOTE 14 - CONCENTRATIONS

During 2002, the Company had four customers that accounted for 69% of the
Company's revenues (Customer A - 25%, Customer B - 19%, Customer C - 14% and
Customer D - 11%). During 2001, the Company had one customer (Customer A) that
accounted for 71% of the Company's revenues. During 2003, the Company did not
have a concentration.

NOTE 15 - SUBSEQUENT EVENTS

Our customer service and operations for the service provider matching service
are performed under terms of a services agreement with a Canadian corporation in
Nova Scotia, Canada which provides for termination without cause upon 180 days
notice by the Canadian corporation. In January 2004, the Canadian corporation
provided written notice to us of termination of the services agreement. We have
staffed our Scottsdale, Arizona offices for the customer service and operations
for the service provider matching service. In late March 2004, the transition of
our customer service and operations was made to our Scottsdale, Arizona offices.
It is unclear if the transition has been implemented smoothly or if the customer
service and operations will be performed adequately in the new location. There
is an element of goodwill associated with the customer relationship aspect of
the customer service center and it is unclear if this will be maintained through
this transition. We have experienced some disruption in customer support,
collections of accounts receivable and revenues.


                                      F-23