MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

       The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes, which appear elsewhere in this prospectus. It contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly under the heading "Risk Factors."

Overview

       Since our formation in 1998, we have grown through both internal development and acquisitions. For the first 18 months of our existence, we focused on growth through acquisitions. Our acquisition strategy has been to target companies with strong management teams, a record of environmental compliance, solid growth prospects and a reputation for quality and customer service. We believe it is important for former owners to remain active in our business and have frequently used equity as a significant component of acquisitions.

       Internal growth is an important driver of our revenue and operating results. Since 1999, we have focused primarily on growing our sales and operating results within our existing organization. We have done so by developing our regional distribution networks and by creating overnight product transfers between our facilities to better leverage our inventory investment and to increase our ability to fill customer demand. We acquire salvage vehicles for dismantling from several sources, including salvage auctions, insurance companies and OEMs. We acquire the majority of our salvage vehicles from salvage auctions. A critical component of our success is our ability to identify and value the recyclable parts on a damaged vehicle and rapidly determine the maximum price that we can pay for the salvage vehicle at auction in order to obtain our target margins on the resale of the recycled OEM products. Our ability to correctly assess the quality and ultimate sales prices for products when we purchase a salvage vehicle, as well as our ability to obtain the vehicle at a cost we determine to be reasonable in light of that assessment, directly impacts our profit margins in the periods subsequent to acquisition of the vehicles.

       Our revenue, cost of salvage vehicles and operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control. Factors that may affect our operating results include, but are not limited to:

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fluctuations in the market value of salvage and used vehicles;

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the availability and cost of salvage vehicles;

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variations in vehicle accident rates;

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changes in state or federal laws or regulations affecting our business;

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our ability to integrate and manage our acquisitions successfully;

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severity of weather and seasonality of weather patterns;

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the amount and timing of operating costs and capital expenditures relating to the maintenance and expansion of our business, operations and infrastructure; and

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declines in asset values.

       Due to the foregoing factors, our operating results in one or more future periods can be expected to fluctuate and period-to-period comparisons of our results of operations should not be relied upon as indications of future performance.

Sources of Revenue

       Since 2000 our revenue from the sale of recycled OEM products and related services has ranged between 88% and 91% of our total revenue. We sell the majority of our recycled OEM products to collision repair shops and mechanical repair shops. Our recycled OEM products include, for example, engines, transmissions, front-ends, doors and trunk lids. The demand for our products and services is influenced by several factors, including the number of vehicles in operation, the number of miles being driven, the frequency and severity of vehicle accidents, availability and pricing of new and aftermarket parts, seasonal weather patterns and local weather conditions. Additionally, automobile insurance companies exert significant influence over collision repair shops as to how an insured vehicle is repaired and the cost level of the products used in the repair process. Accordingly, we consider automobile insurance companies to be key demand drivers for our products. We provide insurance companies services that include the review of vehicle repair order estimates, as well as direct quotation services to their adjusters. There is no standard price for recycled OEM products, but rather a pricing structure that varies from day to day based upon such factors as product availability, quality, demand, new product prices and the age of the vehicle being repaired.

       When we obtain a mechanical product from a dismantled vehicle and determine it is damaged or when we have a surplus of a certain mechanical product types, we sell them in bulk to mechanical remanufacturers. Since 2000 these sales have ranged from 4.8% to 7.1% of our total revenue. The majority of these products are transferred to two of our facilities in Houston, Texas where a sorting by product and model type takes place. Examples of such products are engine blocks and heads, transmissions, starters, alternators, and air conditioner compressors. After we have recovered all the products we intend to resell, the remaining materials are crushed and sold to scrap processors. Our revenue from the sale of scrap accounts for less than 1.7% of our total revenue.

       We also sell extended warranty contracts for certain mechanical products. These contracts cover the cost of parts and labor and are sold for periods of six months, one year or two years. We defer the revenue from such contracts and recognize it ratably over the term of the contracts. These contracts account for approximately 1% of our total revenue.

Cost of Goods Sold

       Our cost of goods sold includes the price we pay for the salvage vehicle, as well as auction fees and towing, where applicable. Our cost of goods sold also includes labor and other costs we incur to acquire and dismantle such vehicles. Our labor costs related to buying and dismantling account for approximately 10% of our cost of goods sold. The acquisition and dismantling of salvage vehicles is a manual process and, as a result, energy costs are not material.

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       Our revenue from products that we obtain from third party recyclers to sell to our customers, which we refer to as brokered product sales, generally ranges from 8.9% to 9.6% of our total revenue. We purchase these products when we do not have them available in our own inventory. The gross margin on brokered product sales as a percentage of revenue is generally less than half of what we achieve from sales of our own inventory because we must pay higher prices for these products.

       Some of our mechanical products are sold with a standard six month warranty against defects. We record the estimated warranty costs at the time of sale using historical warranty claim information to project future warranty claims activity and related expenses. Our warranty expense is less than 1% of our total cost of goods sold. Our warranty reserve is as follows:

       We also sell separately priced extended warranty contracts for certain mechanical products. The expense related to extended warranty claims is recognized when the claim is made.

Expenses

       Our facility and warehouse expenses primarily include our costs to operate our processing and redistribution facilities. These costs include labor for both plant management and facility and warehouse personnel, facility rent, property and liability insurance, utilities and other occupancy costs.

       Our distribution expenses primarily include our costs to deliver our products to our customers. Included in our distribution expense category are labor costs for drivers, local delivery and transfer truck rental costs, vehicle repairs and maintenance, insurance and fuel.

       Our selling and marketing expenses primarily include our advertising, promotion and marketing costs, salary and commission expenses for sales personnel, sales training, telephone and other communication expenses and bad debt expense. Personnel costs account for approximately 80% of our selling and marketing expenses. Most of our sales personnel are paid primarily on a commission basis. The number and quality of our sales force is critical to our ability to respond to our customers' needs and increase our sales volume. We are continually evaluating our sales force, developing and implementing training programs and utilizing appropriate measurements to assess our selling effectiveness.

       Our general and administrative expenses include primarily the costs of our corporate office and three regional offices that provide corporate and field management, treasury, accounting, legal, payroll, human resources and information systems functions.

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Seasonality

       Our operating results are subject to quarterly variations based on a variety of factors, influenced primarily by seasonal changes in weather patterns. During the winter months, we tend to have higher demand for our products. In addition, the cost of salvage vehicles tends to be lower as more weather related accidents occur generating a larger supply of total loss vehicles.

Critical Accounting Policies and Estimates

       Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, assumptions and judgments, including those related to revenue recognition, inventory valuation, allowance for doubtful accounts, goodwill impairments, self-insurance programs, contingencies, asset impairments and taxes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of these estimates form the basis for our judgments about the carrying values of assets and liabilities and our recognition of revenue that is not readily apparent from other sources. Actual results may differ from these estimates.

Revenue Recognition

       We recognize and report revenue from the sale of recycled automotive products when they are shipped and title has transferred, subject to a reserve for returns, discounts and allowances that management estimates based upon historical information. A collision repair product would ordinarily be returned within a few days of shipment, while a mechanical repair product may take longer to be returned. Discounts may be earned based upon sales volumes, or sales volumes coupled with prompt payment. Allowances are normally given within a few days following product shipment.

       We also sell separately priced extended warranty contracts for certain mechanical products. Revenue from these contracts is deferred and recognized ratably over the term of the contracts.

Inventory Accounting

       Inventory is recorded at the lower of cost or market. Our inventory cost is established based on the price we pay for a vehicle, and includes buying, dismantling and, where applicable, auction fees and towing. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices. The average cost percentage is derived from each facility's historical vehicle sales, together with the costs for salvage vehicles purchased at auction or at contracted rates for salvage vehicles acquired under direct procurement arrangements. Our inventory carrying value is adjusted regularly to reflect the age and current and anticipated demand for our products. If actual demand differs from our estimates, an adjustment to our inventory carrying value would be necessary in the period such determination is made.

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Allowance for Doubtful Accounts

       We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The allowance for doubtful accounts is based on our assessment of the collectibility of specific customer accounts, the aging of the accounts receivable and our historical experience. Our allowance for doubtful accounts at June 30, 2003 was approximately $1.5 million, which represents 6.8% of gross receivables. If actual defaults are higher than our historical experience, our allowance for doubtful accounts may be insufficient to cover the uncollectible receivables, which would have an adverse impact on our operating results in the period of occurrence. Our exposure to uncollectible accounts receivable is limited because we have a large number of smaller customers that are generally geographically dispersed. We control credit risk through credit approvals, credit limits and monitoring policies. We also have customers that pay for product at the time of shipment.

Goodwill Impairment

       We recorded goodwill as a result of our acquisitions. On January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which we refer to as SFAS 142, that requires us to analyze our goodwill for impairment at least annually. The determination of the value of goodwill requires us to make estimates and assumptions that affect our consolidated financial statements. In assessing the recoverability of our goodwill, we must make assumptions regarding estimated future cash flows and other factors to determine fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets. We perform goodwill impairment tests on an annual basis and between annual tests whenever events may indicate that an impairment exists. In response to changes in industry and market conditions, we may be required to strategically realign our resources and consider restructuring, disposing of or otherwise exiting businesses, which could result in an impairment of goodwill.

       As a part of our adoption of SFAS 142, we utilize outside professionals in the valuation industry to validate the assumptions and overall methodology used to determine the fair value estimates. Valuations for some of our acquisitions have declined significantly since we made them due to a number of factors, including lower earnings multiples applied in the valuations of comparable companies. This resulted in the carrying values of certain reporting units exceeding the fair value of those reporting units as of January 1, 2002. As a result of adopting SFAS 142, we recorded a goodwill impairment of $49.9 million, net of tax of $16.1 million, as a cumulative effect of a change in accounting principle at January 1, 2002. As of June 30, 2003, we had $50.8 million in goodwill that will be subject to future impairment tests. If we were required to recognize goodwill impairments in future periods, we would report those impairment losses as part of our operating results and not as a change in accounting principle. We determined that no additional adjustments were necessary when we performed our annual impairment testing in the fourth quarter of 2002.

Impairment of Long-Lived Assets

       We review long-lived assets for possible impairment whenever events or circumstances indicate that the carrying value of such assets may not be recoverable. If our review indicates that the carrying value of long-lived assets is not recoverable, we reduce the carrying amount of the assets to fair value. We

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have had no adjustments to the carrying value of long-lived assets in 2001, 2002 or 2003. We had an impairment loss in 2000 relating to certain application software licenses that we abandoned in 1999. These licenses were partially written down using market estimates in our December 31, 1999 balance sheet. We were unable to subsequently sell the licenses and we recorded an impairment loss of $0.5 million ($0.3 million after tax) in 2000. We also closed two satellite facilities during 2000, and recorded an impairment loss of $0.1 million in connection with these closures.

Self-Insurance Programs

       We self-insure a portion of employee medical benefits under the terms of our employee health insurance program. We purchase individual stop-loss insurance coverage that limits our exposure on specific claims as well as aggregate stop-loss insurance coverage that limits our total exposure to employee medical claims. We also self-insure for a portion of automobile, general liability and workers' compensation claims. We have purchased stop-loss insurance coverage that limits our exposure to both individual claims as well as our overall claims. The cost of the stop-loss insurance is expensed over the contract periods.

       We record an accrual for the claims expense related to our employee medical benefits, automobile, general liability and workers' compensation claims based upon the expected amount of all such claims. If actual claims are higher than what we anticipated, our accrual might be insufficient to cover our claims costs, which would have an adverse impact on our operating results in that period. If we were to incur claims up to our aggregate stop-loss insurance coverage, we would have an additional expense of approximately $3.0 million on an annual basis.

Contingencies

       We are subject to the possibility of various loss contingencies arising in the ordinary course of business. We consider the likelihood of loss or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss, in determining loss contingencies. We accrue an estimated loss contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether the accruals should be adjusted. If the amount of an actual loss is greater than the amount we have accrued, this would have an adverse impact on our operating results in that period.

Accounting for Income Taxes

       We record a valuation allowance to reduce our deferred tax assets to the amount that we expect is more likely than not to be realized. We consider historical taxable income, expectations and risks associated with our estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance. We had a $0.1 million valuation allowance as of each of December 31, 2001 and 2002, and June 30, 2003, against our deferred tax assets. Should we determine that it is more likely than not that we would be able to realize all of our deferred tax assets in the future, an adjustment to the net deferred tax asset would increase income in the period such determination was made. Conversely, should we determine that it is more likely than not that we would not be able to realize all of our deferred tax assets in the future, an adjustment to the net deferred tax assets would decrease income in the period such determination was made.

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Acquisitions

       We acquired three automotive recycling businesses in 2003 for an aggregate of $3.5 million in cash, $0.2 million of which will be paid subsequent to June 30, 2003, and 50,000 shares of our common stock, which are reflected as redeemable common stock on our balance sheet. These are the first companies we have acquired since 1999. We continue to target certain strategic markets that would enhance and extend our existing network, and expect to establish additional redistribution centers or open new sales and processing facilities in markets where acceptable acquisition targets cannot be located.

Segment Reporting

       All of our operations are conducted in the United States. We manage our operations geographically. Because approximately 95% of all revenue and 92% of all profits are derived from, and 95% of all assets are used in, our salvage operations, we have concluded that our business activities fall into one reportable segment.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

        Revenue.     Our revenue increased 11.2%, from $144.1 million for the six month period ended June 30, 2002 to $160.3 million for the comparable period of 2003. The increase in revenue is primarily

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due to the higher volume of products we sold as we have added two redistribution centers since the first quarter of 2002 and increased the number of customers that we serve by approximately 4.9%. In addition, we continued to expand our services to the insured repair industry, and added delivery routes, which helped us to increase our market penetration. We also completed three business acquisitions during the first half of 2003. The revenue attributable to these business acquisitions, since the dates of acquisition, accounted for approximately $2.4 million.

        Cost of Goods Sold.     Our cost of goods sold increased 9.1%, from $77.4 million for the six month period ended June 30, 2002 to $84.5 million for the comparable period of 2003. As a percentage of revenue, cost of goods sold decreased from 53.7% to 52.7%. The increase in cost of goods sold was primarily due to the increased volume of products we sold.

        Gross Margin.     Our gross margin increased 13.7%, from $66.7 million for the six month period ended June 30, 2002 to $75.8 million for the comparable period for 2003. As a percentage of revenue, gross margin increased from 46.3% to 47.3%. The increase in gross margin is due primarily to higher revenue growth in our markets that historically have higher gross margins as a percentage of revenue, in particular our operations in the Midwest and Northeast, and our improving costs of salvage in our Western and Southeast operations.

        Facility and Warehouse Expenses.     Facility and warehouse expenses increased 7.9%, from $17.8 million for the six month period ended June 30, 2002 to $19.2 million for the comparable period for 2003. As a percentage of revenue, facility and warehouse expenses decreased from 12.3% to 12.0%. The increase in expenses is primarily due to higher workers' compensation, property insurance and property taxes during the first half of 2003.

        Distribution Expenses.     Distribution expenses increased 24.1%, from $13.5 million for the six month period ended June 30, 2002 to $16.8 million for the comparable period for 2003. As a percentage of revenue, distribution expenses increased from 9.4% to 10.5%. We have added two redistribution centers, and have added several additional transfer routes and local delivery trucks since the first quarter of 2002. In addition, higher fuel, repairs and maintenance and insurance costs accounted for a portion of the growth in distribution expenses.

        Selling, General and Administrative Expenses.     Selling, general and administrative expenses increased 9.4%, from $20.8 million for the six month period ended June 30, 2002 to $22.7 million for the comparable period for 2003. As a percentage of revenue, selling, general and administrative expenses decreased from 14.4% to 14.2%. The majority of the selling expense increase was due to labor or labor-related expenses. We increased our sales force on average by 25 positions, or 8.6%. In addition, the majority of our sales compensation is commission-based, and, accordingly, selling expenses tend to rise as revenue rises. Our general and administrative expenses increased moderately.

        Depreciation and Amortization.     Depreciation and amortization increased 14.0%, from $2.4 million for the six month period ended June 30, 2002 to $2.7 million for the comparable period for 2003. As a percentage of revenue, depreciation and amortization remained constant at 1.7%. Net property and equipment additions were approximately $7.6 million, primarily attributable to expansion of facilities and new information systems since the first half of 2002.

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        Operating Income.     Our operating income increased 18.0%, from $12.2 million for the six month period ended June 30, 2002 to $14.4 million for the comparable period for 2003. As a percentage of revenue, operating income increased from 8.4% to 9.0%.

        Other (Income) Expense.     Net other expense decreased 34.3%, from $1.6 million for the six month period ended June 30, 2002 to $1.0 million for the comparable period for 2003. As a percentage of revenue, net other expense decreased from 1.1% to 0.6%. The decrease is primarily attributable to net interest expense, which totaled $1.7 million for the six month period ended June 30, 2002, versus $1.2 million for the comparable period in 2003. The decrease in net interest expense was a result of both lower average debt levels and interest rates during the 2003 period.

        Provision for Income Taxes.     The provision for income taxes increased 24.4%, from $4.2 million for the six month period ended June 30, 2002 to $5.3 million for the comparable period for 2003 due to our improved operating results. Our effective income tax rate was approximately 40% for both periods.

        Cumulative Effect of Change in Accounting Principle.     As described under "Critical Accounting Policies and Estimates – Goodwill Impairment," we recorded a goodwill impairment of $49.9 million, net of tax of $16.1 million, as a cumulative effect of a change in accounting principle at January 1, 2002. See the "Notes to Consolidated Financial Statements" for further discussion.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

        Revenue.     Our revenue increased 14.6%, from $250.5 million in 2001 to $287.1 million in 2002. The increase in revenue was primarily due to higher volume of products sold as we added three redistribution centers and increased the number of customers that we serve by approximately 6%. We made no business acquisitions during 2002 or 2001.

        Cost of Goods Sold.     Our cost of goods sold increased 16.6%, from $132.5 million in 2001 to $154.6 million in 2002. As a percentage of revenue, cost of goods sold increased from 52.9% to 53.8%. Our costs increased primarily due to our increased volume, as well as higher auction fees.

        Gross Margin.     Our gross margin increased 12.4%, from $117.9 million in 2001 to $132.6 million in 2002. As a percentage of revenue, gross margin decreased from 47.1% to 46.2%. Our gross margin increased primarily due to increased volume, which was partially offset by higher auction fees.

        Facility and Warehouse Expenses.     Facility and warehouse expenses increased 9.5%, from $32.7 million in 2001 to $35.8 million in 2002. As a percentage of revenue, facility and warehouse expenses decreased from 13.0% to 12.5%. Our facility rent and occupancy costs for our redistribution centers increased as we added three such facilities in 2002. We also added payroll expense as a result of higher volumes.

        Distribution Expenses.     Distribution expenses increased 15.9%, from $24.6 million in 2001 to $28.5 million in 2002. As a percentage of revenue, distribution expenses increased from 9.8% to 9.9%. We added three additional redistribution centers, as well as several additional transfer routes and approximately 15% more local delivery trucks. In addition, higher fuel, repairs and maintenance and insurance costs accounted for a portion of the growth in distribution expenses.

        Selling, General and Administrative Expenses.     Selling, general and administrative expenses increased 6.9%, from $39.6 million in 2001 to $42.4 million in 2002. As a percentage of revenue, selling, general

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and administrative expenses decreased from 15.8% to 14.8%. Our selling expenses increased due to higher payroll costs resulting from our increased revenue. Our general and administrative expenses increased due primarily to higher volume.

        Depreciation and Amortization.     Depreciation and amortization decreased 36.5%, from $7.9 million in 2001 to $5.0 million in 2002. As a percentage of revenue, depreciation and amortization decreased from 3.2% to 1.7%. Effective January 1, 2002, we adopted SFAS 142. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized. The decrease in depreciation and amortization expense was due primarily to the lack of goodwill amortization in 2002 in contrast to the goodwill amortization of $3.1 million in 2001.

        Operating Income.     Our operating income increased 59.0%, from $13.1 million in 2001 to $20.8 million in 2002. As a percentage of revenue, operating income increased from 5.2% to 7.3%.

        Other (Income) Expense.     Net other expense decreased 47.9%, from $4.9 million in 2001 to $2.6 million in 2002. As a percentage of revenue, net other expense decreased from 2.0% to 0.9%. Net interest expense decreased 42.8%, from $5.1 million in 2001 to $2.9 million in 2002. The decrease was the result of both lower debt levels and interest rates during 2002.

        Provision for Income Taxes.     Our provision for income taxes increased 84.4%, from $3.9 million in 2001 to $7.3 million in 2002 due to our improved operating results. Our effective rate decreased from 48.2% in 2001 to 39.8% in 2002 due primarily to the elimination of non-deductible goodwill amortization in 2002, as well as a reduction in effective state tax rates.

        Cumulative Effect of Change in Accounting Principle.     As described under "Critical Accounting Policies and Estimates – Goodwill Impairment," we recorded a goodwill impairment of $49.9 million, net of tax of $16.1 million, as a cumulative effect of a change in accounting principle at January 1, 2002. See the "Notes to Consolidated Financial Statements" for further discussion.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

        Revenue.     Our revenue increased 10.7%, from $226.3 million in 2000 to $250.5 million in 2001. The increase in revenue is primarily due to higher volume as we added two redistribution centers and increased the number of transfer and local delivery trucks during 2001, all in our effort to continue expanding our network. In addition, we began to provide more services to the insurance industry in 2001, such as reviewing vehicle repair order estimates, in order to provide insurance companies more opportunities to increase usage of our recycled OEM products. We made no business acquisitions during 2001 or 2000.

        Cost of Goods Sold.     Our cost of goods sold increased 11.1%, from $119.3 million in 2000 to $132.5 million in 2001. As a percentage of revenue, cost of goods sold increased from 52.7% to 52.9%. Cost of goods sold increased as our revenue increased. In addition, cost of goods sold in 2000 included inventory impairments at three facilities that totaled $1.0 million. As a result of these impairments, we implemented more strict buying disciplines in 2001 and made selected personnel changes in order to improve inventory realization at these three facilities.

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        Gross Margin.     Our gross margin increased 10.2%, from $107.0 million in 2000 to $117.9 million in 2001. As a percentage of revenue, gross margin decreased from 47.3% to 47.1%.

        Facility and Warehouse Expenses.     Facility and warehouse expenses increased 1.2%, from $32.3 million in 2000 to $32.7 million in 2001. As a percentage of revenue, facility and warehouse expenses decreased from 14.3% to 13.0%. These expenses increased primarily due to our increased revenue. These expenses grew at a slower rate than revenue as a result of cost reduction efforts made in late 2000 and early 2001.

        Distribution Expenses.     Distribution expenses increased 12.5%, from $21.9 million in 2000 to $24.6 million in 2001. As a percentage of revenue, distribution expenses increased from 9.7% to 9.8%. We added two redistribution centers in 2001 to the nine that we had in 2000. Our distribution expenses also increased as we continued to add transfer and local delivery routes to expand our network. We increased the number of local delivery trucks in 2001 by approximately 9% over 2000.

        Selling, General and Administrative Expenses.     Selling, general and administrative expenses decreased 1.1%, from $40.1 million in 2000 to $39.6 million in 2001. As a percentage of revenue, selling, general and administrative expenses decreased from 17.7% to 15.8%. Our selling expenses decreased $0.4 million primarily because we cut less productive sales positions and modified our sales commission plans. Our general and administrative expenses remained at approximately the same level as in 2000. Increases in general and administrative expense due to our volume increase were offset by the elimination of one of our four regional offices and reduction of other infrastructure costs in 2001. Severance cost of $0.2 million was recorded in 2000 related to the elimination of certain corporate positions.

        Depreciation and Amortization.     Depreciation and amortization increased 4.7%, from $7.5 million in 2000 to $7.9 million in 2001. As a percentage of revenue, depreciation and amortization decreased from 3.3% to 3.2%. The increase was due to additional investments in property and equipment in 2000.

        Asset Impairment Loss.     Asset impairment losses totaled $0.6 million in 2000. We had no asset impairment losses in 2001. The majority of this loss resulted from our decision in 1999 to abandon implementation of certain operating and financial information systems.

        Operating Income.     Our operating income increased 184.1%, from $4.6 million in 2000 to $13.1 million in 2001. As a percentage of revenue, operating income increased from 2.0% to 5.2%.

        Other (Income) Expense.     Net other expense was $4.9 million in 2000 and 2001. Net interest expense increased 1.5%, from $5.0 million in 2000 to $5.1 million in 2001. As a percentage of revenue, net interest expense decreased from 2.2% to 2.0%. While we had lower debt levels in 2001, interest expense increased primarily due to an increase in amortization of debt issuance costs of $0.6 million related to amending our revolving credit facility discussed below. These debt issuance costs were amortized over the credit facility's remaining life to June 30, 2002.

        Provision for Income Taxes.     Our provision for income taxes increased 517.8%, from $0.6 million in 2000 to $3.9 million in 2001. Our effective rate was 48.2% in 2001. The increase was due to our improved operating results.

Quarterly Results of Operations

       The following table represents unaudited statement of operations data for our most recent 14 quarters. You should read the following table in conjunction with our consolidated financial statements

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and related notes appearing elsewhere in this prospectus. We have prepared this unaudited information on a basis consistent with the audited consolidated financial statements contained in this prospectus. The results of operations of any quarter are not necessarily indicative of the results that may be expected for any future period.

       Our operating results are subject to quarterly variations based on a variety of factors, influenced primarily by seasonal changes in weather patterns. During the winter months, we tend to have higher demand for our products. In addition, the cost of salvage vehicles tends to be lower as more weather related accidents occur generating a larger supply of total loss vehicles.