<PAGE>   1
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                      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, 1999


                                       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 September 23, 1999 was $5,429,985. 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 1,617,187 shares of Common Stock issued and
outstanding as of September 25, 1999.


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                               INDEX TO FORM 10-K
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PART I

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

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

Item 3.       Legal Proceedings.....................................................................................11

Item 4.       Submission of Matters to a Vote of Security Holders...................................................11

PART II

Item 5.       Market for Common Equity and Related Shareholder Matters..............................................11

Item 6.       Selected Consolidated Financial Data..................................................................12

Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations.................13

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..................21

PART III

Item 10.      Directors and Executive Officers of the Registrant....................................................21

Item 11.      Executive Compensation................................................................................23

Item 12.      Security Ownership of Certain Beneficial Owners and Management........................................27

Item 13.      Certain Relationships and Related Transactions........................................................28

PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................28

SIGNATURES    ......................................................................................................32
</TABLE>


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                                     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 $6,991,000 for our fiscal year ended June
30, 1998 and $12,344,000 for the fiscal year ended June 30, 1999.

         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. In April 1999, we began to provide long distance
services using this equipment in eleven states where we had complied with
various regulatory requirements. We have substantially completed the process of
filing applications and tariffs to obtain the required regulatory approvals to
offer long distance service in the majority of the United States. As of
September 23, 1999, we have obtained regulatory approval in 48 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


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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 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. However, we only recently began
to use and derive revenue from the operation of the Maxxis Switch based on
obtaining approval in 48 states as of September 23, 1999. We are in the process
of obtaining regulatory approval in the remaining states, but cannot guarantee
that we will obtain the necessary regulatory approvals in a timely manner or at
all. Until we receive all necessary regulatory approvals, we must bear the
total expenses associated with the Maxxis Switch without all potential
revenues, which could have a material adverse effect on our business, financial
condition and operating results.

         As we obtain the required regulatory approvals, we have begun 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 could be difficult, time consuming and expensive, and customers
may choose not to subscribe to our services. 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. Because we derive a significant portion of our revenues from these
customers and because we are unsure as to how the new FCC regulations will be
interpreted, problems associated with the transition of these


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customers from CRC's network 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 five independent associate positions
in our marketing system: associate; senior associate; director; regional
director; and executive 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 commissions as "commission value," or "CV,"
and allocate the CV among eligible participants in our marketing system.
Currently, 20% of the CV earned with respect to a long distance subscriber is
paid monthly to the independent associate who sponsored such subscriber, 75% of
the CV is paid monthly to eligible directors who have the independent associate
who sponsored the subscriber in their downline and the remaining 5% is retained
by us to be paid out to directors, regional directors and executive directors
in our performance bonus programs. All directors, executive directors and
regional 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 $90 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 or executive 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 of four customers, 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 and executive directors upon the achievement of certain
independent associate sales goals. Regional directors and executive directors
are eligible to receive the same commissions as directors and, if they qualify,
share in performance bonuses. Regional directors and executive directors are
eligible to serve on the Maxxis 2000 Advisory Board, which advises management
on issues regarding field leadership.

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 this
offering of 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.


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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
currently provide to each independent associate without charge one printed
report describing such independent associate's downline and provide additional
reports for a fee. In addition, we offer training, information and motivational
support to the independent associate network through our training program and
regional meetings.

         We provide all independent associates with the opportunity to receive
training through our training program. National training directors conduct the
training program, and the training program includes a detailed explanation of
our products, the independent associate compensation plan and the use of the
various marketing tools available to independent associates. In addition, we
encourage senior associates, directors and regional directors to become
managing directors, or MDs. MDs provide personal training to independent
associates. To become a MD, a senior associate, director or regional director
must attend a Maxxis-approved training school for a fee. MDs must also attend
continuing education training schools each year which also are subject to a
fee. National training directors that are selected by us are paid a fee by us
for training MDs. We do not receive any fees from independent associates for
the training provided by MDs.

         Our third annual convention was held in September 1999, 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
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.


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         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:

         -        40/30/30 Maxxis Bar is an energy bar intended as a meal
                  replacement which contains approximately 40% carbohydrates,
                  30% protein, 30% dietary fat and various vitamins and
                  minerals.

         -        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.

         -        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 pak, 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.


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SUPPLIERS

         We historically have not owned 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. The 1-Plus Agreement, which expires on
February 20, 2000, provides that we will have certain rights to the subscriber
base developed under the agreement only upon generating certain minimum levels
of monthly revenues for CRC. We have reached these minimum levels, and we have
the right to market other carriers to the subscriber base in the event we
contract with such carriers.

         During most of fiscal 1999 CRC was responsible for the accurate and
prompt billing of these subscribers. The failure of CRC to accurately and
promptly bill subscribers could lead to a loss of subscribers and could have a
material adverse effect on our business, financial condition and operating
results. 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 requires a minimum monthly commitment
expiring 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.

CUSTOMER SUPPORT

         During fiscal 1999, CRC 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 CRC's state, national and international tariffs. We
have been informed that CRC possesses 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.


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<PAGE>   9

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 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.


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<PAGE>   10

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. CRC 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.

         CRC 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, CRC and, therefore, us
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 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


                                       8
<PAGE>   11

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, CRC and Maxxis may experience increased competition
from others, including the Bell operating companies. In addition, both CRC 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. CRC 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 CRC has made the necessary filings with the various
state telecommunications regulatory agencies to provide intrastate long
distance services in the states where CRC 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 obtain all
necessary authorizations, that CRC will maintain its necessary authorizations
or that CRC 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.

         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


                                       9
<PAGE>   12

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.

EMPLOYEES

         As of June 30, 1999, we employed approximately 48 people. 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.


                                      10
<PAGE>   13

ITEM 3. LEGAL PROCEEDINGS

         We are not a party to, nor is any of its property subject to, any
material legal proceedings, other than routine litigation incidental to its
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, 1999.


                                    PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         As of September 23, 1999, there were approximately 840 holders of our
Common Stock of record. There is no established trading market for the Common
Stock, and one is not expected to develop in the near future.

         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. During 1999, we used the proceeds from the offering to
expand our communications business, develop additional product lines and for
working capital and general corporate purposes.

         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.


                                      11
<PAGE>   14


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

         The following table sets forth selected consolidated financial data
for the periods presented. We were incorporated on January 24, 1997 and began
operations in March 1997. Our fiscal year ends on June 30. The statement of
operations data for the period from January 24, 1997 to June 30, 1997 (the
"Inception Period") and the fiscal years ended June 30, 1998 and 1999 and the
balance sheet data as of June 30, 1997, 1998 and 1999 are derived from our
audited Consolidated Financial Statements. The Consolidated Financial
Statements for the Inception Period and the year ended June 30, 1999 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>
                                                            JANUARY 24, 1997
                                                              INCEPTION TO               YEAR ENDED JUNE 30,
                                                              JUNE 30, 1997           1998                1999
                                                            ----------------      -----------         ------------
<S>                                                         <C>                   <C>                 <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
     Communications services ..........................        $ 2,322,000         $ 5,293,000         $  8,416,000
     Nutritional products .............................                 --             526,000            1,371,000
     Marketing services ...............................            369,000           1,172,000            2,557,000
                                                               -----------         -----------         ------------
              Total net revenues ......................          2,691,000           6,991,000           12,344,000
                                                               -----------         -----------         ------------

Cost of services:
     Communications services ..........................            761,000           1,351,000            2,166,000
     Nutritional products .............................                 --             294,000              662,000
     Marketing services ...............................            255,000             431,000              947,000
                                                               -----------         -----------         ------------
              Total cost of services ..................          1,016,000           2,076,000            3,775,000
                                                               -----------         -----------         ------------
Gross margin ..........................................          1,675,000           4,915,000            8,569,000
                                                               -----------         -----------         ------------
Operating expenses:
     Selling and marketing ............................          1,089,000           2,665,000            5,373,000
     General and administrative .......................            660,000           2,344,000            4,376,000
                                                               -----------         -----------         ------------
              Total operating expenses ................          1,749,000           5,009,000            9,749,000
                                                               -----------         -----------         ------------
Interest expense ......................................                 --               2,000              356,000
                                                               -----------         -----------         ------------
Loss before income tax benefit ........................            (74,000)            (96,000)          (1,536,000)
Income tax benefit ....................................                 --                  --                   --
                                                               -----------         -----------         ------------
Net loss ..............................................        $   (74,000)        $   (96,000)        $ (1,536,000)
                                                               ===========         ===========         ============

PER SHARE DATA:
Net loss per share ....................................        $     (0.05)        $     (0.06)               (0.96)
                                                               ===========         ===========         ============
Weighted average number of shares outstanding .........          1,571,187           1,571,187            1,594,387
                                                               ===========         ===========         ============
</TABLE>


<TABLE>
<CAPTION>
                                                                                           AS OF JUNE 30,
                                                                   1997                1998                1999
                                                               -----------         -----------         ------------
<S>                                                            <C>                 <C>                 <C>
BALANCE SHEET DATA:
Working capital .......................................        $   (13,000)        $   180,000         $ (1,942,000)
Property and equipment, net ...........................             92,000             169,000            5,842,000
Total assets ..........................................            596,000           1,263,000            8,286,000
Long-term obligations .................................                 --                  --            4,005,000
Shareholders' equity (deficit) ........................            293,000             484,000           (1,014,000)
</TABLE>


                                      12
<PAGE>   15


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; (iii) commissions from our agreement with
CRC whereby we receive a percentage of the long distance billings received by
CRC from the customers originated by our independent associates, net of
allowances for bad debts and billing adjustments; and (iv) 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. During fiscal 1999, we began
marketing new health enhancement products and additional nutritional products,
including a weight management program and skin care system. 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. Marketing services revenues also include training fees
paid by senior associates and "managing directors" or "MDs." 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. MDs must attend continuing education training schools
each year which also are subject to a fee. The training fees are recognized at
the time the training is received. We do not receive any fees from independent
associates for the training provided by MDs or national training directors.

         Cost of services consists of communications services cost, nutritional
products cost and marketing services cost. Historically, communications
services cost has consisted primarily of the cost of providing service


                                      13
<PAGE>   16

for prepaid phone cards; since April 1999, communications services cost also
includes 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 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>

                                                            JANUARY 24, 1997        YEAR ENDED JUNE 30,
                                                             (INCEPTION) TO        ---------------------
                                                            ----------------        1998           1999
                                                             JUNE 30, 1997         ------         ------
<S>                                                         <C>                    <C>            <C>
Net revenues:
     Communications services .........................             86%                76%            68%
     Nutritional products ............................             --                  7             11
     Marketing services ..............................             14                 17             21
                                                                -----              -----          -----
         Total net revenues ..........................            100%               100%           100%
                                                                =====              =====          =====

Cost of services:
     Communications services .........................             28%                19%            18%
     Nutritional products ............................             --                  4              5
     Marketing services ..............................             10                  6              8
                                                                -----              -----          -----
         Total cost of services ......................             38                 29             31

Operating expenses:
     Selling and marketing ...........................             41                 38             44
     General and administrative ......................             24                 34             35
                                                                -----              -----          -----
         Total operating expenses ....................             65%                72%            79%
                                                                =====              =====          =====
</TABLE>

         We were incorporated in January 1997 and commenced operations in March
1997. No comparisons are presented for the year ended June 30, 1998 compared to
the Inception Period because we commenced operations in March 1997 and we do
not believe the comparisons would be meaningful.


                                      14
<PAGE>   17

    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 $845,000, or
161%, 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 and training fees
paid to become a MD. 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 $662,000 or 5% 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 $947,000, or 8% of
total net revenues, for fiscal 1999 as compared to $431,000, or 6% 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 70% for fiscal
1998.

         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


                                      15
<PAGE>   18

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.

YEAR ENDED JUNE 30, 1998

         Maxxis was incorporated in January 1997 and commenced operations in
March 1997. No comparisons are presented for the year ended June 30, 1998
compared to the Inception Period because Maxxis commenced operations in March
1997, and we believe the comparisons would not be meaningful. Similarly, no
comparisons are presented for the Inception Period because Maxxis was not in
existence for the corresponding period in 1996.

INCEPTION PERIOD (JANUARY 24, 1997 TO JUNE 30, 1997)

         Net Revenues. For the Inception Period, communications services
revenues were $2.3 million, or 86% of total revenues, and marketing services
revenues were $369,000, or 14% of total revenues. Communications services
revenues consist of sales of prepaid phone cards by and to our IAs and
commissions and fees generated from long distance usage customers. This amount
was minimal for the Inception Period because no customers were utilizing long
distance services until May 1997. Marketing services revenues include
application kit fees from IAs, purchases of sales aids by IAs and training fees
paid to become a MD.

         Cost of Services. Communications services cost was $761,000, or 28% of
total revenues, for the Inception Period. Communications services costs include
the cost of purchasing activated prepaid phone cards. Marketing services cost,
which includes the costs of application kits and promotional materials, was
$255,000, or 10% of total revenues, for the Inception Period.

         Operating Expenses. Selling and marketing expenses principally consist
of commissions paid to IAs based on (i) sales of products and services to new
IAs sponsored into Maxxis (ii) usage of long distance services by customers,
and (iii) sales of additional products and services to customers. Selling and
marketing expenses were $1.1 million, or 41% of total revenues, for the
Inception Period. General and administrative expenses were $660,000, or 25% of
total revenues, for the Inception Period. General and administrative expenses
consist primarily of salary expense for our customer service personnel, office
staff and executive personnel. Such expenses also include costs for IA support
services and information systems services.


                                      16
<PAGE>   19

SEASONALITY AND UNAUDITED QUARTERLY FINANCIAL INFORMATION

         We have historically experienced, and expects 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, 1998       DEC. 31, 1998       MAR. 31, 1999       JUNE 30, 1999
                                                   --------------       -------------       -------------       -------------
<S>                                                <C>                  <C>                 <C>                 <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
  Communications services ...................        $ 3,686,000          $ 1,435,000        $ 1,166,000         $ 2,129,000
  Nutritional products ......................            375,000              255,000            303,000             438,000
  Marketing services ........................          1,042,000              398,000            427,000             690,000
                                                     -----------          -----------        -----------         -----------
        Total net revenues ..................          5,103,000            2,088,000          1,896,000           3,257,000
                                                     -----------          -----------        -----------         -----------
Cost of services:
  Communications services ...................            706,000              201,000            120,000           1,139,000
  Nutritional products ......................            202,000              159,000            118,000             183,000
  Marketing services ........................            552,000               84,000            183,000             128,000
                                                     -----------          -----------        -----------         -----------
        Total cost of services ..............          1,460,000              444,000            421,000           1,450,000
                                                     -----------          -----------        -----------         -----------
Gross margin ................................          3,643,000            1,644,000          1,475,000           1,807,000
                                                     -----------          -----------        -----------         -----------
Operating Expenses:
  Selling and marketing .....................          2,005,000            1,054,000          1,126,000           1,188,000
  General and administrative ................            778,000            1,073,000            903,000           1,622,000
                                                     -----------          -----------        -----------         -----------
        Total operating expenses ............          2,783,000            2,127,000          2,029,000           2,810,000
                                                     -----------          -----------        -----------         -----------
Interest income (expense) ...................                 --                5,000           (179,000)           (182,000)
                                                     -----------          -----------        -----------         -----------
Income (loss) before income tax benefit .....            860,000             (478,000)          (733,000)         (1,185,000)
Income tax provision (benefit) ..............            280,000             (130,000)          (150,000)                 --
                                                     -----------          -----------        -----------         -----------
Net (loss) income ...........................        $   580,000         $   (348,000)       $  (583,000)        $(1,185,000)
                                                     ===========          ===========        ===========         ===========

Net (loss) income per share:
  Basic .....................................        $      0.37         $      (0.22)       $     (0.37)        $     (0.74)
                                                     ===========          ===========        ===========         ===========
  Diluted ...................................        $      0.36         $      (0.22)       $     (0.37)        $     (0.74)
                                                     ===========          ===========        ===========         ===========
</TABLE>


                                      17
<PAGE>   20

LIQUIDITY AND CAPITAL RESOURCES

         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 proceeds from the offering were
approximately $255,475; our proceeds, net of offering expenses were
approximately $1,000. During 1999, we used the proceeds from the offering to
expand our communications business, develop additional product lines and for
working capital and general corporate purposes.

         On November 22, 1998, we 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, our Chairman, Chief Executive Officer and President,
and Alvin Curry, our 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, 1999,
$1,390,000 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 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.

         In February 1998, we entered into a note with Thomas O. Cordy (the
"Cordy Note") to memorialize a loan in December 1997 of $53,000 from Mr. Cordy
to us to fund certain operational expenses. As of June 30, 1998, the Cordy Note
had been repaid in full.

         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
the 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
1999 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 its 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. We have not identified financing sources to fund such
cash needs in 1999 and beyond. There can be no assurance that we will be able
to raise any such capital on acceptable terms or at all.


                                      18
<PAGE>   21
         During 1999, we used net cash of $177,000 in operating activities, as
compared to net cash provided by operating activities of $235,000 for 1998.
Operating activities for 1999 consisted primarily of $1.5 million of net loss
and $1.4 million of changes in assets and liabilities, which were offset by
$501,000 of non-cash expenses.

         Cash used in investing activities was $741,000 for 1999, as compared
to $185,000 for 1998. Investing activities for 1999 consisted primarily of
software development and organizational costs of $362,000, capital expenditures
totaling $279,000 and an investment in an internet service provider of
$100,000.

         Cash provided from financing activities was $566,000 for 1999, as
compared to $287,000 for 1998. Financing activities for 1999 consisted
primarily of $1,390,000 borrowed pursuant to our line of credit and $1,000 of
proceeds from our public offering, which amounts were partially offset by
payments of $825,000 on lease obligations.

YEAR 2000 COMPLIANCE

         Many installed computer software and network processing systems
currently accept only two-digit entries in the date code field and may need to
be upgraded or replaced in order to accurately record and process information
and transactions on and after January 1, 2000. Our business and relationships
with our customers and IAs depends significantly on a number of computer
software programs, internal operating systems and connections to other
networks, and the failure of these programs, systems or networks to
successfully address the Year 2000 problem could have a material adverse effect
on our business, financial condition and results of operations. The Maxxis
Switch is not Year 2000 compliant. Although we expect that the transactions
processed through the Maxxis Switch will be Year 2000 compliant by mid-December
1999, there is no assurance that we will be able to successfully address the
Year 2000 problem with respect to the Maxxis Switch by mid-December 1999 or at
all. Our failure to solve this issue could result in serious financial harm
due to the fact that we could lose a portion of or all of the revenues that
would otherwise be obtained from traffic routed over the Maxxis Switch.

         We have conducted reviews to assess the extent to which our internal
systems and software and the network connections it maintains are adequately
programmed to address the Year 2000 issue. In addition, our ability to provide
services and support to our customers and IAs depends upon the continued
functioning of the software programs, operating systems and networking used by
its vendors and suppliers. We are also assessing the extent to which our
vendors and suppliers have successfully addressed the Year 2000 problem. It
currently is impossible for us to predict the potential expenditures that may
be required or the delay or interruption in service that may result due to the
Year 2000 problem. Based on these reviews, we expect to complete the necessary
steps to address potential operating issues in connection with the Year 2000
problem. Any failure by us or our vendors or suppliers to successfully address
the Year 2000 problem could significantly interrupt our business operations and
have a material adverse effect on our business, financial condition and results
of operations. We have established certain contingency plans relative to our
most critical operating procedures.


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 and 1999 and consolidated statements of
operations, shareholders' equity (deficit) and cash flows for period from
Inception (January 24, 1997) to June 30, 1997 and for each of the two years in
the period ended June 30,


                                      19
<PAGE>   22

1999 together with the report thereof of Arthur Andersen LLP, dated September
17, 1999 are included on pages F-1 through F-19 of this Report.


                                      20
<PAGE>   23

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, 1999.


                                    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 ....................    40        Chairman of the Board of Directors, Chief Executive               2001
                                                 Officer and President
Alvin Curry .......................    42        Chief Operating Officer and Director                              2001
Daniel McDonough ..................    52        Chief Financial Officer and Secretary                               --
Larry W. Gates, II ................    36        Vice President and Director                                       1999
Charles P. Bernstein ..............    48        Director                                                          2000
Thomas O. Cordy ...................    58        Director                                                          2001
Robert James Glover, Jr ...........    38        Director                                                          1999
Terry Harris ......................    44        Director                                                          2000
Philip E. Lundquist ...............    63        Director                                                          2000
John D. Phillips ..................    56        Director                                                          1999
</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.

         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.


                                      21
<PAGE>   24

         DANIEL MCDONOUGH has served as our Chief Financial Officer since
October 1997. Prior to his employment with us, Mr. McDonough provided financial
consulting services to a number of start up companies at Creative Benefits,
Inc. In addition, from 1992 to 1994, Mr. McDonough was the controller of
Jostens Learning Corporation, a $75.0 million technology company specializing
in educational software. Prior to his employment with Jostens, Mr. McDonough
served as assistant controller to Alumax, Inc., a $2.5 billion integrated
aluminum company with over 100 manufacturing operations throughout the United
States. From 1973 to 1980, Mr. McDonough was employed by Price Waterhouse & Co.
Mr. McDonough is a licensed CPA and also holds a masters of business
administration degree from the University of Buffalo.

         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.

         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.

         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.

         PHILIP E. LUNDQUIST has served as a director since May 1997. He also
serves as Chairman of Christopher Partners Inc. Since 1988, Mr. Lundquist has
owned and operated an investment banking consulting company as a sole
proprietorship. From 1985 to 1988, Mr. Lundquist was the Director of Corporate
Finance for Deloitte Haskins & Sells in Atlanta, Georgia. Mr. Lundquist has a
bachelors degree from Williams College and attended the Institute of Investment
Banking at the Wharton School, University of Pennsylvania.

         JOHN D. PHILLIPS has served as a director since April, 1999. Since
December 1998, Mr. Phillips has served as the President and Chief Executive
Officer of World Access Corporation. Mr. Phillips was Chairman of the Board and
Chief Executive Officer of Cherry Communications Incorporated d/b/a Resurgens
Communications Group ("RCG") and Cherry Communications U.K. Limited from
October 1997 until December 1998, when both companies were acquired by World
Access, Inc. In October 1997, RCG filed for bankruptcy protection under Chapter
11 of the United States Bankruptcy Code. World Access acquired RCG pursuant to
RCG's resulting plan of reorganization. He was President, Chief Executive
Officer and a director of Metromedia International Group, Inc. from November
1995 until December 1996. Metromedia was formed in November 1995 through the
merger of The Actava Group, Inc. ("Actava"), Orion Pictures Corporation, MCEG
Sterling Incorporated and Metromedia


                                      22
<PAGE>   25

International Telecommunications, Inc. He served as President, Chief Executive
Officer and a director of Actava from April 1994 until November 1995. In May
1989, Mr. Phillips became Chief Executive Officer of Resurgens Group, Inc. and
served in this capacity until September 1993 when Resurgens Group, Inc. merged
with Metromedia Communications Corporation and WorldCom.


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, 1999, 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, 1999, the Audit Committee was composed of
Charles P. Bernstein, Terry Harris and Philip E. Lundquist 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,
1999, the Compensation Committee was composed of Charles P. Bernstein, Terry
Harris and Philip E. Lundquist 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 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, 1999, our Board of Directors held four
meetings. John D. Phillips was elected to the Board at its April meeting, but
has not attended any meetings. With the exception of Mr. Phillips, 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.


                                      23
<PAGE>   26

EXECUTIVE COMPENSATION

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

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                   ANNUAL COMPENSATION
                                                                                 -----------------------
NAME AND PRINCIPAL POSITION                                    PERIOD             SALARY        BONUS(1)
---------------------------                                  -----------         --------      ---------

<S>                                                          <C>                 <C>           <C>
Thomas O. Cordy.....................................         Fiscal 1999         $ 41,600      $ 83,400
Chief Executive Officer and President                        Fiscal 1998           41,600      $ 83,400
</TABLE>

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

OPTION GRANTS DURING 1999

         As of June 30, 1999, no options had been granted to our Chief
Executive Officer, and no executive officer received a combined salary and
bonus in excess of $100,000 during the year ended June 30, 1999.

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
Representative Agreements provide for a minimum fee of $800.00 per week. Each
sales representative is also be 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% of total revenue from Maxxis 2000 if
four centers are opened to 5% of the revenue if 20 centers are opened. 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.


                                      24
<PAGE>   27

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.

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


                                      25
<PAGE>   28

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 September 30,
1999, options to purchase 74,634 shares of Common Stock were outstanding.


                                      26
<PAGE>   29

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, 1999 by: (i) each
person known by us beneficially to own more than 5% of the 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
The Anchora Company(f) .....................................           72,727           4.6
Charles P. Bernstein .......................................           45,454
Larry W. Gates .............................................           47,272           3.0
Thomas O. Cordy(g) .........................................               --           2.9
Larry W. Gates, II .........................................           45,454           2.9
Robert J. Glover(h) ........................................               --            --
Terry Harris ...............................................            3,636             *
Philip E. Lundquist ........................................               --            --
Ivey J. Stokes(i) ..........................................               --            --
All directors and executive officers as a group
   (10 persons) (c) - (i) ..................................          994,088          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, 1999. 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)      All such shares are owned by The Anchora Company of which Mr. Cordy, a
         director, is the protector. Mr. Cordy disclaims beneficial ownership
         of such shares.
(g)      Excludes 72,727 shares owned by The Anchora Company, of which Mr.
         Cordy is the protector. Mr. Cordy disclaims beneficial ownership of
         such shares.
(h)      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.
(i)      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.


                                      27
<PAGE>   30

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 March 31, 1999, $800,000
principal amount was outstanding pursuant to the line of credit. As of
September 30, 1999, $1,425,000 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.

         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 800,000 shares of Common Stock, at a price of
$0.15 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 cause the Anchora Company to return the 800,000 shares
of Common Stock to us. Upon receipt of the 800,000 shares and the cancellation
of the $120,000 full recourse promissory note, we will cancel the 800,000
shares formerly owned by the Anchora Company.

         In December 1997, we borrowed approximately $53,000 from Mr. Cordy to
fund certain operating expenses. In February 1998, the Company entered into the
Cordy Note to memorialize such borrowing. The Cordy note has been repaid in
full.

         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-19:

                  Consolidated Balance Sheets as of June 30, 1998 and 1999
                  Consolidated Statements of Operations for the Period from
                           Inception (January 24, 1997) to June 30, 1997, and
                           for the Years Ended June 30, 1998 and 1999
                  Consolidated Statements of Changes in Shareholders' Equity
                           for the Period from Inception (January 24, 1997) to
                           June 30, 1997, and for the Years Ended June 30, 1998
                           and 1999


                                      28
<PAGE>   31

                  Consolidated Statements of Cash Flows for the Period from
                           Inception (January 24, 1997) to June 30, 1997, and
                           for the Years Ended June 30, 1998 and 1999
                  Notes to Consolidated Financial Statements

(A)(2)   FINANCIAL STATEMENT SCHEDULES

         Reference is made to Note 2 of the Notes to the Consolidated Financial
         Statements on page F-9. All schedules have been omitted as they were
         not required or not applicable or because the information required to
         be presented is included in the Consolidated Financial Statements and
         the related Notes thereto.


                                      29
<PAGE>   32

(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*     Employment Agreement by and between the Company and Thomas O. Cordy dated May 1, 1997.
  10.3*     Promissory Note by The Anchora Company in favor of the Company dated as of May 1, 1997 in the original principal
            amount of $120,000.
  10.4*     Guarantee by Thomas O. Cordy in favor of the Company dated May 1, 1997.
  10.5*     Form of Independent Sales Representative Agreement by and between the Company and certain of its sales
            representatives.
  10.6*     Consulting Agreement by and between the Company and Robert P. Kelly dated as of September 1, 1997.
  10.7*     Software License Agreement between Summit V. Inc., a subsidiary of Jenkon International, Inc. and the Company
            dated February 2, 1997.
  10.8*     Software Service Agreement between Summit V. Inc., a subsidiary of Jenkon International, Inc. and the Company
            dated February 2, 1997.
  10.9*     Equipment Purchase Agreement between Summit V. Inc., a subsidiary of Jenkon International, Inc. and the Company
            dated February 2, 1997.
 10.10*     Agreement for 1-Plus Services between Colorado River Communications Corporation and the Company dated February
            20, 1997. +
 10.11*     Sublease Agreement between DowElanco and the Company dated February 14, 1997.
 10.12*     Warehouse lease between Malon D. Mimms and the Company dated March 17, 1997.
 10.13*     Warehouse lease between Malon D. Mimms and the Company dated June 23, 1997.
 10.14*     Demand Secured Promissory Note dated November 26, 1997 by the Company in favor of the lenders named on Schedule
            I thereto.
 10.15*     Sub-Sublease Agreement between the Company and Simons Engineering, Inc. dated September 1, 1997.
 10.16*     Demand Promissory Note dated February 28, 1998 by the Company in favor of Thomas O. Cordy.
 10.17*     Form of Stock Purchase Warrant.
 10.18**    Maxxis Group, Inc. 1998 Stock Option Plan.
 10.19**    Lease Amendment Agreement dated June 5, 1998 among Malon D. Mimms, the Company and Richard Bowers & Co.
 10.20**    Lease Amendment Agreement dated August 14, 1998 among Malon D. Mimms, the Company and Richard Bowers & Co.
 10.21#     Software Purchase Agreement between UsefulWare Incorporated and the Company dated as of August 13, 1998. +
 10.22#     Asset Purchase Agreement by and among Cherry Communications Incorporated ("Cherry"), World Access, Inc. ("World
            Access") and the Company dated as of September 29, 1998.
 10.23#     Promissory Note by the Company in favor of Cherry dated September 29, 1998.
</TABLE>


                                    30
<PAGE>   33

<TABLE>

<S>         <C>

  10.24#    Security Agreement between the Company and World Access dated as of September 29, 1998.
  10.25#    Software License Agreement between Alcatel USA Marketing, Inc. and the Company dated as of September 29, 1998.
  10.26#    Sublease between Cherry and the Company dated as of September 30, 1998.
  10.27#    Master Lease Agreement between Rockford Industries, Inc. and the Company dated as of September 29, 1998 (World
            Access).
  10.28#    Master Lease Agreement between Rockford Industries, Inc. and the Company dated as of September 29, 1998 (NACT
            Telecommunications, Inc.).
  10.29#    Employment Agreement between Daniel McDonough and the Company dated as of October 13, 1998.
  10.30##   Line of Credit between the Company and the Maxxis Millionaire Society dated as of November 22, 1998.
  10.31##   Investment Agreement between InteReach Internet Services, LLC and the Company dated as of December 8, 1998.
  10.32##   Virtual ISP Agreement between InteReach Internet Services, Inc. and the Company dated as of December 8, 1998.
  10.33     Digital Services Agreement between Worldcom Network Services, Inc. and the Company dated as of January 21, 1999
  10.34+    Telecommunications Services Agreement between Worldcom Network Services, Inc. and the Company dated as of
            January 21, 1999.
  10.35     Program Enrollment Terms to the Telecommunications Services Agreement dated as of January 21, 1999 between
            Worldcom Network Services, Inc. and the Company.
  10.36+    Master Service Agreement between IXC Communications Services, Inc. and the Company dated as of March 25, 1999.
  10.37     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, 1999 (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 10-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.
+        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.


                                      31
<PAGE>   34

                                   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.



October 13, 1999                   By: /s/  Ivey J. Stokes
                                       ---------------------------------------
                                       Ivey J. Stokes
                                       Chief Executive Officer


                               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 DANIEL MCDONOUGH, 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.


October 13, 1999                 /s/ Ivey J. Stokes
                                -----------------------------------------------
                                Ivey J. Stokes
                                Chairman of the Board, Chief Executive Officer
                                   and President
                                (Principal executive officer)


October 13, 1999                /s/  Daniel McDonough
                                -----------------------------------------------
                                Daniel McDonough
                                Chief Financial Officer and Secretary
                                (Principal financial and accounting officer)

October 13, 1999                /s/  Thomas O. Cordy
                                -----------------------------------------------
                                Thomas O. Cordy
                                Director


October 13, 1999                /s/  Larry W. Gates, II
                                -----------------------------------------------
                                Larry W. Gates, II
                                Vice President, Human Resources and Director


                                      32


<PAGE>   35



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


October 13, 1999                /s/ Alvin Curry
                                -----------------------------------------------
                                Alvin Curry
                                Director


October 13, 1999                /s/ Robert J. Glover, Jr.
                                -----------------------------------------------
                                Robert J. Glover, Jr.
                                Director


October 13, 1999                /s/ Terry Harris
                                -----------------------------------------------
                                Terry Harris
                                Director



                                -----------------------------------------------
                                Philip E. Lundquist
                                Director



                                -----------------------------------------------
                                John D. Phillips
                                Director


                                      33
<PAGE>   36


                       MAXXIS GROUP, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                          AS OF JUNE 30, 1998 AND 1999
                                  TOGETHER WITH
                                AUDITORS' REPORT

<PAGE>   37

                   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 and 1999................................................        F-3

Consolidated Statements of Operations for the Period from Inception (January 24, 1997)
     to June 30, 1997, and for the Years Ended June 30, 1998 and 1999...................................        F-4

Consolidated Statements of Changes in Shareholders' Equity for the Period from Inception
     (January 24, 1997) to June 30, 1997, and for the Years Ended June 30, 1998 and 1999................        F-5

Consolidated Statements of Cash Flows for the Period from Inception (January 24, 1997)
     to June 30, 1997, and for the Years Ended June 30, 1998 and 1999...................................        F-6

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


                                      F-1
<PAGE>   38

                    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, 1998 and 1999 and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the period from inception (January 24, 1997) to
June 30, 1997 and for the years ended June 30, 1998 and 1999. 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 generally accepted auditing
standards. 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, 1998 and 1999 and the results of their operations
and their cash flows for the period from inception (January 24, 1997) to June
30, 1997 and for the years ended June 30, 1998 and 1999 in conformity with
generally accepted accounting principles.


                                           /s/ Arthur Andersen LLP


Atlanta, Georgia
September 17, 1999
(except with respect to
the matter discussed
in Note 11, as to
which the date is October 12, 1999)


                                      F-2
<PAGE>   39


                       MAXXIS GROUP, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                             JUNE 30, 1998 AND 1999



<TABLE>
<CAPTION>
                                    ASSETS

                                                                                                  1998              1999
                                                                                               -----------       -----------

<S>                                                                                            <C>               <C>
CURRENT ASSETS:
   Cash                                                                                        $   372,000       $    20,000
   Short-term investment                                                                            10,000            10,000
   Communications receivable, net of allowance for doubtful accounts of $40,000 and
      $113,000 in 1998 and 1999, respectively                                                      316,000           652,000
   Accounts receivable, net of allowance for doubtful accounts of $0 and $189,000 in
      1998 and 1999, respectively                                                                        0           817,000
   Inventories, net                                                                                218,000           354,000
   Prepaid expenses and other current assets                                                        43,000           110,000
                                                                                               -----------       -----------
                                                                                                   959,000         1,963,000

PROPERTY AND EQUIPMENT, NET (NOTE 3)                                                               169,000         5,842,000

CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET                                                        126,000           352,000

OTHER ASSETS                                                                                         9,000           129,000
                                                                                               -----------       -----------
                                                                                               $ 1,263,000       $ 8,286,000
                                                                                               ===========       ===========




                                        LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
   Accounts payable                                                                            $   211,000       $ 1,218,000
   Commissions payable                                                                             101,000           463,000
   Accrued compensation                                                                            154,000           220,000
   Sales taxes payable                                                                             130,000           317,000
   Accrued expenses                                                                                128,000           428,000
   Current maturities of capital lease obligations                                                       0           929,000
   Deferred revenue                                                                                 55,000           330,000
                                                                                               -----------       -----------
                                                                                                   779,000         3,905,000
                                                                                               -----------       -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)

LINE OF CREDIT (NOTE 6)                                                                                  0         1,390,000
                                                                                               -----------       -----------

LONG-TERM CAPITAL LEASE OBLIGATIONS (NOTE 4)                                                             0         4,005,000
                                                                                               -----------       -----------

SHAREHOLDERS' EQUITY (DEFICIT):
   Preferred stock, no par value; 10,000,000 shares authorized; 100,000 shares
      designated as Series A; 36,359 Series A shares issued and outstanding                        200,000           200,000
   Common stock, no par value; 20,000,000 shares authorized, 1,571,187 and 1,617,637
      shares issued and outstanding in 1998 and 1999, respectively                                 574,000           612,000
   Shareholder note receivable                                                                    (120,000)         (120,000)
   Accumulated deficit                                                                            (170,000)       (1,706,000)
                                                                                               -----------       -----------
            Total shareholders' equity (deficit)                                                   484,000        (1,014,000)
                                                                                               -----------       -----------
                                                                                               $ 1,263,000       $ 8,286,000
                                                                                               ===========       ===========
</TABLE>


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


                                      F-3
<PAGE>   40

                       MAXXIS GROUP, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF OPERATIONS

        FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997) TO JUNE 30, 1997

                 AND FOR THE YEARS ENDED JUNE 30, 1998 AND 1999




<TABLE>
<CAPTION>
                                               1997              1998               1999
                                            -----------       -----------       ------------

<S>                                         <C>               <C>               <C>
NET REVENUES:
    Communications services                 $ 2,322,000       $ 5,293,000       $  8,416,000
    Nutritional products                              0           526,000          1,371,000
    Marketing services                          369,000         1,172,000          2,557,000
                                            -----------       -----------       ------------
              Total net revenues              2,691,000         6,991,000         12,344,000
                                            -----------       -----------       ------------
COST OF SERVICES:
    Communications services                     761,000         1,351,000          2,166,000
    Nutritional products                              0           294,000            662,000
    Marketing services                          255,000           431,000            947,000
                                            -----------       -----------       ------------
              Total cost of services          1,016,000         2,076,000          3,775,000
                                            -----------       -----------       ------------
GROSS MARGIN                                  1,675,000         4,915,000          8,569,000
                                            -----------       -----------       ------------
OPERATING EXPENSES:
    Selling and marketing                     1,089,000         2,665,000          5,373,000
    General and administrative                  660,000         2,344,000          4,376,000
                                            -----------       -----------       ------------
              Total operating expenses        1,749,000         5,009,000          9,749,000
                                            -----------       -----------       ------------
INTEREST EXPENSE                                      0             2,000            356,000
                                            -----------       -----------       ------------
LOSS BEFORE INCOME TAX BENEFIT                  (74,000)          (96,000)        (1,536,000)

INCOME TAX BENEFIT                                    0                 0                  0
                                            -----------       -----------       ------------
NET LOSS                                    $   (74,000)      $   (96,000)      $ (1,536,000)
                                            ===========       ===========       ============

BASIC AND DILUTED LOSS PER SHARE            $     (0.05)      $     (0.06)      $      (0.96)
                                            ===========       ===========       ============

WEIGHTED AVERAGE NUMBER OF
    SHARES AND SHARE EQUIVALENTS
    OUTSTANDING                               1,571,187         1,571,187          1,594,387
                                            ===========       ===========       ============
</TABLE>


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


                                      F-4
<PAGE>   41

                       MAXXIS GROUP, INC. AND SUBSIDIARIES


            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

        FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997) TO JUNE 30, 1997

                 AND FOR THE YEARS ENDED JUNE 30, 1998 AND 1999


<TABLE>
<CAPTION>
                                       PREFERRED STOCK       COMMON STOCK       STOCK     SHAREHOLDER
                                       ---------------   ------------------- SUBSCRIPTION     NOTE     ACCUMULATED
                                       SHARES   AMOUNT    SHARES     AMOUNT    DEPOSITS    RECEIVABLE    DEFICIT        TOTAL
                                       ------  --------  ---------  -------- ------------ -----------  -----------   -----------

<S>                                    <C>     <C>       <C>        <C>      <C>          <C>          <C>           <C>
BALANCE, JANUARY 24, 1997 (INCEPTION)       0  $      0          0  $      0  $       0    $       0   $         0   $         0

    Issuance of common stock                0         0  1,299,992   127,000          0     (120,000)            0         7,000
    Stock subscription deposits             0         0          0         0    360,000            0             0       360,000
    Net loss                                0         0          0         0          0            0       (74,000)      (74,000)
                                       ------  --------  ---------  --------  ---------    ---------   -----------   -----------
BALANCE, JUNE 30, 1997                      0         0  1,299,992   127,000    360,000     (120,000)      (74,000)      293,000

    Issuance of preferred stock        36,359   200,000          0         0          0            0             0       200,000
    Issuance of common stock                0         0    271,195   447,000          0            0             0       447,000
    Stock subscription deposits             0         0          0         0   (360,000)           0             0      (360,000)
    Net loss                                0         0          0         0          0            0       (96,000)      (96,000)
                                       ------  --------  ---------  --------  ---------    ---------   -----------   -----------
BALANCE, JUNE 30, 1998                 36,359   200,000  1,571,187   574,000          0     (120,000)     (170,000)      484,000

    Issuance of common stock, net of
       issuance expenses                    0         0     46,450     1,000          0            0             0         1,000
    Compensation expense for stock
       option issuance                      0         0          0    37,000          0            0             0        37,000
    Net loss                                0         0          0         0          0            0    (1,536,000)   (1,536,000)
                                       ------  --------  ---------  --------  ---------    ---------   -----------   -----------
BALANCE, JUNE 30, 1999                 36,359  $200,000  1,617,637  $612,000  $       0    $(120,000)  $(1,706,000)  $(1,014,000)
                                       ======  ========  =========  ========  =========    =========   ===========   ===========
</TABLE>

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


                                      F-5
<PAGE>   42

                       MAXXIS GROUP, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

        FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997) TO JUNE 30, 1997

                 AND FOR THE YEARS ENDED JUNE 30, 1998 AND 1999


<TABLE>
<CAPTION>

                                                                                  1997           1998            1999
                                                                                ---------      ---------      -----------

<S>                                                                             <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                     $ (74,000)     $ (96,000)     $(1,536,000)
                                                                                ---------      ---------      -----------
   Adjustments to reconcile net loss to net cash provided by (used in)
      operating activities:
         Depreciation and amortization                                             54,000        176,000          501,000
         Stock compensation expense                                                     0              0           37,000
         Changes in operating assets and liabilities:
            Accounts receivable                                                         0              0         (817,000)
            Communications receivable                                             (25,000)      (291,000)        (336,000)
            Inventories                                                          (185,000)       (33,000)        (136,000)
            Prepaid expenses and other assets                                     (55,000)         3,000          (87,000)
            Commissions payable                                                    42,000         59,000          362,000
            Accounts payable                                                      158,000         53,000        1,007,000
            Accrued compensation                                                        0        154,000           66,000
            Sales taxes payable                                                         0        130,000          187,000
            Accrued expenses                                                      103,000         25,000          300,000
            Deferred revenue                                                            0         55,000          275,000
                                                                                ---------      ---------      -----------
               Total adjustments                                                   92,000        331,000        1,359,000
                                                                                ---------      ---------      -----------
               Net cash provided by (used in) operating activities                 18,000        235,000         (177,000)
                                                                                ---------      ---------      -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                           (99,000)      (115,000)        (279,000)
   Investment in Internet service provider                                              0              0         (100,000)
   Purchase of short-term investment                                              (10,000)             0                0
   Software development and organizational costs                                 (241,000)       (70,000)        (362,000)
                                                                                ---------      ---------      -----------
               Net cash used in investing activities                             (350,000)      (185,000)        (741,000)
                                                                                ---------      ---------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from stock subscriptions                                              360,000              0                0
   Payments on lease obligations                                                        0              0         (825,000)
   Borrowings from line of credit                                                       0              0        1,390,000
   Proceeds from issuance of common stock                                           7,000         87,000            1,000
   Proceeds from issuance of preferred stock                                            0        200,000                0
                                                                                ---------      ---------      -----------
               Net cash provided by financing activities                          367,000        287,000          566,000
                                                                                ---------      ---------      -----------
NET INCREASE (DECREASE) IN CASH                                                    35,000        337,000         (352,000)

CASH, BEGINNING OF PERIOD                                                               0         35,000          372,000
                                                                                ---------      ---------      -----------
CASH, END OF PERIOD                                                             $  35,000      $ 372,000      $    20,000
                                                                                =========      =========      ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
   Cash paid for interest                                                       $       0      $   2,000      $         0
                                                                                =========      =========      ===========

   Stock issued for note receivable                                             $ 120,000      $       0      $         0
                                                                                =========      =========      ===========
</TABLE>



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


                                      F-6


<PAGE>   43

                       MAXXIS GROUP, INC. AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             JUNE 30, 1998 AND 1999



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 providing communication
         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 made the transition to 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

         All significant intercompany balances and transactions have been
         eliminated in consolidation.

         REVENUE RECOGNITION

         Communications services revenues consist of prepaid phone card sales to
         IAs, commissions generated from an agreement to resell long-distance
         services, and long-distance services directly provided by the Company.


                                      F-7
<PAGE>   44
         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, net of a restocking fee, for a
         refund.

         Communication services also consist of long-distance revenues generated
         by the Company's agreement with the Reseller in which the Company
         receives 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 receivables in the accompanying
         consolidated balance sheets.

         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 telecommunication services. This agreement expires
         in September 2000.

         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 April 1999, the Company began transferring its existing
         long-distance customers from the Reseller's network to the Maxxis
         Switch. In addition, the Maxxis Switch carries traffic related to the
         Company's prepaid phone cards (the "Switch Phone Cards"). The traffic
         from the Maxxis Switch is carried on the Supplier's network pursuant to
         the January Agreement. The portion of the Company's traffic that is not
         routed through the Maxxis Switch is provided by the Supplier pursuant
         to the March Agreement. The Company purchases long-distance services
         from this Supplier and sells the services to IAs and customers.

         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 consolidated balance sheets.

         Nutritional services revenues consist of sales of private label
         nutritional products manufactured by various suppliers and are recorded
         as revenues when products are shipped.

         Marketing services revenues primarily consist of receipts from IAs for
         application fees, associate meeting fees, and purchases of distributor
         kits and sales aids, which include forms, promotional brochures,
         marketing materials, and presentation materials.


                                      F-8
<PAGE>   45


         DEFERRED REVENUE

         Deferred revenue relates to the annual nonrefundable renewal fee
         assessed to IAs and unused time related to Switch Phone Cards. 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. Unused time on
         the Switch Phone Cards is recognized as revenue as the time is used.

         COST OF SERVICES

         Communications services costs primarily include the cost of purchasing
         prepaid phone cards from the Reseller, the cost of long-distance
         network services purchased from the 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 for printing and designing
         associate applications, starter kits, associate meetings, and other
         sales aids.

         SELLING AND MARKETING EXPENSES

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

         GENERAL AND ADMINISTRATIVE EXPENSES

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

         CONCENTRATION OF RISKS

         The Company's customers are primarily residential and are not
         concentrated in any specific geographic region of the United States.
         During the majority of fiscal 1999, the Company purchased prepaid phone
         cards from the Reseller. In January 1999 and March 1999, the Company
         entered into an agreement with two long-distance providers to provide
         the network services 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. If these agreements
         were terminated, there could be no assurance that the Company could
         enter into contracts with other suppliers.

         In November 1997, the Company began marketing 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.


                                      F-9
<PAGE>   46

         The Company's success will depend heavily on 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 its IAs, which the Company believes is
         typical of direct selling.

         USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
         accepted accounting principles 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.

         COMMUNICATIONS RECEIVABLE

         A summary of changes in the allowance for doubtful accounts for the
         period from Inception to June 30, 1997 and the years ended June 30,
         1998 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                     1997          1998          1999
                                                   --------      --------      --------

                  <S>                              <C>           <C>           <C>
                  Balance, beginning of period     $      0      $      0      $ 40,000
                      Provisions                          0        40,000        73,000
                      Recoveries                          0             0             0
                      Write-offs                          0             0             0
                                                   --------      --------      --------
                  Balance, end of period           $      0      $ 40,000      $113,000
                                                   ========      ========      ========
</TABLE>


         ACCOUNTS RECEIVABLE

         A summary of changes in the allowance for doubtful accounts for the
         period from Inception to June 30, 1997 and the years ended June 30,
         1998 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                     1997          1998          1999
                                                   --------      --------      --------

                  <S>                              <C>           <C>           <C>
                  Balance, beginning of period     $      0      $      0      $      0
                      Provisions                          0             0       189,000
                      Recoveries                          0             0             0
                      Write-offs                          0             0             0
                                                   --------      --------      --------
                  Balance, end of period           $      0      $      0      $189,000
                                                   ========      ========      ========
</TABLE>


                                      F-10
<PAGE>   47

         INVENTORIES

         Inventories consist of the following as of June 30, 1998 and 1999:

<TABLE>
<CAPTION>

                                                         1998         1999
                                                      ---------     --------

                  <S>                                 <C>           <C>
                  Prepaid phone cards                 $  10,000     $ 25,000
                  Sales aids                            158,000      160,000
                  Nutritional products                   76,000      169,000
                                                      ---------     --------
                                                        244,000      354,000
                  Less reserve                          (26,000)           0
                                                      ---------     --------
                  Inventory, net                      $ 218,000     $354,000
                                                      =========     ========
</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 amount
         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.

         INCOME TAXES

         The Company accounts for income taxes in accordance with Statement of
         Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
         which requires that deferred income taxes be provided based on
         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).

         ORGANIZATIONAL COSTS

         The Company capitalized certain organizational costs related to
         start-up activities and the legal formation of the Company during 1997.
         These costs were amortized over one year, and amortization expenses
         were $25,000, $76,000 and $0 for the period from Inception to June 30,
         1997, for the years ended June 30, 1998 and 1999, respectively.

         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 judgement 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


                                      F-11
<PAGE>   48

         estimated useful life of three years, and amortization expenses were
         $21,000, $62,000 and $136,000 for the period from Inception to June 30,
         1997, and for the years ended June 30, 1998 and 1999, respectively.

         OTHER ASSETS

         Other assets are comprised primarily of a minority interest investment
         in an Internet service provider. This investment is accounted for using
         the cost method.

         SHORT-TERM INVESTMENT

         The short-term investment is a certificate of deposit recorded at cost,
         which approximates the estimated fair value and matures in May 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.


3.       PROPERTY AND EQUIPMENT

         Property and equipment consisted of the following at June 30, 1998 and
         1999:

<TABLE>
<CAPTION>
                                                        1998          1999
                                                      --------      ---------
                  <S>                                 <C>           <C>

                  Computer equipment                  $154,000      $  301,000
                  Capital leases                             0       5,759,000
                  Furniture and fixtures                42,000         117,000
                  Leasehold improvements                13,000          59,000
                  Office equipment                       5,000          16,000
                                                      --------      ----------
                                                       214,000       6,252,000
                  Less accumulated depreciation        (45,000)       (410,000)
                                                      --------      ----------
                  Property and equipment, net         $169,000      $5,842,000
                                                      ========      ==========
</TABLE>

         Depreciation expense was $7,000, $38,000, and $365,000 for the period
         from Inception to June 30, 1997 and for the years ended June 30, 1998
         and 1999, respectively.


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. Monthly principal and interest payments are approximately
         $118,000, with an interest rate of approximately 12%. These leases
         expire within five years and have purchase options at the end of the
         original


                                      F-12
<PAGE>   49
         lease term. The capital lease obligation is secured by the intangible
         and tangible assets of the Company.  In addition, the Company has
         assigned the communications receivable to the lessor of the telephone
         switching equipment (the "Lessor").  Assets under capital leases are
         included in property and equipment at a fair market value of
         approximately $5,759,000.

         Maturities of capital lease obligations for the years subsequent to
         June 30, 1999 are as follows:

<TABLE>
                  <S>                                              <C>
                  2000                                             $ 1,416,000
                  2001                                               1,416,000
                  2002                                               1,416,000
                  2003                                               1,416,000
                  2004 and thereafter                                  706,000
                                                                   -----------
                                                                     6,370,000
                  Less amounts representing interest                (1,436,000)
                                                                   -----------
                                                                   $ 4,934,000
                                                                   ===========
</TABLE>


5.       INCOME TAXES

         Significant components of the Company's deferred tax assets and
         liabilities are as follows at June 30, 1998 and 1999:

<TABLE>
<CAPTION>

                                                    1998          1999
                                                  ---------     --------

                  <S>                             <C>           <C>
                  Property and equipment          $   2,000     $(28,000)
                  Organizational costs               23,000       15,000
                  Net operating losses               35,000      653,000
                  Valuation allowance               (60,000)    (640,000)
                                                  ---------     --------
                  Net deferred tax assets         $       0     $      0
                                                  =========     ========
</TABLE>

         Based on uncertainties associated with the future realization of
         deferred tax assets, the Company established a valuation allowance of
         $60,000 and $640,000 at June 30, 1998 and 1999, respectively. At June
         30, 1998 and 1999, the Company had net operating loss carryforwards of
         approximately $90,000 and $1,719,000, respectively, which 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>
                                                     1997          1998          1999
                                                   ---------     ---------     ---------
              <S>                                  <C>           <C>           <C>
              Tax benefit computed at statutory
                  rate                             $ (25,000)    $ (33,000)    $(522,000)
              State income taxes                      (3,000)       (4,000)      (61,000)
              Nondeductible expenses                   1,000         4,000         3,000
              Change in valuation allowance           27,000        33,000       580,000
                                                   ---------     ---------     ---------
              Income tax benefit                   $       0     $       0     $       0
                                                   =========     =========     =========
</TABLE>


                                      F-13
<PAGE>   50

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. Certain members of the Company's management are partners
         in the Maxxis Millionaire Society. 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. No advances or interest thereon
         pursuant to the Line of Credit are payable until November 22, 2000.


7.       COMMITMENTS AND CONTINGENCIES

         OPERATING LEASES

         The Company leases certain office equipment and office space under
         operating leases. At June 30, 1997, 1998, and 1999, the Company's
         total rental expenses were approximately $45,000, $84,000 and $168,000,
         respectively.

         Minimum lease payments under noncancelable leases for the years
         subsequent to June 30, 1999 are as follows:

<TABLE>
                  <S>                                    <C>
                  2000                                   $212,000
                  2001                                    202,000
                  2002                                    216,000
                  2003                                    185,000
                  2004 and thereafter                           0
                                                         --------
                                                         $815,000
                                                         ========
</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.

         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, 1998 and 1999. All unpaid bonuses
         are included in accrued compensation in the accompanying consolidated
         balance sheets.

         Each of the Employment 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


                                      F-14
<PAGE>   51

         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, disability, or cause, the employee will receive any
         accrued compensation through the termination date and any accrued
         performance bonus, unless the employee is terminated for cause. If the
         employee is terminated without cause, the Company shall 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 shall tender his/her resignation to such
         positions effective as of the termination date.

         Under 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 the termination date if he/she is terminated or resigns 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, provided that if the employee is
         terminated without cause, the noncompete period shall be six months.

         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 the Company's 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, who
         are considered independent contractors over whom the Company has
         limited control; the ambiguous nature of certain of the regulations;
         and the considerable interpretive and


                                      F-15
<PAGE>   52

         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.

         YEAR 2000 COMPLIANCE

         Many installed computer software and network processing systems
         currently accept only two-digit entries in the date code field and may
         need to be upgraded or replaced in order to accurately record and
         process information and transactions on and after January 1, 2000. The
         Company's business and relationships with their customers and IAs
         depends significantly on a number of computer software programs,
         internal operating systems and connections to other networks, and the
         failure of these programs, systems or networks to successfully address
         the Year 2000 problem could have a material adverse effect on our
         business, financial condition and results of operations. The Maxxis
         Switch is not Year 2000 compliant. Although the Company expects that
         the transactions processed through the Maxxis Switch will be Year 2000
         compliant by mid-December 1999, there is no assurance that the Company
         will be able to successfully address the Year 2000 problem with respect
         to the Maxxis Switch by mid-December 1999 or at all. The Company's
         failure to address this issue could result in serious financial harm
         due to the fact that the Company could lose a portion of or all of the
         revenues that would otherwise be obtained from traffic routed over the
         Maxxis Switch.

         The Company has conducted reviews to assess the extent to which the
         Company's internal systems and software and the network connections it
         maintains are adequately programmed to address the Year 2000 issue. In
         addition, the Company's ability to provide services and support to
         their customers and IAs depends upon the continued functioning of the
         software programs, operating systems and networking used by their
         vendors and suppliers. The Company is also assessing the extent to
         which their vendors and suppliers have successfully addressed the Year
         2000 problem. It currently is impossible for the Company to predict the
         potential expenditures that may be required or the delay or
         interruption in service that may result due to the Year 2000 problem.
         Based on these reviews, the Company expects to complete the necessary
         steps to address potential operating issues in connection with the Year
         2000 problem. Any failure by the Company or their vendors or suppliers
         to successfully address the Year 2000 problem could significantly
         interrupt business operations and have a material adverse effect on
         business, financial condition and results of operations. The Company
         has established certain contingency plans relative to their most
         critical operating procedures.



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 their 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 shall have 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 February 1997, the Company sold 1,227,265 shares of common stock to
         the founders of the Company at $.006 per share. 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 million. The note is guaranteed
         by the executive officer, bears interest at 8.75% per year, compounded
         annually, and is classified as a shareholder note receivable in the
         shareholders' equity section of the consolidated balance sheets.

         In August 1997, the Company completed a private placement offering for
         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 refund amounts
         to a subscriber at any time prior to the acceptance of the
         subscription. At


                                      F-16
<PAGE>   53

         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.
         100,000 shares of the Company's Preferred Stock have been designated as
         Series A. The Series A 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 shares of Common
         Stock, pursuant to the articles of incorporation, at any time beginning
         14 months after the date of issuance. As of June 30, 1998, all
         outstanding shares of the Preferred Stock were Series A.

         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


                                      F-17
<PAGE>   54

         exercisable. The Company recorded $37,000 of compensation expense for
         these options for the year ended June 30, 1999.

         In 1999, the Company adopted Statement of Financial Accounting
         Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
         for disclosure purposes. In accordance with disclosure requirements of
         SFAS No. 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 has been
         estimated as of the grant dates under the minimum value method using
         the following assumptions for 1999: a risk-free interest rate of
         approximately 4.65%, dividend yield of 0%, volatility of 0%, and
         expected life of six years. Using these assumptions, the fair value of
         the stock options at the dates of grant was $70,273. Pro forma
         compensation expense for the year ended June 30, 1999 would have been
         approximately $24,000.


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 each sales representative
         shall be eligible to receive quarterly payments of a performance bonus
         based on the achievement of targeted levels of performance. Unpaid
         bonuses are included in accrued compensation in the accompanying
         consolidated 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 positions 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 multi-level network marketing company with continuing
         operations in three reportable segments: communication services,
         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


                                      F-18

<PAGE>   55
         cards, 800 service, Internet access, web-page development and hosting
         services and international telecommunications service.

         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 group are general 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>
         Inception to June 30, 1997:
            Revenues                                  $ 2,322,000    $        0   $   369,000    $       0    $  2,691,000
            Gross profit                                1,561,000             0       114,000            0       1,675,000
            Depreciation and amortization                  32,000             0             0       22,000          54,000
            Operating income (loss)                        12,000             0        72,000     (158,000)        (74,000)
            Segment assets                                340,000             0       131,000      125,000         596,000
            Capital expenditures                          193,000             0             0      147,000         340,000

         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)     (1,180,000)
            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
</TABLE>

         SUBSEQUENT EVENT

         On October 12, 1999, the Company and the Lessor agreed that until
         December 31, 1999, the Company would use proceeds collected related to
         its communications receivable to make payments toward its monthly
         capital lease obligations. If the amount collected by the Company
         related to its communications receivable is less than the Company's
         monthly capital lease obligations, the Lessor has agreed to defer any
         shortfall to the end of the capital lease term.


                                      F-19