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

                               AMENDMENT NO. 1 TO
                                   FORM 10-QSB

                                   (Mark One)
               [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2001

               [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
                                THE EXCHANGE ACT

                       For the transition period from to

                           Commission File No. 0-30440

                              THE AUXER GROUP, INC.
                 (Name of Small Business Issuer in Its Charter)

                                    Delaware
                        (State or Other Jurisdiction of
                         Incorporation or Organization)

                                   22-3537927
                                (I.R.S. Employer
                              Identification No.)



               12 Andrews Drive, West Paterson, New Jersey 07424
              (Address of Principal Executive Offices) (Zip Code)

                                 (973) 890-4925
                (Issuer's Telephone Number, Including Area Code)

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

                    Yes   X      No

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 18, 2001, the Company
had 131,475,066 shares of Common Stock outstanding, $0.001 par value.

<PAGE>

                          Index to Financial Statements
                              The Auxer Group, Inc.

<TABLE>
<S>                                           <C>
Accountant's Report                            2

Consolidated Balance Sheets                    3-4

Consolidated Statement of Income
 and Retained Earnings                         5

Consolidated Statement of Cash Flows           6

Notes to Consolidated Financial
 Statements                                    7-15

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Item 2.  Changes in Securities.

Item 3.  Defaults Upon Senior Securities.

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

Item 5.  Other Information

Item 6. Exhibits and Reports of Form 8-K. None

Signatures

</TABLE>

<PAGE>

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements:


                              THE AUXER GROUP, INC.

                              FINANCIAL STATEMENTS

                          Index to Financial Statements

                              The Auxer Group, Inc.
<TABLE>
<CAPTION>
                                                                                 Page
<S>                                                                              <C>
         Accountant's Report                                                     F-2

         Consolidated Balance Sheets                                             F-3-4

         Consolidated Statement of Accumulated Deficit                           F-5

         Consolidated Statement of Cash Flows                                    F-6

         Notes to Consolidated Financial Statements                              F-7-17
</TABLE>

<PAGE>

                         Independent Accountant's Report

To the Board of Directors
of The Auxer Group, Inc.
West Paterson, NJ 07424


We have reviewed the accompanying balance sheet of The Auxer Group, Inc. and
consolidated subsidiaries as of March 31, 2001 and the related statements of
income, retained earnings and cash flows for the three months ended March 31,
2001 and March 31, 2000. These financial statements are the responsibility of
the company's management.

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

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

KALOSIEH, SHACKIL & MEOLA, CPAs PA
Fair Lawn, New Jersey

May 8, 2001

<PAGE>


                              THE AUXER GROUP, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 2001
                                   (UNAUDITED)

                                     Assets
<TABLE>
Current assets
<S>                                                             <C>
       Cash                                                       $ 120,442

       Accounts receivable (net of allowances
       $65,223 in 2000)                                           1,888,690

       Inventory                                                  1,947,448

       Prepaid expenses                                              77,825
                                                       ---------------------
       Total current assets                                       4,034,405
                                                       ---------------------
Property and Equipment

       Vehicles                                                      39,536

       Furniture and fixtures                                        23,329

       Machinery and equipment                                      669,829

       Leasehold improvements                                         2,121
                                                       ---------------------

                                                                    734,815

       Less:  accumulated depreciation                             (135,053)
                                                       ---------------------

       Property and equipment (Net)                                 599,762
                                                       ---------------------
Other assets

       Security deposit                                             180,481

       Other receivables                                             74,388

       Goodwill (net of amortization of $84,694)                    762,245
                                                       ---------------------
       Total other assets                                         1,017,114
                                                       ---------------------
Total assets                                                    $ 5,651,281
                                                       =====================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-3

<PAGE>

                              THE AUXER GROUP, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 2001
                                   (UNAUDITED)

                      Liabilities and Stockholders' Equity
<TABLE>
Current liabilities
<S>                                                            <C>
       Accounts payable and accrued expenses                   $ 2,488,520

       Credit line                                                  30,618

       Deferred sales                                              952,578

       Notes payable                                               756,460

       Notes payable-shareholders                                   99,837
                                                       --------------------
Total current liabilities                                        4,328,013

Long-term liabilities

       Notes payable, less current maturities                        2,807

       Notes payable-convertible debt                              911,685
                                                       --------------------

       Total long-term liabilities                                 914,492
                                                       --------------------
Total liabilities                                                5,242,505

Stockholders' equity

       Capital stock - authorized 1,000,000,000 shares             126,447
       $.001 par value per share, 126,437,030 shares
       outstanding

       Preferred stock - authorized 25,000,000 shares                2,750
       $.001 par value per share, 2,750,000 shares
       outstanding

       Additional paid in capital                                9,860,378

       Accumulated deficit                                      (9,580,799)
                                                       --------------------
Total stockholders' equity                                         408,776
                                                       --------------------
Total liabilities and stockholders' equity                     $ 5,651,281
                                                       ====================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-4

<PAGE>

                              THE AUXER GROUP, INC.
             CONDENSED CONSOLIDATED STATEMENT OF ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
                                                           Three Months Ended
                                               March 31, 2001              March 31, 2000
<S>                                                  <C>                          <C>
Income                                               $ 7,412,884                  $ 535,540

Less:  Cost of goods sold                              7,091,737                    364,206
                                         ------------------------    -----------------------

Gross profit                                             321,147                    171,334
                                         ------------------------    -----------------------
Operations:

        General and administrative                     1,820,531                    259,273

        Depreciation and amortization                     35,487                      4,035

        Interest expense                                 422,462                      2,338
                                         ------------------------    -----------------------
        Total expenses                                 2,278,480                    265,646
                                         ------------------------    -----------------------
Income (loss) from operations                         (1,957,333)                   (94,312)

Other income (expense)

        Interest income                                    1,184                          -

        Loss on abandonment                                    -                     (2,518)
                                         ------------------------    -----------------------
Net income (loss)                                     (1,956,149)                   (96,830)

Accumulated deficit at beginning                      (7,624,650)                (4,828,818)
                                         ------------------------    -----------------------
Accumulated deficit at end                          $ (9,580,799)              $ (4,925,648)
                                         ========================    =======================
Net income (loss) per common share                       $ 0.015                  $ (0.0001)
                                         ========================    =======================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-5

<PAGE>

                              THE AUXER GROUP, INC.
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                                              March 31, 2001         March 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                               <C>                       <C>
Net income (loss)                                                 $ (1,956,149)             $ (96,830)
Depreciation and amortization                                           77,834                  4,035
Common stock issued for services                                     1,044,000                      -
Interest expense on issuance of convertible debt                       390,722
Loss on abandonment                                                          -                  2,518
                                                            -------------------     ------------------
                                                                      (443,593)               (90,277)
(Increase) decrease in:

       Accounts receivable                                             358,998               (279,640)
       Inventory                                                      (720,641)              (166,802)
       Prepaid expenses                                                (44,720)                     -
       Other receivables                                               (32,054)                     -

Increase (decrease) in:

       Accounts payable and accrued expense                            337,914                118,978
       Deferred sales                                                  106,215                      -
                                                            -------------------     ------------------

TOTAL CASH FLOW FROM OPERATIONS                                       (437,881)              (417,741)

CASH FLOWS FROM INVESTING ACTIVITIES

       Purchase property, inventory and equipment                       (4,865)               (36,037)
       Security deposit                                                (40,000)                 5,304
                                                            -------------------     ------------------

TOTAL CASH FLOWS FROM INVESTING ACTIVITIES                             (44,865)               (30,733)
                                                            -------------------     ------------------

CASH FLOWS FROM FINANCING ACTIVITIES

       Borrowings/payments under line of credit agreement (net)        (34,232)                65,124
       Proceeds from short-term debt                                         -                      -
       Payments on short-term debt                                     (16,209)                     -
       Proceeds from long-term debt                                    360,000                  6,478
       Payments on long-term debt                                         (372)                (1,088)
       Shareholder loan payable                                         11,978                 36,054
       Sale of common stock                                                  -                375,435
                                                            -------------------     ------------------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES                             321,165                482,003

NET INCREASE (DECREASE) IN CASH                                       (161,581)                33,529

CASH BALANCE BEGINNING OF PERIOD                                       282,023                  8,400
                                                            -------------------     ------------------

CASH BALANCE END OF PERIOD                                           $ 120,442               $ 41,929
                                                            ===================     ==================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6

<PAGE>

Note 1 - Organization of Company

     a.   CREATION OF THE COMPANY

     Auxer Industries, Inc. (the "Company") was formed on June 20, 1920 under
the laws of the State of Idaho as The Auxer Gold Mines. On May 2, 1995, the
certificate of incorporation was amended to change the name of the Company to
Auxer Industries, Inc.

     On August 11, 1997 the Company incorporated in the State of Delaware under
the name The Auxer Group, Inc. In September 1997 the shareholders of the company
voted to exchange their shares on a one for one basis for shares in the new
company, The Auxer Group, Inc. The new corporate name was effective January 1,
1998 for accounting and tax purposes.

     On November 3, 2000, the certificate of incorporation was amended to change
the number of authorized shares to 1 billion of common stock, at $.001 par
value.

     b.   DESCRIPTION OF THE COMPANY

     The Company is an investment holding company that is comprised of six
subsidiaries: the Harvey Westbury Corporation, Hardyston Distributors, Inc., CT
Industries, Auxer Telecom, Inc., Clifton Telecard, Inc. and Universal Filtration
Industries.

     On April 18, 1995, the Company acquired CT Industries, Inc. ("CT"), a New
Jersey corporation based in West Paterson, New Jersey. CT is a distributor of
various automotive products. Effective March 9, 2001, the business focus was
expanded to include telecommunications related business.

     On February 8, 1996, the Company acquired Universal Filtration Industries,
Inc. ("Universal Filtration") a New York corporation. Based in West Paterson,
New Jersey, Universal Filtration has developed the "Fiona Micro Screen Filter",
a replacement upgrade to a component of machinery used by the dry cleaning
industry.

     On October 25, 1996, the Company acquired Harvey Westbury Corp. ("Harvey
Westbury"), a New York corporation. Based in West Paterson, New Jersey, Harvey
Westbury is a manufacturer and wholesaler of various automotive, marine and
aviation products.

     On April 22, 1999, the Company formed Hardyston Distributors, Inc., d/b/a
The Mechanics Depot, a Nevada corporation. Based in northern New Jersey,
Hardyston Distributors is an automotive parts distributor.

     On August 7, 2000, the Company formed Auxer Telecom Inc., a Delaware
corporation. Auxer Telecom is a reseller of telecommunications access services
with operations based in Los Angeles, CA.

     On August 7, 2000, the Company formed Clifton Telecard Inc., a Delaware
corporation. Based in Northern New Jersey, Clifton Telecard is a wholesale
distributor of prepaid phone cards.

Note 2 - Summary of Significant Accounting Policies

     a.  BASIS OF FINANCIAL STATEMENT PRESENTATION

     The accompanying condensed financial statements are unaudited. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared in
                                       F-7

<PAGE>

accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
all adjustments (which include only normal recurring adjustments) considered
necessary for a fair presentation have been included. These financial statements
should be read in conjunction with the Company's financial statements and notes
thereto for the year ended December 31, 2000, included in the Company's Form
10-KSB as filed with the SEC.

     The consolidated financial statements presented consist of the company and
its wholly owned subsidiaries CT, Universal Filtration, Harvey Westbury,
Hardyston Distributors Inc., Auxer Telecom, Inc. and Clifton Telecard, Inc., all
of which are under common control. Material inter-company transactions and
balances have been eliminated in the consolidation.

     b.   EARNINGS (LOSS) PER SHARE

     Basic earnings (loss) per share is based on the weighted effect of all
common shares issued and outstanding, and is calculated by dividing net income
by the weighted average shares outstanding during the period. Diluted earnings
(loss) per share is calculated by dividing net income by the weighted average
number of common shares used in the basic earnings per share calculation plus
the number of common shares that would be issued assuming conversion of all
potentially dilutive common shares outstanding.

     Diluted earnings (loss) per share are not presented since diluted
securities have an anti-dilutive effect.

     c.   RECEIVABLES

     Allowances against receivables are provided equal to the estimated
collection losses that will be incurred in collection of all receivables and a
reserve for returns and discounts traditionally taken. Estimated allowances are
based on historical collection experience coupled with review of current status
of the existing receivables and amounted to $65,223 at March 31, 2001.

     d.   PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost and are depreciated under the
straight-line methods over the estimated useful lives of the related assets.
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.

     e.   INTANGIBLE ASSETS

     Goodwill purchased as a part of the acquisition of the assets of Clifton
Telecard Alliance Inc. as further described in Note 3, is being amortized on a
straight-line basis over an estimated beneficial life of five years.

     f.   REVENUE RECOGNITION

     The Company recognizes revenues as earned. Amounts billed in advance of the
period in which service is rendered are recorded as a liability under "deferred
revenue." The Company's revenue recognition policy for each product and
subsidiary are the same.

     g.   RESEARCH AND DEVELOPMENT EXPENSES

     Research and development costs are charged to operations when incurred.

     h.   USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and

                                       F-8

<PAGE>

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. Accordingly, actual results could differ from those
estimates.

     i.   IMPAIRMENT OF LONG-LIVED ASSETS

     In the event that facts and circumstances indicate that the carrying value
of long lived assets, including associated intangibles, may be impaired, an
evaluation of recoverability is performed by comparing the estimated future
undiscounted cash flows associated with the asset to the assets carrying amount
to determine if a write down to market value or discounted cash flows is
required.

     j.   OFF BALANCE SHEET RISK

     The Company purchased prepaid phone cards from various telephone companies
who agree to provide long distance phone service to the cardholder after the
Company activates the phone card when it is sold. In the event the long distance
service provider does not provide the service or goes out of business the
Company would be responsible for refunding the purchase price of the phone card.

     The Company mitigates its risk by dealing with well-capitalized long
distance service providers.

Note 3 - Acquisitions

     a.   ACQUISITION OF CT INDUSTRIES, INC.

     On April 18, 1995, the Company acquired all the capital stock of CT, owned
equally by Eugene Chiaramonte, Jr. and Howard Tapen, for 4,000,000 shares of
common stock. The transaction has been accounted for as a reverse acquisition
and using the purchase method of accounting with historic costs being the basis
of valuation.

     b.   ACQUISITION OF UNIVERSAL FILTRATION INDUSTRIES, INC.

     On August 7, 1996, the Company acquired all of the common shares of
Universal Filtration for 1,100,000 shares of common stock.

     c.   ACQUISITION OF HARVEY WESTBURY CORP.

     On October 25, 1996, the Company acquired all of the common shares of
Harvey Westbury for 170,000 shares of common stock.

     d.   ACQUISITION OF THE ASSETS OF HARDYSTON DISTRIBUTORS

     On April 22, 1999 the Company issued 836,700 shares of common stock at
$.1075 per share plus $15,000 for the purchase of inventory and sundry equipment
from Mr. Ernest DeSaye, a sole proprietor.

     e.   ACQUISITION OF TELECOMMUNICATIONS SWITCH OPERATIONS

     On August 24, 2000 the Company acquired telecommunications equipment.

     f.   ACQUISITION OF WHOLESALE PREPAID PHONE DISTRIBUTION OPERATION

     On September 22, 2000 the Company acquired the assets of Clifton Telecard
Alliance Inc., (CTA), a New Jersey based telecommunications company for a total
purchase price of $964,000.

                                       F-9

     The Company paid $500,000 to the shareholders of CTA at closing, issued 3
million shares of common stock valued at $264,000, and issued a note payable to
them for $200,000 due in 2001, as more fully described in Note 5.

     The excess of the amount paid over the fair value of CTA's identifiable net
assets was $846,939, which has been reflected in the balance sheet as goodwill.
The Company expects to benefit from the goodwill acquired in this transaction
over a period of five years, and is amortizing the amount recorded using the
straight-line method over that period.

Note 4 - Inventory

     Inventory consists of raw materials, work in process and finished goods and
is valued at the lower of cost determined on the first-in, first-out method or
market.

Note 5 - Debt

     a.   SECURITY AGREEMENT

     The Company has entered into a security agreement with Merchant Financial
Corp. to borrow money secured by the receivables evidenced by invoices of Harvey
Westbury Corp. and personal guarantees of certain officers. Merchant agreed to
lend an amount equal to 75% of the net value of all Harvey Westbury's accounts
receivable at an interest rate of prime plus 5%. The balance outstanding on the
line of credit at March 31, 2001 was $30,618.

     b.   NOTES PAYABLE

     The following is a summary of short-term-term debt at March 31, 2001:
<TABLE>
<S>                                                                           <C>
     Notes Payable to Creative Capital, payable on
     demand plus interest at a rate of 8%                                     $   80,000

     Notes payable in connection with the purchase of the
     assets of CTA, principal payable in April, 2001                             200,000

     Note payable to Colbie Pacific Capital, due August 1, 2001, payable in 10
     monthly principal and interest payments of $10,000, one principal and
     interest
     payment of $458,000, secured by equipment                                  473,939
                                                                                -------
                                                                               $753,939
</TABLE>

                                      F-10

<PAGE>

<TABLE>
<S>                                                                          <C>
     Long-term debt is as follows:

     13.5% installment note, collateralized by vehicle,
     payable in monthly installments of $239 with the
     final payment due May, 2001                                             $      781

     11.5% installment note, collateralized by vehicle,
     payable in monthly installments of  $188 with the
     final payment due May, 2003                                                  4,547
                                                                                  -----
                                                                                  5,328

                           LESS CURRENT MATURITIES                              (2,521)
                                                                                -------
                                                                              $   2,807
</TABLE>

     c.   NOTES PAYABLE - CONVERTIBLE DEBT

     In January 2001, the Company refinanced its note payable to certain
shareholders in the amount of $551,685 and borrowed an additional $360,000 as
part of an issuance of 8% convertible debentures, due on January 16, 2006,
totaling $911,685. The notes are convertible by the holders into shares of the
Company's common stock at any time at a conversion price per share equal to the
lesser of seventy percent (70%) (the "Discount Multiplier") of the Market Price
and Seven and Seven-Tenths Cents ($0.077). In the event that the Registration
Statement has not been declared effective by the SEC within one hundred and
twenty (120) days after the Closing Date (the "Due Date"), then the Discount
Multiplier shall decrease by two and one-half percent (2.5%) effective as of the
Due Date to sixty-seven and one-half percent (67.5%) and shall further decrease
by two and one-half percent (2.5%) for each thirty-day period occurring after
the Due Date that the Registration Statement has not been declared effective by
the SEC, to not less than fifty percent (50%). The notes are redeemable at the
option of the Company at 130% of the principle amount plus accrued interest. The
proceeds were primarily used for general corporate purposes.

     In connection with the issuance, the Company recorded interest expenses
related to the conversion feature in the amount of $390,722 for the three months
ended March 31, 2001.

Note 6 - Related Party Transactions

     ISSUANCE OF COMMON SHARES

     On April 18, 1995, the Company acquired all the capital stock of CT, owned
equally by Eugene Chiaramonte, Jr. and Howard Tapen, for 4,000,000 shares of
common stock.

Note 7 - Income Taxes

     The Company provides for the tax effects of transactions reported in the
financial statement. The provision, if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any, represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of December 31, 2000, the Company had
no material current tax liability, deferred tax assets, or liabilities to impact
on the Company's financial position because the deferred tax asset related to
the Company's net operating loss carry forward and was fully offset by a
valuation allowance.

     The Company has net operating loss carry forwards for income tax purposes
of $9,190,077 at December 31, 2000. These carry forward losses are available to
offset future taxable income, if any, and expires starting in the year 2011. The
Company's utilization of this carry forward against future taxable income may
become subject to an annual limitation due to a cumulative change in ownership
of the company of more than 50 percent.

                                      F-11

<PAGE>

<TABLE>
         Deferred tax asset:
<S>                                                           <C>
         Net operating loss carry forward                     $3,124,627

         Valuation allowance                                  (3,124,627)
                                                               ----------

         Net deferred tax assets                              $       -0-
                                                              ===========
</TABLE>

     The Company recognized no income tax benefit for the loss generated for the
periods through December 31, 2000.

     SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that some portion of all of a deferred tax asset will not be
realized. The Company's ability to realize benefit of its deferred tax asset
will depend on the generation of future taxable income. Because the Company has
yet to recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.

Note 8 - Business and Credit Concentrations

     The amount reported in the financial statements for cash, trade accounts
receivable and investments approximates fair market value. Because the
difference between cost and the lower of cost or market is immaterial, no
adjustment has been recognized and investments are recorded at cost.

     Financial instruments that potentially subject the company to credit risk
consist principally of trade receivables. Collateral is generally not required.

Note 9 - Commitments and Contingencies

     a.   LEASE AGREEMENT FOR OFFICE SPACE

     The Company entered into a three-year lease agreement with a nonaffiliated
party beginning on November 1, 1996 at 30 Galesi Drive, Wayne, New Jersey for
office space.

     Effective November 30, 1999, the Company continued to lease the property on
a month-to-month basis at $1,981.42 per month through February 29, 2000 at which
time the lease expired.

     The Company entered into a six month 15 day lease agreement with a new
affiliated party beginning September 1, 2000 and expiring on March 15, 2001 at a
monthly rate of $7,766 for office space in Los Angeles, California. Effective
March 15, 2001, the lease was extended on a month-to-month basis at the same
rate.

     In connection with the asset purchase of Clifton Telecard Alliance (CTA),
the Company agreed to obtain its own lease from CTA's landlord. As of this date,
no agreement has been reached. The Company continues to pay the monthly rent
under the terms of CTA's lease agreement.

     b.   LEASE AGREEMENT FOR INDUSTRIAL FACILITY

     The Company entered into a three-year lease agreement with a non-affiliated
party beginning on April 1, 1995 and expiring April 1, 1998, at 15 Heisser
Court, Farmingdale, New York, for the Harvey Westbury operations. On February
23, 1998, the lease was extended to expire on April 30, 1999. On March 29, 1999
the lease was extended to expire on April 30, 2000. A $5,770 security deposit
was required with minimum monthly rental payments to be paid as follows:

                                      F-12

<PAGE>

<TABLE>
<CAPTION>
Period                                    Annual Rent       Monthly Rent
------                                    -----------       ------------
<S>                                        <C>               <C>
May 1, 1999 to April 30, 2000              $36,024.00        $3,002.00
</TABLE>

     The Company assumed the lease agreement with a non affiliated party entered
into by Mr. Ernest DeSaye, Jr. beginning March 1, 1999 and expiring on February
28, 2000, at 22B Lasinski Road, Franklin, NJ. The option to renew for an
additional two years was invoked extending the expiration of the lease to
February 28, 2001. A $750.00 security deposit was required with minimum monthly
rental payments to be paid as follows:
<TABLE>
<CAPTION>
Period                                             Annual Rent            Monthly Rent
------                                             -----------            -------------
<S>                                                <C>                    <C>
                                                                          March 1, 1999 to
                                                                          February 28, 2000
$8,700.00                                          $725.00
March 1, 2000 to February 28, 2001                 $9,000.00              $750.00
</TABLE>

Effective March 1, 2001, the Franklin operation was moved to 12 Andrews Drive,
West Paterson, New Jersey.

The Company entered into a five-year lease agreement with a non-affiliated party
beginning on February 1, 2000 and expiring January 31, 2005, at 12 Andrews
Drive, West Paterson, NJ for their Wayne, NJ and Farmingdale, NY operations. A
$15,583 security deposit was required with minimum monthly payments to be paid
as follows:
<TABLE>
<CAPTION>
                      Period                     Annual Rent                   Monthly Rent
                      ------                     -----------                   ------------
<S>                                                 <C>                          <C>
     Feb. 1, 2000 - Jan. 31, 2001                   $85,000                      $7,083.34
     -------------------------------------------------------------------------------------
     Feb. 1, 2001 - Jan. 31, 2002                    89,250                       7,437.50
     -------------------------------------------------------------------------------------
     Feb. 1, 2002 - Jan. 31, 2003                    93,500                       7,791.67
     -------------------------------------------------------------------------------------
     Feb. 1, 2003 - Jan. 31, 2004                    97,850                       8,145.84
     -------------------------------------------------------------------------------------
     Feb. 1, 2004 - Jan. 31, 2005                   102,000                      8,250.00
     -------------------------------------------------------------------------------------
</TABLE>

     In addition to the minimum monthly rental payments, the Company must pay
real estate taxes, insurance, and utilities.

     The Company entered into a month-to-month lease agreement with a
non-affiliated party beginning August 1, 2000 at a monthly rate of $2,500 for
facility space in Los Angeles, California.

     c.   EQUIPMENT LEASES

     The Company leases equipment under several non-cancelable operating leases
with unrelated parties, which expire from September 2001 through October 2003.

     The following is a schedule of future minimum rental payments required
under the above non-cancelable operating leases:
<TABLE>
<CAPTION>
 Year Ending December 31:
<S>                           <C>
         2001                 $        24,380
         2002                          11,140
         2003                           8,067
         2004                           3,006
                                       ------

         Total                $        46,593
                                       ======

</TABLE>

                                      F-13

<PAGE>

Note 10 - Development Stage Company

     The Company was considered to be a development stage company with little
operating history and having conducted research and development and test market
activities, funded the production of multiple sales videos of the Company's
expanded product lines for television and cable presentation, obtained
financing, hired personnel and developed consulting relationships for the period
April 18, 1995 to December 31, 1997. The Company will also be dependent upon its
ability to raise additional capital to complete its marketing program, acquiring
additional equipment, management talent, inventory and working capital to engage
in profitable business activity. Subsequent to December 31, 1997, the Company's
primary attention turned to routine, on-going activities and ceased to be a
development stage enterprise.

Note 11 - Segment Information

     Management Policy in Identifying Reportable Segments

     The Company reportable business segments are strategic business units that
offer distinctive products and services that are marketed through different
channels. They are managed separately because of their unique technology,
marketing, and distribution requirements.

     Types of Products and Services

     The Company is an investment holding company that is comprised of six
subsidiaries: The Harvey Westbury Corp., Hardyston Distributors Inc., CT
Industries, Auxer Telecom Inc., Clifton Telecard Inc. and Universal Filtration
Industries, Inc. Harvey Westbury is a manufacturer and wholesaler of various
automotive, marine and aviation products. Hardyston Distributors is a Northern
New Jersey based automotive parts distributor. CT Industries is a distributor of
various automotive products. Auxer Telecom is a reseller of telecommunications
access services. Clifton Telecard is a Northern New Jersey based wholesale
distributor of prepaid phone cards. Universal Filtration has in the past
manufactured and distributed filters used by the dry cleaning industry and is
currently inactive.

     Segment Profit or Loss

     The Company's accounting policies for segments are the same as those
described in the summary of significant accounting policies. Management
evaluates segment performance based on segment profit or loss before income
taxes and nonrecurring gains and losses. Transfers between segments are
accounted for at market value.

                                      F-14

<PAGE>

The Company's condensed consolidated balance sheet consists of the following
subsidiary components as of March 31, 2001:
<TABLE>
<CAPTION>
                                                                                            Intercompany  Auxer Group, Inc.
                                               Parent      Automotive Group  Telecom Group  Eliminations   Consolidated
                                               ------      ----------------  -------------  ------------   ------------
Balance Sheet
<S>                                          <C>           <C>            <C>            <C>            <C>
Current Assets                               $     8,757   $   801,319    $ 3,224,329    $        --    $ 4,034,405
Fixed Assets (net)                                13,018        60,215        526,529             --        599,762
Other Assets                                   4,405,177        24,388        949,098     (4,361,549)     1,017,114
                                               ---------       -------      ---------     ----------      ---------

Total Assets                                   4,426,952       885,922      4,699,956     (4,361,549)     5,651,281
                                               =========       =======      =========     ==========      =========

Liabilities & Stockholders' Equity

Current Liabilities                              445,137     2,338,955      4,841,411     (3,297,490)     4,328,013
Long Term liabilities                            911,685         2,807             --             --        914,492
Stockholders' Equity                           3,070,130    (1,455,840)      (141,455)    (1,064,059)       408,776
                                               ---------       -------      ---------     ----------      ---------

Total liabilities and stockholders' equity     4,426,952       885,922      4,699,956     (4,361,549)     5,651,281
                                               =========       =======      =========     ==========      =========


The Company's condensed consolidated statement of operations for the three
months ended March 31,2001:

Statement of operations
Revenues                                              --       194,604      7,582,098        (363,818)    7,412,884
Costs of goods sold                                   --       116,976      7,338,579         363,818     7,091,737
                                               ---------       -------      ---------     ----------      ---------
Gross profit                                          --        77,628        243,519              --       321,147
Operating expenses                             1,484,011       127,536        666,933              --     2,278,480
                                               ---------       -------      ---------     ----------      ---------
Income (loss) from operations                 (1,484,011)      (49,908)      (423,414)             --    (1,957,333)
Other income (expense):
Interest income                                      699            --            485              --         1,184
                                               ---------       -------      ---------     ----------      ---------
Net Income (loss)                             (1,483,312)      (49,908)      (422,929)             --    (1,956,149)
                                               =========       =======      =========     ==========      =========

The Company's condensed consolidated statement of operations for the three
months ended March 31, 2000:

Statement of operations
Revenues                                              --       535,540              -               -       535,540
Costs of goods sold                                   --       364,206              -               -       364,206
                                               ---------       -------      ---------     ----------      ---------
Gross profit                                          --       171,334              -               -       171,334
Operating expenses                               114,217       151,429              -               -       265,646
                                               ---------       -------      ---------     ----------      ---------
Income (loss) from operations                   (114,217)       19,905              -               -      (94,312)
Other income (expense)                            (2,518)           --              -               -       (2,518)
Interest Income                                       --            --              -               -            --
                                               ---------       -------      ---------     ----------      ---------
Net Income (loss) before extraordinary items    (116,735)       19,905              -               -      (96,830)
                                               =========       =======      =========     ==========      =========
</TABLE>

                                      F-15

<PAGE>

Note 12 - Stock Option Plan

     The Company has a Stock Option Plan (Plan) under which selected individuals
may be granted options to purchase shares of the Company's authorized but
unissued common stock. The maximum numbers of shares available for issuance
under the Plan is 2 million shares. As of March 31, 2001 the maximum number of
shares available for future grants under the Plan is 0 shares. Under the Plan,
the option exercise price may be more, equal to or less than the fair market
value of the Company's common stock at the date of grant. Options currently
expire no later than 5 years from the grant date and are 100% vested. Proceeds
received by the Company from exercises of stock options are credited to common
stock and additional paid in capital. Additional information with respect to the
Plan's stock option activity is as follows:
<TABLE>
<CAPTION>
                                                         Number of         Weighted Average Exercise
                                                          Shares                    Price
                                                          ------                    -----
<S>                                                  <C>                            <C>
         Outstanding at December 31, 2000                    0                          0
         ---------------------------------------------------------------------------------
         Granted                                     2,000,000                         05
         ---------------------------------------------------------------------------------
         Exercised                                           0                          0
         ---------------------------------------------------------------------------------
         Cancelled                                           0                          0
         ---------------------------------------------------------------------------------
         Outstanding at March 31, 2001               2,000,000                      $0.05

         Options exercisable at
                  December 31, 2000                          0                          0
                                                   ===========                   ========
         Options exercisable at
                  March 31, 2001                     2,000,000                      $0.05
                                                   ===========                     ======
</TABLE>

     The following tables summarize information about stock options outstanding
and exercisable at March 31, 2001:
<TABLE>
<CAPTION>
              Stock Options Outstanding
                 Range of Exercise            Number of Shares           Weighted Average       Weighted Average
                    Price                       Outstanding             Remaining Contractual   Exercise Price
                                                                        Life in Years
<S>                 <C>                         <C>                     <C>                     <C>
                    $0.05                       2,000,000               4.0                     $0.05
                    =====                       =========               ===========             =====
</TABLE>
<TABLE>
<CAPTION>
                                          Stock Options Exercisable
                                          -------------------------
                    Range of Exercise           Number of Shares      Weighted Average
                    Price                       Outstanding           Exercise Price

<S>                 <C>                         <C>                   <C>
                    $0.05                       2,000,000             $0.05
                    =====                       =========             =====
</TABLE>

     The Company accounts for its plan under APB Option No. 25 (Accounting for
Stock Issued to Employees). Accordingly, compensation expense is recognized in
the Company's financial statements when the exercise price of the Company's
employee stock options is less than the market price of the Company's common
stock on the date of grant. There were no compensation costs related to the
stock option plan recorded for the three months ended March 31, 2001 and March
31, 2000, respectively.

     The pro forma net income impact under Financial Accounting Standards Board
Statement No. 123 (Accounting for Stock-Based Compensation) is not material.


                                      F-16

<PAGE>

         Note 13 - Stockholders Equity

     On January 2, 1999, the Company issued 1,500,000 shares and 1,250,000
shares of the Company's preferred stock valued at $.15 per share to Eugene
Chiaramonte, Jr. and Ronald Shaver respectively as repayment of loans in the
amount of $15,000, reimbursement of expenses of $12,500, and deferred
compensation of $208,500 and $173,750 respectively.

     The Preferred Stock is convertible, at the holder's option, at any time
into shares of the Company's Common Stock at a rate of ten shares of Common
Stock for each share of Preferred Stock.

Item 2. Management's Discussion and Analysis or Plan of Operation

The following discussion should be read in conjunction with the consolidated
financial  statements and notes. In addition to historical information, this
discussion and analysis contains forward-looking  statements that involve
risks, uncertainties and assumptions, which could cause actual results to differ
materially from  Management's expectations. Factors that could cause differences
include, but are not limited to, expected market demand for the Auxer Group's
products, fluctuations in pricing for products distributed by the Auxer Group
and products offered by competitors, as well as general conditions of the
telecommunications marketplace.

The Auxer Group is a holding company that has formed a  Telecommunications Group
and established three (3) subsidiaries,  Clifton Telecard Inc., a wholesale
distributor of prepaid phone cards, CT Industries, Inc., also a wholesale
distributor of prepaid phone cards and Auxer Telecom Inc., which provides
telecommunication services from telecommunications carriers to the
telecommunications industry. Additionally, Auxer owns an Automotive Group with
two (2) active subsidiaries: The Harvey Westbury Corporation Inc., and Hardyston
Distributors, Inc. Harvey Westbury assembles and packages automotive accessories
under the name, Easy Test, sells engine treatment under the name, Formula 2000
Ultimate and sells waxes and polishes under the name, Garry's Royal Satin to the
automotive, marine and aviation industries. Hardyston Distributors, Inc. is a
specialty distributor of automotive parts and accessories to local mechanics,
service stations and dealers.

Results of Operations for the Three Months Ended March 31, 2000 and 2001.

The Auxer Group had sales of $7,412,884 for the quarter ended March 31, 2001 as
compared to sales of $535,540 for the quarter ended March 31, 2000. The increase
in sales was attributed to the prepaid phone card sales. The Auxer Group had net
losses of $1,957,333 for the quarter ended March 31, 2001 as compared to net
losses of $94,312 for the quarter ended March 31, 2000. The increase in net
losses was primarily attributed to the Auxer Telecom operation in Los Angeles,
California and consulting expenses related to the development of the
Telecommunications Group and the X-Factor product line.

The Auxer Group had general administrative expenses of $1,820,531 for the
quarter ended March 31, 2001 as compared to general administrative expenses of
$259,273 for the quarter ended March 31, 2000. The increase in these expenses
was attributed to the additional general administrative expenses related to the
telecom group, which includes Clifton Telecard, Inc., Auxer Telecom, Inc. and CT
Industries, Inc. The Auxer Group had interest expenses of $422,462 for the
quarter ended March 31, 2001 as compared to $2,338 for the quarter ended March
31, 2000. The increase in these expenses was due to the interest expense related
to the convertible note financing in January 2001. A substantial part of our
growth has been achieved through acquisition within the telecommunications
industry. Given the acquisition of Clifton Telecard, the results from operations
from period to period are not necessarily comparable.

Our principle source of revenue has been the telecom group's prepaid phone
cards. The telecom group markets and distributes branded prepaid phone cards
produced by a variety of  telecommunications long distance carriers and
resellers, as well as private label proprietary prepaid phone cards produced for
the Auxer Group by various long distance carriers and/or resellers.

Prepaid  phone cards are distributed through a vast network of retail outlets,
including convenience stores, newsstands, grocery stores and discount stores.
The retail outlets are serviced by independent distributors, which often
purchases large volumes of branded prepaid phone cards from the long distance
carrier or reseller and sells the cards in smaller quantities, together with
cards from other carriers and/or private label cards distributed by the telecom
group, to the independent distributor, for ultimate distribution to retailer
outlet.

Branded cards are purchased by the telecom group at a discount from the face
value of the card, and result to the distributor at a slightly lower discount.
The difference between the two discount rates, typically from 1% to 3%,
represents the growth margin retained by the telecom group. Purchases of branded
cards by the Auxer Group are made on varying terms, from C.O.D. to a net 21
basis, although the majority of the Auxer Group's purchases are made on credit
terms of 10 days or less. Sales by the telecom group of its product are
generally made on a net 30 basis.

Private  label cards are generally designed and produced by the Auxer Group,
utilizing card numbers and PINs provided by the telecommunications' carrier or
reseller providing the long distance service for the card. The Auxer Group
incurs the upfront expense of printing the phone cards. However, the Auxer Group
does not pay the long distance carrier until it activates the cards, which
occurs upon the sale by the Auxer Group to the distributor. Accordingly, through
the use of private label cards, the Auxer Group's cost of inventory is
significantly reduced, as purchases are effectively made on an as-needed basis.

On March 9, 2001 CT  Industries,  Inc. ("CTI") Board of Directors approved the
expansion of the business focus to include the telecommunications related
business. In March of 2001 CTI launched its X-Factor line of products under the
X-Factor trademark and logo. The first series of products will be a prepaid
calling  card  known as the X-Card. On March 14, 2001, the Auxer Group added
Benjamin Colarossi to the marketing team for the X-Factor. On March 17, 2001, as
part of a promotional campaign, the Dick Barbour Racing Team unveiled the
X-Factor logo on the number 15c Porsche at the 12 hours of Sebring, a premier
race of the American La Mans Series. On March 26, 2001 CTI hosted its grand
opening in West Paterson,  NJ to assist Clifton Telecard's growing sales. This
new location will allow Clifton Telecard to handle additional walk-in customers
and will also provide additional warehouse space. CTI projects a sales pace
equivalent to its sister company, Clifton Telecard, by the third quarter of
2001.

On March 29, 2001, CTI reached an agreement with Universal Services & Telcom,
Inc. to distribute products under the X-Factor product line.

On April 14, 2001, the X-Factor debuted on NBC Sports in two thirty second
commercials, which telecast during the European Le Mans Series from England's
Donington Park circuit. The commercials were advertising the X-Factor Grand Prix
Sonoma, a North American Series race to be held on July 22, 2001.

Sources of Liquidity

The Company's subsidiary, Harvey Westbury has a credit facility  agreement with
Merchant Financial Corporation. The credit facility currently permits borrowings
of up to $400,000 against a fixed percentage of 75% of eligible accounts
receivable and up to 40% of the eligible inventory. The interest rate on the
line of credit is basic interest on the daily-unpaid cash balances outstanding
during each month at a rate equal to the prime rate plus 5% per annum above the
prime rate of 9.5%. The credit facility agreement requires a commitment fee of
1% of the maximum credit line per annum on each anniversary date of the signing
of the agreement, July 11, 2000. In January 2001, the Company refinanced its
note payable to certain shareholders in the amount of $551,685 and borrowed an
additional $360,000 as part of an issuance of 8% convertible debentures, due on
January 16,  2006, totaling $911,685. The notes are convertible by the holders
into shares of the Company's common stock at any time at a conversion price per
share equal to the lesser of seventy percent (70%) (the "Discount  Multiplier")
of the Market Price and Seven and Seven-Tenths Cents ($0.077). In the event that
the Registration Statement has not been declared effective by the SEC within one
hundred and twenty (120) days after the Closing Date (the "Due Date"), then the
Discount Multiplier shall decrease by two and one-half  percent (2.5%) effective
as of the Due Date to sixty-seven and one-half percent (67.5%) and shall further
decrease by two and one-half percent (2.5%) for each  thirty-day  period
occurring after the Due Date that the Registration Statement has not been
declared effective by the SEC, to not less than fifty percent (50%). The notes
are redeemable at the option of the Company at 130% of the principle amount plus
accrued interest. The proceeds were primarily used for general corporate
purposes.

For the quarter ended March 31, 2001, the Company paid for operations by raising
$711,887 through common stock issuance and debt borrowings after payments to
short term debts. The Company had Notes Payable to shareholders of $99,837, had
other notes payable of $756,460, and notes payable convertible debt of $911,685
on March 31, 2001. The Company had loans outstanding against its credit line of
$30,618 under a security agreement with Merchant Financial Corporation to borrow
money secured by the receivable evidenced by invoices of Harvey Westbury Corp.
The Company has provided guarantees of the repayment of loans. Merchant
Financial Corporation agreed to lend an amount equal to 75% of the net value of
all Harvey Westbury accounts. The Company issued common stock of $1,044,000 to
provide for services rendered and consulting requirements.

In comparison for the quarter ended March 31, 2000, the Company paid for
operations by raising $482,003 through common stock issuance and debt borrowing
after payment to short term debts. The Company had Other Notes Payable of
$84,608 on March 31, 2000. The Company had loans outstanding against its credit
line of $84,460 under a security agreement with Finova Capital to borrow money
secured by the receivable evidenced by invoices of Harvey Westbury Corp. The
Company has provided guarantees of the repayment of loans. Finova agreed to lend
an amount equal to 75% of the net value of all Harvey Westbury accounts. The
Company did not sell or issue any common stock to provide for services rendered,
consulting requirements and operating and investment activities during the
quarter ended March 31, 2000.

ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-QSB REFLECT MANAGEMENT'S
BEST JUDGEMENT BASED ON FACTORS CURRENTLY KNOWN AND INVOLVE RISKS AND
UNCERTAINIES. ACTUAL RESULTS MAY VARY MATERIALLY.
                                      F-17

<PAGE>

                          PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The Auxer Group has the following pending or threatened litigation:

Ross & Craig Solicitors v. Auxer Industries, Inc. - Superior Court of New
Jersey, Law Division, Passaic County - Index No. L1598-98, filed on February 10,
1998. This is a case brought by an English partnership against us. Ross & Craig
is requesting the sum of $46,666.23 plus interest accruing from 1997 for work,
labor and services rendered. In January 2001, the Ross & Craig Solicitors case
was settled and the parties signed a settlement agreement. The Auxer Group
agreed to pay the sum of $35,000 in 18 monthly installments with an initial
payment of $5,000 and 17 payments of $1,764.70 subsequently. Payments commenced
in February 2001 and will be completed in August 2002.

Eileen M. Huff, et. al. v. Harvey Westbury Corp. and Auxer Industries, Inc. -
Supreme Court of the State of New York, Suffolk County, Index No. 29090-97,
filed on November 24, 1997, and Suffolk County District Court, First District
Civil Court of New York, Index No. CEC67098, filed on November 24, 1997; and
Lorraine Duff v. Harvey Westbury & (Auxer) and Suffolk County District Court,
First District Civil Court of New York, Index No.CEC67-98, filed on November 11,
1997. These cases all involved the Auxer Group's purchase of Harvey Westbury.
They are about the "wrongful termination" of one employee, seeking damages of
$13,427.95, and the alleged non-payment of insurance premiums for another,
seeking damages of $175,000. The Auxer Group filed answers to all lawsuits. In
July 1999, the Lorraine Duff case was settled and the parties signed a
settlement agreement; the Stipulation of Settlement document does not disclose
the reason for settlement. The Auxer Group agreed to pay the sum of $5,000 in 10
monthly installments of $500 each. Payments commenced in August 1999 and
continued until May 2000. All payments have been made and this case is
completed. In August 2000 both cases involving Eileen M. Huff were settled and
the parties signed a settlement agreement; the Stipulation of Settlement
document does not disclose the reason for settlement. The Auxer Group agreed to
pay the sum of $15,000 in 13 monthly installments with an initial payment of
$3,000 and 12 payments of $1,000 subsequently. Payments commenced in September
2000 and will be completed in September 2001.

Interdynamics, Inc. v. Harvey Westbury Corp and The Auxer Group, Inc. - United
States District Court, Eastern District of New York, Case No. 00-CV-7115, filed
on November 29, 2000. This case is an action for patent infringement seeking
monetary damages and injunctive relief, and desires that the Court order an
accounting for damages, and that the Court award interest, costs, and attorneys'
fees. Interdynamics alleges that at least two of Harvey Westbury's air
conditioner retrofitting kits, models number RC88500 and RC88700, directly
infringe on Interdynamics U.S. Patent No. 6,089,032 , entitled "Method of
Retrofitting Air Conditioner and System Therefor." We have counterclaimed for
antitrust violations. On or about December 1999, plaintiff stated to customers
and potential customers of Harvey Westbury that Interdynamics was about to
commence litigation against Harvey Westbury for offering for sale and selling
Harvey Westbury's line of air conditioning recharge kits containing R134 and
that any company that would do business with Harvey Westbury would become
involved in that litigation. These statements were made with the intent to cause
the persons and business entities to whom such statements were made to cease
doing business with Harvey Westbury, or if they were not customers of Harvey
Westbury at that time to prevent such business entities from buying from Harvey
Westbury. Plaintiff Interdynamics, Inc. actions constitute a violation of
Section 2 of the Sherman Act, 15 U.S.C. Sec. 2, in that these actions constitute
an attempt to monopolize and monopolization of the market both regionally and
throughout the United State for R134 recharge and/or retrofitting kits and kit
components. The case is presently in the discovery phase. A motion for
preliminary injunctive relief was held in January 2001 and the Magistrate Judge
denied the Plaintiff's injunction in all respects. The Auxer Group intends to
vigorously defend this action and pursue its antitrust case against the
Plaintiff. In the event that a monetary judgment is eventually rendered against
the Auxer Group that judgment could be as high as 3 times the number of units
sold multiplied by the difference between the Auxer Group's selling price and
the price at which the Plaintiff could have sold its product but for the Auxer
Group's sales.

The Auxer Group is not currently aware of any other pending, past or present
litigation that would be considered to have a material effect on the Auxer
Group. The Auxer Group considers that any litigation under 10% of its current
assets is not material. There are no known bankruptcy or receivership issues
outstanding and has no known securities law violations. Additionally, the Auxer
Group has no known legal proceedings in which certain corporate insiders or
affiliates of the issuer are in a position that is adverse to the issuer.

<PAGE>

Item 2. Changes in Securities.   None

Item 3. Defaults Upon Senior Securities.  Not Applicable.

Item 4. Submission of Matters to a Vote of Security Holders.    None

Item 5. Other Information.

On May 16, 2001, the Company sold all of the issued and outstanding shares of
Clifton Telecard, Inc., its wholly owned subsidiary to Kattosko Communications,
Inc. ("Kattosko"). Kattosko's sole shareholder is Mohd Qattous, the father of
Mustafa Qattous, our President of Operations of Clifton Telecard, Inc. A Form
8-K describing the transaction in detail shall be filed within the required time
period under SEC rules and regulations.

Item 6. Exhibits and Reports of Form 8-K. None.

<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this 10-QSB report to be signed on
its behalf by the undersigned thereunto duly authorized.

                              THE AUXER GROUP, INC.
                              (Registrant)

Date: July 5, 2001           /s/Eugene Chiaramonte, Jr.
                            ---------------------------

                                Eugene Chiaramonte, Jr.
                                President, Chief Executive
                                Officer and Director