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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, 2001


                                       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: 0-31687


                               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 January 15, 2002 was $4,769,991. This calculation is based
upon a price of $5.50 per share, or the price per share of Common Stock sold
in the most recent private 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 1,814,743 shares of Common Stock issued and
outstanding as of January 15, 2002.

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                               INDEX TO FORM 10-K


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PART I

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

Item 2.       Properties..........................................................................................9

Item 3.       Legal Proceedings...................................................................................9

Item 4.       Submission of Matters to a Vote of Security Holders.................................................9

PART II

Item 5.       Market for Common Equity and Related Shareholder Matters............................................9

Item 6.       Selected Consolidated Financial Data...............................................................11

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

Item 7A.      Quantitative and Qualitative Disclosures About Market Risks........................................18

Item 8.       Financial Statements and Supplementary Data........................................................18

Item 9.       Changes in and Disagreements with Accountants in Accounting and Financial Disclosure...............18

PART III

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

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

Item 12.      Security Ownership of Certain Beneficial Owners and Management.....................................23

Item 13.      Certain Relationships and Related Transactions.....................................................24

PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................24

SIGNATURES.......................................................................................................27
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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 filings 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 $10,726,000 for our fiscal year ended June
30, 2001.

         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., or CRC, 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. Due to the competitive nature of the communications
market, however, our communications revenues have dropped significantly in the
past year.

         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 communications services through our
independent associates may also be potential customers for our nutritional and
health enhancement products and Internet-related services.

         Our products and services are marketed exclusively by our network of
independent associates. Our multi-level network marketing system and our
reliance upon independent associates are intended to reduce marketing costs,
customer acquisition costs and customer attrition. We believe that our
multi-level network marketing system creates 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
substantial 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.


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STRATEGY

         Our goal is to develop a national distribution system through which
our 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.

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

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

MAXXIS SWITCH

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

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

MARKETING

         We market products and services exclusively through our network of
independent associates. Currently, we have six independent associate positions
in our marketing system: associate; senior associate; director; regional
director; executive director; and presidential director. Independent associates
are paid only by commissions, and we do not pay them any salary. Independent
associate commissions are a specified percentage or a designated amount of the
gross proceeds received by us from the sale of our services and products. We
designate a portion of our gross sales as "commission value," or "CV," and
allocate the CV among eligible participants in our marketing system. Currently,
10% of the CV earned with respect to a long distance subscriber is paid monthly
to the independent associate who sponsored such subscriber, 57% of the CV is
paid monthly to eligible directors who have the independent associate who
sponsored the subscriber in their downline and an additional 28% is retained by
us to be paid out to regional directors, executive directors and presidential
directors in our performance bonus programs. All directors, executive
directors, regional directors and presidential directors who meet certain
performance criteria are eligible to receive additional performance bonuses.

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


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

RELATIONSHIP WITH INDEPENDENT ASSOCIATES

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

TRAINING AND MARKETING SUPPORT

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

         We intend to hold conventions for independent associates to:

         -        recognize the top performers,

         -        direct access to senior management,

         -        provide a chance for independent associates to share
                  experiences and develop support systems, and

         -        allow independent associates and potential independent
                  associates 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


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                  ("AT&T"), WorldCom, Inc. ("WorldCom") and Sprint Corporation
                  ("Sprint")). Our 1-Plus services are billed on a flat rate
                  basis, where the cost of a call does not vary depending upon
                  the distance of a call or the time of day or day of week when
                  the call is originated or terminated. Our residential 1-Plus
                  services are billed based on one minute increments, and
                  business 1-Plus service is billed based on 6-second
                  increments with a 30-second minimum.

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

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

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

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

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

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

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

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

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

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

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

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


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independent associate training and marketing materials. In addition, our order
processing system tracks the receipt, storage, shipment and sale of our sales
aid products.

SUPPLIERS

         Prior to 1999, we did not own a long distance network. As a result,
Maxxis Communications entered into the 1-Plus Agreement with CRC to allow our
independent associates to market CRC's telecommunications services. Subscribers
gathered by our independent associates were long distance customers on CRC's
network, and CRC provided subscriber support. Subscribers had the right to
change their service at any time. In January of 1999, we notified CRC of our
intent to terminate our 1-Plus agreement and begin a process of migrating our
customers to the Maxxis communications network. At that time, we entered into
an agreement with WorldCom to provide us with the necessary private lines,
circuits and other network services to be able to originate and terminate
telephone calls through the Maxxis Switch. In March 1999, we entered an
agreement with IXC Communications Services, Inc. to provide switched services
for carrying the portion of the Maxxis traffic that does not go through the
Maxxis Switch. A provision of our contract with IXC required a minimum monthly
commitment, which provision expired in September 2000. We would be required to
contract with other carriers if either the IXC or 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 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 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 2001, Maxxis Communications was primarily responsible
for the billing of long distance customers and for providing customer service.
Certain of our communications services, including 1-Plus long distance and
prepaid phone cards, are provided under IXC's or WorldCom's state, national and
international tariffs. We have been informed that IXC and WorldCom possess all
tariffs necessary to offer such services. After we received tariffs from
certain state authorities in April 1999, we assumed the responsibility for
billing long distance and customer service as we migrated customers from those
states onto the Maxxis communications network. We provide our Internet access
services through InteReach, which is responsible for billing certain Internet
access customers and for providing customer support.

COMPETITION

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

         Communications Services. The United States long distance
communications industry is intensely competitive, rapidly evolving and subject
to rapid technological change. In addition, the industry is significantly
influenced by the marketing and pricing practices of the major industry
participants. AT&T, 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


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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.

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


                                       6
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cost to and diversion of our resources, may also be necessary to enforce our
intellectual property rights or to defend us against claimed infringement of
the rights of others.

REGULATION

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

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

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

         The FCC generally has the authority to condition, modify, cancel,
terminate or revoke a carrier's authority to operate for failure to comply with
federal laws or FCC orders, rules, regulations or policies. Fines or other
penalties also may be imposed by such violations. The FCC has jurisdiction to
act upon complaints against any telecommunications carrier for failure to
comply with its statutory obligations. We cannot guarantee that the FCC or
third parties will not raise issues regarding our compliance with applicable
laws and regulations, which could have a material adverse effect on our
business, financial condition and operating results.

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

         State Regulation. IXC and Maxxis are subject to varying levels of
regulation in states in which each company provides long distance services. The
vast majority of states require long distance carriers to apply for
certificates to provide telecommunications services, or at least to register or
to be found exempt from regulation, before they may commence providing
intrastate long distance services. This authorization process generally
requires the carrier to demonstrate that it has sufficient financial, technical
and managerial capabilities and that granting the authorization will serve the
public interest. Also, a majority of states require long distance carriers to
file and to maintain detailed tariffs listing rates for intrastate services.
Many states also impose various reporting and fee requirements, including,
without limitation, state universal service requirements. State regulatory
agencies also generally require prior notice or approval for (i) transfers of
control of certificated carriers, (ii) sales or transfers of carrier assets,
including customer bases, (iii) carrier stock offerings and (iv) a


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carrier's incurrence of significant debt obligations. Certificates of authority
can generally be conditioned, modified, canceled, terminated or revoked by
state telecommunications regulatory agencies for failure to comply with state
laws and rules, regulations and regulatory policies. Fines and other penalties
may be imposed for such violations.

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

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

         The FTC and certain states regulate advertising, product claims and
other consumer matters, including advertising of our products. In the past
several years, the FTC has instituted enforcement actions against several
dietary supplement companies for false and misleading advertising of certain
products. In addition, the FTC has increased its scrutiny of the use of
testimonials. We cannot guarantee that the FTC will not question our
advertising or other operations. Moreover, we cannot guarantee that a state
will not interpret product claims presumptively valid under federal law as
illegal under that state's regulations. Furthermore, our independent associates
and customers may file actions on their own behalf, as a class or otherwise,
and may file complaints with the FTC or state or local consumer affairs
offices. These agencies may take action on their own initiative or on a
referral from independent associates, customers or others, including actions
resulting in entries of consent decrees and the refund of amounts paid by the
complaining independent associate or customer, refunds to an entire class of
independent associates or customers, or other damages, as well as changes in
our method of doing business. A complaint resulting from the 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 for 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


                                       8
<PAGE>


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 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 December 31, 2001, we employed approximately 30 people on a
full-time basis. Our IAs are classified as independent contractors. Our
employees are not unionized, and we believe our relationship with our employees
is good.

ITEM 2.  PROPERTIES

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

ITEM 3.  LEGAL PROCEEDINGS

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

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

         No matter was submitted to a vote of our security holders during the
fourth quarter of the year ended June 30, 2001.


                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         As of January 14, 2002, there were approximately 991 holders of our
Common Stock of record. There is no established trading market for the Common
Stock.

         From March, 2000 to May, 2000, we sold 992,022 shares of our Series A
Convertible Preferred Stock solely to accredited investors at a purchase 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.


                                       9
<PAGE>


         From October, 2000 to December, 2000 we sold 267,824 shares of common
stock solely to accredited investors at a purchase price of $5.50 per share.

         We issued the securities described above in reliance on one an
exemption from registration provided by Section 4(2) of the Securities Act and
Rule 506 promulgated thereunder. There were no underwriting discounts or
commissions involved with these sales. Recipients of securities in these
transactions represented their intention to acquire the securities for
investment purposes only and not with a view to or for the sale in connection
with any distribution of those securities, and we affixed appropriate legends
to the share certificates issued in those transactions. All recipients of these
securities had adequate access, through their relationships with us or
otherwise, to information about us.

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

         All outstanding shares of our Common Stock are entitled to share
equally in dividends from funds legally available therefor, when, as and if
declared by the Board of Directors. We have never declared or paid any
dividends on our Common Stock and do not plan to declare any dividends in the
immediate future.


                                      10
<PAGE>


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         The following table sets forth selected consolidated financial data
for the periods presented. The statement of operations data for the fiscal
years ended June 30, 1999, 2000 and 2001 and the balance sheet data as of June
30, 1999, 2000 and 2001 are derived from our audited consolidated financial
statements. The statement of operations data for the three months ended
September 30, 2000 and 2001 and the balance sheet data as of September 30, 2001
are derived from our unaudited consolidated financial statements. The
consolidated financial statements as of and for the year ended June 30, 2001
were audited by Cherry, Bekaert & Holland, L.L.P., independent public
accountants. The consolidated financial statements as of and for the years
ended June 30, 1999 and 2000 were audited by Arthur Andersen LLP, independent
public accountants. The selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
related notes thereto appearing elsewhere in this Report.


<TABLE>
<CAPTION>
                                           JAN. 24 TO
                                            JUNE 30,                                   YEAR ENDING JUNE 30,
                                              1997               1998              1999                2000              2001
                                          ------------       ------------       ------------       ------------      ------------

<S>                                       <C>                <C>                <C>                <C>               <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
   Communications services .........      $  2,322,000       $  5,293,000       $  8,416,000       $  9,646,000      $  4,375,000
   Nutritional products ............                --            526,000          1,371,000         17,003,000         2,851,000
   Marketing services ..............           369,000          1,172,000          2,557,000          2,484,000         3,500,000
                                          ------------       ------------       ------------       ------------      ------------
       Total net revenues ..........         2,691,000          6,991,000         12,344,000         29,133,000        10,726,000
                                          ------------       ------------       ------------       ------------      ------------

Cost of services:
   Communications services .........           761,000          1,351,000          2,166,000          5,292,000         3,014,000
   Nutritional products ............                --            294,000            662,000          3,403,000           813,000
   Marketing services ..............           255,000            431,000            947,000            519,000           699,000
                                          ------------       ------------       ------------       ------------      ------------
       Total cost of services ......         1,016,000          2,076,000          3,775,000          9,214,000         4,526,000
                                          ------------       ------------       ------------       ------------      ------------
Gross margin .......................         1,675,000          4,915,000          8,569,000         19,919,000         6,200,000
                                          ------------       ------------       ------------       ------------      ------------
Operating expenses:
   Selling and marketing ...........         1,089,000          2,665,000          5,373,000         11,827,000         2,721,000
   General and administrative ......           660,000          2,344,000          4,376,000          6,411,000         6,987,000
                                          ------------       ------------       ------------       ------------      ------------
       Total operating expenses ....         1,749,000          5,009,000          9,749,000         18,238,000         9,708,000
                                          ------------       ------------       ------------       ------------      ------------
Interest expense (income) ..........                --              2,000            356,000            648,000           448,000
                                          ------------       ------------       ------------       ------------      ------------
Loss before income tax benefit .....           (74,000)           (96,000)        (1,536,000)         1,033,000        (3,956,000)
Income tax benefit .................                --                 --                 --                 --                --
                                          ------------       ------------       ------------       ------------      ------------
Net (loss) income ..................      $    (74,000)      $    (96,000)      $ (1,536,000)      $  1,033,000      $ (3,956,000)
                                          ============       ============       ============       ============      ============

PER SHARE DATA:
Net (loss) income per share
   Basic ...........................      $      (0.05)      $      (0.06)      $      (0.96)      $       0.66      $      (2.33)
                                          ============       ============       ============       ============      ============
   Diluted .........................      $      (0.05)      $      (0.06)      $      (0.96)      $       0.56      $      (2.33)
                                          ============       ============       ============       ============      ============
Weighted average number of
shares outstanding
   Basic ...........................         1,571,187          1,571,187          1,594,387          1,563,092         1,700,237
                                          ============       ============       ============       ============      ============
   Diluted .........................         1,571,187          1,571,187          1,594,387          1,844,346         1,700,237
                                          ============       ============       ============       ============      ============

<CAPTION>
                                                THREE MONTHS ENDING
                                                    SEPTEMBER 30,
                                               2000               2001
                                           ------------       ------------

<S>                                        <C>                <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
   Communications services .........       $  1,057,000       $    965,000
   Nutritional products ............          1,259,000            462,000
   Marketing services ..............          1,022,000            648,000
                                           ------------       ------------
       Total net revenues ..........          3,338,000          2,075,000
                                           ------------       ------------

Cost of services:
   Communications services .........          1,032,000            561,000
   Nutritional products ............            362,000             97,000
   Marketing services ..............            137,000            198,000
                                           ------------       ------------
       Total cost of services ......          1,531,000            856,000
                                           ------------       ------------
Gross margin .......................          1,807,000          1,219,000
                                           ------------       ------------
Operating expenses:
   Selling and marketing ...........            881,000            660,000
   General and administrative ......          1,132,000          1,057,000
                                           ------------       ------------
       Total operating expenses ....          2,013,000          1,717,000
                                           ------------       ------------
Interest expense (income) ..........            206,000             (3,000)
                                           ------------       ------------
Loss before income tax benefit .....            (46,000)          (501,000)
Income tax benefit .................                 --                 --
                                           ------------       ------------
Net (loss) income ..................       $   (252,000)      $   (501,000)
                                           ============       ============

PER SHARE DATA:
Net (loss) income per share
   Basic ...........................       $      (0.16)      $      (0.28)
                                           ============       ============
   Diluted .........................       $      (0.16)      $      (0.28)
                                           ============       ============
Weighted average number of
shares outstanding
   Basic ...........................       $  1,546,919       $  1,814,743
                                           ============       ============
   Diluted .........................       $  1,546,919       $  1,814,743
                                           ============       ============
</TABLE>


<TABLE>
<CAPTION>
                                 JANUARY 24, 1997
                                    INCEPTION
                                       TO                                                                               AS OF
                                     JUNE 30,                               AS OF JUNE 30,                           SEPTEMBER 30,
                                      1997             1998             1999            2000            2001             2001
                                 ----------------   -----------     -----------      -----------     -----------     -------------

<S>                                <C>              <C>             <C>              <C>             <C>              <C>
BALANCE SHEET DATA:
Working capital ..............     $   (13,000)     $   180,000     $(1,942,000)     $ 2,641,000     $  (973,000)     $(1,066,000)
Property and equipment, net ..          92,000          169,000       5,842,000        5,000,000       4,742,000        4,650,000
Total assets .................         596,000        1,263,000       8,286,000       12,667,000       7,428,000        7,083,000
Long-term obligations ........              --               --       5,395,000        3,107,000       1,980,000        1,872,000
Shareholders' (deficit) equity         293,000          484,000      (1,014,000)       4,923,000       2,308,000        2,165,000
</TABLE>


                                      11
<PAGE>


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

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

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

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

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

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

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


                                      12
<PAGE>


         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>
                                                                                           THREE MONTHS ENDED
                                                 YEAR ENDED JUNE 30,                         SEPTEMBER 30,
                                         1999            2000            2001            2000            2001
                                         ----            ----            ----            ----            ----

<S>                                      <C>             <C>             <C>             <C>             <C>
Net revenues:
   Communications services ..             68%             33%             41%             32%             47%
   Nutritional products .....             11              58              27              38              22
   Marketing services .......             21               9              32              30              31
                                         ---             ---             ---             ---             ---
     Total net revenues .....            100%            100%            100%            100%            100%
                                         ===             ===             ===             ===             ===

Cost of services:
   Communications services ..             18%             18%             28%             31%             26%
   Nutritional products .....              5              12               8              11               5
   Marketing services .......              8               2               6               4              10
                                         ---             ---             ---             ---             ---
     Total cost of services .             31%             32%             42%             46%             41%

Operating expenses:
   Selling and marketing ....             44%             41%             25%             26%             32
   General and administrative             35              22              65              34              51%
                                         ---             ---             ---             ---             ---
     Total operating expenses             79%             63%             90%             60%             83%
                                         ===             ===             ===             ===             ===
</TABLE>


                                      13
<PAGE>


     THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH SEPTEMBER 30, 2000

         Net Revenues. Total net revenues are derived from sales of
communications services, nutritional products and marketing services. Total net
revenues decreased $1.3 million, or 38%, to $2.1 million for three months ended
September 30, 2001 from $3.4 million for the same period in 2000. The decrease
in total net revenues was primarily due to lower sales promotions related to
our communications, nutritional products and marketing services as well as
worse general economic conditions for the customers of our IAs.

         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 decreased $92,000, or 9%, to $965,000 for
three months ended September 30, 2001 from $1,057,000 for the same period in
2000. This decrease was primarily due to increased competition in the
communications services industry, which caused us to lose customers.

         Nutritional products revenues consist of sales of private label
nutritional products. Nutritional products revenues decreased $797,000, or 37%,
to $462,000 for three months ended September 30, 2001 from $1.3 million for the
same period in 2000. This decrease was primarily due to the elimination of
sales promotions related to nutritional products for the three months ending
September 30, 2001 compared to the number of sales promotions we offered for
the three months ending September 30, 2000.

         Marketing services revenues consist of application fees paid by
independent associates, purchases of sales aids by independent associates, and
registration fees related to annual summit marketing. Marketing services
revenues decreased $374,000, or 37%, to $648,000 for three months ended
September 30, 2001 from $1.0 million for the same period in 2000. This decrease
was due to a decrease in the number of new independent associates for the three
months ending September 30, 2001 compared to the three months ending September
30, 2000.

         Cost of Goods and Services. Cost of goods and services includes
communications services cost, nutritional products cost and marketing services
cost. Total cost of goods and services for the three months ending September
30, 2001 was $856,000, or 41% of total net revenues, as compared to $1.5
million, or 46% of total net revenues, for the same period in 2000. The
decrease in costs of goods and services as a percentage of total net revenues
was due to cost control measures in connection with our telecommunications
switch and better prices on the purchase of our nutritional products inventory.

         Communications services cost consisted primarily of the cost of
purchasing activated prepaid phone cards from WorldCom and other outside
vendors as well as the costs of operating the Maxxis Switch. Communications
services cost was $561,000, or 26% of total net revenues for the three months
ending September 30, 2001, as compared to $1.0 million, or 31% of total net
revenues, for the same period in 2000. This decrease in cost of communications
services was due primarily to better cost control measures and decreased sales
volume for the three months ending September 30, 2001. Nutritional products
cost was $97,000, or 5% of total net revenues for the three months ending
September 30, 2001, as compared to $362,000, or 11% of total revenues for the
comparable 2000 period. This decrease in the cost of nutritional products as a
percentage of total net revenues was due to better prices from our suppliers.
Marketing services cost was $198,000, or 10% of total net revenues for the
three months ending September 30, 2001, as compared to $137,000, or 4% of total
net revenues, for the same period in 2000. The increase in marketing services
cost as a percentage of total net revenues was due primarily to costs
associated with the introduction of new marketing products that we began to
offer for sale to our independent associates in the three months ending
September 30, 2001.

         Gross Margin. Gross margin decreased to $1.2 million for the three
months ending September 30, 2001 from $1.8 million for the same period in 2000.
As a percentage of total net revenues, gross margin was 59% for the three
months ending September 30, 2001 as compared to 54% for the three months ending
September 30, 2000.

         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 the three months ending September 30, 2001, selling and
marketing expenses were $660,000, or 32% of total net revenues, as compared
with $881,000, or 26% of total net revenues, for the same period in 2000. This
decrease was due to the decrease in the number of IAs as well as lower
commissions resulting from lower sales revenue. General and administrative
expenses were $1,057,000, or 51% of


                                      14
<PAGE>


total net revenues for the three months ending September 30, 2001, as compared
to $1,132,000, or 34% of total net revenues, for the same period in 2000. Total
operating expenses as a percentage of net revenue increased to 83% of net
revenues for the three months ending September 30, 2001 from 60% of net
revenues for the three months ending September 30, 2000 due to the large
portion of general and administrative expenses that are fixed in nature
relative to the decreased total net revenues for the three months ending
September 30, 2001.

         Interest Expense. For the three months ending September 30, 2001,
interest expense was $3,000. Interest expense of $206,000 for the three months
ending September 30, 2000 was largely comprised of interest costs related to
the lease of the Maxxis Switch.

         Net Income/Loss. Net loss for the three months ending September 30,
2001 was $501,000 as compared to a net loss of $252,000 for the three months
ending September 30, 2000.

     YEAR ENDED JUNE 30, 2001 COMPARED WITH YEAR ENDED JUNE 30, 2000

         Net Revenues. Total net revenues decreased $18.4 million, or 63%, to
$10.7 million for fiscal year ended June 30, 2001 from $29.1 million for the
same period in 2000. The decrease in total net revenues was primarily due to a
shift in our focus in fiscal year 2001 from offering sales promotions related
to our communications, nutritional products and marketing services to improving
our infrastructure.

         Communications services revenues decreased $5.2 million, or 55%, to
$4.4 million for fiscal 2001 from $9.6 million for the same period in 2000.
This decrease was primarily due to a decrease in our customer base for prepaid
phone cards and long distance and Internet services which, in turn, caused us
to eliminate certain revenue-generating communications services.

         Nutritional products revenues decreased $14.1 million, or 83%, to $2.9
million for fiscal 2001 from $17.0 million for fiscal 2000. This decrease was
primarily due to the elimination of sales promotions related to nutritional
products for fiscal 2001 compared to the large number of sales promotions we
offered in fiscal 2000.

         Marketing services revenues increased $1.0 million, or 41%, to $3.5
million for fiscal 2001 from $2.5 million for the same period in 2000. This
increase was due to an increase in the number of memberships being renewed by
current independent associates and the addition of new independent associates,
which, in turn, lead to an increase in application fees and purchases of sales
aids by new independent associates.

         Cost of Goods and Services. Total cost of goods and services for
fiscal 2001 was $4.5 million, or 42% of total net revenues, as compared to $9.2
million, or 32% of total net revenues, for the same period in 2000. The
increase in costs of goods and services as a percentage of total net revenues
was due to a sharp reduction in telecommunications and nutritional products
revenues without a comparable reduction in costs because of the largely fixed
cost nature of our communications cost of services.

         Communications services cost was $3.0 million, or 28% of total net
revenues, for fiscal 2001, as compared to $5.3 million, or 18% of total net
revenues, for the same period in 2000. This decrease in cost of communications
services was due primarily to decreased sales volume. Nutritional products cost
was $0.8 million or 8% of total net revenues for fiscal 2001 as compared to
$3.4 million, or 12% of total revenues for the comparable 2000 period. This
decrease in the cost of nutritional products was due primarily to decreased
sales volume. Marketing services cost was $813,000, or 7% of total net
revenues, for fiscal 2001, as compared to $519,000, or 2% of total net
revenues, for the same period in 2000. The increase in marketing services cost
as a percentage of total net revenues was due primarily to costs associated
with the introduction of new marketing products that we began to offer for sale
to our independent associates in fiscal year 2001.

         Gross Margin. Gross margin decreased to $6.2 million for fiscal 2001
from $19.9 million for the same period in 2000. As a percentage of total net
revenues, gross margin was 58% for fiscal 2001 as compared to 68% for fiscal
2000.

         Operating Expenses. For fiscal 2001, selling and marketing expenses
were $2.7 million, or 25% of total net revenues, as compared with $11.8
million, or 41% of total net revenues, for the same period in 2000. This
decrease was due to the decrease in the number of IAs as well as lower
commissions resulting from lower sales revenue. General and


                                      15
<PAGE>


administrative expenses were $6.9 million, or 65% of total net revenues for
2001, as compared to $6.4 million, or 22% of total net revenues, for the same
period in 2000. General and administrative expenses increased as a percentage
of total revenues in fiscal 2001 due to the write-off of $1 million for
receivables that we deemed were uncollectible and our purchase for $1.1 million
of a downline from the Maxxis Millionaire Society, a Georgia partnership in
which Ivey Stokes, our Chairman, Chief Executive Officer and President, and
Alvin Curry, our Chief Operating Officer, are partners. Total operating
expenses as a percentage of net revenue increased to 91% of net revenues for
fiscal 2001 from 63% of net revenues for fiscal 2000.

         Interest Expense. For the year ended June 30, 2001, interest expense
was $448,000. The expense was largely comprised of interest costs related to
the lease of the Maxxis Switch. Interest expense of $616,000 in fiscal 2000 was
largely comprised of interest cost related to the lease of the Maxxis Switch.

         Net Income/Loss. Net Loss for fiscal 2001 was $4.0 million as compared
to a net income of $1.0 million for the same period in 2000.

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

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

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

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

         Marketing services revenues decreased $73,000, or 3%, to $2.5 million
for fiscal 2000 from $2.6 million for the same period in 1999. This decrease
was due to the decrease in the number of new IAs.

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

         Communications services cost was $5.3 million, or 18% of total net
revenues, for fiscal 2000, as compared to $2.2 million, or 18% of total net
revenues, for the same period in 1999. Nutritional products cost was $3.4
million or 12% of total net revenues for fiscal 2000 as compared to $662,000,
or 5% of total revenues for the comparable 1999 period. This increase in the
cost of nutritional products was due primarily to increased sales volume.
Marketing services cost was $519,000, or 2% of total net revenues, for fiscal
2000, as compared to $947,000, or 8% of total net revenues, for the same period
in 1999. The decrease in marketing services cost as a percentage of total net
revenues was due primarily to an increase in overall sales and better control
of expenses.

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

         Operating Expenses. For fiscal 2000, selling and marketing expenses
were $11.8 million, or 41% of total net revenues, as compared with $5.4
million, or 44% of total net revenues, for the same period in 1999. This
decrease as a percentage of revenue was due to greater efficiency resulting
from increased revenues. General and administrative expenses were $6.4 million,
or 22% of total net revenues for 2000, as compared to $4.4 million, or 35% of
total net revenues, for the same period in 1999. General and administrative
expenses increased as a percentage of total revenues in fiscal 2000 due to
higher legal and other expenses incurred in connection with the filing of
tariffs in various states to offer


                                      16
<PAGE>


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

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

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

SEASONALITY

         We have historically experienced, and expect to continue to
experience, significant seasonal fluctuations in the recruitment of its IAs and
the sale of our products and services. Our operating results may vary
significantly in the future, partly due to such seasonal fluctuations. 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.

LIQUIDITY AND CAPITAL RESOURCES

         From March, 2000 to May, 2000, we sold 992,022 shares of Series A
Convertible Preferred Stock solely to accredited investors at a purchase price
of $5.50 per share.

         From October, 2000 to December, 2000, we sold 267,824 shares of common
stock solely to accredited investors at a purchase price of $5.50 per share.

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

         On November 22, 1998, we entered into a line of credit with the Maxxis
Millionaire Society, a Georgia partnership in which Ivey Stokes, our Chairman,
Chief Executive Officer and President, and Alvin Curry, our Chief Operating
Officer, are partners. The line of credit was amended on May 1, 1999. Pursuant
to the line of credit, Maxxis may borrow up to $2,000,000 at 10% annual
interest. Advances or interest thereon pursuant to the line of credit are
payable on demand. As of June 30, 2001, there were no advances or accrued
interest outstanding on this 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.

         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 our operations and borrowings and equity financings to
fund our operations, we may need to raise additional capital. In addition, any
increases in our growth rate, shortfalls in anticipated revenues, increases in
expenses or significant acquisitions could have a material adverse effect on
our liquidity and capital resources and could require us to raise

                                      17
<PAGE>


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
2001 and beyond will be dependent on our level of IA and customer growth and
the related capital expenditures, advertising costs and working capital needs
necessary to support such growth. We believe that major capital expenditures
may be necessary over the next few years to develop additional product lines to
sell through our IAs and to develop and/or acquire information, accounting
and/or inventory control systems to monitor and analyze our growing multi-level
network marketing system.

         For 2001, net cash used in operating activities was $4.1 million,
compared to net cash provided by operating activities of $2.7 million for 2000.
Operating activities for 2001 consisted primarily of a $4.0 million net loss
and $180,000 in net adjustments to reconcile net income to operating cash
flows, which net adjustments consisted primarily of $1.0 million of non-cash
depreciation and amortization and $1.0 million in non-cash provisions for
doubtful receivables offset by decreases in accrued compensation of $742,000,
accrued expenses of $460,000 and deferred revenue of $516,000.

         Cash used in investing activities was $738,000 for 2001, as compared
to $617,000 for 2000. Investing activities for 2001 consisted of capital
expenditures of $738,000.

         Cash provided from financing activities was $155,000 for 2001, as
compared to $2.7 million for 2000. Financing activities for 2001 consisted
primarily of 1.2 million in proceeds from the sale of common stock offset by
payments totaling $1.0 million on the lease obligation.

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, 1999, 2000 and 2001 and consolidated statements
of operations, shareholders' equity (deficit) and cash flows for each of these
years, together with the report of Cherry, Bekaert & Holland, L.L.P. dated
December 21, 2001 and the report of Arthur Andersen LLP, dated September 22,
2000 are included on pages F-1 through F-8 of this Report.

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

         On August 14, 2001, we dismissed the firm of Arthur Andersen LLP as
our independent auditors. The decision to dismiss Arthur Andersen was
authorized by the board of directors.

         The reports of Arthur Andersen on our financial statements for the
past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles.

         In connection with the audits of our financial statements for the
fiscal year ended June 30, 2000 and June 30, 1999, and during any subsequent
interim period preceding the dismissal of Arthur Andersen, there were no
disagreements with Arthur Andersen on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Arthur Andersen, would have
caused Arthur Andersen to make reference to the matter in their report.

         During the fiscal years ended June 30, 2000 and June 30, 1999, and
during any subsequent interim period preceding the dismissal of Arthur
Andersen, there were no "reportable events" to describe as specified in Item
304(a)(1)(v) of Regulation S-K.


                                      18
<PAGE>


         On October 12, 2001, we engaged the firm of Cherry, Bekaert & Holland,
L.L.P. as our independent auditors for the fiscal year ending June 30, 2001, to
audit our financial statements. During our two most recent fiscal years and the
subsequent interim period preceding the engagement of Cherry, Bekaert &
Holland, we did not consult with Cherry, Bekaert & Holland on any matter
requiring disclosure under Item 304(a)(2) of Regulation S-K.


                                      19
<PAGE>


                                    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 December 31,
2001.


<TABLE>
<CAPTION>
                                                                                                             TERM AS
                                                                                                             DIRECTOR
NAME                                      AGE                           POSITION                             EXPIRES
----                                      ---                           --------                             -------

<S>                                        <C>   <C>                                                         <C>
Ivey J. Stokes........................     42    Chairman of the Board of Directors, Chief Executive           2001
                                                 Officer, and President
Alvin Curry...........................     45    Chief Operating Officer and Director                          2001
DeChane Cameron.......................     32    Chief Financial Officer                                         --
Larry W. Gates, II....................     38    Vice President, Secretary, and Director                       2002
Henry Steve Johnson...................     53    Director                                                      2001
David Finkelstein.....................     43    Director                                                      2002
Sandra Jordan.........................     50    Director                                                      2003
George Steinberger....................     64    Director                                                      2003
Robert James Glover, Jr...............     40    Director                                                      2002
Terry Harris..........................     46    Director                                                      2003
</TABLE>

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

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

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


                                      20
<PAGE>


         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.

         HENRY STEVE JOHNSON has served as a director since July, 2001. Mr.
Johnson has served as an independent associate with us since March of 1997. Mr.
Johnson has a Master's degree from the University of Michigan.

         DAVID FINKELSTEIN has served as a director since July, 2001. During
the last five years, Mr. Finkelstein has served as a marketer and educator with
respect to home based business industries. Mr. Finkelstein received a Bachelor
of Arts in Business from Michigan State University.

         SANDRA JORDAN has served as a director since July, 2001. Ms. Jordan
has served as a professor of law at the University of Pittsburgh school of law
since 1989 and is currently a tenured professor. Ms. Jordan received her Juris
Doctor degree in 1979 from the University of Pittsburgh school of law and
received her Bachelor of Science in Education from Wilbeforce University.

         GEORGE STEINBERGER has served as a director since July, 2001. Mr.
Steinberger served as a Vice President and Manager of Washington Federal
Savings from 1987-1998, and was a member of the advisory board of the Salem
Housing Authority from 1993 to 1998. Mr. Finkelstein attended the University of
Oregon.

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

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

COMMITTEES OF THE BOARD

         The Executive Committee of our Board of Directors exercises, during
the interval between Board meetings, all of the powers of our Board of
Directors with certain limitations. During the year ended June 30, 2001, there
were no meetings of our Executive Committee.

         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, 2001, the Audit Committee was composed of Terry
Harris, Charles Bernstein and Phil Lundquist. However, following the
re-composition of our board of directors, our Audit Committee is currently
composed of Terry Harris, David Finkelstein and George Steinberger. Messrs.
Harris, Finkelstein and Steinberger are responsible for the review of the
effectiveness of our financial and accounting functions, organization,
operations and management for the financials as of and for the year ended June
30, 2001.

         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,
2001, there were no meetings of our Compensation Committee.

         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


                                      21
<PAGE>


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, 2001, our Board of Directors held one
meeting. All of our directors have attended 75% or more of the aggregate of all
Board meetings and all meetings of committees of which they were members.

ITEM 11. EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

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

EXECUTIVE COMPENSATION

         The following Summary Compensation Table sets forth the compensation
earned by our Chief Executive Officer during the years ended June 30, 2001,
2000 and 1999. No other executive officers received a combined salary and bonus
in excess of $100,000 during the years ended June 30, 2000 and 2001.

                           SUMMARY COMPENSATION TABLE


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

<S>                                                <C>                               <C>            <C>
Ivey J. Stokes................................     Fiscal 2001                        $104,000          $ 0
Chief Executive Officer and President              Fiscal 2000                        $104,000          $ 0
                                                   Fiscal 1999                        $104,000          $ 0

Alvin Curry...................................     Fiscal 2001                        $ 85,000          $ 0
Chief Operating Officer
</TABLE>

---------

(1)      In October 2000, we purchased a downline from the Maxxis Millionaire
Society for $1.1 million. Ivey Stokes, our Chief Executive Officer and Alvin
Curry, our Chief Operating Officer, are partners in the Maxxis Millionaire
Society.

OPTION GRANTS DURING FISCAL 2001

         As of June 30, 2001, no options had been granted to our Chief
Executive Officer during the year ended June 30, 2001.

EMPLOYMENT AGREEMENT

         In September 1999, 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 eligible to receive quarterly payments of a
performance bonus which is a percentage of total revenue from Maxxis 2000. To
be paid a bonus, a sales representative must have 180 new activations in a
quarter. The bonus amount is then determined by the number of open centers in
that quarter. The bonus ranges from 1% to 5% based on Production. Each sales
representative


                                      22
<PAGE>


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.

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 December 31, 2001 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             35.1%
King David Trust(d)......................................................        454,545             25.0
Cynthia Glover, trustee(e)...............................................        181,818             10.0
Steve Johnson............................................................
                                                                                   3,636                *
Sandra Jordan............................................................          4,000               --
Larry W. Gates, II.......................................................         45,454              2.5
Robert J. Glover(f)......................................................             --               --
Terry Harris.............................................................          3,636                *
Ivey J. Stokes(g)........................................................             --               --
David Finkelstein........................................................          3,075                *
George Steinberger.......................................................          4,000                *
All directors and executive officers as a group
   (10 persons)(c) - (g).................................................        883,982             48.7
</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.

(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 December 31, 2001. As used herein, "voting power"
         is the power to vote or direct the voting of shares and "investment
         power" is the power to dispose or direct the disposition of shares.

(c)      Includes 454,545 shares owned by the King David Trust of which Mr.
         Curry, a director of, is the trustee. Mr. Curry disclaims beneficial
         ownership of such shares.

(d)      All such shares are owned by the King David Trust of which Mr. Curry
         is the trustee and Mr. Stokes' minor children are the beneficiaries.
         Mr. Stokes, the Chairman of the Board, disclaims beneficial ownership
         of such shares.

(e)      All such shares are owned by Cynthia Glover, trustee, U/A Louise
         Glover dated January 10, 1997. Ms. Glover is the wife of Robert J.
         Glover, a director. Mr. Glover is the sole beneficiary and disclaims
         beneficial ownership of such shares. In addition, Ms. Glover disclaims
         beneficial ownership of such shares.

(f)      Excludes 181,818 shares owned by Cynthia Glover, trustee, U/A Louise
         Glover dated January 10, 1997 of which Mr. Glover is the sole
         beneficiary. Mr. Glover disclaims beneficial ownership of such shares.

(g)      Excludes 454,545 shares owned by the King David Trust of which Mr.
         Stokes' minor children are the beneficiaries. Mr. Stokes disclaims
         beneficial ownership of such shares.


                                      23
<PAGE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In October 2000, we purchased a downline from the Maxxis Millionaire
Society for $1.1 million. Ivey Stokes, our Chief Executive Officer and Alvin
Curry, our Chief Operating Officer, are partners in the Maxxis Millionaire
Society.

         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.

         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.

         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 are filed as a part of
         this Report and are attached hereto as pages F-1 through F-30:

                  Consolidated Balance Sheets as of June 30, 2000 and 2001

                  Consolidated Statements of Operations for the Years Ended
                  June 30, 1999, 2000 and 2001

                  Consolidated Statements of Changes in Shareholders' Equity
                  for the Years Ended June 30, 1999, 2000 and 2001 Consolidated

                  Statements of Cash Flows for the Years Ended June 30, 1999,
                  2000 and 2001 Notes to Consolidated Financial Statements

                  Condensed Consolidated Balance Sheet as of September 30, 2001
                  (unaudited)

                  Consolidated Statements of Operations for the three months
                  ending September 30, 2001 and September 30, 2000 (unaudited)

                  Consolidated Statements of Cash Flows for the three months
                  ending September 30, 2001 and September 30, 2000 (unaudited)

(A)(2)   FINANCIAL STATEMENT SCHEDULES


                                      24
<PAGE>


(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*             Form of Independent Sales Representative Agreement by and between the Company and certain of its
                  sales representatives.
10.3*             Software License Agreement between Summit V. Inc., a subsidiary of Jenkon International, Inc. and the
                  Company dated February 2, 1997.
10.4*             Software Service Agreement between Summit V. Inc., a subsidiary of Jenkon International, Inc. and the
                  Company dated February 2, 1997.
10.5*             Equipment Purchase Agreement between Summit V. Inc., a subsidiary of Jenkon International, Inc. and the
                  Company dated February 2, 1997.
10.6*             Agreement for 1-Plus Services between Colorado River Communications Corporation and the Company
                  dated February 20, 1997.+
10.7*             Sublease Agreement between DowElanco and the Company dated February 14, 1997.
10.8*             Warehouse lease between Malon D. Mimms and the Company dated March 17, 1997.
10.9*             Warehouse lease between Malon D. Mimms and the Company dated June 23, 1997.
10.10*            Sub-Sublease Agreement between the Company and Simons Engineering, Inc. dated September 1, 1997.
10.11**           Maxxis Group, Inc. 1998 Stock Option Plan.
10.12**           Lease Amendment Agreement dated June 5, 1998 among Malon D. Mimms, the Company and Richard Bowers & Co.
10.13**           Lease Amendment Agreement dated August 14, 1998 among Malon D. Mimms, the Company and Richard Bowers & Co.
10.14#            Software Purchase Agreement between UsefulWare Incorporated and the Company dated as of August 13, 1998.+
10.15#            Asset Purchase Agreement by and among Cherry Communications Incorporated ("Cherry"), World Access, Inc.
                  ("World Access") and the Company dated as of September 29, 1998.
10.16#            Promissory Note by the Company in favor of Cherry dated September 29, 1998.
10.17#            Security Agreement between the Company and World Access dated as of September 29, 1998.
10.18#            Software License Agreement between Alcatel USA Marketing, Inc. and the Company dated as of September 29, 1998.
10.19#            Sublease between Cherry and the Company dated as of September 30, 1998.
10.20#            Master Lease Agreement between Rockford Industries, Inc. and the Company dated as of September 29, 1998
                  (World Access).
10.21#            Master Lease Agreement between Rockford Industries, Inc. and the Company dated as of September 29, 1998
                  (NACT Telecommunications, Inc.).
10.22##           Line of Credit between the Company and the Maxxis Millionaire Society dated as of November 22, 1998.
10.23##           Investment Agreement between InteReach Internet Services, LLC and the Company dated as of December 8, 1998.
10.24##           Virtual ISP Agreement between InteReach Internet Services, Inc. and the Company dated as of December 8, 1998.
10.25###          Digital Services Agreement between Worldcom Network Services, Inc. and the Company dated as of January 21, 1999
</TABLE>


                                      25
<PAGE>


<TABLE>
<S>               <C>
10.26+###         Telecommunications Services Agreement between Worldcom Network Services, Inc. and the Maxxis Communications
                  dated as of January 21, 1999.
10.27###          Program Enrollment Terms to the Telecommunications Services Agreement dated as of January 21, 1999
                  between Worldcom Network Services, Inc. and the Maxxis Communications.
10.28+###         Master Service Agreement between IXC Communications Services, Inc. and the Company dated as of March 25, 1999.
10.29###          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).
</TABLE>

---------

*        Incorporated by reference to the Company's Registration Statement on
         Form S-1 (Registration No. 333-38623).

**       Incorporated by reference to the Company's Form 10-K for the year
         ended June 30, 1998 as filed with the Commission on September 25,
         1998.

#        Incorporated by reference to the Company's Form 109-Q for the quarter
         ended September 30, 1998 as filed with the Commission on November 12,
         1998.

##       Incorporated by reference to the Company's Form 10-Q for the quarter
         ended December 31, 1998 as filed with the Commission on February 16,
         1999.

###      Incorporated by reference to the Company's Form 10-K for the year
         ended June 30, 1999 as filed with the Commission on October 13, 2000.

+        Confidential treatment has been requested for certain confidential
         portions of this exhibit pursuant to Rule 406 under the Securities
         Act. In accordance with Rule 406, these confidential portions have
         been omitted from this exhibit and filed separately with the
         Commission.

(B)      REPORTS ON FORM 8-K

         Form 8-K filed August 20, 2001

         Filing under Item 4 regarding the dismissal of the firm Arthur
         Andersen, LLP as our independent auditors.


         Form 8-K filed October 17, 2001

         Filing under Item 4 regarding the engagement of Cherry, Bekaert &
         Holland, L.L.P. as our independent auditors.


                                      26
<PAGE>


                                   SIGNATURES

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


                                    MAXXIS GROUP, INC.


February 14, 2002                   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 DECHANE CAMERON, and each one of them, his attorneys-in-fact, each
with the power of substitution, for him in any and all capacities, to sign any
and all amendments to this Annual Report (Form 10-K) and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact, or his substitute or substitutes, may do or cause
to be done by virtue hereof.

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


February 14, 2002                   /s/ Ivey J. Stokes
                                    -------------------------------------------
                                    Ivey J. Stokes
                                    Chairman of the Board, Chief Executive
                                    Officer and President
                                    (Principal executive officer)


February 14, 2002                   /s/  DeChane Cameron
                                    -------------------------------------------
                                    DeChane Cameron
                                    Chief Financial Officer
                                    (Principal financial and accounting
                                    officer)


                                    -------------------------------------------
                                    Steve Johnson
                                    Director


February 14, 2002                   /s/ Larry W. Gates, II
                                    -------------------------------------------
                                    Larry W. Gates, II
                                    Vice President, Secretary, and Director


                                    -------------------------------------------
                                    Sandra Jordan
                                    Director


                                      27
<PAGE>


                                    /s/ Alvin Curry
                                    -------------------------------------------
February 14, 2002                   Alvin Curry
                                    Chief Operating Officer and Director


February 14, 2002                   /s/ Robert J. Glover, Jr.
                                    -------------------------------------------
                                    Robert J. Glover, Jr.
                                    Director


February 14, 2002                   /s/ Terry Harris
                                    -------------------------------------------
                                    Terry Harris
                                    Director


                                    -------------------------------------------
                                    David Finkelstein
                                    Director


                                    -------------------------------------------
                                    George Steinberger
                                    Director


                                      28
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                 Page
                                                                                                                 ----
<S>                                                                                                              <C>
Independent Auditor's Report ............................................................................         F-2

Report of Independent Public Accountants ................................................................         F-3

Consolidated Balance Sheets as of June 30, 1999, 2000 and 2001 ..........................................         F-4

Consolidated Statements of Operations for the Years Ended June 30, 1999, 2000 and 2001 ..................         F-5

Consolidated Statements of Changes in Shareholders' Equity for the Years Ended June 30, 1999, 2000 and
     2001 ...............................................................................................         F-6

Consolidated Statements of Cash Flows for the Years Ended June 30, 1999, 2000 and 2001 ..................         F-7

Notes to Consolidated Financial Statements ..............................................................         F-9

Condensed Consolidated Balance Sheet as of September 30, 2001 (unaudited) ...............................        F-28

Consolidated Statements of Operations for the three months ending September 30, 2001 and September 30,
     2000 (unaudited) ...................................................................................        F-29

Consolidated Statements of Cash Flows for the three months ending September 30, 2001 and September 30,
     2000 (unaudited) ...................................................................................        F-30
</TABLE>


                                      F-1
<PAGE>

                 [Cherry, Bekaert & Holland, L.L.P. letterhead]

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Maxxis Group, Inc. and Subsidiaries
Tucker, Georgia

We have audited the accompanying consolidated balance sheet of Maxxis Group,
Inc. and Subsidiaries as of June 30, 2001 and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. 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 audit.

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

In our opinion, the 2001 financial statements referred to above present fairly,
in all material respects, the financial position of Maxxis Group, Inc. and
Subsidiaries as of June 30, 2001 and the results of their operations and their
cash flows for the year ended June 30, 2001 in conformity with accounting
principles generally accepted in the United States.


/s/ Cherry, Bekaert & Holland, L.L.P.

Atlanta, Georgia
January 31, 2002


                                      F-2
<PAGE>

                              [Andersen letterhead]

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Maxxis Group, Inc. and Subsidiaries:

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

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

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

/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Atlanta, Georgia
September 22, 2000


                                      F-3
<PAGE>

                       MAXXIS GROUP, INC AND SUBSIDIARIES

                           Consolidated Balance Sheets
                             June 30, 2001 and 2000

<TABLE>
<CAPTION>
                                                Assets

                                                                                 2001              2000
                                                                              ----------        -----------
<S>                                                                           <C>               <C>
CURRENT ASSETS
   Cash and cash equivalents                                                  $  148,000        $ 4,867,000
   Accounts receivable, net of allowance for doubtful
   accounts of $484,000 and $931,000 in 2001 and
    2000, respectively                                                           341,000          1,081,000
   Inventories, net                                                            1,402,000          1,093,000
   Prepaid expenses and other current assets                                     276,000            237,000
                                                                              ----------        -----------


       TOTAL CURRENT ASSETS                                                    2,167,000          7,278,000
                                                                              ----------        -----------

Property and Equipment, net                                                    4,742,000          5,000,000
                                                                              ----------        -----------

Capitalized Software Development Costs, net                                      396,000            358,000
                                                                              ----------        -----------


Other Assets                                                                     123,000             31,000
                                                                              ----------        -----------


  TOTAL ASSETS                                                                $7,428,000        $12,667,000
                                                                              ==========        ===========

<CAPTION>

                             Liabilities and Shareholders' Equity (Deficit)


                                                                                 2001              2000
                                                                              ----------        -----------
<S>                                                                           <C>               <C>
CURRENT LIABILITIES
   Line of Credit                                                             $       --        $    65,000
   Accounts payable                                                            1,001,000            814,000
   Commissions payable                                                           114,000            160,000
   Accrued compensation                                                           14,000            756,000
   Sales tax payable                                                             316,000            177,000
   Accrued expenses                                                              100,000            813,000
   Current maturities of capital lease obligations                             1,233,000            974,000
   Deferred revenue                                                              362,000            878,000
                                                                              ----------        -----------

    TOTAL CURRENT LIABILITIES                                                  3,140,000          4,637,000
                                                                              ----------        -----------

Contracts                                                                        110,000                 --
Long-term capital lease obligations                                            1,870,000          3,107,000
                                                                              ----------        -----------

       TOTAL LONG-TERM LIABILITIES                                             1,980,000          3,107,000
                                                                              ----------        -----------

Commitments and Contingencies

SHAREHOLDERS' EQUITY (DEFICIT):
   Preferred stock, no par value; 10,000,000 shares
       authorized, 1,000,000 shares
       designated as Series A Convertible Preferred
       Stock, 992,002 and 992,814 Series A Convertible
       Preferred stock shares issued and outstanding 2001
       and 2000, respectively                                                  4,976,000          5,141,000
   Common Stock, no par value; 20,000,000 shares
       authorized, 1,814,743 and 1,546,919 shares issued and
       outstanding in 2001 and 2000, respectively                              1,818,000            455,000
     Subscription receivable                                                     143,000                 --
   Accumulated deficit                                                        (4,629,000)          (673,000)
                                                                              ----------        -----------

       TOTAL SHAREHOLDERS' EQUITY (DEFICIT)                                    2,308,000          4,923,000
                                                                              ----------        -----------

       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                   $7,428,000        $12,667,000
                                                                              ==========        ===========
</TABLE>

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


                                      F-4
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

                      Consolidated Statements of Operations
                For the years ended June 30, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                                                   2001                2000                1999
                                                               ------------         -----------        ------------
<S>                                                            <C>                  <C>                <C>
Net Revenues
  Communications services                                      $  4,375,000         $ 9,646,000        $  8,416,000
  Nutritional products                                            2,851,000          17,003,000           1,371,000
  Marketing services                                              3,500,000           2,484,000           2,557,000
                                                               ------------         -----------        ------------
    Total Net Revenues                                           10,726,000          29,133,000          12,344,000
                                                               ------------         -----------        ------------

Cost of Goods and Services Sold
  Communications services                                         3,014,000           5,292,000           2,166,000
  Nutritional products                                              813,000           3,403,000             662,000
  Marketing services                                                699,000             519,000             947,000
                                                               ------------         -----------        ------------

    Total Cost of Goods and Services Sold                         4,526,000           9,214,000           3,775,000
                                                               ------------         -----------        ------------

Gross Margin                                                      6,200,000          19,919,000           8,569,000
                                                               ------------         -----------        ------------

Operating Expenses
  Selling and marketing                                           2,721,000          11,827,000           5,373,000
  General and administrative                                      6,987,000           6,411,000           4,376,000
                                                               ------------         -----------        ------------
    Total Operating Expenses                                      9,708,000          18,238,000           9,749,000
                                                               ------------         -----------        ------------

Interest and Other Expenses
  Interest expense                                                  448,000             616,000             338,000
  Other expense                                                          --              32,000              18,000
                                                               ------------         -----------        ------------
    Total Interest and Other Expenses                               448,000             648,000             356,000
                                                               ------------         -----------        ------------

Income (Loss) Before Income Taxes                                (3,956,000)          1,033,000          (1,536,000)

Income Taxes                                                             --                  --                  --
                                                               ------------         -----------        ------------

Income (Loss)                                                  $ (3,956,000)        $ 1,033,000        $ (1,536,000)
                                                               ============         ===========        ============

Income (Loss) Per Share:
  Basic                                                        $      (2.33)        $      0.66        $      (0.96)
                                                               ============         ===========        ============
  Diluted                                                      $      (2.33)        $      0.56        $      (0.96)
                                                               ============         ===========        ============

Weighted Average Number of Shares:
  Basic                                                           1,700,237           1,563,092           1,594,387
                                                               ============         ===========        ============
  Diluted                                                         1,700,237           1,844,346           1,594,387
                                                               ============         ===========        ============

Effect of change in accounting estimate:
  Increase net income                                          $    776,000         $        --        $         --
                                                               ============         ===========        ============
  Increase income per share                                    $       0.46         $        --        $         --
                                                               ============         ===========        ============
</TABLE>

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


                                      F-5
<PAGE>

                       MAXXIS GROUP, INC AND SUBSIDIARIES

           Consolidated Statements of Shareholders' Equity (Deficit)
               For the years ended June 30, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                                                Preferred Stock                      Common Stock
                                                          --------------------------         ----------------------------
                                                           Shares           Amount            Shares             Amount
                                                          -------         ----------         ---------         ----------
<S>                                                       <C>             <C>                <C>               <C>
Balance, June 30, 1998                                     36,359         $  200,000         1,573,196         $  574,000

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

Balance, June 30, 1999                                     36,359            200,000         1,619,646            612,000

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

Balance, June 30, 2000                                    992,814          5,141,000         1,546,919            455,000

Subscriptions received                                         --                 --                --                 --
Acquisition of preferred stock                               (812)          (165,000)               --                 --
Issuance of common stock, net                                  --                 --           267,824          1,363,000
Net Loss                                                       --                 --                --                 --
                                                          -------         ----------         ---------         ----------

Balance June 30, 2001                                     992,002         $4,976,000         1,814,743         $1,818,000
                                                          =======         ==========         =========         ==========

<CAPTION>

                                                         Shareholder
                                                             Note           Accumulated       Subscription
                                                          Receivable          Deficit          Receivable          Total
                                                         -----------        -----------       ------------      -----------
<S>                                                       <C>               <C>                 <C>             <C>
Balance, June 30, 1998                                    $(120,000)        $  (170,000)        $     --        $   484,000

Issuance of common stock, net of
  issuance expenses                                              --                  --               --              1,000
Compensation expense for stock
  option issuance                                                --                  --               --             37,000
Net Loss                                                         --          (1,536,000)              --         (1,536,000)
                                                          ---------         -----------         --------        -----------

Balance, June 30, 1999                                     (120,000)         (1,706,000)              --         (1,014,000)

Issuance of preferred stock, net of
  issuance expenses                                              --                  --               --          5,164,000
Reaquisition of note receivable
  with common stock                                         120,000                  --               --                 --
Acquisition of preferred stock                                   --                  --               --           (223,000)
Forfeited stock options                                          --                  --               --            (37,000)
Net Income                                                       --           1,033,000               --          1,033,000
                                                          ---------         -----------         --------        -----------

Balance, June 30, 2000                                           --            (673,000)              --          4,923,000

Subscriptions received                                           --                  --          143,000            143,000
Acquisition of preferred stock                                   --                  --               --           (165,000)
Issuance of common stock, net                                    --                  --               --          1,363,000
Net Loss                                                         --          (3,956,000)              --         (3,956,000)
                                                          ---------         -----------         --------        -----------

Balance June 30, 2001                                     $      --         $(4,629,000)        $143,000        $ 2,308,000
                                                          =========         ===========         ========        ===========
</TABLE>

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


                                      F-6
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

                  Consolidated Statements of Cash Flows For the
                    years ended June 30, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                                                                 2001                2000                1999
                                                                              -----------         -----------         -----------
<S>                                                                           <C>                 <C>                 <C>
Cash Flows From Operating Activities
Net Income                                                                    $(3,956,000)        $ 1,033,000         $(1,536,000)
Adjustments to reconcile net income (loss) to net cash provided by
  (used in) operating activities:
    Depreciation and amortization                                               1,046,000           1,461,000             501,000
    Write-off of investment in internet service provider                               --             100,000                  --
    Stock compensation expense                                                         --             (37,000)             37,000
    Provision for doubtful receivables, and writeoffs                           1,040,000             427,000              73,000
    Changes in operating assets and liabilities
      Accounts receivable and communications receivable                          (300,000)            (39,000)         (1,226,000)
      Inventories                                                                (309,000)           (739,000)           (136,000)
      Prepaid expenses and other assets                                          (219,000)           (127,000)            (87,000)
      Commissions payable                                                         (46,000)           (303,000)            362,000
      Accounts payable                                                            187,000            (404,000)          1,007,000
      Accrued compensation                                                       (742,000)            536,000              66,000
      Sales tax payable                                                           139,000            (140,000)            187,000
      Accrued expenses                                                           (460,000)            385,000             300,000
      Deferred revenue                                                           (516,000)            548,000             275,000
                                                                              -----------         -----------         -----------
        Total adjustments                                                        (180,000)          1,668,000           1,359,000
                                                                              -----------         -----------         -----------

        Net cash provided by (used in) operating activities                    (4,136,000)          2,701,000            (177,000)
                                                                              -----------         -----------         -----------

Cash Flows From Investing Activities
  Capital expenditures                                                           (738,000)           (627,000)           (641,000)
  Investment in Internet service provider                                              --                  --            (100,000)
  Liquidation of short-term investments                                                --              10,000                  --
                                                                              -----------         -----------         -----------

        Net cash used in investing activities                                    (738,000)           (617,000)           (741,000)
                                                                              -----------         -----------         -----------
</TABLE>


                                      F-7
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

               Consolidated Statements of Cash Flows (continued)
               For the years ended June 30, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                                                                 2001                2000                1999
                                                                              -----------         -----------         -----------
<S>                                                                           <C>                 <C>                 <C>
Cash Flows From Financing Activities
  Net proceeds from issuance and acquisition of stock                           1,198,000           5,164,000                  --
  Net borrowings (payments) on line of credit                                     (65,000)         (1,325,000)          1,390,000
  Payments on lease obligations                                                  (978,000)           (853,000)           (825,000)
  Repurchase of preferred stock                                                        --            (223,000)                 --
  Proceeds from issuance of common stock                                               --                  --               1,000
                                                                              -----------         -----------         -----------

        Net cash provided by financing activities                                 155,000           2,763,000             566,000
                                                                              -----------         -----------         -----------

Net Increase (Decrease) in Cash                                                (4,719,000)          4,847,000            (352,000)

Cash and Cash Equivalents, Beginning of Year                                    4,867,000              20,000             372,000
                                                                              -----------         -----------         -----------

Cash and Cash Equivalents, End of Year                                        $   148,000         $ 4,867,000         $    20,000
                                                                              ===========         ===========         ===========

Supplemental Cash Flow Disclosures:
  Cash paid for interest                                                      $   448,000         $   578,000         $        --
                                                                              ===========         ===========         ===========

  Cash paid for income taxes                                                  $        --         $        --         $        --
                                                                              ===========         ===========         ===========
</TABLE>

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


                                      F-8
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                          June 30, 2001, 2000 and 1999

NOTE 1 ORGANIZATION AND PRESENTATION

       Description of Business and Operations

       Maxxis Group, Inc., a Georgia corporation, was incorporated on January
       24, 1997 ("Inception") and is headquartered in Tucker, Georgia. Maxxis
       Group, Inc.'s principal business operations are carried out through its
       wholly owned subsidiaries, Maxxis 2000, Inc. and Maxxis Telecom, Inc.,
       which began operations in March 1997, and Maxxis Nutritionals, Inc.,
       which began operations in December 1997. Maxxis Group, Inc., together
       with its wholly owned subsidiaries (collectively referred to as the
       "Company"), was founded for the purpose of selling communications
       products and 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
       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's ability to manage its growth and expansion will require it
       to implement and continually expand its operational and financial
       systems, recruit additional employees, train and manage both current and
       new employees, and expand the level of IAs. Growth may place a
       significant strain on the Company's operational resources and systems,
       and failure to effectively manage growth would have a material effect on
       the Company's business. For the year ended June 30, 2001, the Company
       incurred a net loss of approximately $4.0 million and experienced net
       cash used in operations of approximately $4.1 million. In addition, the
       Company's ratio of current assets to current liabilities was .64 at June
       30, 2001. These matters may indicate doubt regarding the Company's
       ability to continue as a going-concern. To address these issues
       management of the Company has implemented financial control plans to
       effectively manage the Company's cost structure and to enhance the
       Company's customer base. The ability of the Company to continue is
       dependent upon the success of management's plans.


                                      F-9
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Principles of Consolidation

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

       Revenue Recognition

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

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

       In February 1999, the Company entered into an agreement to lease
       telephone switching equipment (the "Maxxis Switch"). The Maxxis Switch
       provided the Company with the ability to directly provide long-distance
       services. In March 1999 ("March Agreement") the Company entered into an
       agreement with two independent tariffed long-distance suppliers to
       provide for additional capacity for


                                      F-10
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       Revenue Recognition (continued)

       telecommunications traffic that is not routed through the Maxxis Switch.
       In April 1999, the Company began transferring its existing long-distance
       customers from the Reseller's network to the Maxxis Switch and began
       routing traffic through the long-distance suppliers under the March
       Agreement. In addition, the Maxxis Switch began carrying traffic related
       to the Company's prepaid phone cards (the "Switch Phone Cards").

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

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

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

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

       Deferred Revenue

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


                                      F-11
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       Costs of Goods and Services Sold

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

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

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

       Selling and Marketing Expenses

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

       General and Administrative Expenses

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

       Concentrations of Risks

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

       The Company markets a line of private label nutritional products. All of
       the nutritional products offered and distributed by the Company are
       developed and


                                      F-12
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       Concentrations of Risks (continued)

       manufactured by third party suppliers. Certain nutritional products the
       Company offers are proprietary to such suppliers. The Company does not
       have any written contracts or commitments from any of these suppliers or
       manufacturers. There can be no assurance that these suppliers will
       continue to be reliable suppliers to the Company.

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

       Use of Estimates

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

       Cash and Cash Equivalents

       The Company maintains cash accounts in several financial institutions in
       the Atlanta area. Balances with a specific institution may at times
       exceed insured amounts. The Company considers all highly liquid
       investment and deposit accounts with an original maturity of three months
       or less to be cash equivalents.

       Communications Receivable

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

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


                                      F-13
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       Communications Receivable (continued)

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

       Accounts Receivable

       A summary of changes in the allowance for doubtful accounts for the years
       ended June 30, 2001, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                          2001               2000             1999
                                                      -----------         ---------         --------
      <S>                                             <C>                 <C>               <C>
      Balance, beginning of year                      $   931,000         $ 189,000         $     --
             Provisions                                 1,069,000           927,000          189,000
             Recoveries                                        --                --               --
             Write-offs                                (1,516,000)         (185,000)              --
                                                      -----------         ---------         --------
      Balance, end of year                            $   484,000         $ 931,000         $189,000
                                                      ===========         =========         ========
</TABLE>

       Inventories

       Inventories consist of the following as of June 30, 2001 and 2000.

<TABLE>
<CAPTION>
                                                       2001               2000
                                                    ----------        ----------
      <S>                                           <C>               <C>
      Prepaid phone cards                           $  104,000        $  133,000
      Sales aids                                       741,000           310,000
      Nutritional products                             557,000           650,000
                                                    ----------        ----------
                                                    $1,402,000        $1,093,000
                                                    ==========        ==========
</TABLE>

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

       Property and Equipment

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


                                      F-14
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       Property and Equipment (continued)

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

       Income Taxes

       The Company accounts for income taxes in accordance with Statement of
       Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
       Taxes," which requires that deferred income taxes be provided based on
       the estimated future tax effects of differences between 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.

       Income/(Loss) Per Share

       The Company calculates earnings per share in accordance with SFAS No.
       128, "Earnings Per Share", which requires the computation of (loss)/
       income per share on both a basic and diluted basis. Basic (loss)/income
       per share is determined using the weighted average number of shares of
       outstanding common stock over the course of the fiscal year. Diluted
       (loss)/income per share is computed using the weighted average number of
       common stock and share equivalents outstanding considering the dilutive
       effects of outstanding stock options and warrants as determined using the
       treasury stock method and convertible equity securities using the "if
       converted" method. All outstanding options and warrants issued by the
       Company carry exercise prices which are equal to the current market value
       of the Company's common stock; therefore, they have no dilutive effect to
       (loss)/ earnings per share for the years ended June 30, 2001, 2000 and
       1999. The Series A Convertible Preferred Stock is assumed converted at
       the later of the date the shares were issued or the beginning of the
       period in the determination of diluted weighted average shares.

       Capitalized Software Development Costs

       Certain software development costs pertaining to a software application
       which is used internally for processing applications and for customer
       service have been


                                      F-15
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       Capitalized Software Development Costs (continued)

       capitalized as incurred. Capitalization of software development cost
       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 estimated
       useful life of three years, and amortization expenses were approximately
       $50,000, $185,000, and $136,000 for the years ended June 30, 2001, 2000,
       and 1999.

       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 values
       because of the short-term nature of such instruments. The carrying value
       of the Company's debt approximates fair value because the terms of the
       Company's debt approximate terms currently available on similar debt.

NOTE 3 PROPERTY AND EQUIPMENT

       Property and equipment consisted of the following at June 30, 2001 and
       2000:

<TABLE>
<CAPTION>
                                                              2001                2000
                                                          -----------         -----------
<S>                                                       <C>                 <C>
      Computer and office equipment, and other            $ 1,354,000         $   644,000
      Capital leases                                        5,759,000           5,759,000
      Furniture and fixtures                                  178,000             177,000
      Leasehold improvements                                  131,000              98,000
      Construction in progress                                     --               6,000
                                                          -----------         -----------
                                                            7,422,000           6,684,000
      Less: Accumulated depreciation                       (2,680,000)         (1,684,000)
                                                          -----------         -----------
      Property and equipment, net                         $ 4,742,000         $ 5,000,000
                                                          ===========         ===========
</TABLE>

       Depreciation expense was $996,000, $1,276,000, and $365,000 for the years
       ended June 30, 2001, 2000, and 1999.


                                      F-16
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 4 CAPITAL LEASE OBLIGATIONS

       On September 29, 1998, the Company entered into certain leases for
       telephone switching equipment, which are classified as capital lease
       obligations. Payments on the lease are due in monthly installments of
       $118,000 and carry an imputed rate of interest of approximately 12%.
       These leases expire in 2004 and contain purchase options which are
       exercisable at the end of the original lease terms. The capital lease
       obligation is secured by the intangible and tangible assets of the
       Company. Assets financed under capital leases are included in property
       and equipment. Depreciation expense on the assets under capital lease was
       approximately $329,000 for the year ending June 30, 2001.

       Maturities of capital lease obligations for the years subsequent to June
       30, 2001 are as follows:

<TABLE>
       <S>                                                          <C>
       2002                                                         $ 1,416,000
       2003                                                           1,416,000
       2004                                                             706,000
                                                                    -----------
                                                                      3,538,000
      Less: Amounts representing interest                              (435,000)
                                                                    -----------
                                                                      3,103,000
      Less: Current maturities                                       (1,233,000)
                                                                    -----------
      Long-term capital lease obligations                           $ 1,870,000
                                                                    ===========
</TABLE>

       During the year ended June 30, 2001, the Company, in evaluating the
       estimated useful life of the telephone switching equipment, determined
       that the appropriate estimated useful life of the asset will now be
       approximately fifteen years. Prior to 2001, the Company was depreciating
       the asset over an estimated useful life of five years. The Company has
       accounted for the change in the estimated useful life as a change in
       accounting estimate.

NOTE 5 INCOME TAXES

       The Company's deferred tax assets and liabilities are as follows as of
       June 30, 2001 and 2000:


                                      F-17
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 5 INCOME TAXES (CONTINUED)

<TABLE>
<CAPTION>
                                                      2001               2000
                                                  -----------         ---------
      <S>                                         <C>                 <C>
      Property and equipment                      $  (146,000)        $(146,000)
      Organizational costs                                 --             7,000
      Net operating losses                          1,723,000           397,000
      Valuation allowance                          (1,577,000)         (258,000)
                                                  -----------         ---------
      Net deferred tax assets                     $        --                --
                                                  ===========         =========
</TABLE>

       Based on uncertainties associated with the future realization of deferred
       tax assets, the Company established a valuation allowance against the net
       deferred tax assets of the Company. At June 30, 1999, the Company had net
       operating loss carryforwards of approximately $1,719,000, of which
       $674,000 was utilized in 2000. At June 30, 2001 the Company has a total
       net operating loss carryforward of approximately $5,000,000 that 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>
                                                         2001               2000               1999
                                                      -----------         ---------         ---------
      <S>                                             <C>                 <C>               <C>
      Tax (benefit) computed at                                                                     $
        statutory rate                                 (1,121,000)        $ 339,000         $(522,000)
      State income taxes (benefit)                       (198,000)           39,000           (61,000)
      Nondeductible expenses                                   --             4,000             3,000
      Change in valuation allowance                     1,319,000          (382,000)          580,000
                                                      -----------         ---------         ---------
      Income tax (benefit)                            $        --         $      --         $      --
                                                      ===========         =========         =========
</TABLE>

NOTE 6 LINE OF CREDIT

       On November 22, 1998, the Company entered into a line of credit (the
       "Line of Credit") with the Maxxis Millionaire Society, a Georgia
       partnership in which certain members of the Company's management are
       partners. The Line of Credit was amended on May 1, 1999. Pursuant to the
       Line of Credit, the Company may borrow up to $2,000,000 at 10% annual
       interest. Advances or interest thereon pursuant to the Line of Credit are
       payable on demand. As of June 30, 2001 there were no advances or accrued
       interest outstanding on this line of credit.


                                      F-18
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 7 COMMITMENTS AND CONTINGENCIES

       Operating Leases

       The Company leases certain office equipment and office space under
       operating leases. For the years ended June 30, 2001, 2000 and 1999 the
       Company's total rental expenses were approximately $150,000 to $200,000,
       annually.

       Minimum lease payments under noncancelable leases for the years
       subsequent to June 30, 2001 are as follows:

<TABLE>
       <S>                                                              <C>
       2002                                                             $216,000
       2003                                                              185,000
                                                                        --------
                                                                        $401,000
                                                                        ========
</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 any currently existing such matters will not have
       a material adverse effect on the Company's financial position, liquidity,
       or results of operations.

       Telecom Service Agreements

       The Company entered into agreements for telecommunications services with
       two independent tariffed long-distance providers (collectively, the
       "Suppliers" or individually, the "Supplier") in January 1999 (the
       "January Agreement") and March 1999 (the "March Agreement"). Under the
       March Agreement, the Company is obligated to purchase a minimum monthly
       amount of telecommunications services.

       Employee 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


                                      F-19
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 7 COMMITMENTS AND CONTINGENCIES (CONTINUED)

       Employee Agreements (continued)

       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 of the Company shall establish from time to time.
       The chief executive officer Employment Agreement provided for an
       additional bonus payment on July 1, 1999 and 2000. All unpaid bonuses are
       included in accrued compensation in the accompanying balance sheets.

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

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

       Relationship with IAs

       Because IAs are classified as independent contractors and not as
       employees of the Company, the Company does not provide them with the same
       level of direction and oversight as Company employees. While the Company
       has policies and rules in place governing the business conduct of IAs and
       intends to review periodically the sales practices of its IAs, it may be
       difficult to enforce such policies and rules.


                                      F-20
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 7 COMMITMENTS AND CONTINGENCIES (CONTINUED)

       Relationship with IAs (continued)

       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 suppliers' 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 statues or regulations as a result of, among other things,
       misconduct by IAs, over whom the Company has limited control; the
       ambiguous nature of certain of the regulations; and the considerable
       interpretive and enforcement discretion given to regulators. Any
       assertion or determination that the Company or IAs are not in compliance
       with existing statues 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.

NOTE 8 SHAREHOLDER'S 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


                                      F-21
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 8 SHAREHOLDERS' EQUITY (CONTINUED)

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

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

       In August 1997, the Company completed a private placement of shares of
       common stock at a price of $1.65 per share. Potential investors were
       required to complete subscription agreements for the common stock and to
       submit cash at the date of subscription. The Company reserved the right
       to reject a subscription and to refund amounts to a subscriber at any
       time prior to the acceptance of the subscription. At June 30, 1997, the
       Company had received paid subscriptions for 218,181 shares of common
       stock. 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 to one share of
       common stock ("Common Stock"). All share, per share, and weighted average
       share information in the financial statements prior to this has been
       restated and now reflects this stock split and reorganization.


                                      F-22
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 8 SHAREHOLDERS' EQUITY (CONTINUED)

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

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

       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
       statement. 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 exercisable price of $-0- per
       share. The options vest based on time as defined in the option agreement.
       As of June 30, 1999, 3,410 of these options were vested and exercisable.
       The Company recorded $37,000 of compensation expense for these options
       for the year ended June 30,


                                      F-23
<PAGE>

                      MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 8 SHAREHOLDERS' EQUITY (CONTINUED)

       1999. During fiscal year 2000, all 62,543 of these options were cancelled
       upon termination of the employee, to whom the options were granted,
       resulting in the reversal of previously recorded compensation expense.
       During the year ended June 30, 2000 the Company granted 119,781 stock
       options at an exercise price of $5.50 per option. The options expire
       within 10 years from the date of grant and vest over periods from
       immediate vesting to 10 years.

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

       In 1999, the Company adopted the disclosure provision of SFAS No. 123,
       "Accounting for Stock-Based Compensation." In accordance with provisions
       of SFAS 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
       determined utilizing the Black-Scholes method using the following
       assumptions for 2001 and 2000, respectively: a risk-free interest rate of
       approximately 6.43% and 6.43%, dividend yield of 0%, volatility of 50%
       and 50%, and an expected life of five years. Using these assumptions, the
       fair value of the stock options issued at the date of grant was $0 and
       $55,387 for 2001 and 2000, respectively. Pro forma compensation expense
       for the years ended June 30, 2001 and 2000 would have been $40,000 and
       $71,926, respectively. For options outstanding at June 30, 2001 the
       weighted average exercise price was $5.50 and the weighted average
       remaining contractual life was 9 years. At June 30, 2001, 115,481 options
       were vested and exercisable.

       From March, 2000 to May, 2000, the Company sold 992,022 shares of Series
       A Convertible Preferred Stock solely to accredited investors at a
       purchase price of $5.50 per share.

       From October, 2000 to December, 2000, the Company sold 267,824 shares of
       common stock solely to accredited investors at a purchase price of $5.50
       per share.


                                      F-24
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 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 minimum weekly compensation, and quarterly payments of a
       bonus based on the achievement of targeted levels of performance. Unpaid
       bonuses are included in accrued compensation in the accompanying balance
       sheets. Each sales representative is an independent contractor, and the
       Company does not exercise control over the activities of the sales
       representatives other than as set forth in the Sales Representative
       Agreements.

       Each of the Sales Representative Agreements has a term of one year, and
       the term renews daily until either party fixes the remaining term of 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 a
       sales representative is a director or officer of the Company or any of
       its affiliates, the sales representative shall tender his resignation to
       such position effective as of the termination date. Under the Sales
       Representative Agreements, each sales representative agrees to maintain
       the confidentiality of the Company's trade secrets and confidential
       business information.

NOTE 10 RELATED PARTY TRANSACTION

       During the year ended June 30, 2001 the Company acquired from the Maxxis
       Millionaire Society, (a related party), certain business lines of the
       Maxxis Millionaire Society that were established through the Company. The
       Company paid approximately $1.1 million for the acquisition of the
       business lines.

NOTE 11 SEGMENT REPORTING

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


                                      F-25
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                          June 30, 2001, 2000 and 1999

NOTE 11 SEGMENT REPORTING (CONTINUED)

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

       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 training services.

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

       The Company's segment reporting is as follows on the next page:


                                      F-26
<PAGE>

                      MAXXIS GROUP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)
                         June 30, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                             Communications     Nutritional       Marketing         Corporate
                                                Services          Products         Services           Group              Total
                                             -------------------------------------------------------------------------------------
<S>                                          <C>                <C>              <C>               <C>               <C>
Year ended June 30, 1999:
Revenues                                      $ 8,416,000       $ 1,371,000      $ 2,557,000       $        --       $ 12,344,000
Gross Profit                                    6,250,000           709,000        1,610,000                --          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

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

Year ended June 30, 2001:
Revenues                                        4,375,000         2,851,000        3,500,000                --         10,726,000
Gross Profit                                    1,361,000         2,038,000        2,801,000                --          6,200,000
Depreciation and amortization                     870,000             3,000           19,000           154,000          1,046,000
Operating income (loss)                        (1,491,000)        1,313,000         (670,000)       (2,660,000)        (3,508,000)
Segment assets                                  1,966,000         3,425,000          646,000         1,391,000          7,428,000
Capital expenditures                              464,000            41,000          105,000           128,000            738,000
</TABLE>


                                      F-27
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                       ASSETS

                                                                                    September 30, 2001     June 30, 2001
                                                                                    ------------------     -------------
                                                                                        (unaudited)          (audited)
<S>                                                                                 <C>                    <C>
CURRENT ASSETS:
             Cash and equivalents                                                       $   126,000         $   148,000
             Accounts Receivable, net of allowance of $1,089,000                            399,000             341,000
             Inventories, net                                                             1,330,000           1,402,000
             Prepaid expenses                                                               251,000             276,000
             Other current assets                                                                --                  --
                                                                                        -----------         -----------
               Total Current Assets                                                       2,106,000           2,167,000


Property and Equipment,  net                                                              4,650,000           4,742,000
Capitalized software development costs, net                                                 204,000             396,000
Other assets                                                                                123,000             123,000
                                                                                        -----------         -----------
             TOTAL ASSETS                                                               $ 7,083,000         $ 7,428,000
                                                                                        ===========         ===========


                                        LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

             Accounts payable                                                           $ 1,196,000         $ 1,001,000
             Commissions payable                                                             24,000             114,000
             Accrued  Compensation                                                           49,000              14,000
             Taxes payable                                                                  246,000             316,000
             Accrued liabilities                                                            108,000             100,000
             Current maturities of long term leases                                       1,233,000           1,233,000
             Deferred revenue                                                               316,000             362,000
                                                                                        -----------         -----------
               Total Current Liabilities                                                  3,172,000           3,140,000
                                                                                        -----------         -----------

LONG TERM LIABILITIES

             Line of Credit                                                                      --                  --
             Contracts                                                                      264,000             110,000
             Long term lease obligations                                                  1,608,000           1,870,000
                                                                                        -----------         -----------
               Total Long Term  Liabilities                                               1,872,000           1,980,000
                                                                                        -----------         -----------

SHAREHOLDERS' EQUITY
             Preferred stock, no par value; 10,000,000 shares
               authorized, 1,000,000 shares designated as Series A
               Convertible Preferred Stock, of which 992,022 shares are
               issued and outstanding                                                   $ 4,976,000         $ 4,976,000
             Common stock, no par value; 20,000,000 shares authorized,
               of which 1,810,743 and 1,814,743 shares were issued and
               outstanding at September 30, and June 30, 2001, respectively               1,796,000           1,818,000
             Subscription receivable                                                        397,000             143,000
             Treasury Stock, at cost                                                                                 --
             Accumulated earnings (deficit)                                              (5,130,000)         (4,629,000)
                                                                                        -----------         -----------
               Total Shareholders' equity                                                 2,039,000           2,308,000
                                                                                        -----------         -----------


             TOTAL LIABILITIES & STOCKHOLDERS EQUITY                                    $ 7,083,000         $ 7,428,000
                                                                                        ===========         ===========

</TABLE>


                                      F-28
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                         THREE MONTHS ENDED
                                                                                                   SEP. 30, 2000      SEP. 30, 2001
                                                                                                   -------------      -------------
<S>                                                                                                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

               NET EARNINGS (LOSS)                                                                  $  (252,000)        $(501,000)
               Adjustments to reconcile net loss to net cash provided by operating activities
               Write-off investment in internet service provider                                             --
                   Depreciation and Amortization                                                        176,000           284,000
                   Provision for doubtful receivables                                                                      18,000
                   Compensation expense related to stock options                                             --                --
                   Changes in Assets and Liabilities
                     Communications receivables                                                              --                --
                     Accounts Receivable                                                                (15,000)          (58,000)
                     Inventories                                                                       (725,000)           72,000
                     Prepaid expenses                                                                    66,000            25,000
                     Other assets                                                                        37,000                --
                     Accounts payable                                                                  (383,000)          407,000
                     Commissions payable                                                                (88,000)          (90,000)
                     Taxes payable                                                                      (94,000)          (70,000)
                     Accrued compensation and accrued liabilities                                    (1,695,000)           43,000
                     Deferred Revenue                                                                  (174,000)          (46,000)
                                                                                                    -----------         ---------
                         Total adjustments                                                           (2,895,000)          585,000
                                                                                                    -----------         ---------
                         NET CASH PROVIDED BY OPERATING ACTIVITIES                                   (3,147,000)           84,000
                                                                                                    -----------         ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
               Capital expenditures                                                                          --           (92,000)
               Software development costs                                                               (49,000)         (192,000)
                                                                                                    -----------         ---------
                     NET CASH USED BY INVESTING ACTIVITIES                                              (49,000)         (284,000)
                                                                                                    -----------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
               Proceeds from the sale of common stock                                                   493,000                --
               Repurchase of Common Stock                                                                    --           (22,000)
               Proceeds from Sale of Customer Base                                                           --           408,000
               Payments on purchase of treasury stock                                                        --                --
               Net borrowings (payments) on Line of Credit                                              (65,000)               --
               Payments on capital lease obligations                                                   (239,000)         (208,000)
                                                                                                    -----------         ---------
                     NET CASH PROVIDED BY FINANCING ACTIVITIES                                          189,000           178,000
                                                                                                    -----------         ---------


NET INCREASE (DECREASE) IN CASH EQUIVALENTS                                                          (3,007,000)          (22,000)

CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD                                                    4,867,000           148,000
                                                                                                    -----------         ---------

CASH AND CASH EQUIVALENTS, END OF THE PERIOD                                                        $ 1,860,000         $ 126,000
                                                                                                    ===========         =========

SUPPLEMENTAL CASH FLOW DISCLOSURES:

               Cash Paid for Interest                                                                        --         $  57,000
</TABLE>


                                      F-29
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES
                         CONSOLIDATED INCOME STATEMENTS
                               THREE MONTHS ENDED
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                             Sept. 30, 2000      Sept. 30, 2001
                                                             --------------      --------------
<S>                                                          <C>                 <C>
REVENUES
  Telecommunication services                                   $ 1,057,000         $   965,000
  Nutritional Products                                           1,259,000             462,000
  Marketing services                                             1,022,000             648,000
                                                               -----------         -----------
         Total revenues                                          3,338,000           2,075,000

COST OF SERVICES
  Telecommunication services                                     1,032,000             561,000
  Nutritional Products                                             362,000              97,000
  Marketing services                                               137,000             198,000
                                                               -----------         -----------
       Total cost of services                                    1,531,000             856,000

          GROSS MARGIN                                           1,807,000           1,219,000

OPERATING EXPENSES
  Selling and marketing                                            881,000             660,000
  General and Administrative                                     1,132,000           1,057,000
                                                               -----------         -----------
          Total operating expenses                               2,013,000           1,717,000
                                                               -----------         -----------
OPERATING INCOME                                                  (206,000)           (498,000)

Interest Income  (Expense)                                         (46,000)             (3,000)

INCOME (LOSS)  BEFORE TAXES                                       (252,000)           (501,000)
                                                               -----------         -----------

PROVISION FOR TAXES                                                     --                  --
                                                               -----------         -----------

NET INCOME (LOSS)                                              $  (252,000)        $  (501,000)
                                                               ===========         ===========

NET INCOME (LOSS) PER SHARE                                    $     (0.16)        $     (0.28)
                                                               ===========         ===========

WEIGHTED AVERAGE NUMBER OF SHARES
AND SHARE AND EQUIVALENTS OUTSTANDING                            1,546,919           1,810,743
                                                               ===========         ===========
</TABLE>


                                      F-30