<PAGE>   1
===============================================================================


                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 for the Fiscal Year Ended June 30, 2000


                                       or

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 for the transition period from                    to
                                                         ------------------
     ---------------------


                       COMMISSION FILE NUMBER: 333-38623


                               MAXXIS GROUP, INC.
            (Exact Name of Registrant as Specified in its Charter)


             GEORGIA                                     58-22-78241
 (State or Other Jurisdiction of           (I.R.S. Employer Identification No.)
 Incorporation or Organization)

1901 MONTREAL ROAD, SUITE 108, TUCKER, GEORGIA             30084
(Address of Principal Executive Offices)                (Zip Code)


Registrant's telephone number, including area code:    (770) 696-6343

Securities registered pursuant to Section 12(b) of the Act:   NONE

Securities registered pursuant to Section 12(g) of the Act:   NONE


Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference into Part III of this Form 10-K or any amendment to
this Form 10-K.

The aggregate market value of the Common Stock held by affiliates of the
Registrant as of October 6, 2000 was $5,217,487. This calculation is based upon
a price of $ 5.50 per share, or the price per share of Common Stock sold during
our recent public offering. There is no active trading market for the Common
Stock, and the $ 5.50 per share price is not necessarily indicative of market
value. There were 1,546,919 shares of Common Stock issued and outstanding as of
October 6, 2000.

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


<PAGE>   2


                               INDEX TO FORM 10-K

<TABLE>
<CAPTION>
                                                                                                                PAGE
<S>                                                                                                             <C>

PART I

Item 1.       Business............................................................................................1

Item 2.       Properties.........................................................................................10

Item 3.       Legal Proceedings..................................................................................10

Item 4.       Submission of Matters to a Vote of Security Holders................................................10

PART II

Item 5.       Market for Common Equity and Related Shareholder Matters...........................................10

Item 6.       Selected Consolidated Financial Data...............................................................10

Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations..............12

Item 7A.      Quantitative and Qualitative Disclosures About Market Risks........................................19

Item 8.       Financial Statements and Supplementary Data........................................................19

Item 9.       Changes in and Disagreements with Accountants in Accounting and Financial Disclosure...............19

PART III

Item 10.      Directors and Executive Officers of the Registrant.................................................20

Item 11.      Executive Compensation.............................................................................22

Item 12.      Security Ownership of Certain Beneficial Owners and Management.....................................24

Item 13.      Certain Relationships and Related Transactions.....................................................25

PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................26

SIGNATURES.......................................................................................................29
</TABLE>


<PAGE>   3


                                     PART I

ITEM 1.       BUSINESS

         This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended. These statements
appear in a number of places in this Report and include all statements that are
not historical statements of fact regarding the intent, belief or current
expectations of Maxxis or its directors or officers with respect to, among
other things: (i) our financing plans; (ii) trends affecting our financial
condition or results of operations; (iii) our growth strategy and operating
strategy; and (iv) our anticipated capital needs. When used in this Report, the
words "expects," "intends," "believes," "anticipates," "estimates," "may,"
"could," "should," "would," "will," "plans" and similar expressions and
variations thereof are intended to identify forward-looking statements.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, many of
which are beyond our ability to control, and that actual results may differ
materially from those projected in the forward-looking statements as a result
of various factors discussed herein and those factors discussed in detail in
our filing with the Securities and Exchange Commission, including the "Risk
Factors" section of our Registration Statement on Form S-1 (Registration Number
333-38623).

         Our independent associates market communications and Internet services
and nutritional and health enhancement products through our multi-level network
marketing system. We operate through our subsidiaries: Maxxis 2000, Inc.
("Maxxis 2000"); Maxxis Communications, Inc. ("Maxxis Communications"); and
Maxxis Nutritionals, Inc. ("Maxxis Nutritionals").

         We believe that our marketing system allows us to obtain customers for
our products and services in a cost effective manner. We believe that our
marketing system also enhances customer retention because of the personal
relationships between our independent associates, or IAs, and their customers.
Maxxis was incorporated in January 1997 and began sponsoring independent
associates and marketing telecommunications services in March 1997. We
generated aggregate net revenues of $12,344,000 for our fiscal year ended June
30, 1999 and $29,133,000 for the fiscal year ended June 30, 2000.

         We initially built a customer base without committing capital or
management resources to construct our own communications network. In February
1997, we contracted with Colorado River Communications Corp. to allow our
independent associates to market long distance services provided by Colorado
River Communications. In September 1998, we leased telecommunications switching
equipment and ancillary hardware and software in order to create our own
communications network. As of September 30, 2000, we have obtained regulatory
approval in 49 states and the District of Columbia. As we obtained approvals in
each state, we began to directly service our long distance subscriber base that
was developed under our agreement with Colorado River Communications. We are
continuing to expand our communications customer base through our multi-level
network marketing system. To the extent available, we also intend to lease or
sell excess switch capacity to third parties.

         We began marketing private label dietary supplements to our customers
and independent associates in November 1997. During 1998, we began marketing
additional nutritional and health enhancement products. In September 1998, we
began providing Internet access and Web-page development and hosting services.
We believe that the persons who purchase telecommunications services through
our independent associates are also potential customers for our nutritional and
health enhancement products and Internet-related services.

         Our products and services are marketed exclusively by our network of
independent associates. Our multi-level network marketing system and our
reliance upon independent associates are intended to reduce marketing costs,
customer acquisition costs and customer attrition. We believe that our
multi-level network marketing system will continue to build a base of potential
customers for additional services and products. We believe that independent
associates are generally attracted to our multi-level network marketing system
because of the potential for supplemental income and because they are not
required to purchase inventory, have no monthly


                                       1
<PAGE>   4


sales quotas or account collection issues, have minimal required paperwork, and
have a flexible work schedule. We encourage independent associates to market
services and products to persons with whom the independent associates have an
ongoing relationship, such as family members, friends, business associates and
neighbors. We also sponsor meetings at which current independent associates are
encouraged to bring in others for an introduction to our marketing system.

STRATEGY

         Our goal is to develop a national distribution system through which
large volumes of communications and Internet services, nutritional and health
enhancement products and other products and services may be sold. We intend to
increase our revenues by expanding our marketing network, increasing the number
of customers who purchase our products and services, and providing additional
products and services for sale through our independent associates. We intend to
achieve our goals by:

           -  Growing and Developing our Network of Independent Associates by
              enhancing our sponsoring and training services, continuing to
              support the marketing efforts of independent associates and
              introducing new income opportunities for independent associates.

           -  Maintaining and Expanding the Number of Customers by offering
              high quality, competitively-priced products and services through
              a highly motivated network of independent associates.

           -  Offering Additional Communications Services that meet the needs
              of subscribers, which may include, among other services, paging,
              conference calling, wireless, cable, cellular and local phone
              service.

           -  Improving and Expanding Our Product Lines by continuing to
              evaluate and offer products that are attractive to our
              independent associates and customers.

           -  Obtaining Competitive Prices on products and services through
              the purchasing power of our nationwide network.

MAXXIS SWITCH

         In September 1998, we entered into an agreement to lease a
telecommunications switch (the "Maxxis Switch") formerly owned by Cherry
Communications, Inc. Beginning in February 1999, our lease required us to make
payments of approximately $118,000 per month. As we obtained the required
regulatory approvals throughout 1999, we began to market services provided
through the Maxxis Switch to the subscriber base that was developed under our
agreement with Colorado River Communications Corp., or CRC, as well customers
that we have obtained more recently.

         We are required to obtain the consent of customers before changing
their long distance service. This process can be difficult, time consuming and
expensive. Additionally, the FCC has recently enacted new, more stringent
legislation that governs the procedure by which we must obtain the consent of
customers before changing their long distance service. Problems associated with
the transition of these customers from their existing providers to our network
could have a material adverse effect on our business, financial condition and
operating results.

MARKETING

         We market products and services exclusively through our network of
independent associates. Currently, we have six independent associate positions
in our marketing system: associate; senior associate; director; regional
director; executive director; and presidential director. Independent associates
are paid only by commissions, and we do not pay them any salary. Independent
associate commissions are a specified percentage or a designated amount of the
gross proceeds received by us from the sale of our services and products. We
designate a portion of our gross sales as "commission value," or "CV," and
allocate the CV among eligible participants in our marketing system. Currently,
10% of the CV earned with respect to a long distance subscriber is paid monthly
to the independent



                                       2
<PAGE>   5


associate who sponsored such subscriber, 57% of the CV is paid monthly to
eligible directors who have the independent associate who sponsored the
subscriber in their downline and an additional 28% is retained by us to be paid
out to regional directors, executive directors and presidential directors in our
performance bonus programs. All directors, executive directors, regional
directors and presidential directors who meet certain performance criteria are
eligible to receive additional performance bonuses.

         To become an associate, individuals (other than individuals in North
Dakota) must complete an application and purchase a distributor kit.
Independent associates also pay an annual fee in order to maintain their status
as independent associates. The distributor kit is a package of basic materials
which assists an associate in beginning his or her business. Associates are
also entitled to purchase products from us at discounted prices for retail
sales. An associate becomes a senior associate when the associate sells $100 of
bonus-eligible products. Senior associates continue to receive a percentage of
CV with regard to all subscribers personally gathered by them and are also
entitled to purchase products from us at discounted prices for retail sales.

         To become a director, a senior associate must sponsor two additional
senior associate positions. A director increases the size of the director's
sales organization by sponsoring additional persons to become senior
associates. These senior associates, and all senior associates that they, in
turn, sponsor, become part of the sales organization of the director who
sponsored them. Senior associates, through the growth of their sales
organizations, may become directors, regional directors, executive directors or
presidential directors and thereby increase the size of the sales organization
of the person who was their original sponsor. The organization that grows below
each director through this process is called a "downline." Directors are
eligible to receive the same commissions as senior associates and, if they
directly gather and maintain a minimum commission volume of eight dollars
monthly, are eligible to receive a percentage of the CV produced by each
independent associate that is within 15 levels below them in their downline. In
order to encourage the growth of our marketing system, we also pay eligible
directors a bonus amount, which is designated as "bonus value," or "BV," for
each sale of bonus-eligible products. We primarily designate retail priced
phone cards, nutritional products and Web-page development and hosting services
as bonus-eligible products. Directors become regional directors, executive
directors and presidential directors upon the achievement of certain
independent associate sales goals. Regional directors, executive directors and
presidential directors are eligible to receive the same commissions as
directors and, if they qualify, share in performance bonuses.

RELATIONSHIP WITH INDEPENDENT ASSOCIATES

         We seek to contractually limit the statements that independent
associates make about our business. Each independent associate must also agree
to policies and procedures to be followed in order to maintain the independent
associate's status in our organization. We expressly forbid independent
associates from making any representation as to the possible earnings of any
independent associate or from making any representation with regard to our
Common Stock. We also prohibit independent associates from creating any
marketing literature that we have not pre-approved. While we have these
policies and procedures in place governing the conduct of the independent
associates, it is difficult to enforce such policies and procedures. Because
the independent associates are classified as independent contractors, we are
unable to provide them the same level of direction and oversight as our
employees. Violations of our policies and procedures may reflect negatively on
us and could have a material adverse effect on our business, financial
condition and operating results.

TRAINING AND MARKETING SUPPORT

         We offer our independent associates a number of support services. We
offer training, information and motivational support to the independent
associate network through our training program, regional meetings and
distributors websites.

         Our fourth annual convention was held in September 2000 and we intend
to continue to hold additional annual conventions for independent associates.
This event provides recognition to the top performers, direct access to senior
management and a chance for independent associates to share experiences and
develop support systems. We intend to organize additional conventions
throughout the country that current independent associates and potential



                                       3
<PAGE>   6


independent associates can attend to learn more about us. We also publish a
newsletter for the independent associates containing informative and
motivational articles and recognizing independent associate achievements.

PRODUCTS AND SERVICES

         Following is a summary of the various services and products we
currently provide to independent associates and customers. We may add and
remove services and products from our services and product lines from time to
time.

         Communications Services and Products. Our independent associates
market a variety of long distance and other communications services and
products, which currently include 1-Plus long distance service, prepaid phone
cards and Internet-related services.

             -    1-Plus Long Distance. Our 1-Plus long distance service serves
                  as a replacement for a customer's former long distance
                  service (such as the long distance services provided by AT&T
                  Corporation ("AT&T"), MCI WorldCom, Inc. ("MCI WorldCom") and
                  Sprint Corporation ("Sprint")). Our 1-Plus services are
                  billed on a flat rate basis, where the cost of a call does
                  not vary depending upon the distance of a call or the time of
                  day or day of week when the call is originated or terminated.
                  Our residential 1-Plus services are billed based on one
                  minute increments, and business 1-Plus service is billed
                  based on 6-second increments with a 30-second minimum.

             -    Prepaid Phone Cards. We offer prepaid phone cards in domestic
                  time increments of 1 hour and 30 minutes. These cards may be
                  used for domestic and international calls. We also offer
                  international prepaid phone cards that are denominated in
                  dollar amounts. Charges are deducted from these cards based
                  upon the rates applicable to the calls placed by cardholders.

             -    MAXXCONNECT. In September 1998, we began providing Internet
                  access through InteReach Internet Services, L.L.C. and also
                  began providing Web-page development and hosting services for
                  independent associates.

         Nutritional and Health Enhancement Products. We market a line of
private label nutritional and health enhancement products to our independent
associates and customers. Representative products include:

             -    Maxx-A-Chol is a dietary supplement which is a specialized
                  combination of six herbs.

             -    MAXXIS MSM is a dietary supplement consisting of
                  methylsulfonylmethane, vitamin C, citrus bioflavonoid complex
                  and ginseng.

             -    MAXXIS Multivitamin is a multivitamin nutritional supplement
                  which is delivered by means of a spray.

             -    MAXXIS 02 is a nutritional supplement that contains
                  electrolytes, oxygen, trace elements, enzymes and amino acids.

             -    BetaShield is a nutritional product containing an extract from
                  the cell walls of baker's yeast.

             -    Maxx-Life is a dietary supplement containing amino acids and
                  other ingredients, including lysine, arginine, GABA,
                  glutamine and ornithine.

             -    Weight-Ideal is a dietary supplement in capsule and spray
                  forms which contains a blend of nutrients, including chromium
                  picolinate, magnesium acetate and niacin.



                                       4
<PAGE>   7


            -     Maxxis Skin Care System consists of the following health and
                  beauty products: shampoo; conditioner; body wash; hand and
                  body conditioner; face wash; skin toner; and moisturizer.

Certain nutritional products are sold as a nutritional pack, and the skin care
products are sold as a complete system or individually.

         Promotional Materials. We also derive revenues from the sale of
various educational and promotional materials designed to aid our independent
associates in maintaining and building their businesses. Such materials include
various sales aids, informational videotapes and cassette recordings, and
product and marketing brochures.

INDEPENDENT ASSOCIATE SUPPORT AND INFORMATION SYSTEMS

We operate a call center where advisors answer independent associate questions
and provide information to independent associates. The call center maintains a
system that includes a current database of all independent associates, their
downlines, and their long distance customers. We believe that maintaining
sophisticated and reliable transaction processing systems is essential for
multi-level network marketing companies. We use a commission processing
software system that incorporates the provisions of our marketing program for
purposes of processing detailed and customized independent associate commission
payments, monitoring and analyzing financial and operating trends and tracking
each independent associate's downline. We also maintain transaction processing
systems that facilitate the shipment of independent associate training and
marketing materials. In addition, our order processing system tracks the
receipt, storage, shipment and sale of our sales aid products.

SUPPLIERS

         Prior to 1999, we did not own a long distance network. As a result,
Maxxis Communications entered into the 1-Plus Agreement with CRC to allow our
independent associates to market CRC's telecommunications services. Subscribers
gathered by our independent associates were long distance customers on CRC's
network, and CRC provided subscriber support. Subscribers had the right to
change their service at any time. In January of 1999, we notified CRC of our
intent to terminate our 1-Plus agreement and begin a process of migrating our
customers to the Maxxis communications network. At that time, we entered into
an agreement with MCI WorldCom to provide us with the necessary private lines,
circuits and other network services to be able to originate and terminate
telephone calls through the Maxxis Switch. In March 1999, we entered an
agreement with IXC Communications Services, Inc. to provide switched services
for carrying the portion of the Maxxis traffic that does not go through the
Maxxis Switch. A provision of our contract with IXC required a minimum monthly
commitment, which provision expired in September 2000. We would be required to
contract with other carriers if either the IXC or MCI WorldCom agreements were
terminated, the usage or number of subscribers originated by our independent
associates exceeded the capacity that these suppliers could provide or if IXC
or MCI WorldCom failed to provide quality services. In such event, or in the
event we otherwise elected to use other carriers, the cost paid by us for long
distance services might exceed that paid under these agreements. If our
agreements with IXC or MCI WorldCom are terminated, there can be no assurance
that we could enter into new contracts with other suppliers.

         In November 1997, we began marketing a line of private label
nutritional products. All of the nutritional products offered and distributed
by us are developed and manufactured by third-party suppliers. Certain of the
nutritional products offered by us are proprietary to these suppliers. We do
not have any commitment that these suppliers and manufacturers will continue to
sell us nutritional products. We believe that our relationships with our
suppliers are satisfactory; however, there can be no assurance that any or all
of these suppliers will continue to be reliable suppliers to us. Accordingly,
there is a risk that any or all of our suppliers or manufacturers, including
suppliers which provide proprietary products to us, could discontinue selling
their nutritional products to us. In the event any of the third-party
manufacturers become unable or unwilling to continue to provide the nutritional
products in required volumes, we would be required to identify and obtain
acceptable replacement sources, and we cannot guarantee that any alternative
replacement sources would become available to us on a timely basis.




                                       5
<PAGE>   8

CUSTOMER SUPPORT

         During fiscal 2000, Maxxis Communications was primarily responsible
for the billing of long distance customers and for providing customer service.
Certain of our communications services, including 1-Plus long distance and
prepaid phone cards, are provided under IXC's or MCI WorldCom's state, national
and international tariffs. We have been informed that IXC and MCI WorldCom
possess all tariffs necessary to offer such services. After we received tariffs
from certain state authorities in April 1999, we assumed the responsibility for
billing long distance and customer service as we migrated customers from those
states onto the Maxxis communications network. We provide our Internet access
services through InteReach, which is responsible for billing certain Internet
access customers and for providing customer support.

COMPETITION

         We face competition for our products and services and for independent
associates.

         Communications Services. The United States long distance
communications industry is intensely competitive, rapidly evolving and subject
to rapid technological change. In addition, the industry is significantly
influenced by the marketing and pricing practices of the major industry
participants. AT&T, MCI WorldCom and Sprint are the dominant competitors in the
domestic long distance communications industry. All of these companies are
significantly larger than we are and have substantially greater resources. Many
of our current and potential competitors have longer operating histories,
greater name recognition, larger customer bases and substantially greater
financial, personnel, marketing, technical and other resources than us. These
competitors employ various means to attract new customers, including television
and other advertising campaigns, telemarketing programs, network marketing and
cash payments and other incentives to new customers. Our ability to compete
effectively depends upon, among other factors, our ability to offer high
quality products and services at competitive prices. There can be no assurance
that we will be able to compete successfully.

         Nutritional and Health Enhancement Products. We also compete in the
highly competitive market of dietary supplements and health enhancement
products. This market segment includes numerous manufacturers, other network
marketing companies, catalog companies, distributors, marketers, retailers and
physicians that actively compete for the business of consumers. We compete with
other providers of such nutritional and health enhancement products, especially
retail outlets, based upon convenience of purchase, price and immediate
availability of the purchased product. For the most part, our competitors
offering comparable products are substantially larger and have available
considerably greater financial resources. The market is highly sensitive to the
introduction of new products (including various prescription drugs) that may
rapidly capture a significant share of the market. As a result, our ability to
remain competitive depends in part upon the successful introduction of new
products at competitive prices.

         Internet Access and Internet-Related Services. The market for the
provision of Internet access and Internet-related services is extremely
competitive. There are no substantial barriers to entry, and we expect that
competition will continue to intensify. We cannot guarantee that we will be
able to compete successfully against current or future competitors or that
competitive pressures faced by us will not materially adversely affect our
business, financial condition and operating results. Our current and future
competitors include, without limitation, the following types of Internet access
providers: (i) national commercial Internet service providers ("ISPs"); (ii)
numerous regional and local commercial ISPs; (iii) established on-line
commercial information service providers; (iv) national long distance carriers;
(v) regional telephone companies; and (vi) cable operators.

         Independent Associates. We compete for independent associates with
other direct selling organizations, some of which have longer operating
histories and greater visibility, name recognition and financial resources. The
largest network marketing companies in our markets are: EXCEL Communications,
Inc.; American Communications Network; BeautiControl Cosmetics, Inc.;
HerbalLife International, Inc.; and Mary Kay, Inc. We compete for new
independent associates on the basis of our reputation, perceived opportunity
for financial success and quality and range of products offered for sale. We
envision the entry of many more direct selling organizations



                                       6
<PAGE>   9


into the marketplace. We cannot guarantee that we will be able to successfully
meet the challenges posed by this increased competition. We also compete for
the time, attention and commitment of our independent associates. Given that
the pool of individuals interested in the business opportunities presented by
direct selling is limited in each market, the potential pool of independent
associates for our products and services is reduced to the extent other network
marketing companies successfully attract these individuals. There can be no
assurance that other network marketing companies will not convince our existing
independent associates to join their organizations. In such event, our
business, financial condition and operating results could be materially
adversely affected.

PROPRIETARY RIGHTS

         We have applied for a federal registration for the mark "MAXXIS." In
addition, we rely upon common law rights to protect other marks used by us and
other rights that we consider to be our intellectual property. We cannot
guarantee that our measures to protect our intellectual property will prevent
or deter the use or misappropriation of our intellectual property by other
parties. Our inability to protect our intellectual property from use or
misappropriation from others could have a material adverse effect upon our
business, financial condition and operating results. From time to time,
companies may assert other trademark, service mark or intellectual property
rights in marks (including the mark "MAXXIS") or other intellectual property
used by us. We could incur substantial costs to defend any legal action taken
against us. Our use of our trademarks, service marks or other rights could be
found to infringe upon intellectual property rights of other parties. We could
be enjoined from further infringement and required to pay damages. In the event
a third party were to sustain a valid claim against us, and in the event any
required license were not available on commercially reasonable terms, our
business, financial condition and operating results could be materially
adversely affected. Litigation, which could result in substantial cost to and
diversion of our resources, may also be necessary to enforce our intellectual
property rights or to defend us against claimed infringement of the rights of
others.

REGULATION

         Regulation of Long Distance Telephone Services. Various regulatory
factors affect our financial performance and our ability to compete. IXC and
Maxxis are telecommunications carriers, and both of our services are currently
subject to federal, state and local regulation. Pursuant to the Communications
Act, the FCC generally exercises jurisdiction over the facilities of, and
services offered by, telecommunications common carriers that provide interstate
or international communications services. State regulatory authorities retain
jurisdiction over the same facilities and services to the extent that they are
used to provide intrastate communications services. Various international
authorities may also seek to regulate the provision of certain services.

         Federal Regulation. The FCC does not require long distance
telecommunications carriers to obtain prior authorization to provide domestic
interstate services, including operator services, although such carriers
currently must file tariffs at the FCC setting forth the rates, terms and
conditions for such services. FCC regulations require telecommunications
carriers to apply for and to obtain certification from the FCC prior to
offering international services, and to file international tariffs with the
FCC.

         IXC and Maxxis must comply with the requirements applicable to common
carriers under the Communications Act, which include a duty to offer services
upon request at reasonable rates and on nondiscriminatory terms and conditions.
Long distance telecommunications carriers also are subject to a variety of
miscellaneous regulations that, for example, govern the documentation and
verifications necessary to change a consumer's long distance carrier, require
the filing of periodic reports and the payment of regulatory fees. Currently,
FCC regulations also require long distance telecommunications carriers to
permit resale of their transmission services, and local exchange carriers to
provide all long distance carriers with equal access to local exchange
facilities for purposes of origination and termination of long distance calls.
If either or both of these requirements were eliminated, our business could be
adversely affected.

         The FCC generally has the authority to condition, modify, cancel,
terminate or revoke a carrier's authority to operate for failure to comply with
federal laws or FCC orders, rules, regulations or policies. Fines or other
penalties



                                       7
<PAGE>   10


also may be imposed by such violations. The FCC has jurisdiction to
act upon complaints against any telecommunications carrier for failure to
comply with its statutory obligations. We cannot guarantee that the FCC or
third parties will not raise issues regarding our compliance with applicable
laws and regulations, which could have a material adverse effect on our
business, financial condition and operating results.

         The enactment of the Telecommunications Act served to increase
competition in the long distance market. The Telecommunications Act, among
other things, allowed the Bell operating companies to provide long distance
service outside of their local service territories, but barred them from
immediately offering in-region, interLATA long distance services until they had
satisfied certain conditions. A Bell operating company must apply to the FCC to
provide in-region, interLATA long distance services and must satisfy a set of
pro-competitive criteria intended to ensure that Bell operating companies open
their own local markets to competition before the FCC will approve such
application. We are unable to determine how the FCC will rule on any such
applications. As a result of the Telecommunications Act, IXC and Maxxis may
experience increased competition from others, including the Bell operating
companies. In addition, both IXC and Maxxis may be subject to additional
regulatory requirements and fees, including, without limitation, universal
service assessments, additional access charge assessments, and payphone
compensation surcharges resulting from the implementation of the
Telecommunications Act.

         State Regulation. IXC and Maxxis are subject to varying levels of
regulation in states in which each company provides long distance services. The
vast majority of states require long distance carriers to apply for
certificates to provide telecommunications services, or at least to register or
to be found exempt from regulation, before they may commence providing
intrastate long distance services. This authorization process generally
requires the carrier to demonstrate that it has sufficient financial, technical
and managerial capabilities and that granting the authorization will serve the
public interest. Also, a majority of states require long distance carriers to
file and to maintain detailed tariffs listing rates for intrastate services.
Many states also impose various reporting and fee requirements, including,
without limitation, state universal service requirements. State regulatory
agencies also generally require prior notice or approval for (i) transfers of
control of certificated carriers, (ii) sales or transfers of carrier assets,
including customer bases, (iii) carrier stock offerings and (iv) a carrier's
incurrence of significant debt obligations. Certificates of authority can
generally be conditioned, modified, canceled, terminated or revoked by state
telecommunications regulatory agencies for failure to comply with state laws
and rules, regulations and regulatory policies. Fines and other penalties may
be imposed for such violations.

         We believe that IXC has made the necessary filings with the various
state telecommunications regulatory agencies to provide intrastate long
distance services in the states where IXC currently conducts its operations. We
believe we have filed the necessary applications and tariffs with the states in
order to provide intrastate long distance services prior to offering such
services to its customers. We cannot guarantee that we will maintain all
necessary authorizations, that IXC will maintain its necessary authorizations
or that IXC will not provide services in a state where it is not properly
certificate or terrified. The occurrence of any or all of the foregoing could
have a material adverse effect on our business, financial condition or
operating results.

         Regulation Affecting Nutritional and Health Enhancement Products. The
formulation, manufacturing, packaging, labeling, advertising, distribution and
sale of our nutritional products are subject to regulation by a number of
governmental agencies, the most active of which is the FDA, which regulates our
products under the FDCA and regulations promulgated thereunder. Our products
are also subject to regulation by the FTC, the CPSC, the USDA and the EPA. The
FDCA has been amended several times with respect to dietary supplements, most
recently by the NLEA and the DSHEA. Our nutritional products are generally
classified and regulated as dietary supplements under the FDCA, as amended, and
therefore are not subject to pre-market approval by the FDA. However, these
products are subject to extensive labeling regulation by the FDA and can be
removed from the market if shown to be unsafe. Moreover, if the FDA determines
on the basis of our labeling or advertising claims, that the "intended use" of
any of our nutritional products is for the diagnosis, cure, mitigation,
treatment or prevention of disease, the FDA can regulate those products as
drugs and require pre-market clearance for safety and effectiveness. In
addition, if the FDA determines that we have made claims regarding the effect
of dietary supplements on the "structure or function" of the body, such claims
could result in the regulation of such products as drugs.




                                       8
<PAGE>   11


         The FTC and certain states regulate advertising, product claims and
other consumer matters, including advertising of our products. In the past
several years, the FTC has instituted enforcement actions against several
dietary supplement companies for false and misleading advertising of certain
products. In addition, the FTC has increased its scrutiny of the use of
testimonials. We cannot guarantee that the FTC will not question our
advertising or other operations. Moreover, we cannot guarantee that a state
will not interpret product claims presumptively valid under federal law as
illegal under that state's regulations. Furthermore, our independent associates
and customers may file actions on their own behalf, as a class or otherwise,
and may file complaints with the FTC or state or local consumer affairs
offices. These agencies may take action on their own initiative or on a
referral from independent associates, customers or others, including actions
resulting in entries of consent decrees and the refund of amounts paid by the
complaining independent associate or customer, refunds to an entire class of
independent associates or customers, or other damages, as well as changes in
our method of doing business. A complaint because of a practice of one
independent associate, whether or not that practice was authorized by us, could
result in an order affecting some or all independent associates in a particular
state. In addition, an order in one state could influence courts or government
agencies in other states. Proceedings resulting from these complaints may
result in significant defense costs, settlement payments or judgments and could
have a material adverse effect on our business, financial condition or
operating results.

         Although many of the ingredients in our nutritional products are
vitamins, minerals, herbs and other substances for which there is a long
history of human consumption, some of our nutritional products contain
ingredients as to which there is little history of human consumption. We have
not tested, and have not engaged any independent third party to test, any of
our nutritional products. Accordingly, we cannot guarantee that our nutritional
products, even when used as directed, will have the effects intended. Although
we believe that our nutritional products are safe when consumed as directed, we
have not sponsored clinical studies on the long-term effect of human
consumption.

         Regulation of Network Marketing. Our multi-level network marketing
system is subject to extensive government regulation, including, without
limitation, federal and state regulations governing the offer and sale of
business franchises, business opportunities and securities. Various
governmental agencies monitor direct selling activities, and they could require
us to supply information regarding our marketing plan at any time. Although we
believe that our multi-level network marketing system is in material compliance
with the laws and regulations relating to direct selling activities, we cannot
guarantee that future legislation and regulations adopted in particular
jurisdictions will not adversely affect our business, financial condition and
operating results. We have not obtained no-action letters or advance rulings
from any federal or state securities regulator or other governmental agency
concerning the legality of our operations. Federal and state regulators may
find our multi-level network marketing system to be in noncompliance with
existing statutes or regulations as a result of, among other things, misconduct
by our independent associates, over whom we have limited control, the ambiguous
nature of certain of the regulations and the considerable interpretive and
enforcement discretion given to regulators. Any assertion or determination that
we or our independent associates are not in compliance with existing statutes
or regulations could require us to modify our multi-level network marketing
system, create negative publicity, affect distributor morale and loyalty and
have a material adverse effect on our business, financial condition and
operating results. An adverse determination by any one state regulator on a
regulatory matter could influence the decisions of regulatory authorities in
other jurisdictions.

FACILITIES

         We operate out of offices in Atlanta, Georgia consisting of
approximately 26,000 square feet of leased space for general and administrative
office space, warehouse space and training space. We may be required to lease
or build additional facilities, including at least one additional call center
and new corporate headquarters, in order to adequately meet our future needs.
We believe that suitable additional or alternative space will be available in
the future on commercially reasonable terms as needed.




                                       9
<PAGE>   12

EMPLOYEES

         As of June 30, 2000, we employed approximately 61 people on a
full-time basis. Our IAs are classified as independent contractors. Our
employees are not unionized, and we believe our relationship with our employees
is good.

ITEM 2. PROPERTIES

         See the information provided in Item 1 above entitled "Business --
Facilities" for information with respect to our properties.

ITEM 3. LEGAL PROCEEDINGS

         We are not a party to, nor is any of our property subject to, any
material legal proceedings, other than routine litigation incidental to our
business.

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

         No matter was submitted to a vote of our security holders during the
fourth quarter of the year ended June 30, 2000.

                                    PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         As of October 6, 2000, there were approximately 843 holders of our
Common Stock of record. There is no established trading market for the Common
Stock, and although we intend to register our Common Stock with the SEC, offer
our Common Stock to certain of our IAs, and become listed on an exchange, we
can give no assurance that our registration will be allowed to become
effective, that our offering will be successful, or that we will become listed
on an exchange.

         From January to February of 1999, we conducted our public offering of
common stock. Pursuant to this offering, we sold 46,450 shares of Common Stock
at an offering price of $5.50 per share pursuant to a registration statement on
Form S-1 (Commission File No. 333-38623). Our gross proceeds from the offering
were approximately $255,475; our proceeds, net of offering expenses were
approximately $1,000.

         All outstanding shares of our Common Stock are entitled to share
equally in dividends from funds legally available therefor, when, as and if
declared by the Board of Directors. We do not plan to declare any dividends in
the immediate future.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA



                                      10
<PAGE>   13


         The following table sets forth selected consolidated financial data
for the periods presented. The statement of operations data for the fiscal
years ended June 30, 1998, 1999 and 2000 and the balance sheet data as of June
30, 1998, 1999 and 2000 are derived from our audited Consolidated Financial
Statements. The Consolidated Financial Statements for the years ended June 30,
1998, 1999 and 2000 were audited by Arthur Andersen LLP, independent public
accountants. The selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
related notes thereto appearing elsewhere in this Report.


<TABLE>
<CAPTION>

                                                                     YEAR ENDED JUNE 30,
                                                           1998              1999              2000
                                                       -----------       ------------       -----------
<S>                                                    <C>               <C>                <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
   Communications services ......................      $ 5,293,000       $  8,416,000       $ 9,646,000
   Nutritional products .........................          526,000          1,371,000        17,003,000
   Marketing services ...........................        1,172,000          2,557,000         2,484,000
                                                       -----------       ------------       -----------
       Total net revenues .......................        6,991,000         12,344,000        29,133,000
                                                       -----------       ------------       -----------
Cost of services:
   Communications services ......................        1,351,000          2,166,000         5,292,000
   Nutritional products .........................          294,000            662,000         3,403,000
   Marketing services ...........................          431,000            947,000           519,000
                                                       -----------       ------------       -----------
       Total cost of services ...................        2,076,000          3,775,000         9,214,000
                                                       -----------       ------------       -----------
Gross margin ....................................        4,915,000          8,569,000        19,919,000
                                                       -----------       ------------       -----------
Operating expenses:
   Selling and marketing ........................        2,665,000          5,373,000        11,827,000
   General and administrative ...................        2,344,000          4,376,000         6,411,000
                                                       -----------       ------------       -----------
       Total operating expenses .................        5,009,000          9,749,000        18,238,000
                                                       -----------       ------------       -----------
Interest expense ................................            2,000            356,000           648,000
                                                       -----------       ------------       -----------
Loss before income tax benefit ..................          (96,000)        (1,536,000)        1,033,000

Income tax benefit ..............................               --                 --                --
                                                       -----------       ------------       -----------
Net (loss) income ...............................      $   (96,000)      $ (1,536,000)      $ 1,033,000
                                                       ===========       ============       ===========

PER SHARE DATA:

Net (loss) income per share
   Basic ........................................      $     (0.06)      $      (0.96)      $      0.66
                                                       ===========       ============       ===========
   Diluted ......................................      $     (0.06)      $      (0.96)      $      0.56
                                                       ===========       ============       ===========
Weighted average number of shares outstanding
   Basic ........................................        1,571,187          1,594,387         1,563,092
                                                       ===========       ============       ===========
   Diluted ......................................        1,571,187          1,594,387         1,844,346
                                                       ===========       ============       ===========

                                                                        AS OF JUNE 30,
                                                            1998             1999              2000
                                                       -----------       ------------       -----------
BALANCE SHEET DATA:
Working capital .................................      $   180,000       $ (1,942,000)      $ 2,641,000
Property and equipment, net .....................          169,000          5,842,000         5,000,000
Total assets ....................................        1,263,000          8,286,000        12,667,000
Long-term obligations ...........................               --          5,395,000         3,107,000
Shareholders'(deficit) equity ...................          484,000         (1,044,000)        4,923,000
</TABLE>



                                      11
<PAGE>   14



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with the "Selected Consolidated Financial Data" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Report. This Report
contains certain forward-looking statements relating to, without limitation,
future economic performance, plans and objectives of management for future
operations and projections of revenues and other financial items that are based
on the beliefs of our management, as well as assumptions made by, and
information currently available to, our management. When used in this Report,
the words "intends," "believes," "anticipates," "estimates," "may," "could,"
"should," "would," "will," "plans" and similar expressions and variations
thereof are intended to identify forward-looking statements. The cautionary
statements set forth elsewhere in this Report identify important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements.

         We market communications and Internet services and nutritional and
health enhancement products through our multi-level network marketing system of
independent associates. We operate through our subsidiaries: Maxxis 2000;
Maxxis Communications; and Maxxis Nutritionals.

         We are a network marketing company that currently markets 1-Plus long
distance service, prepaid phone cards, 800 service and international
telecommunications services, Internet access and Web-page development and
hosting services, and nutritional and health enhancement products. We believe
that our marketing system allows us to obtain customers for our products and
services in a cost effective manner. We believe that our marketing system also
enhances customer retention because of the personal relationships between our
independent associates and their customers. We believe that the
telecommunications customers obtained by our independent associates are also
potential customers for our nutritional and health enhancement products and
Internet-related services.

         We derive revenues from communications services, nutritional products
and marketing services. Communications services revenues are comprised of: (i)
sales of prepaid phone cards to our independent associates; (ii) usage and fees
from long distance services provided by the Maxxis network, net of allowances
for bad debt and billing adjustments; and (iii) subscription fees from our
Internet subscribers. Because of the administrative procedures that must be
complied with in order to establish 1-Plus customers and to collect the usage
and access fees, there is generally a delay of up to two to three months from
the time a prospective customer indicates a desire to become a 1-Plus customer
and the time that we begin to receive revenues from such customer's usage. In
the future, we believe that revenues generated on the sales of 1-Plus long
distance services will constitute an increasing percentage of our total
revenues.

         Nutritional products revenues include sales of private-label
nutritional products to our nutrition customers. Marketing services revenues
include application fees from independent associates and purchases of sales
aids by independent associates, including distributor kits which consist of
forms, promotional brochures, audio and video tapes, marketing materials and
presentation materials. To become an independent associate, individuals (other
than individuals in North Dakota) must complete an application and purchase a
distributor kit. Independent associates also pay an annual non-refundable fee,
which we amortize into revenues over the renewal period, in order to maintain
their status as an independent associate.

         Cost of services consists of communications services cost, nutritional
products cost and marketing services cost. Communications services cost
consists of the cost of providing service for prepaid phone cards and the
network services cost to provide or purchase 1-Plus long distance services.
Nutritional products cost consists of the cost of purchasing private label
nutritional products. Marketing services cost includes the costs of purchasing
independent associate distributor kits, sales aids and promotional materials
and training costs. Operating expenses consist of selling and marketing
expenses and general and administrative expenses. Selling and marketing
expenses include commissions paid to independent associates based on: (i) sales
of products to new independent associates sponsored into Maxxis; (ii) usage of
long distance services by customers; and (iii) sales of additional products and
services to customers. General and administrative expenses include costs for
independent




                                      12
<PAGE>   15


associate support services, information systems services and administrative
personnel to support our operations and growth.

         Maxxis has a limited operating history, and our operations are subject
to the risks inherent in the establishment of any new business. We expect that
we will incur substantial initial expenses, and there can be no assurance that
we will maintain profitability. If we continue to grow rapidly, we will be
required to continually expand and modify our operational and financial
systems, add additional independent associates and new customers, and train and
manage both current and new employees and independent associates. Such rapid
growth would place a significant strain on our operational resources and
systems, and the failure to effectively manage any such growth could have a
material adverse effect on our business, financial condition and operating
results.

RESULTS OF OPERATIONS

         The following table sets forth the percentage of total revenues
attributable to each category for the periods shown.


<TABLE>
<CAPTION>

                                                                   YEAR ENDED JUNE 30,
                                                       ------------------------------------------
                                                        1998              1999              2000
                                                       -----             -----              -----
<S>                                                    <C>               <C>                <C>
Net revenues:
   Communications services ......................         76%               68%                33%
   Nutritional products .........................          7                11                 58
   Marketing services ...........................         17                21                  9
                                                       -----             -----              -----
     Total net revenues .........................        100%              100%               100%
                                                       =====             =====              =====

Cost of services:
   Communications services ......................         19%               18%                18%
   Nutritional products .........................          4                 5                 12
   Marketing services ...........................          6                 8                  2
                                                       -----             -----              -----
     Total cost of services .....................         29%               31%                32%

Operating expenses:
   Selling and marketing ........................         38                44                 41%
   General and administrative ...................         34                35                 22
                                                       -----             -----              -----
     Total operating expenses ...................         72%               79%                63%
                                                       =====             =====              =====
</TABLE>




                                      13
<PAGE>   16



     YEAR ENDED JUNE 30, 2000 COMPARED WITH JUNE 30, 1999

         Net Revenues. Total net revenues are derived from sales of
communications services, nutritional products and marketing services. Total net
revenues increased $16.8 million, or 136%, to $29.1 million for fiscal year
ended June 30, 2000 from $12.3 million for the same period in 1999. The
increase in total net revenues was primarily due to the increase in nutritional
sales for the current year.

         Communications services revenues consist of sales of prepaid phone
cards to IAs and commissions, fees and revenues generated from long distance
customers and fees generated from Internet services and web hosting activities.
Communications services revenues increased $1.2 million, or 14.6%, to $9.6
million for fiscal 2000 from $8.4 million for the same period in 1999. This
increase was primarily due to increased phone card sales to our IAs and
increased long distance telephone commissions resulting from our larger
communications customer base and the increase in usage offset by a decrease
caused by lower revenues per minute.

         Nutritional products revenues consist of sales of private label
nutritional products. Nutritional products revenues increased $15.6 million, or
1140%, to $17.0 million for fiscal 2000 from $1.4 million for fiscal 1999. This
increase was primarily due to the more expansive product line we offered during
fiscal 2000 and the promotional contests associated with our product line.

         Marketing services revenues consist of application fees paid by
independent associates, purchases of sales aids by independent associates,
registration fees for the annual Summit marketing. Marketing services revenues
decreased $73,000, or 3%, to $2.5 million for fiscal 2000 from $2.6 million for
the same period in 1999. This decrease was due to the decrease in the number of
new IAs.

         Cost of Services. Cost of services includes communications services
cost, nutritional products cost and marketing services cost. Total cost of
services for fiscal 2000 was $9.2 million, or 32% of total net revenues, as
compared to $3.8 million, or 31% of total net revenues, for the same period in
1999 as the result of flat communications services margins which was partially
mitigated by an improvement in nutritional product and marketing services
margins.

         Communications services cost consisted primarily of the cost of
purchasing activated prepaid phone cards from MCI WorldCom and other outside
vendors as well as the costs of operating the Maxxis Switch. Communications
services cost was $5.3 million, or 18% of total net revenues, for fiscal 2000,
as compared to $2.2 million, or 18% of total net revenues, for the same period
in 1999. Nutritional products cost was $3.4 million or 12% of total net
revenues for fiscal 2000 as compared to $662,000, or 5% of total revenues for
the comparable 1999 period. This increase in the cost of nutritional products
was due primarily to increased sales volume. Marketing services cost was
$519,000, or 2% of total net revenues, for fiscal 2000, as compared to
$947,000, or 8% of total net revenues, for the same period in 1999. The
decrease in marketing services cost as a percentage of total net revenues was
due primarily to an increase in overall sales and better control of expenses.

         Gross Margin. Gross margin increased to $19.9 million for fiscal 2000
from $8.6 million for the same period in 1999. As a percentage of total net
revenues, gross margin was 68% for fiscal 2000 as compared to 69% for fiscal
1999.

         Operating Expenses. Selling and marketing expenses consist of
commissions paid to independent associates based on (i) sales of products to
new independent associates sponsored into Maxxis, (ii) usage of long distance
services by customers, and (iii) sales of additional products and services to
customers. For fiscal 2000, selling and marketing expenses were $11.8 million,
or 41% of total net revenues, as compared with $5.4 million, or 44% of total
net revenues, for the same period in 1999. This decrease was due to the
decrease in the number of IAs. General and administrative expenses were $6.4
million, or 22% of total net revenues for 2000, as compared to $4.4 million, or
35% of total net revenues, for the same period in 1999. General and
administrative expenses increased as a percentage of total revenues in fiscal
2000 due to higher legal and other expenses incurred in connection with the




                                      14
<PAGE>   17

filing of tariffs in various states to offer long distance service. Total
operating expenses as a percentage of net revenue decreased to 63% of net
revenues for fiscal 2000 from 79% of net revenues for fiscal 1999.

         Interest Expense. For the year ended June 30, 2000, interest expense
was $616,000. The expense was largely comprised of interest costs related to
the lease of the Maxxis Switch. Interest expense of $338,000 in fiscal 1999 was
largely comprised of interest cost related to the lease of the Maxxis Switch
and interest on the line of credit facility, partially offset by interest
earned on overnight cash balances.

         Net Income. Net Income for fiscal 2000 was $1.0 million as compared to
a net loss of $1.6 million for the same period in 1999.

     YEAR ENDED JUNE 30, 1999 COMPARED WITH JUNE 30, 1998

         Net Revenues. Total net revenues are derived from sales of
communications services, nutritional products and marketing services. Total net
revenues increased $5.4 million, or 77%, to $12.3 million for fiscal year ended
June 30, 1999 from $7.0 million for the same period in 1998. The increase in
total net revenues was primarily due to the growth in the number of IAs
enrolled in the Maxxis marketing network.

         Communications services revenues consist of sales of prepaid phone
cards to IAs and commissions, fees and revenues generated from long distance
customers and fees generated from Internet services and web hosting activities.
Communications services revenues increased $3.1 million, or 59%, to $8.4
million for fiscal 1999 from $5.3 million for the same period in 1998. This
increase was primarily due to increased phone card sales to our IAs and
increased long distance telephone commissions resulting from our larger
communications customer base.

         Nutritional products revenues consist of sales of private label
nutritional products. Nutritional products revenues increased $844,000, or
160%, to $1.4 million for fiscal 1999 from $526,000 for fiscal 1998. This
increase was primarily due to the fact that we did not begin selling
nutritional products until November 1997 combined with the more expansive
product line we offered during fiscal 1999.

         Marketing services revenues consist of application fees paid by
independent associates, purchases of sales aids by independent associates,
registration fees for the annual Summit marketing meeting. Marketing services
revenues increased $1.4 million, or 118%, to $2.6 million for fiscal 1999 from
$1.2 million for the same period in 1998. This increase was due to the growth
in the numbers of IAs and the increased attendance of the IAs at our Summit
meeting and our training schools along with an increase in the price of our
distribution kits.

         Cost of Services. Cost of services includes communications services
cost, nutritional products cost and marketing services cost. Total cost of
services for fiscal 1999 was $3.8 million, or 31% of total net revenues, as
compared to $2.1 million, or 30% of total net revenues, for the same period in
1998. The increase in total cost of services as a percentage of total net
revenues was primarily the result of flat communications services margins which
was mitigated by an improvement in nutritional product and marketing services
margins.

         Communications services cost consists primarily of the cost of
purchasing activated prepaid phone cards from CRC and other outside vendors as
well as the costs we incur in the operation of the Maxxis Switch.
Communications services cost was $2.2 million, or 18% of total net revenues,
for fiscal 1999, as compared to $1.4 million, or 19% of total net revenues, for
the same period in 1998. Nutritional products cost was $705,000 or 6% of total
net revenues for fiscal 1999 as compared to $294,000, or 4% of total revenues
for the comparable 1998 period. Marketing services cost was $931,000, or 8% of
total net revenues, for fiscal 1999 as compared to $339,000, or 7% of total net
revenues, for the same period in 1998. The increase in marketing services cost
as a percentage of total net revenues was primarily due to higher costs
associated with our 1999 annual Summit meeting for our IAs.

         Gross Margin. Gross margin increased to $8.6 million for fiscal 1999
from $4.9 million for the same period in 1998. As a percentage of total net
revenues, gross margin declined to 69% for fiscal 1999 from 71% for fiscal
1998.



                                      15
<PAGE>   18


         Operating Expenses. Selling and marketing expenses consist of
commissions paid to independent associates based on (i) sales of products to
new independent associates sponsored into Maxxis, (ii) usage of long distance
services by customers, and (iii) sales of additional products and services to
customers. For fiscal 1999, selling and marketing expenses were $5.4 million,
or 44% of total net revenues, as compared with $2.7 million, or 38% of total
net revenues, for the same period in 1998. Selling and marketing expenses
increased as a percentage of net revenues primarily for fiscal 1999 primarily
because of an incentive trip and other awards which were provided to our best
performing independent associates. General and administrative expenses were
$4.4 million, or 35% of total net revenues for 1999, as compared to $2.3
million, or 34% of total net revenues, for the same period in 1998. General and
administrative expenses increased as a percentage of total revenues in fiscal
1999 due to higher legal and other expenses in connection with our public stock
offering and the filing of tariffs in various states to offer long distance
service. Total operating expenses increased to 79% of net revenues for fiscal
1999 from 72% of net revenues for fiscal 1998.

         Interest Expense. For the year ended June 30, 1999, interest expense
was $356,000. The expense was largely comprised of interest cost related to the
Maxxis Switch and also included interest on the line of credit facility,
partially offset by interest earned on overnight cash balances. Interest
expense of $2,000 in fiscal 1998 was largely related to a loan from a Company
officer.

         Net Loss. Net loss for fiscal 1999 was $1.6 million as compared to a
net loss of $96,000 for the same period in 1998.




                                      16
<PAGE>   19


SEASONALITY AND UNAUDITED QUARTERLY FINANCIAL INFORMATION

         We have historically experienced, and expect to continue to
experience, significant seasonal fluctuations in the recruitment of its IAs and
the sale of its products and services. Our annual summit occurs in the first
quarter of our fiscal year, which has historically caused an increase in the
number of our IAs and sales of our products and services. Historically,
revenues have been lower in the second quarter than in other quarters of a
given year because of the number of new IAs added and product and service sales
have historically declined during the holiday season. Our operating results may
vary significantly in the future, partly due to such seasonal fluctuations. We
believe that recruitment of IAs and sales of our products and services will
continue to follow this seasonal cycle. Our quarterly results may fluctuate
significantly as a result of such seasonality. Because of the potential
quarterly fluctuations in our revenue and operating results, results for any
particular quarter may not be indicative of future quarterly or annual results.


<TABLE>
<CAPTION>
                                                                             QUARTER ENDED
                                                 -------------------------------------------------------------------
                                                 SEPT. 30, 1999     DEC. 31, 1999     MAR. 31, 2000    JUNE 30, 2000
                                                 --------------     -------------     -------------    -------------
<S>                                              <C>                <C>               <C>              <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
  Communications services ..................      $ 3,034,000       $ 2,189,000       $ 2,407,000      $  2,016,000
  Nutritional products .....................          423,000           692,000         8,249,000         7,639,000
  Marketing services .......................          863,000           412,000           667,000           542,000
                                                  -----------       -----------       -----------      ------------
        Total net revenues .................        4,320,000         3,293,000        11,323,000        10,197,000
                                                  -----------       -----------       -----------      ------------
Cost of services:
  Communications services ..................        1,470,000         1,256,000         1,273,000         1,293,000
  Nutritional products .....................          167,000           162,000         1,399,000         1,675,000
  Marketing services .......................          253,000           141,000           161,000           (36,000)
                                                  -----------       -----------       -----------      ------------
        Total cost of services .............        1,890,000         1,559,000         2,833,000         2,932,000
                                                  -----------       -----------       -----------      ------------
Gross margin ...............................        2,430,000         1,734,000         8,490,000         7,265,000
                                                  -----------       -----------       -----------      ------------
Operating Expenses:
  Selling and marketing ....................        1,768,000           796,000         5,583,000         3,680,000
  General and administrative ...............        1,354,000         1,427,000         1,763,000         1,867,000
                                                  -----------       -----------       -----------      ------------
        Total operating expenses ...........        3,122,000         2,223,000         7,346,000         5,547,000
                                                  -----------       -----------       -----------      ------------
Operating Income ...........................         (692,000)         (489,000)        1,144,000         1,718,000
                                                  -----------       -----------       -----------      ------------
Interest and other (income) expense ........          188,000           143,000           436,000          (119,000)
                                                  -----------       -----------       -----------      ------------
Income (loss) before income tax benefit ....         (880,000)         (632,000)          708,000         1,837,000
Income tax provision (benefit) .............               --                --                --                --
                                                  -----------       -----------       -----------      ------------
Net (loss) income ..........................      $  (880,000)      $  (632,000)      $   708,000      $  1,837,000
                                                  ===========       ===========       ===========      ============

Net(loss) income per share:
  Basic ....................................      $     (0.54)      $     (0.41)      $      0.44      $       1.18
                                                  ===========       ===========       ===========      ============
  Diluted ..................................      $     (0.54)      $     (0.41)      $      0.43      $       0.72
                                                  ===========       ===========       ===========      ============

Weighted average number of shares
outstanding
  Basic ....................................        1,617,637         1,541,500         1,617,697         1,563,092
                                                  ===========       ===========       ===========      ============
  Diluted ..................................        1,617,637         1,541,500         1,654,056         2,547,592
                                                  ===========       ===========       ===========      ============
</TABLE>




                                      17
<PAGE>   20


LIQUIDITY AND CAPITAL RESOURCES

         From January to February of 1999, we conducted a public offering of
our common stock. Pursuant to this offering, we sold 46,450 shares of Common
Stock at an offering price of $5.50 per share pursuant to a registration
statement on Form S-1 (Commission File No. 333-38623). Our proceeds from the
offering were approximately $255,475; our proceeds, net of offering expenses
were approximately $1,000.

         On November 22, 1998, we entered into a line of credit with the Maxxis
Millionaire Society, a Georgia partnership in which Ivey Stokes, our Chairman,
Chief Executive Officer and President, and Alvin Curry, our Chief Operating
Officer, are partners. The line of credit was amended on May 1, 1999. Pursuant
to the line of credit, Maxxis may borrow up to $2,000,000 at 10% annual
interest. Advances or interest thereon pursuant to the line of credit are
payable on demand. As of June 30, 2000, $65,000 principal amount was
outstanding pursuant to the line of credit.

         In November 1997, we entered into a demand promissory note to fund
expenses incurred in connection with the launch of our nutritional product line.
As of March 23, 1998, we had borrowed $200,000 under such promissory note. On
March 23, 1998, we converted the outstanding principal amount under the
promissory note into units ("Units") at a price of $5.50 per Unit with each Unit
consisting of one share of Series A Convertible Preferred Stock (the "Preferred
Stock") and a warrant (a "Warrant") to purchase one share of Common Stock at a
price of $5.50 per share. The Preferred Stock is: (i) non-voting; (ii) entitled
to an antidilution adjustment only upon a stock split, recapitalization or
similar event; (iii) entitled to a liquidation preference over the Common Stock;
and (iv) convertible into Common Stock at the option of the holder at any time
commencing 14 months following the date of the issuance of the Preferred Stock
and automatically upon the closing of a public offering that occurs at least 14
months following the issuance of the Preferred Stock and that provides us with
gross proceeds of at least $7,500,000. The Warrants are entitled to an
antidilution adjustment only upon a stock split, recapitalization or similar
event, are not exercisable until 14 months following their date of issuance and
remain exercisable at the option of the holder until the seventh anniversary of
their issuance. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of the Preferred
Stock and any additional preferred stock that may be issued in the future.

         On March 31, 2000, we sold 967,000 shares of Preferred Stock and on May
15, 2000, we sold 25,000 shares of Preferred Stock, all at a purchase price of
$5.50 per share. These sales were completed in a private placement solely to
accredited investors.

         We anticipate that cash generated from operations, together with
additional borrowings or equity financings, will be sufficient to meet our
capital requirements for the next 12 months. However, if we do not receive
sufficient funds from its operations and borrowings and equity financings to
fund its operations, we may need to raise additional capital. In addition, any
increases in our growth rate, shortfalls in anticipated revenues, increases in
expenses or significant acquisitions could have a material adverse effect on
our liquidity and capital resources and could require us to raise additional
capital. We may also need to raise additional funds in order to take advantage
of unanticipated opportunities, such as acquisitions of complementary
businesses or the development of new products, or otherwise respond to
unanticipated competitive pressures. Sources of additional capital may include
venture capital financing, cash flow from operations, additional lines of
credit and private equity and debt financings. Our cash and financing needs for
2000 and beyond will be dependent on our level of IA and customer growth and
the related capital expenditures, advertising costs and working capital needs
necessary to support such growth. We believe that major capital expenditures
may be necessary over the next few years to develop additional product lines to
sell through our IAs and to develop and/or acquire information, accounting
and/or inventory control systems to monitor and analyze our growing multi-level
network marketing system.

         For 2000, cash flows provided from operating activities were $2.7
million, compared to net cash used in operating activities of $177,000 for
1999. Operating activities for 2000 consisted primarily of $1.0 million of net
income and $1.7 million in adjustments to reconcile net income to operating
cash flows, which consisted primarily of $1.5 million of non-cash depreciation
and amortization and $427,000 in non-cash provisions for doubtful
communications receivables offset by an increase in inventories of $739,000.




                                      18
<PAGE>   21

         Cash used in investing activities was $627,000 for 2000, as compared
to $741,000 for 1999. Investing activities for 2000 consisted primarily of
software development and organizational costs of $0.1 million, and capital
expenditures totaling $434,000.

         Cash provided from financing activities was $2.7 million for 2000, as
compared to $600,000 for 1999. Financing activities for 2000 consisted
primarily of $5.1 million of proceeds from sale of preferred stock offset by
repurchase of the preferred stock of $223,000 and payments totaling $853,000 on
the lease obligations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

         Not applicable.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Our Consolidated Financial Statements, including our consolidated
balance sheets as of June 30, 1998, 1999 and 2000 and consolidated statements
of operations, shareholders' equity (deficit) and cash flows for each of these
years, together with the report thereof of Arthur Andersen LLP, dated September
22, 2000 are included on pages F-1 through F-18 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND
        FINANCIAL DISCLOSURE

         We had no disagreements on accounting or financial disclosure matters
with our accountants nor did we change accountants during the year ended June
30, 2000.




                                      19
<PAGE>   22


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS AND DIRECTORS

         Our directors and executive officers are set forth below. Our Board of
Directors consists of nine directors divided into three classes of directors,
serving staggered three-year terms. Our directors and executive officers are
elected to serve until they resign or are removed, or are otherwise
disqualified to serve, or until their successors are elected and qualified. Our
directors are elected at the annual meeting of shareholders. Our officers are
appointed at the Board's first meeting after each annual meeting of
shareholders. The ages of the persons set forth below are as of September 30,
1999.


<TABLE>
<CAPTION>

                                                                                                             TERM AS
                                                                                                             DIRECTOR
NAME                                      AGE                           POSITION                             EXPIRES
----                                      ---                           --------                             --------
<S>                                       <C>    <C>                                                         <C>

Ivey J. Stokes........................     41    Chairman of the Board of Directors, Chief Executive           2001
                                                 Officer, and President
Alvin Curry...........................     43    Chief Operating Officer and Director                          2001
DeChane Cameron.......................     31    Chief Financial Officer                                         --
Larry W. Gates, II....................     37    Vice President, Secretary, and Director                       2002
Charles P. Bernstein..................     49    Director                                                      2000
Thomas O. Cordy.......................     59    Director                                                      2001
Robert James Glover, Jr...............     39    Director                                                      2002
Terry Harris..........................     45    Director                                                      2000
</TABLE>

         IVEY J. STOKES has served as our Chairman of the Board of Directors
since our inception and as our Chief Executive Officer and President since
September 1999. Mr. Stokes began his marketing career in 1982 at A.L. Williams
Corporation ("A.L. Williams") where he became one of less than 400 National
Sales Directors out of 1.3 million insurance agents. In March 1991, Mr. Stokes
left the financial services industry to launch his own independent marketing
firm, Global Marketing Alliance ("Global Alliance"). Over the next five years,
Mr. Stokes became one of the leading money earners in several national network
marketing firms. Mr. Stokes' marketing firm, Global Alliance, has sponsored and
trained over 150,000 distributors since 1991. Mr. Stokes has a bachelors degree
in industrial management from the Georgia Institute of Technology.

         ALVIN CURRY has served as a director since our inception. He also
serves as our Executive Vice President and Chief Operating Officer. Mr. Curry
started his marketing career in 1986 with A.L. Williams, where he attained the
position of Senior Vice President in less than three years. In March 1991, Mr.
Curry left the financial services industry to join Mr. Stokes in Global
Alliance. Mr. Curry attended Northwest Mississippi Junior College and Tacoma
Community College, and he received a degree from the Knapp College of Business.

         DECHANE CAMERON has served as Chief Financial Officer for the Maxxis
Group since February 2000 after serving as Controller for Maxxis Communications
since he joined us 1999. Before joining us, Mr. Cameron served as Controller
with Meyer Laminates from 1997 to 1999. Prior to that, Mr. Cameron served as
Accounting Manager with Premier Medical Network from 1994 to 1997. Other
positions held by Mr. Cameron include Senior Accountant with Eastern Foods,
Inc. and Matson, Driscoll & Damico. Mr. Cameron is a member of the National
Association of Management Accountants, the National Association of Black
Accountants, and holds a Bachelors of Science in Accounting from Clemson
University.




                                      20
<PAGE>   23


         LARRY W. GATES, II has served as Vice President since our inception
and as a director since May 1997. Mr. Gates became a part-time independent
insurance agent for A.L. Williams in 1989 while serving in the U.S. Army. In
1993, he left the financial services industry and became a full-time
independent marketer of telecommunications services through his own independent
marketing firm, Classic Enterprises. Mr. Gates built a downline of over 10,000
distributors between 1993 and 1996. Mr. Gates has an associates degree from
Pierre College.

         CHARLES P. BERNSTEIN has served as a director since May 1997. Since
1992, Mr. Bernstein has also served as President of Harvest Mortgage Co. From
1989 to 1992, Mr. Bernstein was the Vice President of Nationwide Mortgage
Resources, an underwriter and servicer of loans on residential and commercial
real estate. Mr. Bernstein holds an associates degree from the University of
South Carolina.

         THOMAS O. CORDY has served as a director since May 1997. Mr. Cordy
served as our Chief Executive Officer and President from May 1997 to September
1999. Prior to joining us, he served as President and Chief Executive Officer
of CI Cascade Corp. Mr. Cordy currently serves as Vice Chairman of the Board of
Trustees of Clark Atlanta University, Chairman of the Board of Renaissance
Capital Corporation and as a Director of Cox Enterprises. Mr. Cordy has a
bachelors degree from Morehouse College and a masters degree from Atlanta
University. Mr. Cordy has attended the Stanford Executive Program at the
Stanford School of Business and the University of Oklahoma National Lending
School.

         ROBERT JAMES GLOVER, JR. has served as a director since our inception.
Mr. Glover started his marketing career as an independent insurance agent with
A.L. Williams in 1985, where he attained the sales position of Senior Vice
President. In December 1993, Mr. Glover left the financial services industry
and became an independent marketer of telecommunications services through his
own independent marketing firm, Glover Enterprises. Mr. Glover's network
marketing firm has sponsored and trained over 10,000 distributors. Mr. Glover
attended Maryland University.

         TERRY HARRIS has served as a director since May 1997. Since 1982, Mr.
Harris has served as Pastor and President of Tacoma Christian Center Inc. Mr.
Harris has a bachelors degree from the University of Puget Sound and attended
Rhema Bible School.


COMMITTEES OF THE BOARD

         The Executive Committee of our Board of Directors exercises, during
the interval between Board meetings, all of the powers of our Board of
Directors with certain limitations. During the year ended June 30, 2000, the
Executive Committee was composed of Thomas O. Cordy, Alvin Curry and Ivey J.
Stokes and held three meetings.

         The Audit Committee of the Board of Directors reviews, with our
independent public accountants, our annual financial statements, reviews the
work of such independent public accountants and makes annual recommendations to
the Board of Directors for the appointment of independent public accountants
for the ensuing year. The Audit Committee also reviews the effectiveness of our
financial and accounting functions, organization, operations and management.
During the year ended June 30, 2000, the Audit Committee was composed of
Charles P. Bernstein, Terry Harris and Larry Gates and held one meeting.

         The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of our officers and administers the
issuance of stock options to our officers, employees, consultants and advisors.
The Compensation Committee also reviews general policy matters relating to the
compensation and benefits of our employees. During the year ended June 30,
2000, the Compensation Committee was composed of Charles P. Bernstein, Terry
Harris and Larry Gates and held one meeting.

         We do not have a standing nominating committee. The Board of Directors
or the Executive Committee nominates candidates to stand for election as
directors. Our Amended and Restated Bylaws permit shareholders to




                                      21
<PAGE>   24


make nominations for directors but only if such nominations are made pursuant
to timely notice in writing to the Secretary of Maxxis. To be timely, notice of
shareholder nominations for directors must be delivered in writing to the
Secretary of Maxxis no later than 90 days prior to the anniversary of the
previous year's annual meeting, together with the identity of the nominator and
the number of shares of Common Stock owned, directly or indirectly, by the
nominator.

         During the year ended June 30, 2000, our Board of Directors held four
meetings. All of our directors have attended 75% or more of the aggregate of
all Board meetings and all meetings of committees of which they were members.

ITEM 11. EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

         Members of the Board of Directors are reimbursed for their
out-of-pocket expenses for each meeting attended, but otherwise serve without
compensation.

EXECUTIVE COMPENSATION

         The following Summary Compensation Table sets forth the compensation
earned by our Chief Executive Officer during the years ended June 30, 2000,
1999 and 1998 . No other executive officers received a combined salary and
bonus in excess of $100,000 during the years ended June 30, 1999 and 2000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                            ANNUAL COMPENSATION
                                                                                     -------------------------------
NAME AND PRINCIPAL POSITION                                  PERIOD                   SALARY               BONUS(1)
---------------------------                                -----------               --------             ----------
<S>                                                        <C>                       <C>                  <C>
Ivey J. Stokes .............................               Fiscal 2000               $104,000               $     0
Chief Executive Officer and President(2) ...               Fiscal 1999               $104,000               $     0
Thomas O. Cordy ............................               Fiscal 1998               $ 41,600               $83,400
</TABLE>
---------------

(1) Represents amounts accrued as bonus compensation for the periods presented.

(2) Mr. Stokes became our Chief Executive Officer and President in September
    1999, when Mr. Cordy resigned those positions.

OPTION GRANTS DURING 2000

         As of June 30, 2000, no options had been granted to our Chief
Executive Officer during the year ended June 30, 2000.

EMPLOYMENT AGREEMENT

         We entered into an employment agreement (the "Cordy Agreement") with
Mr. Cordy on May 1, 1997. In September 1999, Mr. Cordy resigned as our Chief
Executive Officer and President. At the time of Mr. Cordy's resignation, our
Executive Committee appointed our Chairman of the Board, Ivey J. Stokes, to
serve as our Chief Executive Officer and President. Mr. Stokes is not presently
a party to an employment agreement with us.

SALES REPRESENTATIVE AGREEMENTS

         We entered into independent sales representative agreements
(collectively, the "Sales Representative Agreements") with ten independent
sales representatives, including Messrs. Stokes, Gates and Glover. The Sales




                                      22
<PAGE>   25


Representative Agreements provide for a minimum fee of $800.00 per week. Each
sales representative is also eligible to receive quarterly payments of a
performance bonus which is a percentage of total revenue from Maxxis 2000. To
be paid a bonus, a sales representative must have 180 new activations in a
quarter. The bonus amount is then determined by the number of open centers in
that quarter. The bonus ranges from 1% to 5% based on Production. Each sales
representative is an independent contractor, and we do not exercise control
over the activities of the sales representatives other than as set forth in the
Sales Representative Agreements.

         Each of the Sales Representative Agreements has a term of one year,
and the term renews daily for an additional year until either party fixes the
remaining term at one year by giving written notice. We can terminate each
sales representative upon death or disability (as defined in the Sales
Representative Agreements) or with or without cause upon delivery to the sales
representative of a notice of termination. If a sales representative is
terminated, the sales representative will receive any accrued fees through the
termination date and any accrued performance bonus, unless the sales
representative is terminated for cause. If the sales representative is our
director or officer, the sales representative shall tender his resignation to
such positions effective as of the termination date. Under the Sales
Representative Agreements, each sales representative agrees to maintain the
confidentiality of our trade secrets and confidential business information.

CONSULTING AGREEMENT

         In September 1997, we entered into a consulting agreement with Mr.
Robert P. Kelly. The consulting agreement provides for a minimum weekly salary,
and the consultant may participate in a bonus program and is eligible to
receive quarterly or annual payments of a performance bonus based upon the
achievement of targeted levels of performance and such other criteria as the
Board of Directors shall establish from time to time. The consultant is an
independent contractor, and we do not exercise control over the activities of
the consultant other than as set forth in the consulting agreement.

         The consulting agreement has a term of one year, and the term renews
daily for an additional year until either party fixes the remaining term at one
year by giving written notice. We can terminate the consultant upon death or
disability (as defined in the consulting agreement) or with or without cause
upon delivery to the consultant of a notice of termination. If the consultant
is terminated because of death, disability or cause, the consultant will
receive any accrued fees through the termination date and any accrued
performance bonus, unless the consultant is terminated for cause. If the
consultant is terminated without cause, we shall pay the consultant severance
payments equal to his minimum base salary for each week during the six-month
period following the termination date.

         Under the consulting agreement, the consultant agrees to maintain the
confidentiality of our trade secrets and confidential business information. The
consultant also agrees for a period of one year following the termination date,
if he is terminated or resigns for any reason, not to compete with or solicit
our employees or customers within a 30-mile radius of our corporate offices;
provided, that if the consultant is terminated without cause, the non-compete
period shall be six months.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

         Pursuant to its Amended and Restated Articles of Incorporation, we are
obligated to indemnify each of our directors and officers to the fullest extent
permitted by the Georgia Business Corporation Code with respect to all
liability and loss suffered and reasonable expenses incurred by such person in
any action, suit or proceeding in which such person was or is made or
threatened to be made a party or is otherwise involved by reason of the fact
that such person is or was our director or officer. We are obligated to pay the
reasonable expenses of our directors and officers incurred in defending such
proceedings if the indemnified party agrees to repay all amounts advanced by us
if it is ultimately determined that such indemnified party is not entitled to
indemnification.





                                      23
<PAGE>   26


STOCK OPTION PLAN

         On September 16, 1998, the Board of Directors adopted the Maxxis
Group, Inc. 1998 Stock Option Plan (the "Option Plan"), which permits us to
grant options to purchase shares of Common Stock to our officers, directors,
key employees, advisors and consultants. The purpose of the Option Plan is to
advance the interests of Maxxis, its subsidiaries and its shareholders by
affording certain employees and directors of Maxxis and its subsidiaries, as
well as key consultants and advisors to Maxxis or any subsidiary, an
opportunity to acquire or increase their proprietary interests in Maxxis.
Options granted under the Option Plan are intended to promote our growth and
profitability by providing the optionees with an additional incentive to
achieve our objectives through participation in our success and growth and by
encouraging optionees to continue their association with or service to us.

         Generally, options granted under the Option Plan may be Incentive
Stock Options ("ISOs"), which are intended to meet the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified options, which are not intended to meet such requirements
("Non-Qualified Options"). ISOs must have terms of ten years or less from the
date of grant and the fair market value of grants of ISOs during any year on
the date of grant may not exceed $100,000. The Option Plan will be administered
by a committee (the "Committee"), having the duties and authorities set forth
in such Option Plan in addition to any other authority granted by the Board.
The Committee will have the full power and authority, in its discretion,
subject to the provisions of the Option Plan, to interpret the Option Plan, to
prescribe, amend, and rescind rules and regulations relating to them, to
determine the details and provisions of each stock option agreement and
restriction agreement, and to make all other determinations necessary or
advisable for the administration of the Option Plan, including, without
limitation, the amending or altering of such Plan and any options or restricted
stock awards granted thereunder, as may be required to comply with or to
conform to any federal, state, or local laws or regulations. The Committee, in
its discretion, will select the recipients of awards and the number of options
granted thereunder and determine other matters such as (i) vesting schedules,
(ii) the exercise price of options (which cannot be less than 100% of the fair
market value of the Common Stock on the date of grant for ISOs) and (iii) the
duration of awards (which cannot exceed ten years from the date of grant or
modification of the option).

         Subject to shareholder approval, the aggregate number of shares of
Common Stock reserved for the issuance of options under the Option Plan will be
300,000 shares, subject to adjustment in accordance with the Option Plan. Any
or all shares of Common Stock subject to the Option Plan may be issued in any
combination of ISOs or Non-Qualified Options, and the amount of Common Stock
subject to the Option Plan may be increased from time to time, subject to
shareholder approval. Shares subject to an option may be either authorized and
unissued shares or shares issued and later reacquired by us. The shares covered
by any unexercised portion of an option that has terminated for any reason may
again be optioned or awarded under the Option Plan, and such shares shall not
be considered as having been optioned in computing the number of shares of
Common Stock remaining available for options under the Option Plan.

         The class of persons eligible to participate in the Option Plan shall
consist of all persons whose participation in the Option Plan the Committee
determines to be in our best interests which shall include, but not be limited
to, all employees and directors of Maxxis, as well as key consultants and
advisors to Maxxis. The Committee will have the power to specify, with respect
to the Options granted to a particular Optionee, the effect of the termination
of such Optionee's employment or service under various circumstances on such
Optionee's right to exercise an Option, which effect may include immediate or
deferred termination of such Optionee's rights under an Option, or acceleration
of the date at which an Option may be exercised in full. As of June 30, 2000,
options to purchase 59,133 shares of Common Stock were outstanding.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of September 23, 2000 by: (i) each
person known by us beneficially to own more than 5% of the





                                      24
<PAGE>   27


outstanding shares of the Common Stock; (ii) each of our directors; and (iii)
all of our directors and executive officers as a group. Except as otherwise
indicated, all persons listed have sole voting and investment power with
respect to their shares.

<TABLE>
<CAPTION>

                                                                              AMOUNT OF         PERCENTAGE OF
                                                                              BENEFICIAL         COMMON STOCK
NAME AND ADDRESS(a) OF BENEFICIAL OWNER                                      OWNERSHIP(b)        OUTSTANDING
---------------------------------------                                      ------------       -------------
<S>                                                                          <C>                <C>
Alvin Curry(c)...........................................................        636,363             40.5%
King David Trust(d)......................................................        454,545             28.9
Cynthia Glover, trustee(e)...............................................        181,818             11.6
Charles P. Bernstein.....................................................             --
Larry W. Gates...........................................................         47,272              3.0
Thomas O. Cordy..........................................................             --               --
Larry W. Gates, II.......................................................         45,454              2.9
Robert J. Glover(f)......................................................             --               --
Terry Harris.............................................................          3,636               *
Ivey J. Stokes(g)........................................................             --               --
All directors and executive officers as a group
   (10 persons) (c) - (g)................................................        948,634             63.0
</TABLE>
---------------------
*        Less than one percent
(a)      The address of the King David Trust and Alvin Curry is c/o Maxxis
         Group, Inc., 1901 Montreal Drive, Suite 108, Tucker, Georgia 30084.
         The address of Cynthia Glover, trustee, U/A Louise Glover dated
         January 10, 1997 is 7839 Taylor Circle, Riverdale, Georgia 30274. The
         address of The Anchora Company is c/o Salem Management Company, Ltd.,
         Design House, Leeward Highway, P.O. Box 150, Providenciales Turks &
         Caicos Island, B.W.I.
(b)      In accordance with Rule 13d-3 under the Securities Exchange Act of
         1934, as amended, a person is deemed to be the beneficial owner, for
         purposes of this table, of any shares of Common Stock if such person
         has or shares voting power or investment power with respect to such
         security, or has the right to acquire beneficial ownership at any time
         within 60 days from September 30, 2000. As used herein, "voting power"
         is the power to vote or direct the voting of shares and "investment
         power" is the power to dispose or direct the disposition of shares.
(c)      Includes 454,545 shares owned by the King David Trust of which Mr.
         Curry, a director of, is the trustee. Mr. Curry disclaims beneficial
         ownership of such shares.
(d)      All such shares are owned by the King David Trust of which Mr. Curry
         is the trustee and Mr. Stokes' minor children are the beneficiaries.
         Mr. Stokes, the Chairman of the Board, disclaims beneficial ownership
         of such shares.
(e)      All such shares are owned by Cynthia Glover, trustee, U/A Louise
         Glover dated January 10, 1997. Ms. Glover is the wife of Robert J.
         Glover, a director. Mr. Glover is the sole beneficiary and disclaims
         beneficial ownership of such shares. In addition, Ms. Glover disclaims
         beneficial ownership of such shares.
(f)      Excludes 181,818 shares owned by Cynthia Glover, trustee, U/A Louise
         Glover dated January 10, 1997 of which Mr. Glover is the sole
         beneficiary. Mr. Glover disclaims beneficial ownership of such shares.
(g)      Excludes 454,545 shares owned by the King David Trust of which Mr.
         Stokes' minor children are the beneficiaries. Mr. Stokes disclaims
         beneficial ownership of such shares.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         On November 22, 1998, Maxxis entered into a line of credit with the
Maxxis Millionaire Society, a Georgia partnership. The line of credit was
amended on May 1, 1999. Ivey Stokes and Alvin Curry, Maxxis' Chairman of the
Board and Chief Operating Officer are partners in the Maxxis Millionaire
Society. Pursuant to the line of credit, Maxxis may borrow up to $2,000,000 at
10% annual interest. No advances or interest thereon pursuant to the line of
credit are payable until November 22, 2000. As of June 30, 2000, $65,000
principal amount was outstanding pursuant to the line of credit.

         On February 16, 1997, Glover Enterprises, Inc., an affiliate of Robert
J. Glover, a director, loaned us $50,000 to fund our initial start-up costs. We
have repaid this loan.



                                      25
<PAGE>   28


         During the Inception Period, we paid a fee of $184,000 to IS 14, Inc.
("IS 14"), a former Delaware corporation which was controlled by certain of our
directors and officers. The IS 14 fee was comprised of compensation for
managerial, marketing and administrative services performed by certain of our
officers and sales representatives prior to the establishment of our payroll.
IS 14 has been dissolved, and we will not make any additional payments to IS
14.

         Pursuant to Mr. Cordy's employment agreement, The Anchora Company, an
affiliate of Mr. Cordy, purchased 72,727 shares of Common Stock, at a price of
$1.65 per share. In exchange, The Anchora Company gave us a $120,000 full
recourse promissory note which bears interest at an annual rate of 8.75%.
Subsequent to Mr. Cordy's recent resignation, we reached an oral agreement with
Mr. Cordy to cancel the $120,000 full recourse promissory note in exchange for
Mr. Cordy's agreement to require The Anchora Company to return the 72,727
shares of Common Stock to us. As of June 30, 2000, we had received the 72,727
shares and $120,000 full recourse promissory note had been cancelled.
Therefore, we cancelled the 72,727 shares formerly owned by The Anchora
Company.

         Certain of the transactions described above may be on terms more
favorable to officers, directors and principal shareholders than they could
obtain in a transaction with an unaffiliated third party. We have adopted a
policy requiring that all material transactions between Maxxis and its
officers, directors or other affiliates must: (i) be approved by a majority of
the disinterested members of our Board of Directors; and (ii) be on terms no
less favorable to us than could be obtained from unaffiliated third parties.

                                    PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)        FINANCIAL STATEMENTS

              The following Consolidated Financial Statements of the Company
              are filed as a part of this Report and are attached hereto as
              pages F-1 through F-18:

                  Consolidated Balance Sheets as of June 30, 1999 and 2000
                  Consolidated Statements of Operations for the Years Ended
                        June 30, 1998, 1999 and 2000
                  Consolidated Statements of Changes in Shareholders' Equity
                  for the Years Ended June 30, 1998, 1999 and 2000 Consolidated
                  Statements of Cash Flows for the Years Ended June 30, 1998,
                  1999 and 2000 Notes to Consolidated Financial Statements

(a)(2)        FINANCIAL STATEMENT SCHEDULES




                                      26
<PAGE>   29


(a)(3)        EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number         Exhibit Description
-------        -------------------
<S>            <C>
 2.1*          Plan of Reorganization of the Company effective as of February
               17, 1998.
 3.1*          Amended and Restated Articles of Incorporation of the Company, as
               amended to date.
 3.2*          Amended and Restated Bylaws of the Company, as amended to date.
 4.1*          See Exhibits 3.1 and 3.2 for provisions of the Amended and
               Restated Articles of Incorporation and Amended and Restated
               Bylaws defining the rights of holders of Common Stock of the
               Company.
 4.2*          Specimen Common Stock certificate.
 4.3*          Shareholders Agreement, dated as of September 1, 1997 among the
               Company and the holders of Class A Common Stock.
 4.4*          Amended and Restated Shareholders Agreement, dated as of February
               18, 1998 among the Company and certain holders of its Common
               Stock.
10.1*          Form of Employment Agreement by and between the Company and
               certain of its officers.
10.2*          Guarantee by Thomas O. Cordy in favor of the Company dated May 1,
               1997.
10.3*          Form of Independent Sales Representative Agreement by and between
               the Company and certain of its sales representatives.
10.4*          Consulting Agreement by and between the Company and Robert P.
               Kelly dated as of September 1, 1997.
10.5*          Software License Agreement between Summit V. Inc., a subsidiary
               of Jenkon International, Inc. and the Company dated February 2,
               1997.
10.6*          Software Service Agreement between Summit V. Inc., a subsidiary
               of Jenkon International, Inc. and the Company dated February 2,
               1997.
10.7*          Equipment Purchase Agreement between Summit V. Inc., a subsidiary
               of Jenkon International, Inc. and the Company dated February 2,
               1997.
10.8*          Agreement for 1-Plus Services between Colorado River
               Communications Corporation and the Company dated February 20,
               1997.+
10.9*          Sublease Agreement between DowElanco and the Company dated
               February 14, 1997.
10.10*         Warehouse lease between Malon D. Mimms and the Company dated
               March 17, 1997.
10.11*         Warehouse lease between Malon D. Mimms and the Company dated June
               23, 1997.
10.12*         Demand Secured Promissory Note dated November 26, 1997 by the
               Company in favor of the lenders named on Schedule I thereto.
10.13*         Sub-Sublease Agreement between the Company and Simons
               Engineering, Inc. dated September 1, 1997.
10.14*         Demand Promissory Note dated February 28, 1998 by the Company in
               favor of Thomas O. Cordy.
10.15*         Form of Stock Purchase Warrant.
10.16**        Maxxis Group, Inc. 1998 Stock Option Plan.
10.17**        Lease Amendment Agreement dated June 5, 1998 among Malon D.
               Mimms, the Company and Richard Bowers & Co.
10.18**        Lease Amendment Agreement dated August 14, 1998 among Malon D.
               Mimms, the Company and Richard Bowers & Co.
10.19#         Software Purchase Agreement between UsefulWare Incorporated and
               the Company dated as of August 13, 1998.+
10.20#         Asset Purchase Agreement by and among Cherry Communications
               Incorporated ("Cherry"), World Access, Inc. ("World Access") and
               the Company dated as of September 29, 1998.
10.21#         Promissory Note by the Company in favor of Cherry dated September
               29, 1998.
10.22#         Security Agreement between the Company and World Access dated as
               of September 29, 1998.
10.23#         Software License Agreement between Alcatel USA Marketing, Inc.
               and the Company dated as of September 29, 1998.
</TABLE>


                                       27
<PAGE>   30

<TABLE>
<S>            <C>
10.24#         Sublease between Cherry and the Company dated as of September 30,
               1998.
10.25#         Master Lease Agreement between Rockford Industries, Inc. and the
               Company dated as of September 29, 1998 (World Access).
10.26#         Master Lease Agreement between Rockford Industries, Inc. and the
               Company dated as of September 29, 1998 (NACT Telecommunications,
               Inc.).
10.27##        Line of Credit between the Company and the Maxxis Millionaire
               Society dated as of November 22, 1998.
10.28##        Investment Agreement between InteReach Internet Services, LLC and
               the Company dated as of December 8, 1998.
10.29##        Virtual ISP Agreement between InteReach Internet Services, Inc.
               and the Company dated as of December 8, 1998.
10.30###       Digital Services Agreement between Worldcom Network Services,
               Inc. and the Company dated as of January 21, 1999
10.31+###      Telecommunications Services Agreement between Worldcom Network
               Services, Inc. and the Maxxis Communications dated as of January
               21, 1999.
10.32###       Program Enrollment Terms to the Telecommunications Services
               Agreement dated as of January 21, 1999 between Worldcom Network
               Services, Inc. and the Maxxis Communications.
10.33+###      Master Service Agreement between IXC Communications Services,
               Inc. and the Company dated as of March 25, 1999.
10.34###       Amendment to the Line of Credit between the Company and the
               Maxxis Millionaire Society dated as of May 1, 1999.
21.1###        Subsidiaries of the Company.
24.1           Power of Attorney (contained on the signature page hereof).
27.1           Financial Data Schedule for period ended June 30, 2000 (for SEC
               use only).
</TABLE>

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

*    Incorporated by reference to the Company's Registration Statement on Form
     S-1 (Registration No. 333-38623).
**   Incorporated by reference to the Company's Form 10-K for the year ended
     June 30, 1998 as filed with the Commission on September 25, 1998.
#    Incorporated by reference to the Company's Form 109-Q for the quarter ended
     September 30, 1998 as filed with the Commission on November 12, 1998.
##   Incorporated by reference to the Company's Form 10-Q for the quarter ended
     December 31, 1998 as filed with the Commission on February 16, 1999.
###  Incorporated by reference to the Company's Form 10-K for the year ended
     June 30, 1999 as filed with the Commission on October 13, 2000.
+    Confidential treatment has been requested for certain confidential portions
     of this exhibit pursuant to Rule 406 under the Securities Act. In
     accordance with Rule 406, these confidential portions have been omitted
     from this exhibit and filed separately with the Commission.


(b)      REPORTS ON FORM 8-K

         None.


                                       28
<PAGE>   31


                                   SIGNATURES

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

                                       MAXXIS GROUP, INC.

<TABLE>

<S>                                    <C>
October 23, 2000                       By:  /s/  Ivey J. Stokes
                                            ------------------------------------
                                            Ivey J. Stokes
                                            Chief Executive Officer
</TABLE>


                                POWER OF ATTORNEY

         KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, IVEY J. STOKES and
DECHANE CAMERON, and each one of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Annual Report (Form 10-K) and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.

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

<TABLE>

<S>                              <C>
October 23, 2000                 /s/ Ivey J. Stokes
                                 -----------------------------------------------
                                 Ivey J. Stokes
                                 Chairman of the Board, Chief Executive Officer
                                 and President
                                 (Principal executive officer)

October 23, 2000                 /s/ DeChane Cameron
                                 -----------------------------------------------
                                 DeChane Cameron
                                 Chief Financial Officer
                                 (Principal financial and accounting officer)


                                 -----------------------------------------------
                                 Thomas O. Cordy
                                 Director

October 23, 2000                 /s/ Larry W. Gates, II
                                 -----------------------------------------------
                                 Larry W. Gates, II
                                 Vice President, Secretary, and Director
</TABLE>


                                       29
<PAGE>   32

<TABLE>
<S>                              <C>

                                 -----------------------------------------------
                                 Charles P. Bernstein
                                 Director

October 23, 2000                 /s/ ALVIN CURRY
                                 -----------------------------------------------
                                 Alvin Curry
                                 Chief Operating Officer and Director

October 23, 2000                 /s/ ROBERT J. GLOVER, JR.
                                 -----------------------------------------------
                                 Robert J. Glover, Jr.
                                 Director


                                 -----------------------------------------------
                                 Terry Harris
                                 Director
</TABLE>


                                       30

<PAGE>   33


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                     Page
                                                                                                     ----
<S>                                                                                                  <C>
Report of Independent Public Accountants .......................................................      F-2

Consolidated Balance Sheets as of June 30, 1998, 1999 and 2000 .................................      F-3

Consolidated Statements of Operations for the Years Ended June 30, 1998, 1999 and 2000 .........      F-4

Consolidated Statements of Changes in Shareholders' Equity for the Years Ended June 30, 1998,
     1999 and 2000 .............................................................................      F-5

Consolidated Statements of Cash Flows for the Years Ended June 30, 1998, 1999 and 2000 .........      F-6

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


                                      F-1
<PAGE>   34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS






To Maxxis Group, Inc. and Subsidiaries:


We have audited the accompanying consolidated balance sheets of MAXXIS GROUP,
INC. (a Georgia corporation) AND SUBSIDIARIES as of June 30, 1999 and 2000 and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the years ended June 30, 1998, 1999, and 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Maxxis Group, Inc. and
subsidiaries as of June 30, 1999 and 2000 and the results of their operations
and their cash flows for the years ended June 30, 1998, 1999, and 2000 in
conformity with accounting principles generally accepted in the United States.



Atlanta, Georgia

/s/ Arthur Andersen LLP
-----------------------

September 22, 2000


                                      F-2
<PAGE>   35

                       MAXXIS GROUP, INC. AND SUBSIDIARIES


                           CONSOLIDATED BALANCE SHEETS

                             JUNE 30, 1999 AND 2000



<TABLE>
<CAPTION>
                                                                                                  1999               2000
                                                                                             -----------         ----------
<S>                                                                                          <C>                  <C>
                                                           ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                                                  $    20,000         $4,867,000
   Short-term investment                                                                           10,000                  0
   Communications receivable, net of allowance for doubtful accounts of $113,000
      in 1999                                                                                     652,000                  0
   Accounts receivable, net of allowance for doubtful accounts of $189,000 and
      $931,000 in 1999 and 2000, respectively                                                     817,000          1,081,000
   Inventories, net                                                                               354,000          1,093,000
   Prepaid expenses and other current assets                                                      110,000            237,000
                                                                                              -----------        -----------
                                                                                                1,963,000          7,278,000

PROPERTY AND EQUIPMENT, NET (NOTE 3)                                                            5,842,000          5,000,000

CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET                                                       352,000            358,000

OTHER ASSETS                                                                                      129,000             31,000
                                                                                              -----------        -----------
                                                                                              $ 8,286,000        $12,667,000
                                                                                              ===========        ===========


                                           LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:

   Line of credit (Note 6) [CHECK DUE DATE]                                                   $         0         $   65,000
   Accounts payable                                                                             1,218,000            814,000
   Commissions payable                                                                            463,000            160,000
   Accrued compensation                                                                           220,000            756,000
   Sales taxes payable                                                                            317,000            177,000
   Accrued expenses                                                                               428,000            813,000
   Current maturities of capital lease obligations                                                929,000            974,000
   Deferred revenue                                                                               330,000            878,000
                                                                                              -----------        -----------
                                                                                                3,905,000          4,637,000
                                                                                              -----------        -----------
LINE OF CREDIT (NOTE 6)                                                                         1,390,000                  0
                                                                                              -----------        -----------
LONG-TERM CAPITAL LEASE OBLIGATIONS (NOTE 4)                                                    4,005,000          3,107,000
                                                                                              -----------        -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)

SHAREHOLDERS' EQUITY (DEFICIT):
   Preferred stock, no par value; 10,000,000 shares authorized, 100,000 and
      1,000,000 shares designated as Series A Convertible Preferred Stock, 36,359
      and 992,814 Series A Convertible Preferred Stock shares issued and
      outstanding in 1999 and 2000, respectively                                                  200,000          5,141,000
   Common stock, no par value; 20,000,000 shares authorized, 1,619,646 and
      1,546,919 shares issued and outstanding in 1999 and 2000, respectively                      612,000            455,000
   Shareholder note receivable                                                                   (120,000)                 0
   Accumulated deficit                                                                         (1,706,000)          (673,000)
                                                                                              -----------        -----------
            Total shareholders' equity (deficit)                                               (1,014,000)         4,923,000
                                                                                              -----------        -----------
                                                                                              $ 8,286,000        $12,667,000
                                                                                              ===========        ===========
</TABLE>

              The accompanying notes are an integral part of these
                          consolidated balance sheets.


                                      F-3
<PAGE>   36

                       MAXXIS GROUP, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF OPERATIONS

                FOR THE YEARS ENDED JUNE 30, 1998, 1999, AND 2000

<TABLE>
<CAPTION>
                                                         1998              1999               2000
                                                     -----------       ------------       -----------
<S>                                                  <C>               <C>                <C>
NET REVENUES:
    Communications services                          $ 5,293,000       $  8,416,000       $ 9,646,000
    Nutritional products                                 526,000          1,371,000        17,003,000
    Marketing services                                 1,172,000          2,557,000         2,484,000
                                                     -----------       ------------       -----------
              Total net revenues                       6,991,000         12,344,000        29,133,000
                                                     -----------       ------------       -----------
COST OF GOODS AND SERVICES SOLD:
    Communications services                            1,351,000          2,166,000         5,292,000
    Nutritional products                                 294,000            662,000         3,403,000
    Marketing services                                   431,000            947,000           519,000
                                                     -----------       ------------       -----------
              Total cost of services                   2,076,000          3,775,000         9,214,000
                                                     -----------       ------------       -----------
GROSS MARGIN                                           4,915,000          8,569,000        19,919,000
OPERATING EXPENSES:
    Selling and marketing                              2,665,000          5,373,000        11,827,000
    General and administrative                         2,344,000          4,376,000         6,411,000
                                                     -----------       ------------       -----------
              Total operating expenses                 5,009,000          9,749,000        18,238,000
                                                     -----------       ------------       -----------
INTEREST AND OTHER EXPENSES:
    Interest expense                                       2,000            338,000           616,000
    Other expenses                                             0             18,000            32,000
                                                     -----------       ------------       -----------
              Total interest and other expenses            2,000            356,000           648,000
                                                     -----------       ------------       -----------
(LOSS) INCOME BEFORE INCOME TAXES                        (96,000)        (1,536,000)        1,033,000

INCOME TAXES                                                   0                  0                 0
                                                     -----------       ------------       -----------
(LOSS) INCOME                                        $   (96,000)      $ (1,536,000)      $ 1,033,000
                                                     ===========       ============       ===========

LOSS INCOME PER SHARE
     BASIC                                           $     (0.06)      $      (0.96)      $      0.66
                                                     ===========       ============       ===========
     DILUTED                                         $     (0.06)      $      (0.96)      $      0.56
                                                     ===========       ============       ===========

WEIGHTED AVERAGE NUMBER OF SHARES
     BASIC                                             1,571,187          1,594,387         1,563,092
                                                       =========          =========         =========
     DILUTED                                           1,571,187          1,594,387         1,844,346
                                                       =========          =========         =========
</TABLE>

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


                                      F-4
<PAGE>   37


                       MAXXIS GROUP, INC. AND SUBSIDIARIES


            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

                FOR THE YEARS ENDED JUNE 30, 1998, 1999, AND 2000

<TABLE>
<CAPTION>
                                                 PREFERRED STOCK                COMMON STOCK             STOCK        SHAREHOLDER
                                            ------------------------      ------------------------    SUBSCRIPTION       NOTE
                                              SHARES        AMOUNT          SHARES        AMOUNT       DEPOSITS       RECEIVABLE
                                            ----------     ---------      ---------      ---------    ------------    -----------
<S>                                         <C>            <C>            <C>            <C>          <C>             <C>
BALANCE, JUNE 30, 1997                              0      $       0      1,302,001      $ 127,000      $ 360,000      $(120,000)

    Issuance of preferred stock                36,359        200,000              0              0              0              0
    Issuance of common stock                        0              0        271,195        447,000              0              0
    Stock subscription deposits                     0              0              0              0       (360,000)             0
    Net loss                                        0              0              0              0              0              0
                                            ---------      ----------     ---------      ---------      ---------      ---------

BALANCE, JUNE 30, 1998                         36,359        200,000      1,573,196        574,000              0       (120,000)

    Issuance of common stock, net of
       issuance expenses                            0              0         46,450          1,000              0              0
    Compensation expense for stock
       option issuance                              0              0              0         37,000              0              0
    Net loss                                        0              0              0              0              0              0
                                            ---------      ----------     ---------      ---------      ---------      ---------

BALANCE, JUNE 30, 1999                         36,359        200,000      1,619,646        612,000              0       (120,000)

    Issuance of preferred stock, net of
       issuance expenses                      997,000      5,164,000              0              0              0              0
    Reacquisition of note receivable
       with common stock                            0              0        (72,727)      (120,000)             0        120,000
    Acquisition of preferred stock            (40,545)      (223,000)             0              0              0              0
    Forfeited stock options                         0              0              0        (37,000)             0              0
    Net income                                      0              0              0              0              0              0
                                            ---------      ----------     ---------      ---------      ---------      ---------

BALANCE, JUNE 30, 2000                        992,814      $5,141,000     1,546,919      $ 455,000      $       0      $       0
                                            =========      ==========     =========      =========      =========      =========

<CAPTION>
                                            ACCUMULATED
                                              DEFICIT           TOTAL
                                            -----------      -----------
<S>                                         <C>              <C>
BALANCE, JUNE 30, 1997                      $   (74,000)     $   293,000

    Issuance of preferred stock                       0          200,000
    Issuance of common stock                          0          447,000
    Stock subscription deposits                       0         (360,000)
    Net loss                                    (96,000)         (96,000)
                                            -----------      -----------
BALANCE, JUNE 30, 1998                         (170,000)         484,000
                                            -----------      -----------
    Issuance of common stock, net of
       issuance expenses                              0            1,000
    Compensation expense for stock
       option issuance                                0           37,000
    Net loss                                 (1,536,000)      (1,536,000)
                                            -----------      -----------
BALANCE, JUNE 30, 1999                       (1,706,000)      (1,014,000)

    Issuance of preferred stock, net of
       issuance expenses                              0        5,164,000
    Reacquisition of note receivable
       with common stock                              0                0
    Acquisition of preferred stock                    0         (223,000)
    Forfeited stock options                           0          (37,000)
    Net income                                1,033,000        1,033,000
                                            -----------      -----------
BALANCE, JUNE 30, 2000                      $  (673,000)     $ 4,923,000
                                            ===========      ===========
</TABLE>

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


                                      F-5
<PAGE>   38

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                FOR THE YEARS ENDED JUNE 30, 1998, 1999, AND 2000

<TABLE>
<CAPTION>
                                                                            1998            1999             2000
                                                                        -----------     -----------       -----------
<S>                                                                     <C>             <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income                                                       $   (96,000)    $(1,536,000)      $ 1,033,000
                                                                        -----------     -----------       -----------
Adjustments to reconcile net (loss) income to net cash provided by
    (used in) operating activities:
       Depreciation and amortization                                        176,000         501,000         1,461,000
       Write-off of investment in internet service provider                       0               0           100,000
       Stock compensation expense                                                 0          37,000           (37,000)
       Provision for doubtful communications receivables                     40,000          73,000           427,000
       Changes in operating assets and liabilities:
           Accounts receivable                                                    0        (817,000)         (264,000)
           Communications receivable                                       (331,000)       (409,000)          225,000
           Inventories                                                      (33,000)       (136,000)         (739,000)
           Prepaid expenses and other assets                                  3,000         (87,000)         (127,000)
           Commissions payable                                               59,000         362,000          (303,000)
           Accounts payable                                                  53,000       1,007,000          (404,000)
           Accrued compensation                                             154,000          66,000           536,000
           Sales taxes payable                                              130,000         187,000          (140,000)
           Accrued expenses                                                  25,000         300,000           385,000
           Deferred revenue                                                  55,000         275,000           548,000
                                                                        -----------     -----------       -----------
              Total adjustments                                             331,000       1,359,000         1,668,000
                                                                        -----------     -----------       -----------
              Net cash provided by (used in) operating activities           235,000        (177,000)        2,701,000
                                                                        -----------     -----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures                                                   (115,000)       (279,000)         (434,000)
    Investment in Internet service provider                                       0        (100,000)                0
    Software development and other assets                                   (70,000)       (362,000)         (193,000)
    Liquidation of short term investments                                         0               0            10,000
                                                                        -----------     -----------       -----------
              Net cash used in investing activities                        (185,000)       (741,000)         (617,000)
                                                                        -----------     -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of preferred stock                               200,000               0         5,164,000
    Net borrowings (payments) on line of credit                                   0       1,390,000        (1,325,000)
    Payments on lease obligations                                                 0        (825,000)         (853,000)
    Repurchase of preferred stock                                                 0               0          (223,000)
    Proceeds from issuance of common stock                                   87,000           1,000                 0
                                                                        -----------     -----------       -----------
              Net cash provided by financing activities                     287,000         566,000         2,763,000
                                                                        -----------     -----------       -----------
NET INCREASE (DECREASE) IN CASH                                             337,000        (352,000)        4,847,000

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                 35,000         372,000            20,000
                                                                        -----------     -----------       -----------
CASH AND CASH EQUIVALENTS, END OF YEAR                                  $   372,000     $    20,000       $ 4,867,000
                                                                        ===========     ===========       ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
    Cash paid for interest                                              $     2,000     $         0       $   578,000
                                                                        ===========     ===========       ===========
    Cash paid for income taxes                                          $         0     $         0       $         0
                                                                        ===========     ===========       ===========
</TABLE>

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


                                      F-6
<PAGE>   39

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          JUNE 30, 1998, 1999, AND 2000


1.   ORGANIZATION AND PRESENTATION

     DESCRIPTION OF BUSINESS AND OPERATIONS

     Maxxis Group, Inc., a Georgia corporation, was incorporated on January 24,
     1997 ("Inception") and is headquartered in Tucker, Georgia. Maxxis Group,
     Inc.'s principal business operations are carried out through its wholly
     owned subsidiaries, Maxxis 2000, Inc. and Maxxis Telecom, Inc., which began
     operations in March 1997, and Maxxis Nutritionals, Inc., which began
     operations in December 1997. Maxxis Group, Inc., together with its wholly
     owned subsidiaries (collectively referred to as the "Company"), was founded
     for the purpose of selling communications services, private label
     nutritional products, and other consumable products and services through a
     multilevel marketing system of independent associates ("IAs") to
     subscribers throughout the United States. The Company currently markets
     long-distance services and value-added communications services, such as
     travel cards, prepaid phone cards, 800 service, Internet access, Web page
     development and hosting services, and international telecommunications
     service, as well as private label nutritional products.

     The Company has a limited operating history, and its operations are subject
     to the risks inherent in the establishment of any new business. Since the
     Company has only recently become an operating company, the Company's
     ability to manage its growth and expansion will require it to implement and
     continually expand its operational and financial systems, recruit
     additional employees, and train and manage both current and new employees.
     Growth may place a significant strain on the Company's operational
     resources and systems, and failure to effectively manage this projected
     growth would have a material adverse effect on the Company's business.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements of the Company include the accounts
     of Maxxis Group, Inc and its subsidiaries. All significant intercompany
     balances and transactions have been eliminated in consolidation.

     REVENUE RECOGNITION

     Communications services revenues consist of sales of prepaid phone cards to
     IAs, commissions generated from an agreement to resell long-distance
     services, long-distance services directly provided by the Company and from
     Internet related services. From inception through March 1999, the Company
     purchased prepaid phone cards from an independent tariffed long-distance
     reseller (the "Reseller"), and IAs, in turn, purchased these prepaid phone
     cards from the Company. Revenues from prepaid phone cards were recognized
     when the cards were sold to IAs, net of an estimate of sales returns for
     defective or unused cards. Active IAs have the right to return defective or
     unused cards for up to 30 days after the date of purchase. IAs that
     terminate their relationship with the Company also have up to one year from
     the date of purchase to return cards that are unused and sealed in the
     original packaging, for a partial refund.

                                      F-7
<PAGE>   40

     Communications services in fiscal years 1998 and 1999 also included
     long-distance revenues generated by the Company's agreement with the
     Reseller under which the Company received a percentage of the gross
     long-distance revenues generated by the Company's customers, less billing
     adjustments. The Company recognized long-distance revenues when services
     were provided by the Reseller, net of an estimate for billing adjustments.
     The Reseller assumed the risk of all bad debts. Amounts due to the Company
     from the Reseller are included in communications receivable in the
     accompanying balance sheets.

     In February 1999, the Company entered into an agreement to lease telephone
     switching equipment (the "Maxxis Switch"). The Maxxis Switch provides the
     Company with the ability to directly provide long-distance services. In
     March 1999 ("March Agreement") the Company entered into an agreement with
     two independent tariffed long-distance suppliers to provide for additional
     capacity for telecommunication traffic that is not routed through the
     Maxxis switch. In April 1999, the Company began transferring its existing
     long-distance customers from the Reseller's network to the Maxxis Switch
     and began routing traffic through the long-distance suppliers under the
     March Agreement. In addition, the Maxxis Switch began carrying traffic
     related to the Company's prepaid phone cards (the "Switch Phone Cards").

     The Company recognizes long-distance revenues as services are provided, net
     of an estimate for billing adjustments. The Company assumes the risk of all
     bad debts. Amounts due to the Company related to direct long-distance
     services are included in accounts receivable in the accompanying balance
     sheets.

     Revenue from Web Hosting services are recognized as services are provided
     to the IAs.

     Nutritional services revenues consist of sales of private label nutritional
     products manufactured by various suppliers and are recorded as products are
     shipped to IAs, net of an allowance for an estimate of returned products.

     Marketing services revenues primarily consist of revenue from IAs for the
     sale of distributor kits and sales aids, which include forms, promotional
     brochures, marketing materials, and presentation materials designed to
     assist IAs in the conduct of their business.

     DEFERRED REVENUE

     Deferred revenue consists of the annual nonrefundable renewal fee assessed
     to IAs, unused time related to Switch Phone Cards, unearned web site
     hosting revenues and cash received for unshipped nutritional products. The
     annual nonrefundable renewal fee provides IAs with the right to sell the
     Company's products and services. This fee is assessed to IAs after their
     first year with the Company. The Company recognizes this revenue on a
     straight-line basis over the IAs' renewal period. Revenues generated from
     unused time on the Switch Phone Cards is recognized as the time is used.

     COSTS OF GOODS AND SERVICES SOLD

     Communications services costs primarily include the costs of purchasing
     prepaid phone cards from the Reseller in fiscal years 1998 and 1999, the
     cost of long-distance network services purchased from the long-distance
     suppliers, and depreciation expense related to the Maxxis Switch.

     Nutritional services costs include the costs of purchasing nutritional
     products from third-party suppliers.

     Marketing services costs include the costs of printing and designing
     associate applications, starter kits, associate meetings, and other sales
     aids.


                                      F-8
<PAGE>   41

     SELLING AND MARKETING EXPENSES

     Selling and marketing expenses primarily consist of commissions paid to IAs
     based on their sponsorship of new IAs and the sale of communications
     services and nutritional products.

     GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses consist of salary expense for the
     Company's customer service personnel, office staff, and executive personnel
     in addition to the cost of IAs' support services.

     CONCENTRATIONS OF RISKS

     The Company's customers are primarily residential and are not concentrated
     in any specific geographic region of the United States. The Company has
     agreements with two long-distance providers to provide the network services
     required to originate and terminate calls through the Maxxis Switch and to
     provide switched services for the telephone traffic that does not go
     through the Maxxis Switch. There can be no assurance that the Company could
     enter into new contracts with other suppliers if these agreements were
     terminated.

     The Company markets a line of private label nutritional products. All of
     the nutritional products offered and distributed by the Company are
     developed and manufactured by third-party suppliers. Certain nutritional
     products the Company offers are proprietary to such suppliers. The Company
     does not have any written contracts or commitments from any of these
     suppliers or manufacturers. There can be no assurance that these suppliers
     will continue to be reliable suppliers to the Company.

     The Company's success will depend heavily upon its ability to attract,
     maintain, and motivate a large base of IAs who, in turn, sponsor other IAs
     and sell the Company's products. The Company anticipates significant
     turnover among IAs, which the Company believes is typical of direct
     selling.

     USE OF ESTIMATES

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

     CASH AND CASH EQUIVALENTS

     The Company considers all investments with an original maturity of three
     months or less to be cash equivalents.

     COMMUNICATIONS RECEIVABLE

     A summary of changes in the allowance for doubtful accounts for the years
     ended June 30, 1998, 1999 and 2000 is as follows:

<TABLE>
<CAPTION>
                                          1998           1999           2000
                                        ---------      ---------      ---------
        <S>                             <C>            <C>            <C>
        Balance, beginning of year      $       0      $  40,000      $ 113,000
            Provisions                     40,000         73,000        427,000
            Recoveries                          0              0              0
            Write-offs                          0              0       (540,000)
                                        ---------      ---------      ---------
        Balance, end of year            $  40,000      $ 113,000      $       0
                                        =========      =========      =========
</TABLE>


                                      F-9
<PAGE>   42

     All communication receivables were written off during the year ended June
     30, 2000.

     ACCOUNTS RECEIVABLE

     A summary of changes in the allowance for doubtful accounts for the years
     ended June 30, 1998, 1999, and 2000 is as follows. There was no such
     allowance or related provision for the year ended June 30, 1998:

<TABLE>
<CAPTION>
                                                                                 1999            2000
                                                                              ----------      ----------
        <S>                                                                   <C>             <C>
        Balance, beginning of year                                            $        0      $  189,000
            Provisions                                                           189,000         927,000
            Recoveries                                                                 0               0
            Write-offs                                                                 0        (185,000)
                                                                              ----------      ----------
        Balance, end of year                                                  $  189,000      $  931,000
                                                                              ==========      ==========
</TABLE>


     INVENTORIES

     Inventories consist of the following as of June 30, 1999 and 2000:

<TABLE>
<CAPTION>
                                                                                 1999            2000
                                                                              ----------      ----------
        <S>                                                                   <C>             <C>
        Prepaid phone cards                                                   $   25,000      $  133,000
        Sales aids                                                               160,000         310,000
        Nutritional products                                                     169,000         650,000
                                                                              ----------      ----------
                                                                              $  354,000      $1,093,000
                                                                              ==========      ==========
</TABLE>


     Inventories are valued at the lower of purchased cost (determined on a
     first-in, first-out basis) or market.

     PROPERTY AND EQUIPMENT

     Property and equipment consist primarily of furniture and fixtures, office
     equipment, computer equipment, and leasehold improvements, which are stated
     at cost and are depreciated using the straight-line method over the
     estimated useful lives of three to five years.

     The Company continually evaluates the propriety of the carrying amounts of
     long-lived assets as well as the depreciation periods to determine whether
     current events and circumstances warrant adjustments to the carrying values
     and/or revised estimates of useful lives (Note 3).

     INCOME TAXES

     The Company accounts for income taxes in accordance with Statement of
     Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
     Taxes," which requires that deferred income taxes be provided based on the
     estimated future tax effects of differences between the carrying amounts of
     assets and liabilities for financial reporting purposes and the amounts
     used for income tax purposes calculated based on provisions of enacted tax
     laws (Note 5).


                                      F-10
<PAGE>   43

     (LOSS)/INCOME PER SHARE

     The Company determines its Earning per Share in accordance with Statement
     of Financial Accounting Standards 128, "Earnings Per Share", which requires
     the computation of (loss)/income per share on both a basic and diluted
     basis. Basic (loss)/income per share is determined using the weighted
     average number of shares of outstanding common stock over the course of the
     fiscal year. Diluted (loss)/income per share is computed using the
     weighted average number of shares of common stock and share equivalents
     outstanding considering the dilutive effects of outstanding stock options
     and warrants as determined using the treasury stock method and convertible
     equity securities using the "if converted" method. All outstanding options
     and warrants issued by the company carry exercise prices which are equal to
     the current market value of the Company's common stock; therefore, they
     have no dilutive effect to (loss)/earnings per share for the years ended
     June 30 1998, 1999, and 2000. The Series A Convertible Preferred Stock is
     assumed converted at the later of the date the shares were issued or the
     beginning of the period in the determination of diluted weighted average
     shares.

     CAPITALIZED SOFTWARE DEVELOPMENT COSTS

     Certain software development costs pertaining to a software application
     which is used internally for processing applications and customer service
     have been capitalized as incurred. Capitalization of software development
     costs begins upon the establishment of technological feasibility. The
     establishment of technological feasibility and the ongoing assessment of
     recoverability of capitalized software development costs require
     considerable judgment by management with respect to certain external
     factors, including, but not limited to, anticipated future revenues,
     estimated economic life, and changes in software and hardware technologies.
     Software development costs are amortized over an estimated useful life of
     three years, and amortization expenses were $62,000, $136,000, and $185,000
     for the years ended June 30, 1998, 1999, and 2000.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company's financial instruments consist primarily of cash, accounts
     receivable, accounts payable, and debt. The carrying amounts of cash,
     accounts receivable, and accounts payable approximate their fair values
     because of the short-term maturity of such instruments. The carrying value
     of the Company's debt approximates fair value because the interest rates
     approximate current market rates.



                                      F-11
<PAGE>   44

     3. PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following at June 30, 1999 and
     2000:

<TABLE>
<CAPTION>
                                                                                  1999           2000
                                                                              -----------     -----------
        <S>                                                                   <C>             <C>
        Computer equipment                                                    $   301,000     $   586,000
        Capital leases                                                          5,759,000       5,759,000
        Furniture and fixtures                                                    117,000         177,000
        Leasehold improvements                                                     59,000          98,000
        Office equipment and other                                                 16,000          58,000
        Construction in progress                                                        0           6,000
                                                                              -----------     -----------
                                                                                6,252,000       6,684,000
        Less accumulated depreciation                                            (410,000)     (1,684,000)
                                                                              -----------     -----------
        Property and equipment, net                                           $ 5,842,000     $ 5,000,000
                                                                              ===========     ===========
</TABLE>


     Depreciation expense was $38,000, $365,000, and $1,276,000 for the years
     ended June 30, 1998, 1999, and 2000.


4.   CAPITAL LEASE OBLIGATIONS

     On September 29, 1998, the Company entered into certain leases for
     telephone switching equipment, which are classified as capital lease
     obligations. Payments on the lease are due in monthly installments of
     $118,000 and carry an imputed rate of interest of approximately 12%. These
     leases expire within five years and contain purchase options which are
     exercisable at the end of the original lease terms. The capital lease
     obligation is secured by the intangible and tangible assets of the Company.
     Assets financed under capital leases are included in property and
     equipment.

     Maturities of capital lease obligations for the years subsequent to June
     30, 2000 are as follows:

<TABLE>
                <S>                                                  <C>
                2001                                                 $ 1,416,000
                2002                                                   1,416,000
                2003                                                   1,416,000
                2004                                                     706,000
                                                                     -----------
                                                                       4,954,000
                Less amounts representing interest                      (873,000)
                                                                     -----------
                                                                       4,081,000
                Less current maturities                                 (974,000)
                                                                     -----------
                Long-term capital lease obligations                  $ 3,107,000
                                                                     ===========
</TABLE>


5.   INCOME TAXES

     The Company's deferred tax assets and liabilities are as follows as of June
     30, 1999 and 2000:

<TABLE>
<CAPTION>
                                                                                  1999          2000
                                                                              -----------     -----------
        <S>                                                                   <C>             <C>
        Property and equipment                                                $   (28,000)    $  (146,000)
        Organizational costs                                                       15,000           7,000
        Net operating losses                                                      653,000         397,000
        Valuation allowance                                                      (640,000)       (258,000)
                                                                              -----------     -----------
        Net deferred tax assets                                               $         0     $         0
                                                                              ===========     ===========
</TABLE>


                                      F-12
<PAGE>   45

     Based on uncertainties associated with the future realization of deferred
     tax assets, the Company established a valuation allowance against the net
     deferred tax assets of the Company. At June 30, 1999, the Company had net
     operating loss carryforwards of approximately $1,719,000, of which $674,000
     were utilized in 2000. The remaining $1,045,000 will begin expiring in the
     year 2012 unless previously utilized.

     A reconciliation of the benefit for income taxes at the statutory federal
     income tax rate to the Company's tax benefit as reported in the
     accompanying statements of operations is stated below:

<TABLE>
<CAPTION>
                                                               1998               1999             2000
                                                            -----------       -----------       -----------

            <S>                                             <C>               <C>               <C>
            Tax benefit computed at statutory rate          $   (33,000)      $  (522,000)      $   339,000
            State income taxes                                   (4,000)          (61,000)           39,000
            Nondeductible expenses                                4,000             3,000             4,000
            Change in valuation allowance                        33,000           580,000          (382,000)
                                                            -----------       -----------       -----------
            Income tax benefit                              $         0       $         0       $         0
                                                            ===========       ===========       ===========
</TABLE>

6.   LINE OF CREDIT

     On November 22, 1998, the Company entered into a line of credit (the "Line
     of Credit") with the Maxxis Millionaire Society, a Georgia partnership in
     which certain members of the Company's management are partners. The Line of
     Credit was amended on May 1, 1999. Pursuant to the Line of Credit, the
     Company may borrow up to $2,000,000 at 10% annual interest. Advances or
     interest thereon pursuant to the Line of Credit are payable on demand.


7.   COMMITMENTS AND CONTINGENCIES

     OPERATING LEASES

     The Company leases certain office equipment and office space under
     operating leases. At June 30, 1998, 1999, and 2000, the Company's total
     rental expenses were approximately $84,000, $168,000, and $210,000,
     respectively.

     Minimum lease payments under noncancelable leases for the years subsequent
     to June 30, 2000 are as follows:

<TABLE>
<CAPTION>
                 <S>                                                                   <C>
                 2001                                                                  $202,000
                 2002                                                                   216,000
                 2003                                                                   185,000
                                                                                       --------
                                                                                       $603,000
                                                                                       ========
</TABLE>


     LITIGATION

     The Company is subject to various claims and legal actions which arise in
     the ordinary course of business. In the opinion of management, the ultimate
     resolution of such matters will not have a material adverse effect on the
     Company's financial position, liquidity, or results of operations.

     TELECOM SERVICE AGREEMENTS

     The Company entered into agreements for telecommunications services with
     two independent tariffed long-distance providers (collectively, the
     "Suppliers" or individually, the "Supplier") in January 1999 (the "January
     Agreement") and March 1999 (the "March Agreement"). Under the March
     Agreement, the Company is obligated to purchase approximately $250,000 a
     month in telecommunications services. This agreement expires in September
     2000. The Company intends to extend the agreement upon expiration.


                                      F-13
<PAGE>   46

     EMPLOYMENT AGREEMENTS

     The Company has entered into employment agreements with certain executive
     officers (the "Employment Agreements"). Generally, the Employment
     Agreements provide for a minimum weekly salary. In addition, the employee
     may participate in a bonus program and shall be eligible to receive
     quarterly or annual payments of a performance bonus based on the
     achievement of targeted levels of performance and such other criteria as
     the board of directors shall establish from time to time. The chief
     executive officer's Employment Agreement provided for an additional bonus
     payment on July 1, 1999 and 2000. All unpaid bonuses are included in
     accrued compensation in the accompanying balance sheets.

     Each of the Employment Agreements has a one year term, and renews daily
     until either party fixes the remaining term at one year by giving written
     notice. The Company can terminate each employee upon death or disability
     (as defined in the Employee Agreements) or with or without cause upon
     delivery of a notice of termination. If the employee is terminated because
     of death or disability, the employee or his/her beneficiary is entitled to
     receive any accrued compensation through the termination date along with
     any accrued performance bonus. If the employee is terminated without cause,
     the Company is required to pay the employee severance payments equal to
     his/her minimum base salary for each week during the six-month period
     following the termination date. If the employee is a director or officer of
     the Company or any of its affiliates, the employee must tender his/her
     resignation to such position effective as of the termination date.

     Pursuant to the Employment Agreements, each employee agrees to maintain the
     confidentiality of the Company's trade secrets and confidential business
     information. The employee also agrees for a period of one year following
     termination or resignation for any reason, not to compete with or solicit
     employees or customers of the Company or any of its affiliates within a
     30-mile radius of the Company's corporate offices. The noncompete period is
     reduced to six months if the employee is terminated without cause.

     RELATIONSHIP WITH IAS

     Because IAs are classified as independent contractors and not as employees
     of the Company, the Company is unable to provide them with the same level
     of direction and oversight as company employees. While the Company has
     policies and rules in place governing the business conduct of IAs and
     intends to review periodically the sales practices of its IAs, it may be
     difficult to enforce such policies and rules. Violation of these policies
     and rules might reflect negatively on the Company and may lead to
     complaints to or by various federal and state regulatory authorities.
     Violation of the Company's policies and rules could subject the Company and
     its long-distance suppliers to complaints regarding the unauthorized
     switching of subscribers' long-distance carriers (also known in the
     industry as "slamming"). Such complaints could have a material adverse
     effect on the Company's business, financial condition, and results of
     operations.

     REGULATION OF NETWORK MARKETING AND EFFECT OF STATE LAWS

     The Company's network marketing system is subject to or affected by
     extensive government regulation, including, without limitation, federal and
     state regulations governing the offer and sale of business franchises,
     business opportunities, and securities. Various governmental agencies
     monitor direct selling activities, and the Company could be required to
     supply information regarding its marketing plan to such agencies. Although
     the Company believes that its network marketing system is in material
     compliance with the laws and regulations relating to direct selling
     activities, there can be no assurance that legislation and regulations
     adopted in particular jurisdictions in the future will not adversely affect
     the Company's business, financial condition, and results of operations. The
     Company could also be found to be in noncompliance with existing statutes
     or regulations as a result of, among other things, misconduct by IAs, over
     whom the Company has limited control; the ambiguous nature of certain of
     the regulations; and the considerable interpretive and enforcement
     discretion given to regulators. Any assertion or determination that the
     Company or the IAs are not in compliance with existing statutes or
     regulations could have a material adverse effect on the Company's business,
     financial condition, and results of operations. An adverse determination by
     any one state on any regulatory matter could influence the decisions of
     regulatory authorities in other jurisdictions.


                                      F-14
<PAGE>   47


8.   SHAREHOLDERS' EQUITY

     The Company and certain of its shareholders have entered into a
     shareholders' agreement whereby the shareholders agreed to certain
     restrictions on the transfer or other disposition of the shares of common
     stock held by each holder. In the event a shareholder intends to transfer
     his/her common stock to a nonpermitted transferee, the Company and the
     remaining shareholders have a right of first refusal to purchase the
     transferring shareholder's common stock at fair market value. In addition,
     if the Company terminates a shareholder's employment or engagement as a
     sales representative or consultant for cause, the Company has the right to
     repurchase, at fair market value, an amount of the shareholder's common
     stock which starts at 100% and declines 20% per year for each completed
     year of service with the Company. If the right of first refusal or the
     Company's right to purchase is exercised, these provisions could have the
     effect of further concentrating the stock ownership and voting power of the
     Company.

     In May 1997, the Company sold 72,727 shares of common stock to an executive
     officer for $1.65 per share and accepted as payment a $120,000 note
     receivable from an affiliate of that individual due on the earlier of (i)
     May 1, 2002 or (ii) the closing of an underwritten initial public offering
     with aggregate net proceeds of at least $5,000,000. The note is guaranteed
     by the executive officer, bears interest at 8.75% per year, is compounded
     annually, and is classified as a shareholder note receivable in the
     shareholders' equity section of the balance sheets. During 2000, the shares
     were returned to the Company and the related receivable was forgiven.

     In August 1997, the Company completed a private placement of shares of
     common stock at a price of $1.65 per share. Potential investors were
     required to complete subscription agreements for the common stock and to
     submit cash at the date of subscription. The Company reserved the right to
     reject a subscription and to refund amounts to a subscriber at any time
     prior to the acceptance of the subscription. At June 30, 1997, the Company
     had received paid subscriptions for 218,181 shares of common stock.
     However, since these subscriptions had not yet been accepted by the Company
     and no shares had been issued as of June 30, 1997, amounts received from
     subscribers are included in stock subscription deposits in the accompanying
     balance sheet at June 30, 1997. Subsequent to June 30, 1997, the Company
     accepted these subscriptions and additional subscriptions for 53,014 shares
     of the common stock.

     Effective February 17, 1998, the Company declared a 1-for-11 reverse stock
     split for all classes of common stock. The Company also effected a plan of
     reorganization pursuant to which each outstanding share of Class A common
     stock and Class B common stock was converted into one share of common stock
     ("Common Stock"). All share, per share, and weighted average share
     information in the financial statements has been restated for this stock
     split and reorganization.

     On November 26, 1997, the Company entered into a promissory note (the
     "Note") agreement with various lenders for an aggregate principal amount up
     to $200,000, which was secured primarily by the assets of the Company. The
     Note accrued interest at 10%, payable monthly beginning on January 1, 1998,
     and the principal was due on demand. On March 23, 1998, the Note was
     exchanged for 36,359 shares of the Company's Series A nonvoting Convertible
     Preferred Stock ("Series A Preferred Stock" or "Series A") and warrants
     (the "Warrants") to purchase 36,359 shares of the Company's Common Stock.
     The Warrants are exercisable 14 months after the issuance date and provide
     the right to purchase Common Stock at $5.50 per share. The Warrants expire
     seven years after the date of issuance.

     Additionally, in February 1998, the Company amended and restated its
     articles of incorporation such that the Company is authorized to issue
     20,000,000 and 10,000,000 shares of no par value Common Stock and nonvoting
     preferred stock (the "Preferred Stock"), respectively. One million shares
     of the Company's Preferred Stock have been designated as Series A
     Convertible Preferred Stock. The Series A Convertible Preferred Stock has a
     liquidation preference of $5.50 per share (as adjusted for any
     combinations, consolidations, stock distributions, or stock dividends with
     respect to such shares) plus all declared or accumulated but unpaid
     dividends. The Series A shareholders have the right to convert each share
     into a share of Common Stock, pursuant to the articles of incorporation, at
     any time beginning 14 months after the date of issuance. As of June 30,
     2000, there were 992,814 shares of Series A Convertible Preferred Stock
     outstanding.


                                      F-15
<PAGE>   48

     On September 16, 1998, the board of directors adopted the Maxxis Group,
     Inc. 1998 Stock Option Plan which permits the Company to grant options to
     purchase shares of Common Stock to company officers, directors, key
     employees, advisors, and consultants. In December 1998, the board of
     directors granted options to purchase 59,133 shares of Common Stock at an
     exercise price of $5.50 per share, the estimated fair value at the date of
     grant. The options vest based on time as defined in the option agreement.
     As of June 30, 1999, 20,105 options were vested and exercisable.

     In addition, in December 1998, the board of directors granted options to
     purchase 6,819 shares of Common Stock at an exercise price of $0 per share.
     The options vest based on time as defined in the option agreement. As of
     June 30, 1999, 3,410 options were vested and exercisable. The Company
     recorded $37,000 of compensation expense for these options for the year
     ended June 30, 1999. During fiscal 2000, the options were cancelled upon
     termination of the employee to whom the options were granted, resulting in
     the reversal of previously recorded compensation expense.

     In 1999, the Company adopted the disclosure provision of SFAS No. 123,
     "Accounting for Stock-Based Compensation." In accordance with these
     provisions of 123, the Company is required to calculate pro forma
     compensation cost of all stock options granted using an option pricing
     model. Accordingly, the fair value of the stock option grants the
     Black-Scholes method using the following assumptions for 1999 and 2000,
     respectively: a risk-free interest rate of approximately 4.65% and 6.43%,
     dividend yield of 0%, volatility of 0% and 50%, and an expected life of
     five years. Using these assumptions, the fair value of the stock options
     issued at the dates of grant was $70,273 and $55,387 for 1999 and 2000,
     respectively. Pro forma compensation expense for the years ended June 30,
     1999 and 2000 would have been $24,000 and $71,926, respectively.


9.   SALES REPRESENTATIVE AGREEMENTS

     The Company has entered into sales representative agreements (collectively,
     the "Sales Representative Agreements") with ten independent sales
     representatives. The Sales Representative Agreements provide for a minimum
     weekly salary, and quarterly payments of a bonus based on the achievement
     of targeted levels of performance. Unpaid bonuses are included in accrued
     compensation in the accompanying balance sheets. Each sales representative
     is an independent contractor, and the Company does not exercise control
     over the activities of the sales representatives other than as set forth in
     the Sales Representative Agreements.

     Each of the Sales Representative Agreements has a term of one year, and the
     term renews daily until either party fixes the remaining term at one year
     by giving written notice. The Company can terminate each sales
     representative upon death or disability (as defined in the Sales
     Representative Agreements) or with or without cause upon delivery to the
     sales representative of a notice of termination. If a sales representative
     is terminated, the sales representative will receive any accrued fees
     through the termination date and any accrued performance bonus, unless the
     sales representative is terminated for cause. If the sales representative
     is a director or officer of the Company or any of its affiliates, the sales
     representative shall tender his resignation to such position effective as
     of the termination date. Under the Sales Representative Agreements, each
     sales representative agrees to maintain the confidentiality of the
     Company's trade secrets and confidential business information.

10.  SEGMENT REPORTING

     The Company is a multilevel network marketing company with continuing
     operations in three reportable segments: communications, nutritional
     products, and marketing services.

     The Company's communications services segment markets long-distance
     services and value-added services, such as travel cards, prepaid phone
     cards, 800 service, Internet access, Web-page development and hosting
     services, and international telecommunications service.


                                      F-16
<PAGE>   49

     The Company's nutritional products segment distributes a line of private
     label nutritional and health enhancement products.

     The Company's marketing services segment markets sales aids, distributor
     kits, marketing materials, and support and training services.

     Included in corporate activities are general and administrative expenses
     and certain long-term assets related to the corporate group:

<TABLE>
<CAPTION>
                                          COMMUNICATIONS     NUTRITIONAL       MARKETING        CORPORATE
                                             SERVICES         PRODUCTS         SERVICES           GROUP              TOTAL
                                          --------------     -----------      -----------       -----------       ------------
     <S>                                  <C>                <C>              <C>               <C>               <C>
     Year ended June 30, 1998:
        Revenues                           $ 5,293,000       $   526,000      $ 1,172,000       $         0       $  6,991,000
        Gross profit                         3,942,000           232,000          741,000                 0          4,915,000
        Depreciation and amortization           83,000                 0                0            93,000            176,000
        Operating income (loss)                  7,000            22,000          484,000          (607,000)           (94,000)
        Segment assets                         875,000           135,000          142,000           111,000          1,263,000
        Capital expenditures                   185,000                 0                0                 0            185,000

     Year ended June 30, 1999:
        Revenues                             8,416,000         1,371,000        2,557,000                 0         12,344,000
        Gross profit                         6,250,000           709,000        1,610,000                 0          8,569,000
        Depreciation and amortization          388,000             1,000            2,000           110,000            501,000
        Operating income (loss)               (328,000)          129,000         (344,000)         (637,000)         (1,180,00)
        Segment assets                       7,450,000           458,000          298,000            80,000          8,286,000
        Capital expenditures                   598,000             5,000           13,000            25,000            641,000

     Year ended June 30, 2000:
        Revenues                             9,646,000        17,003,000        2,484,000                 0         29,133,000
        Gross profit                         4,354,000        13,600,000        1,965,000                 0         19,919,000
        Depreciation and amortization        1,215,000             4,000           27,000           215,000          1,461,000
        Operating income (loss)                532,000        12,591,000       (9,499,000)       (1,980,000)         1,644,000
        Segment assets                       3,151,000         7,358,000          766,000         1,392,000         12,667,000
        Capital expenditures                   273,000            24,000           62,000            75,000            434,000
</TABLE>


                                      F-17