U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   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 September 30, 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 November 14, 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:

BASIS OF PRESENTATION

The accompanying unaudited financial statements are presented in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-QSB and item 310 under subpart A of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The accompanying statements should be read in conjunction with the audited
financial statements for the year ended December 31, 2000. In the opinion of
management, all adjustments (consisting only of normal occurring accruals)
considered necessary in order to make the financial statements not misleading,
have been included. Operating results for the nine months ended September 30,
2001 are not necessarily indicative of results that may be expected for
the year ending December 31, 2001.  The financial statements
are presented on the accrual basis.

<PAGE>

                             THE AUXER GROUP, INC.

                              FINANCIAL STATEMENTS

                          Index to Financial Statements

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

         Condensed Consolidated Balance Sheets                                   F-3-4

         Condensed Consolidated Statement of Accumulated Deficit                 F-5

         Consolidated Statement of Changes in Stockholders' Equity               F-6

         Condensed Consolidated Statement of Cash Flows                          F-7

         Notes to Consolidated Financial Statements                              F-8-18
</TABLE>

<PAGE>

To the Board of Directors
of The Auxer Group, Inc.
West Paterson, NJ 07424
                         Independent Accountant's Report

We have reviewed the accompanying balance sheet of The Auxer Group, Inc. and
consolidated subsidiaries as of September 30, 2001 and the related statements of
income, retained earnings and cash flows for the three months ended September
30, 2001 and September 30, 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

October 31, 2001

                                       F-2

<PAGE>

                              THE AUXER GROUP, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)
<TABLE>
<CAPTION>

Current assets:
<S>                                                                           <C>
              Cash                                                               $ 71,583

              Accounts receivable (net of allowances $55,347)                     297,734

              Note receivable                                                     100,000

              Inventory                                                           716,457

              Prepaid expenses                                                      2,500
                                                                           ---------------
              Total current assets                                              1,188,274
                                                                           ---------------
Property and Equipment

              Vehicles                                                             42,347

              Furniture and fixtures                                               23,027

              Machinery and equipment                                             654,028

              Leasehold improvements                                                2,121
                                                                           ---------------
                                                                                  721,523

              Less:    accumulated depreciation                                  (202,935)
                                                                           ---------------
              Property and equipment (Net)                                        518,588
                                                                           ---------------
Other assets:

              Security deposit                                                     44,040

              Other receivables                                                   255,289
                                                                           ---------------
              Total other assets                                                  299,329
                                                                           ---------------
Total assets                                                                  $ 2,006,191
                                                                           ===============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-3

<PAGE>

                              THE AUXER GROUP, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)
<TABLE>
<CAPTION>

  Liabilities and Stockholders' Equity

Current liabilities
<S>                                                                     <C>
       Accounts payable and accrued expenses                              $ 447,138

       Deferred sales                                                       370,000

       Notes payable                                                        721,031

       Notes payable-shareholders                                            58,631
                                                               ---------------------

Total current liabilities                                                 1,596,800

Long-term liabilities

       Notes payable, less current maturities                                 1,491

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

       Total long-term liabilities                                          913,176
                                                               ---------------------

Total liabilities                                                         2,509,976

Stockholders' equity

       Capital stock - authorized 1,000,000,000 shares                      131,447
       $.001 par value per share, 131,437,030 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                                        10,035,388

       Accumulated deficit                                              (10,673,370)


Total stockholders' equity                                                 (503,785)
                                                               ---------------------

Total liabilities and stockholders' equity                              $ 2,006,191
                                                               =====================
</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           Nine Months Ended
                                                 Sept. 30, 2001  Sept. 30, 2000  Sept. 30, 200  Sept. 30, 2000
                                                   -----------------------------------------------------------
<S>                                                 <C>          <C>            <C>            <C>
Income                                                 $ 588,875    $ 953,215    $ 2,170,597   $ 2,004,133

Less:  Cost of goods sold                                554,386      812,525      1,936,848     1,517,978
                                                   ---------------------------  ---------------------------

Gross profit                                              34,489      140,690        233,749       486,155
                                                   ---------------------------  ---------------------------
Operations:

      General and administrative                         433,644    1,531,411      2,623,949     2,435,419

      Depreciation and amortization                       35,333       22,618        104,392        31,464

      Interest expense                                    43,605        6,284        481,349        14,289
                                                   ---------------------------  ---------------------------

      Total expenses                                     512,582    1,560,313      3,209,690     2,481,172
                                                   ---------------------------  ---------------------------
Income (loss) from operations                           (478,093)  (1,419,623)    (2,975,941)   (1,995,017)

Other income (expense)

      Interest income                                        341            -          2,445             -

      Loss on abandonment of leasehold improvements            -            -              -        (2,518)
                                                   ---------------------------  ---------------------------
Income (loss) from continuing operations                (477,752)  (1,419,623)    (2,973,496)   (1,997,535)

Discontinued operations

      Income from operations of discontinued subsidiary        -            -         72,533             -

      Loss on disposal of subsidiary                           -            -       (147,757)            -
                                                   ---------------------------  ---------------------------
                                                               -            -        (75,224)            -
                                                   ---------------------------  ---------------------------

Net income (loss)                                       (477,752)  (1,419,623)    (3,048,720)   (1,997,535)

Accumulated deficit at beginning                     (10,195,618)  (5,406,730)    (7,624,650)   (4,828,818)
                                                   ---------------------------  ---------------------------

Accumulated deficit at end                          $(10,673,370)$ (6,826,353)  $ (10,673,370) $(6,826,353)
                                                   ===========================  ===========================
Net income (loss) per common share                       $ (0.01)     $ (0.01)       $ (0.02)      $ (0.02)
                                                   ===========================  ===========================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-5

<PAGE>

                              THE AUXER GROUP, INC.

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                 Preferred   Preferred Stock  Common Stock Common Stock     Additional       Accumulated
                                   Stock     Par Value $.001  Shares       Par Value $.001  Paid in Capital  Deficit
                                  Shares        Amount                     Amount
                                    (A)                        (B)
                               -----------------------------------------------------------------------------------------
<S>                              <C>               <C>      <C>             <C>           <C>             <C>
Balances at December 31, 1998              -           $ -   36,361,097      $ 36,361     $3,657,004       $ (3,853,690)

Common stock issued for cash                                 17,950,000        17,960        732,099

Common stock issued for services                                589,000           589         43,651

Common Stock Issued for debt

extinguishments                                               1,000,000         1,000          9,220

Common stock issued for
acquisition                                                     836,700           837         89,108

Stock issued                       2,750,000         2,750                                   409,750

Net loss for the year                                                                                          (975,127)
                               -----------------------------------------------------------------------------------------

Balances at December 31, 1999      2,750,000       $ 2,750   56,736,797      $ 56,747     $ 4,940,832      $ (4,828,817)
                               =========================================================================================

Common stock issued for cash                                 36,225,233        36,225       1,401,661

Common stock issued for goods
and services                                                  8,075,000         8,075       1,604,563

Common stock issued for
acquisition                                                   3,000,000         3,000         261,000

Net loss for the year
                               -----------------------------------------------------------------------------------------

Balances at December 31, 2000        2,750,000     $ 2,750  104,037,030     $ 104,047     $ 8,208,056      $ (7,624,650)
                               =========================================================================================


Common stock issued for services                             17,988,000        17,988         915,112

Interest expense on issuance of                                       -             -         390,722
convertible debt

Exercise of options                                           9,412,000       $ 9,412       $ 521,488

Net loss for nine months ended
September 30,2001                                                                                           (3,048,720)
                               ----------------------------------------------------------------------------------------

Balances at September 30, 2001   $ 2,750,000       $ 2,750  131,437,030     $ 131,447     $ 10,035,378    $(10,673,370)
                               ========================================================================================
</TABLE>

Preferred stock, par value $.001, convertible to 10 shares of common stock,
25,000,000 shares authorized, 2,750,000 shares and outstanding at September 30,
2001.

Common stock, par value $.001, 1,000,000,000 shares authorized, 131,437,030
shares issued and outstanding at September 30, 2001.

          See accompanying notes to consolidated financial statements.

                                       F-6

<PAGE>

                              THE AUXER GROUP, INC.

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                       Nine Months Ended
                                                            Sept. 30, 2001         Sept. 30, 2000
                                                           ------------------     ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                             <C>                    <C>
Net income (loss)                                               $ (3,048,720)          $ (1,997,535)
Depreciation and amortization                                        104,392                 31,464
Common stock issued for services                                     933,100              1,476,275
Interest expense on issuance of convertible debt                     390,722                      -
Loss on abandonment                                                        -                  2,518
                                                           ------------------     ------------------
                                                                  (1,620,506)              (487,278)
(Increase) decrease in:

      Accounts receivable                                          1,949,954               (646,392)
      Inventory                                                      510,350               (848,050)
      Prepaid expenses                                                30,605                 (8,000)
      Other receivables                                             (212,955)                     -
      Note receivable                                               (100,000)                     -

Increase (decrease) in:

      Accounts payable and accrued expense                        (1,703,468)             1,300,437
      Deferred sales                                                (476,364)                     -
                                                           ------------------     ------------------

TOTAL CASH FLOW FROM OPERATIONS                                   (1,622,384)              (689,283)

CASH FLOWS FROM INVESTING ACTIVITIES

      Proceeds from sale of discontinued operations                  804,592                      -
      Purchase property, inventory and equipment                       7,426             (1,471,313)
      Security deposit                                                96,442                (17,483)
                                                           ------------------     ------------------

TOTAL CASH FLOWS FROM INVESTING ACTIVITIES                           908,460             (1,488,796)
                                                           ------------------     ------------------

CASH FLOWS FROM FINANCING ACTIVITIES

      Proceeds from short-term debt
      Borrowings/payments under line of credit agreement (net)       (64,864)               709,334
      Payments on short-term debt                                   (843,322)               110,916
      Proceeds from long-term debt                                   911,685                 (4,907)
      Payments on long-term debt                                      (1,687)                 6,478
      Shareholder loan payable                                       (29,228)                (2,636)
      Sale of common stock                                                 -                 (8,148)
      Exercise of options                                            530,900              1,659,424
                                                           ------------------     ------------------

TOTAL CASH FLOWS FROM FINANCING ACTIVITIES                           503,484              2,470,461

NET INCREASE (DECREASE) IN CASH                                     (210,440)               292,382

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

CASH BALANCE END OF PERIOD                                          $ 71,583              $ 300,782
                                                           ==================     ==================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-7

<PAGE>

                              THE AUXER GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

    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 stocks, 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. On May 16, 2001, the Company sold Clifton
Telecard.

     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-8

<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. and Auxer Telecom, 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 $55,347 at September 30, 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.   Revenue recognition

     The company acts as principal in its revenue generating transactions, takes
title to its products, and has risks and rewards of ownership. 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.

     f.  Research and development expenses

     Research and development costs are charged to operations when incurred.

     g.  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 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.

                                       F-9

<PAGE>

     h.  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

     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.

                                      F-10

<PAGE>

     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 sheets 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.  Notes Payable

     The following is a summary of short-term-term debt at September 30, 2001:
<TABLE>
<S>                                                                                 <C>
     Notes Payable to Creative Capital, payable on
     demand plus interest at a rate of 8%                                          $  80,000

     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. The parties have agreed
     to negotiate new forms as to due date and amount                                458,000

     Note payable to shareholders, payable on demand
     with no interest                                                                180,900
                                                                                     -------

                                                                                    $718,900

     Long-term debt is as follows:

     11.5% installment note, collateralized by vehicle,
     payable in monthly installments of  $188 with the
     final payment due May, 2003                                                       3,622

                           Less current maturities                                    (2,131)
                                                                                        -----

                                                                                   $   1,491
</TABLE>

                                      F-11

<PAGE>

         b.  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 (65%) (The "Discount Multiplier") of the Market Price.
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
(62.5%) 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 nine months
ended September 30, 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.

         Deferred tax asset:

         Net operating loss carry forward                     $3,124,627

         Valuation allowance                                  (3,124,627)
                                                               ----------
         Net deferred tax assets                              $       -0-
                                                              ===========

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

                                      F-12

<PAGE>

         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.

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:

Period                                     Annual Rent       Monthly Rent

May 1, 1999 to April 30, 2000              $36,024.00        $3,002.00

      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>

                                      F-13

<PAGE>

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:

         Year Ending December 31:

         2001                  $        24,380
         2002                           11,140
         2003                            8,067
         2004                            3,006
                                        ------

         Total                 $        46,593
                                        ======

     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.

                                      F-14

<PAGE>

     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. Auxer Telecom is a reseller of
telecommunications access services. CT Industries 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. Operating expenses attached to a segment are
identified and allocated accordingly. Merger and acquisition expenses not
identified with a segment are allocated to the parent company.

                                      F-15

<PAGE>

The Company's condensed consolidated balance sheet consists of the following
subsidiary components as of September 30, 2001:
<TABLE>
<CAPTION>
                                                                                       Intercompany    Auxer Group, Inc.
                                          Parent     Automotive Group   Telecom Group  Eliminations    Consolidated
                                          ------     ----------------   -------------  ------------    ------------
Balance Sheet
<S>                                       <C>                  <C>           <C>                      <C>
Current Assets                              $ 72,105        $ 807,597   $ 308,572.00          $ -    $ 1,188,274
Fixed Assets (net)                             9,881           55,059        453,648            -        518,588
Other Assets                               3,971,852            2,429         21,528   (3,696,480)       299,329
                                       ------------------------------------------------------------------------
Total Assets                               4,053,838          865,085        783,748   (3,696,480)     2,006,191
                                       ========================================================================

Liabilities & Stockholders' Equity

Current Liabilities                          477,869        2,391,144      2,324,208   (3,596,421)     1,596,800
Long Term liabilities                        913,176                -              -            -        913,176
Stockholders' Equity                       2,662,793       (1,526,059)    (1,540,460)    (100,059)      (503,785)
                                       ------------------------------------------------------------------------

Total liabilities and stockholders' equity 4,053,838          865,085        783,748   (3,696,480)     2,006,191
                                       ========================================================================

The Company's condensed consolidated statement of operations for the nine months
ended September 30, 2001:

Statement of operations

Revenues                                           -          944,131      1,226,466            -      2,170,597
Costs of goods sold                                -          684,248      1,252,600            -      1,936,848
                                       ------------------------------------------------------------------------
Gross profit                                       -          259,883        (26,134)           -        233,749
Operating expenses                         2,080,020          380,009        749,661            -      3,209,690
                                       ------------------------------------------------------------------------
Income (loss) from operations             (2,080,020)        (120,126)      (775,795)           -     (2,975,941)
Other income (expense):
Interest income                                1,009                -          1,436            -          2,445
                                       ------------------------------------------------------------------------
Income (loss) from continuing operations  (2,079,011)               -       (774,359)           -     (2,973,496)
Discontinued operations                      (75,224)               -              -            -        (75,224)
                                       ------------------------------------------------------------------------
Net Income (loss)                         (2,154,235)        (120,126)      (774,359)           -     (3,048,720)
                                       ========================================================================

The Company's condensed consolidated statement of operations for the nine months
ended September 30, 2000:

Statement of operations

Revenues                                           -        1,417,829        586,304            -      2,004,133
Costs of goods sold                                -          955,010        562,968            -      1,517,978
                                       ------------------------------------------------------------------------
Gross profit                                       -          462,819         23,336            -        486,155
Operating expenses                         1,902,087          465,338        113,747            -      2,481,172
                                       ------------------------------------------------------------------------
Income (loss) from operations             (1,902,087)          (2,519)       (90,411)           -     (1,995,017)
Other income (expense)                        (2,518)               -              -            -         (2,518)
Interest Income                                    -                -              -            -              -
                                       ------------------------------------------------------------------------
Net Income (loss) before
 extraordinary items                      (1,904,605)          (2,519)       (90,411)           -     (1,997,535)
                                       ========================================================================

The Company's condensed consolidated statement of operations for the three
months ended September 30, 2001:

Statement of operations

Revenues                                           -          286,348        302,527            -        588,875
Costs of goods sold                                -          255,769        298,617            -        554,386
                                       ------------------------------------------------------------------------
Gross profit                                       -           30,579          3,910            -         34,489
Operating expenses                           248,019          125,098        139,465            -        512,582
                                       ------------------------------------------------------------------------
Income (loss) from operations               (248,019)         (94,519)      (135,555)           -       (478,093)
Other income (expense):
Interest income                                   60                -            281            -            341
                                       ------------------------------------------------------------------------
Income (loss) from continuing operations    (247,959)         (94,519)      (135,274)                   (477,752)
Discontinued operations                                             -              -            -              -
                                       ------------------------------------------------------------------------
Net Income (loss)                           (247,959)         (94,519)      (135,274)           -       (477,752)
                                       ========================================================================

The Company's condensed consolidated statement of operations for the three
months ended September 30, 2000:

Statement of operations

Revenues                                           -          953,215              -            -        953,215
Costs of goods sold                                -          812,525              -            -        812,525
                                       ------------------------------------------------------------------------
Gross profit                                       -          140,690              -            -        140,690
Operating expenses                         1,316,835          243,478              -            -      1,560,313
                                       ------------------------------------------------------------------------
Income (loss) from operations             (1,316,835)        (102,788)             -            -     (1,419,623)
Other income (expense)                             -                -              -            -              -
Interest Income                                    -                -              -            -              -
                                       ------------------------------------------------------------------------
Net Income (loss) before
 extraordinary item                      $(1,316,835)      $ (102,788)           $ -          $ -   $ (1,419,623)
                                       ========================================================================
</TABLE>

                                      F-16

<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 September 30, 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 September 30, 2001                 2,000,000                 $0.05

         Options exercisable at

                  December 31, 2000                                0                     0
                                                         ===========               ========
         Options exercisable at
                  September 30, 2001                       2,000,000                 $0.05
                                                         ===========               ========
</TABLE>

         The following tables summarize information about stock options
outstanding and exercisable at September 30, 2001:
<TABLE>
<CAPTION>
                                                 Stock Options Outstanding

         Range of Exercise Number of Share              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 nine months ended September 30, 2001 and September 30, 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-17

<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.

         Note 14 - Disposal of Subsidiary

         On May 16, 2001, the Company entered into an stock agreement to sell
Clifton Telecard Inc., a wholly owned subsidiary. Accordingly, the operations of
the distribution division as well as the loss on the sale have been reported
separately as discontinued operations in the accompanying financial statements.

         Summarized results of operations for the subsidiary at September 30,
2001 consist of the following:

         Net Sales                               $9,964,767
         Income from Discontinued Operations     $   72,533

                                      F-18

<PAGE>

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 two (2) subsidiaries, CT Industries, Inc., 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., doing business as The Mechanics Depot. 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., doing business as The
Mechanics Depot, is a specialty distributor of automotive parts and accessories
to local mechanics, service stations and dealers.

Results of Operations for the Nine Months Ended September 30, 2000 and 2001.

The Auxer Group had sales of $2,170,597 for the nine months ended September 30,
2001 as compared to sales of $2,004,133 for the quarter ended September 30,
2000. The increase
in sales was attributed to the revenues from CT Industries prepaid phone cards.
The Auxer Group had net losses of $3,048,720 for the nine months ended September
30, 2001 as compared to net losses of $1,997,535 for the nine months ended
September 30, 2000. The increase in net losses was primarily attributed to the
operating expenses associated with Auxer Telecom operation in Los Angeles,
California, and the operations of Clifton Telecard, Inc, which was disposed of
on May 16, 2001.

The Auxer Group had general and administrative expenses of $2,623,949 for the
Nine months ended September 30, 2001 as compared to general and administrative
expenses of $2,435,419 for the nine months ended September 30, 2000. The
increase in these expenses was attributed to the general and administrative
expenses related to the telecom group, which includes Auxer Telecom, Inc. and CT
Industries, Inc. The Auxer Group had interest expenses of $481,349 for the nine
months ended September 30, 2001 as compared to $14,289 for the nine months ended
September 30, 2000. The increase in these expenses was due to the interest
expense related to the convertible note financing in January 2001. Given the
acquisition and disposition of Clifton Telecard, the results from operations
from period to period are not necessarily comparable.

<PAGE>

Our principle source of revenue has been the telecom group's prepaid phone cards
and the automotive group's automotive aftermarket accessories and specialty
parts.

Our telecom group consists of CT Industries, which is a wholesale distributor of
prepaid phone cards and Auxer Telecom, which is a telecommunications reseller.
Generally, each type of prepaid phone card is available in $5, $10 and $20
denominations. With the exception of the private label phone cards, which CT
Industries prints and activates itself, CT Industries purchases pre-printed,
pre-activated phone cards from each of the applicable telecommunications
resellers or carriers and distributes the cards through its network of
independent distributors. CT Industries is in the process of developing the
X-Factor product line, which may contain feature products, such as The X Cell
Phone and the X Calling Card, the later of which is already being distributed
nationally. Additionally, CT Industries is attempting to gain distribution in
all 50 states as soon as possible. As of November 2001, CT Industries currently
had sold to distributors in 28 states. CT Industries is an independent company
unrelated to Clifton Telecard, which was formerly owned by the Auxer Group and
sold on May 16, 2001. The two companies continue to have a vendor/client
relationship. The two companies don't have any agreements outlining this
relationship. CT Industries handles walk-in customers in the West Paterson, NJ
area and will also provide warehouse space to handle inventory.

The automotive group currently has two subsidiaries selling automotive products.
Hardyston Distributors, doing business as The Mechanics Depot, distributes a
variety of automotive hard parts and Harvey Westbury, which distributes
automotive aftermarket accessory products including products under the names
Easy Test and Garry's Royal Satin.

In July 2000 Harvey Westbury Corp.'s automotive air conditioning line gained new
distribution with National Wholesale Distributors, a major discount retail
chain. National Wholesale Distributors has 36 retail warehouses and 2
distribution centers throughout the Northeast United States. Also in July, Trak
Auto, a major automotive retailer, reordered Harvey Westbury's new kits and
accessories. Trak Auto's initial orders for Harvey Westbury's Air conditioning
products were over $225,000.

In July 2000 Auxer announced its telecommunication group projections of $60
Million in revenues with earnings of $3 to $6 Million on a per annum basis. In
July 2000 Auxer Group announced projected revenue for Clifton Telecard of $25 -
$35 Million based on a per annum basis. Projections were based on management's
internal business plan, Clifton Telecard's client base and growth potential. The
Telecom Group produced revenues of approximately $500,000 for the six month
period ending June 30, 2001. The above projections for revenues and earnings
were not met.

In August 2000, we acquired telecommunications equipment as part of our strategy
to form a telecom group. On August 24, 2000, we completed the transfer of assets
formerly associated with Sponge Technologies, Inc. to Auxer Telecom, Inc., a new
wholly-owned subsidiary of The Auxer Group. The subsidiary's operation has been
relocated from Santa Monica California to a location on Wilshire Blvd., Los
Angeles, California. Auxer Telecom has been established and engineered to manage
$60 Million in telecommunications traffic. More specifically, the operation,
personnel and equipment in California has been designed to be able to support
approximately $60 Million in initial traffic. We plan to add additional
equipment and personnel in the telecom group if revenues continue to grow.

<PAGE>

The total price paid for the equipment by the Auxer Group was $568,000 payable
as follows: $10,000 upon the execution of the Agreement and commencing October
1, 2000 and continuing the first day of each successive month, Auxer Telecom
shall pay additional monthly installments of $10,000 for a series of 10
payments. On August 1, 2001 the Auxer Telecom shall pay the seller, Chasin of
Long Beach, Inc., doing business as Colbie Pacific Capital, the sum of $458,000.

In September 2000, our automotive group launched its fall and winter line of
Easy Test products, which included a new series of utility drop lights for
mechanics and endusers. Management announced these products could increased
revenues of the automotive group by $500,000 during the 2000 and 2001 winter and
spring seasons. The projections were based on potential sales from Harvey
Westbury's existing client base. Harvey Westbury's new products represented
approximately $95,000 through first quarter of 2001 based on The Auxer Group's
quarterly financial review.

On September 14, 2000, Auxer Telecom had completed the first phase and its
switches are operational and has completed carrier contracts with Pacific
Digital Networks for International, Long Distance, and Domestic services. The
Auxer Group entered into the final stages of negotiations with Clifton Telecard
Alliance.

On September 22, 2000, Auxer completed the acquisition of the assets of Clifton
Telecard Alliance, a wholesale distributor of prepaid phone cards. The assets
acquired were placed in a newly formed corporation called Clifton Telecard, Inc.
which is doing business as Clifton Telecard Alliance. Based on Clifton Telecard
Alliance's financial statements, management announced on September 22 that
Clifton Telecard's sales had nearly doubled during the year 2000 to a pace of
$30 Million on an annual basis. Management announced projections of $25 30
Million in revenue during its first twelve months of operation as part of the
Auxer Telecom Group. Additionally, management released a statement that Auxer
plans to grow and expand the operations to approximately $60 Million on an
annual basis. In the first quarter of 2001, the Telecom Group produced revenues
of over $7 Million dollars. These projections were based on estimates of monthly
revenue extrapolated out over twelve months and growth rates estimated based on
monthly revenue growth rates. The Auxer Group sold Clifton Telecard on May 16,
2001. The impact of this sale is discussed in this section.

In October 2000, our subsidiary, Harvey Westbury, entered into a joint venture
agreement with United Suppliers of America to market and distribute alternative
refrigerant products and kits. This relationship could produce increased
revenues for the automotive group in which management believes it can be a major
supplier of kits and accessories for the alternative and HFC 134a refrigerant
markets over the next couple of seasons. Management believes the market for
Alternative and HFC 134a refrigerant is approximately $135 Million. This
estimate is based managements review of clients and prospective clients
estimated potential sales. During the 2001 air conditioning season, Harvey
Westbury completed initial packaging and kit designs and initial kits were
tested during this season.

<PAGE>

In October 2000, Clifton Telecard, Inc. launched its new website
www.cliftontelecard.com. Also in October Auxer Telecom completed all primary
systems testing to include switch systems, security systems, back-up systems,
customer services systems, servers and circuit connectivity between sites. In
addition management announced on October 24, 2000 the Telecom Group had
generated over $2.2 Million in revenue since the acquisition of Clifton Telecard
four weeks ago. The revenue was based on orders shipped for the period of
October 15 through October 21, 2000.

In October 2000, Harvey Westbury gained new distribution of its automotive air
conditioning line with FJ Auto Distributors in Puerto Rico. Also in October,
Harvey Westbury and its Easy Test Air Conditioning line was feature in the
October 18, 2000 edition of Ozone Depletion Today which is published by EIN
Publishing, Inc. The industry report highlights the company's efforts in
developing ozone-friendly alternative refrigerant kits.

On November 28, 2000, the Auxer Group unveiled its twelve month strategy. First,
the Auxer Group planned to complete the transition of Clifton's traffic to Auxer
Telecom over the following 60 days. Auxer Telecom was able to transfer all cards
by the end of January 2001. The African Talk and Original phone cards remained
with their original carriers due to cost. Second, the Auxer Group expected to
enter into formal negotiations with at least one, and possibly two more
acquisition candidates in the telecommunications industry, which it intended to
complete in the first and second quarters of 2001. During the first and second
quarters of 2001, the negotiations were postponed until the fall of 2001 Third,
Auxer Group planned to invest in several beta test programs being developed by
Auxer Telecom in the areas connected to broadband, virtual private networks, and
ATM/prepaid phone card combinations. These plans were put on hold in the second
quarter after management decided to restructure operations in Los Angeles. And
lastly, the Auxer Group believed it would be properly developed and in position
to apply for listing on the NASDAQ during the next fiscal year which was its
final objective for the year 2001. While the end of the year has not arrived,
management believes that this objective may be difficult to achieve by year end.
The Auxer Group's vision for year 2001 is to have Auxer on a sales pace of $180
Million per annum and assets under management in excess of $20 Million. While
the end of the year has not arrived, management believes that this objective may
be difficult to achieve by year end.

Throughout the fourth quarter of 2000, The Auxer Group issued a series of press
releases of weekly sales and projected 4th quarter sales. On October 2, 2000,
The Auxer Group estimated revenues for Clifton Telecard and the Telecom Group to
do $550,000 for the third quarter ending September 30, 2000. On October 3, 2000
The Auxer Group announced its Telecom Group was projecting revenues of $6 - $8
Million for the fourth quarter ending December 31, 2000. On October 10, 2000 The
Auxer Group announced estimated revenues for the Telecom Group were over
$520,000 for orders shipped during the period October 1 through October 7, 2000.
On October 17, 2000, The Auxer Group announced estimated revenues of $590,000
for orders shipped during the period October 8 through October 14, 2000. On
October 24, 2000 The Auxer Group announced estimated revenues of $2.2 Million
since the acquisition of Clifton Telecard on orders shipped since September,
2000. On October 30, 2000, The Auxer Group announce estimated revenues of
$570,000 for orders shipped during the period of October 22 through October 28,
200 0. Weekly revenues announced were confirmed in audited financial statements
for the period ending December 31, 2000. Actual revenues for the period ending
December 31, 2000 was $9,287,618 for the Telecom Group, of which $586,304 is
represented in the third quarter of 2000 and $8,701,314 is represented in the
fourth quarter of 2000. Revenues are based on The Auxer Group's financial review
for the three months ending September 30, 2000 and audited financials for the
year ending December 31, 2000.

<PAGE>

Throughout the years 2000 and early 2001, The Auxer Group's Executive Vice
President, Ronald Shaver, conducted three interviews on August 7, 2000, October
17, 2000 and March 6, 2001 to answer investor questions. The during an interview
with Investornuts.com, management disclosed that "The Auxer Group's next six
months was dedicated to growing the Telecom Group through acquisition and growth
in sales." Management also disclosed "Auxer is currently in discussions on
several other telecommunications ventures to include projects in the area of
broadband technology and other cutting edge concepts." Management also disclosed
that, "If our two groups continue at the current pace and some of the
discussions the company is currently involved continue to materialize, we
believe this company could achieve revenue levels in excess of $150 Million for
the next year." Management also disclosed, "Auxer is expecting both of its
operating groups to show profits this year." At the time of the interviews The
Auxer Group was considering additional acquisitions, which would have supported
the above referenced revenue level. The acquisition never came to fruition. At
the time of the interview, management believed both of its operating groups
could show profits. These projections were based on management's business plans
and the client bases potential to purchase product from each of the operating
subsidiaries. The actual earnings results for The Auxer Group were losses of
$2.7 Million for the year ended December 31, 2000.

In January 2001 The Auxer Group announced that Auxer Telecom's switch received
holiday traffic of 1.2 Million minutes of telecommunications traffic during the
holiday season. The minutes reported were based on traffic reports generated
from Auxer Telecom's switch software. In March of 2001 CT Industries 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 9, 2001, CT Industries, Inc.'s Board of Directors approved the
expansion of the business focus to include telecommunications related business.
As part of this expansion, CT Industries hired Nadia Mustafa, a former sales
manager of Clifton Telecard Alliance prior to the Auxer Group acquiring the
Clifton Telecard operation. Ms. Mustafa was contracted as Sales Manager for CT
Industries' phone card operations in March 2001 for a two (2) year term. The
terms of her employment are unrelated to Auxer's former subsidiary Clifton
Telecard and she is currently the Sales Manager of CT Industries.

In March 2001 The Auxer Group hired M. Johnson & Associates to provide investor
relations services to The Auxer Group and its subsidiaries. On March 14, 2001,
the Auxer Group added Benjamin Colarossi to the marketing team for the X-Factor.
Mr. Colarossi is a consultant to Auxer and is currently acting in that capacity.

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.

<PAGE>

On March 22, 2001 The Auxer Group announced they achieved record revenues for
the year 2000 of $10.99 Million in sales for the year, compared to $871,000 that
The Auxer Group posted in 1999. The Telecom Group represented $8.5 Million of
those revenues in the fourth quarter of 2000. The Automotive Group represents
the remainder of revenues for the year 2000. Assets under management were $5.4
Million in 2000, compared to $471,000 posted in 1999. Revenues are based on
audited financial statements of The Auxer Group.

On March 26, 2001 CT Industries 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.

On April 16, 2001, management announced that Clifton Telecard's fourth quarter
sales were on a $34 Million annualized pace and that CT Industries' projected a
sales pace equivalent to its sister company, Clifton Telecard, by the third
quarter of 2001. These projections were based on Clifton Telecard's client base
and management's estimate of potential growth. The $34 Million pace was
extrapolated by multiplying Clifton Telecard's fourth quarter 2000 sales of $8.5
Million by four quarters. As of November 2001 CT Industries has distribution in
twenty-eight states. Its current business plan is to obtain distribution
throughout all 50 states. CT Industries currently has no new distribution
agreements in place.

On March 29, 2001, CT Industries 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.

On May 16, 2001 The Auxer Group sold 100% of the stock of Clifton Telecard, Inc.
to Kattosko Communications in consideration for cash, elimination of debt, and a
note payable totaling $972,350. The method for determining the valuation was
based on CLifton Telecard's actual value of its tangible assets less its
accounts receivable, inventory and equipment. Clifton Telecard's accounts
receivable, inventory and all liabilities were retained by Clifton Telecard
because during negotiations, the parties agreed the assets and liabilities must
be retained by Clifton Telecard in order for Kattosko Communications to
effectively continue Clifton Telecard's operations. The total valuation of the
transactions was $972,350 which was determined based on the value of the current
bank account, valued at approximately $528,000, forgiveness of inter-company
debts netting at approximately $344,350 and a note payable in the amount of
$100,000. The Auxer Group and Kattosko Communications agreed that the valuation
of Clifton Telecard warranted a preminium or "goodwill" of $100,000 in the form
of a note payable. This was in addition to the value of the bank account of
$528,000 and the forgiveness of inter-company debt of $344,350. The valuation of
the premium or "goodwill" was negotiated based on the fact that CLifton
Telecard's net income from operations for the 1st quarter of 2001 was $1,249
derived from revenues of $7,185,748, or basically break-even. No basis in
valuation was determined for the other intangible assets which consisted
principally of the following trademarks: One Cent, Kamustahan, Humsafar, El Sol
Mexico, Jerusalem Middle East, Que Viva Mexico, African Talk, Para Todos, Brazil
Campeao, Original and African Voice. Since both the Auxer Group and Kattosko
Communications retained the rights to distribute these trademarks, the
trademarks were determined not to have any basis in valuation of the
transaction. In addition to the above consideration, terms and rights to above
trademarks, Kattosko Communications continues to have rights to purchase prepaid
cards from Auxer Telecom and The Auxer Group and its subsidiaries will have
rights to purchase prepaid phone cards from Kattosko Communications. The
negotiations were handled by the officers of The Auxer Group and Kattosko

<PAGE>

Communications. In addition, Mustafa Qattous resigned as President of Operations
and terminated his employment contract. Under the terms of this termination, he
retains the initial 1,000,000 shares of common stock received, but forfeits any
remaining options and/or cash compensation outlined in his employment agreement.
The two companies continue to have a vendor/client relationship. The two
companies don't have any agreements outlining this relationship.

Management decided to divest of Clifton Telecard due to its declining
profitability. Additionally, management believed that CT Industries represented
potentially higher profit margins. During the third quarter, management
estimates the sale of Clifton Telecard impacted The Auxer Group's total revenues
were reduced by approximately $5.5 Million. Management expects the impact of the
sale of Clifton Telecard to be approximately a $2 to 3 Million reduction in
revenue for the fourth quarter. Impact estimates are based on estimated
quarterly revenues of Clifton Telecard of approximately $6 Million. Clifton
Telecard represented approximately 96 percent or $7 Million of The Auxer Group's
revenue base during the first quarter of 2001. These projections are based on CT
Industries current and potential client base and plans to develop and introduce
new products. Clifton Telecard represented approximately 97 percent or $6.9
Million of Auxer's cost of goods and approximately 15 percent or $281,000 of
Auxer's general and administrative expenses. Management estimates the impact of
the sale of Clifton on the assets of Auxer to be a reduction of approximately
$3,000,000 and on the liabilities of Auxer to be a reduction of approximately
$3,000,000 based on the terms of the sale agreement and the forgiveness of
intercompany debts.

On May 22, 2001 The Auxer Group announced revenues for the first quarter of 2001
of $7.4 Million, compared with revenues of $535,540 for the first quarter 2000.
The increase in revenues was primarily attributed to the prepaid phone card
business of CT Industries, Auxer Telecom and Clifton Telecard. The Auxer Group
also reported losses of $1,957,333 for the first quarter 2001. These losses were
primarily related to new product development, consulting, and one-time financing
related expenses. The revenues reported were based on financial review conducted
by The Auxer Group's auditors.

On June 12, 2001 The Auxer Group announced its decision to reduce overhead by
restructuring several areas of its operation. Since June, The Auxer Group has
reduced its staff in Los Angeles to five personnel and reduced its facility
costs by relocating its staff. Additionally, CT Industries has implemented a
direct sales and marketing approach in an effort to minimize its costs. Also,
the Automotive Group has trimmed its operations and delivery staff in an effort
to cover its overhead.

For the period ending December 31, 2000, we began accounting for our segmented
information by groups due to the formation and acquisition related to the
telecommunications industry. Effective since the 3rd quarter of 2000, we segment
our information by automotive and telecom groups. The financial condition and
results of operations for Auxer Telecom, Inc. began to be reflected in The Auxer
Group's financial statements effective August 24, 2000. The financial condition
and results of operations for Clifton Telecard, Inc. began to be reflected in
The Auxer Group's financial statements effective September 22, 2000.

<PAGE>

For the period ending December 31, 2000, the audited financials reflect a
reclassification of $102,000 of stock issued in connection with the acquisition
of assets of Clifton Telecard Alliance. The result of this reclassification
reflects a change in the purchase price of Clifton Telecard to $964,000. At the
time of the 8K/A filing on December 8, 2000 the purchase price was accounted for
based solely on the bill of sale of $862,000.

Our automotive sales of air conditioning products can be effected by the
intensity of the weather during the 2nd and 3rd quarter of the year.

We formed a telecom group consisting of two subsidiaries, Auxer Telecom and
Clifton Telecard, Inc. All of the revenue generated from Auxer Telecom was
related to distribution and sales from Clifton Telecard, Inc. for the period
ending December 31, 2000. The revenue has been accounted as intercompany sales
in the consolidated financial statements.

Our ability to achieve profitability will depend, in part, on our ability to
successfully increase our revenue from our operating groups. We will require
additional funding through external sources to achieve profitability. There is
no assurance that we will be able to successfully raise the additional funding
or increase its revenue in order to achieve profitability.

Section 5 violation

In 1998, 1999, and 2000, The Auxer Group completed a series of Regulation D,
Rule 504 Offerings which might be considered to violate Section 5 of the 1933
Securities Act as well as violate certain state securities laws that would allow
holders of the securities the right to rescind and demand the return of their
purchase price.

Our issuances of common stock pursuant to Regulation D Rule 504 in 1998, 1999
and 2000 might be considered a public offering in violation of the federal
securities laws. These issuances might also have been in violation of certain
state securities laws where holders of these securities might be granted the
right to rescind the sale of shares and demand that we return the purchase price
of the shares.

Section 5 of the 1933 Securities Act states that it is unlawful to sell
securities unless a registration statement is effective or an exemption from
registration can be relied upon. In the event that it would be determined that
we were in violation of Section 5 of the 1933 Act regarding our Regulation D
Rule 504 offerings due to the fact that we sold unregistered securities in our
1998, 1999 and 2000 Regulation D, Rule 504 offerings, Section 12(1) of the 1933
Act would apply regarding statute of limitations.

Pursuant to Section 12(1) of the 1933 Act, the statute of limitations for this
type of claim is one year after the date of the alleged violation and, if
successful, would entitle the investors of our common stock to rescind the
issuance of the securities to them and demand a return to them of the purchase
price of those securities. Thus, the limitation period began to toll as soon as
the violation of Section 5 has occurred, regardless of whether an investor was
aware of the violation. In this case, the Section 5 violation was the sale by us
of unregistered securities from January 1998 to January 2000. As of November 7,
2001, if Section 5 of the Securities Act of 1933 was violated, no claims could
be made since these violations occurred more than one year ago.

<PAGE>

The Regulation D, Rule 504 Offerings discussed above may have violated
securities laws of several states in connection with the issuance of our common
stock. Similar to the recourse provided under the federal securities laws,
holders of these securities may be able to make a claim to rescind the sale or
issuance of these securities to them and demand a return of the purchase price
paid for these shares. Accordingly, if these stockholders rescind the sale of
these securities under federal law, they would not have the right to additional
payments from us under state law. As of November 7, 2001, if Section 5 of the
Securities Act of 1933 was violated, no claims could be made since these
violations occurred more than one year ago.

Internal and External Sources of Liquidity

Our subsidiary, Harvey Westbury had a credit facility agreement with Merchant
Financial Corporation. The credit facility 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 was calculated at a rate
equal to the prime rate plus 5% per annum above the prime rate of 6.75%
effective June 28, 2001. The credit facility agreement required a commitment fee
of 1% of the maximum credit line on each anniversary date of the signing of the
agreement. The anniversary date was July 11, 2000. On July 11, 2001, the
agreement was terminated. Both parties mutually agreed not to extend the terms
of the credit facility. Merchant Financial Corporation determined the account
did not meet minimum outstanding balances sufficient for justifying
administration costs. On September 26, 2001, the outstanding balance for the
credit facility with Merchant was paid in full. By terminating this credit
facility, Harvey Westbury could be prevented from receiving adequate funding to
properly operate and pay for product on a timely basis.

In January 2001, we refinanced our note payable to shareholders listed in the
Selling Security Holder section in the amount of $551,685 and borrowed an
additional $360,000 as part of an issuance of 8% convertible debentures which
are due on January 16, 2006, totaling $911,685, plus interest. The Debentures
may be converted into our common stock by multiplying the conversion amount that
a Regulation D Investor converts times 65% or the Conversion Factor of the
market price of our common stock. The market price is calculated by averaging
the 3 lowest closing bid prices on our common stock for the 10 trading days
prior to conversion. We executed a Registration Rights Agreement with each
Regulation D Investor. Such agreement requires us to register the maximum number
of shares issuable upon conversion of the Debentures. In addition, the
Registration Rights Agreement requires this registration statement to become
effective by May 31, 2001 or the Conversion Factor shall decrease based on the
following: August 30, 2001 to September 28, 2001: 52 1/2% and September 29, 2001
or later: 50%

<PAGE>

For the nine months ended September 30, 2001, the Company paid for operations by
raising $503,484 through common stock issuance and debt borrowings after
payments to short term debts. The Company had Notes Payable to shareholders of
$58,631, had other notes payable of $721,031, and notes payable convertible debt
of $911,685 on September 30, 2001. The agreement with Merchant Financial
Corporation was terminated on July 11, 2001. Both parties mutually agreed not to
extend the terms of the credit facility. Merchant Financial Corporation
determined the account did not meet minimum outstanding balances sufficient for
justifying administration costs. On September 26, 2001, the outstanding balance
for the credit facility with Merchant was paid in full. By terminating this
credit facility, Harvey Westbury could be prevented from receiving adequate
funding to properly operate and pay for product on a timely basis.

For the quarter ended September 30, 2000, the Company paid for operations by
raising $2,470,461 through common stock issuance and debt borrowings after
payments to short term debts. The Company had Notes Payable to shareholders of
$75,732 and had other notes payable of $788,345 on September 30, 2000. The
Company had loans outstanding against its credit line of $142,284 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.

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.

<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; 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. An additional case involving
the Auxer Group's purchase of Harvey Westbury was 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. This case was about
wages due, seeking damages of $5,264.00. 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 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 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 requests 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, Interdynamics 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. Interdynamics Inc. actions constitute a violation of Section 2 of the

<PAGE>

Sherman Act, 15 U.S.C. Sec. 2, in that these actions constitute 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 Interdynamic's injunction in all respects.
The Auxer Group intends to vigorously defend this action and pursue its
antitrust case against Interdynamics. In the event that a monetary judgment is
eventually rendered against the Auxer Group, the 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 Interdynamics could have sold its
product if not for the Auxer Group's sales. Management estimates a monetary
judgment against the Auxer Group and or its subsidiary, Harvey Westbury, could
be approximately $75,000.

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. 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.

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. None

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: November 14, 2001       /s/Eugene Chiaramonte, Jr.
                              ---------------------------
                                 Eugene Chiaramonte, Jr.
                                 President, Chief Executive
                                 Officer and Director