<PAGE>

                                  UNITED STATES
                       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, 2003

         [ ] 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 0-28579

                               NOVO NETWORKS, INC.
             (Exact Name of Registrant as Specified in Its Charter)

           DELAWARE                                             75-2233445
(State or Other Jurisdiction of                              (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

                       2311 CEDAR SPRINGS ROAD, SUITE 400
                               DALLAS, TEXAS 75201
                    (Address of Principal Executive Offices)

                                  214.777.4100
              (Registrant's Telephone Number, Including Area Code)

Securities Registered Pursuant To Section 12(b)   Name of Each Exchange on Which
                   of the Act:                               Registered:
                      NONE                                      NONE

          Securities Registered Pursuant to Section 12(g) of the Act:
                   COMMON STOCK, PAR VALUE $0.00002 PER SHARE
                                (Title of Class)

         Indicate by a 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 a 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 in Part III of this Form 10-K or any
amendment to this Form 10-K.[X]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

         The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant on the last business day of the
registrant's most recently completed second fiscal quarter (December 31, 2002)
was $2,442,000.

         As of September 29, 2003, 52,323,701 shares of our common stock, par
value $0.00002, were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

PART III -- Incorporated by reference to our proxy statement to be mailed or
sent to securities holders on or about October 27, 2003.

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                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<S>                                                                                       <C>
INTRODUCTORY STATEMENTS
         Necessary Definitions..........................................................     3

         Forward-Looking Statements.....................................................     3

PART I
         ITEM 1.      Business..........................................................     4

         ITEM 2.      Properties........................................................    12

         ITEM 3.      Legal Proceedings.................................................    12

         ITEM 4.      Submission of Matters to a Vote of Security Holders...............    13

PART II
         ITEM 5.      Market for Registrant's Common Equity and Related Stockholder
                         Matters........................................................    14

         ITEM 6.      Selected Financial Data...........................................    15

         ITEM 7.      Management's Discussion and Analysis of Financial Condition and
                         Results of Operation...........................................    16

         ITEM 7A.     Quantitative and Qualitative Disclosures About Market Risk........    24

         ITEM 8.      Financial Statements and Supplementary Data.......................    24

         ITEM 9.      Changes in and Disagreements with Accountants on Accounting and
                         Financial Disclosure...........................................    24

         ITEM 9A.     Controls and Procedures...........................................    24

PART III
         ITEM 10.     Directors and Executive Officers of the Registrant................    25

         ITEM 11.     Executive Compensation............................................    25

         ITEM 12.     Security Ownership of Certain Beneficial Owners and Management
                         and Related Stockholder Matters................................    25

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

         ITEM 14.     Principal Accountant Fees and Services............................    25

PART IV
         ITEM 15.     Exhibits, Financial Statement Schedules, and Reports
                        on Form 8-K.....................................................    25

SIGNATURES..............................................................................    35
</TABLE>

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                             INTRODUCTORY STATEMENTS

NECESSARY DEFINITIONS

         Novo Networks, Inc. is a holding company incorporated under the laws of
the State of Delaware that is registered under the Securities Exchange Act of
1934. Throughout this Annual Report, we refer to Novo Networks, Inc. as "Novo
Networks," "we," "us" and "our." All of our operating subsidiaries (except
Internet Global Services, Inc.), which previously provided telecommunications
services, have filed voluntary petitions for protection under Chapter 11 of the
United States Bankruptcy Code. Internet Global Services filed a voluntary
petition for protection under Chapter 7 of the United States Bankruptcy Code. We
refer to these subsidiaries collectively as our "debtor subsidiaries" throughout
this Annual Report. Currently, we own a minority interest in Paciugo Management,
LLC and Ad Astra Holdings LP and related entities. These entities own and manage
a gelato manufacturing, retailing and catering business operated under the brand
name "Paciugo." We refer to this interest as the "Paciugo interest" throughout
this Annual Report.

FORWARD-LOOKING STATEMENTS

         "Forward-looking" statements appear throughout this document. These
statements are an attempt by us to predict future events. We have based these
forward-looking statements on our current expectations and projections about
future events. The important factors listed in the section entitled "Business
Considerations," as well as all other cautionary language in this Annual Report,
provide examples of risks, uncertainties and events that may cause actual
results to differ materially from the expectations described in these
"forward-looking" statements. You should be aware that the occurrence of the
events described in these considerations and elsewhere in this Annual Report
could have an adverse effect on the business, results of operations or financial
condition of the entity affected.

         Forward-looking statements in this Annual Report include, without
limitation, the following:

         Statements concerning us:

         -        statements regarding our future capital requirements and our
                  ability to satisfy our capital needs;

         -        statements regarding our ability to continue as a going
                  concern;

         -        statements regarding our exposure, if any, arising from
                  litigation matters currently pending against us;

         -        statements regarding our ability to collect amounts owed by
                  Qwest Communications Corporation and other third parties and
                  to successfully pursue causes of action against Qwest and
                  other third parties;

         -        statements regarding the ability of our debtor subsidiaries to
                  successfully liquidate and distribute substantially all of
                  their assets, pursuant to the amended plan, without causing a
                  material adverse impact on us;

         -        statements regarding our ability to successfully redeploy our
                  remaining cash assets, if any;

         Statements concerning our debtor subsidiaries:

         -        statements regarding the estimated liquidation value of assets
                  and settlement amounts of liabilities;

         Statements concerning our Paciugo interest:

         -        statements regarding our ability to realize any benefit from
                  the Paciugo interest;

         -        statements regarding our ability to resolve certain unresolved
                  disputes with management of Paciugo in a manner that does not
                  have a material adverse effect on our plan of operations;

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<PAGE>

         Other statements:

         -        statements that contain words like "believe," "anticipate,"
                  "expect" and similar expressions are also used to identify
                  forward-looking statements.

         You should be aware that all of our forward-looking statements are
subject to a number of risks, assumptions and uncertainties, such as (and in no
particular order):

         -        risks inherent in our ability to redeploy our remaining
                  assets, including remaining cash assets;

         -        risks associated with competition in the sector or industry
                  that we may enter;

         -        our ability to successfully prosecute claims against Qwest and
                  other third parties;

         -        risks associated with obtaining a benefit from the minority
                  interest we hold in Paciugo;

         -        risks that we may not be able to resolve certain disputes with
                  Paciugo's management;

         -        risks that we may be unable to address our concerns about
                  Paciugo's market position, the industry in which Paciugo
                  competes, and Paciugo's prospects for meaningful success
                  therein;

         -        risks associated with having no current operations or revenue;

         -        risks associated with preserving the net operating loss
                  carryforwards of our debtor subsidiaries;

         -        uncertainties in the implementation of the amended plan
                  concerning the liquidation of substantially all of the
                  remaining assets of our debtor subsidiaries; and

         -        changes in the laws and regulations that govern us.

         This list is only an example of the risks that may affect the
forward-looking statements. If any of these risks or uncertainties materialize
(or if they fail to materialize), or if the underlying assumptions are
incorrect, then actual results may differ materially from those projected in the
forward-looking statements.

         Additional factors that could cause actual results to differ materially
from those reflected in the forward-looking statements include those discussed
elsewhere in this Annual Report, particularly under the heading "Business
Considerations." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect our analysis, judgment, belief or
expectation only as of the date of this Annual Report. We undertake no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date of this Annual Report.

                                     PART I

ITEM 1.       BUSINESS

         Readers of this Annual Report are cautioned that certain of the
statements made in this Section are "forward-looking" and, therefore, should
only be read in the context described under "Introductory Statements -
Forward-Looking Statements."

         ORGANIZATION AND HISTORIC OPERATIONS

         The company now known as Novo Networks, Inc. was originally
incorporated in Delaware in 1987 as Adina, Inc. ("Adina"). Adina's corporate
existence was permitted to lapse in February of 1996 and was subsequently
reinstated as eVentures Group, Inc., ("eVentures") in August of 1999. During the
Fall of 1999, eVentures completed a series of transactions whereby it became a
holding company with two wholly-owned operating subsidiaries, e.Volve Technology
Group, Inc. ("e.Volve") and AxisTel Communications, Inc. ("AxisTel"), and made a
strategic investment in Gemini Voice Solutions, Inc. ("Gemini Voice"), formerly
PhoneFree.com, Inc. During the Spring of 2000, eVentures acquired Internet
Global Services, Inc. ("iGlobal") and made additional strategic investments. In
December of 2000, eVentures changed its name to Novo Networks.

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         BANKRUPTCY PROCEEDINGS OF DEBTOR SUBSIDIARIES

         On April 2, 2001, our subsidiary iGlobal filed a voluntary petition
under Chapter 7 of Title 11 of the United States Code (the "Bankruptcy Code") in
the United States Bankruptcy Court for the Northern District of Texas (the
"Texas Bankruptcy Court") due to iGlobal's inability to service its debt
obligations, potential contingent liabilities and our inability to raise
sufficient capital to fund operating losses at iGlobal. As a result of the
filing, we recorded an impairment loss of $62.4 million for the year ended June
30, 2001, primarily relating to non-cash goodwill recorded in connection with
our March of 2000 acquisition of iGlobal.

         On July 30, 2001, five of our direct and indirect wholly-owned
subsidiaries filed voluntary petitions under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the District of Delaware (the
"Delaware Bankruptcy Court"), in order to stabilize their operations and protect
their assets while attempting to reorganize their businesses. The five
subsidiaries that filed for bankruptcy protection were Novo Networks Operating
Corp., AxisTel, e.Volve, Novo Networks International Services, Inc. and Novo
Networks Global Services, Inc. On September 14, 2001, Novo Networks Metro
Services, Inc., a subsidiary of AxisTel, also filed a voluntary petition under
Chapter 11 of the Bankruptcy Code.

         We have set forth below a table summarizing the current status of our
debtor subsidiaries.

<TABLE>
<CAPTION>
                                                                       DATE
                                                                    BANKRUPTCY        STATUS AS OF         SUBJECT TO
                                                     DATE           PROTECTION        SEPTEMBER 18,    BANKRUPTCY PLAN OR
          DEBTOR SUBSIDIARY(1)                    ACQUIRED(2)         SOUGHT             2003(3)           PROCEEDINGS?
------------------------------------------        -----------       ----------        -------------    ------------------
<S>                                               <C>               <C>               <C>              <C>
Novo Networks Operating Corp.                        2/8/00          7/30/01            Inactive       Yes, Chapter 11(5)

AxisTel Communications, Inc.                        9/22/99          7/30/01            Inactive       Yes, Chapter 11(5)

Novo Networks International Services, Inc.          9/22/99          7/30/01            Inactive       Yes, Chapter 11(5)

Novo Networks Global Services, Inc.                 9/22/99          7/30/01            Inactive       Yes, Chapter 11(5)

Novo Networks Metro Services, Inc.                  9/22/99          7/30/01            Inactive       Yes, Chapter 11(5)

e.Volve Technology Group, Inc.                     10/19/99          9/14/01            Inactive       Yes, Chapter 11(5)

Internet Global Services, Inc.                      3/10/00          4/02/01            Inactive        Yes, Chapter 7

eVentures Holdings, LLC                              9/7/99            N/A              Active(4)              No
</TABLE>

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

(1)      Web2Dial Communications, Inc., Novo Networks Metro Services Virginia,
         Inc., Novo Networks Media Services, Inc. and Novo Networks (UK) Ltd.,
         which are not debtor subsidiaries, have been dissolved.

(2)      Indicates date of acquisition or date of incorporation, if organized by
         us.

(3)      "Active" status indicates current operations within the respective
         entity; "Inactive" status indicates no current operations, but may
         include certain activities associated with the administration of an
         estate pursuant to a bankruptcy filing or plan.

(4)      This entity has no operations other than to hold certain equity
         interests.

(5)      Subsequently amended to a liquidating Chapter 11 proceeding.

         As originally contemplated, the goal of the reorganization effort
relating to our debtor subsidiaries that filed voluntary petitions under Chapter
11 of the Bankruptcy Code was to preserve the going concern value of our debtor
subsidiaries' core assets and to provide distributions to their creditors.
However, based largely on the fact that our debtor subsidiaries ceased receiving
traffic from their sole remaining customer, a determination was made that the
continued viability of the debtor subsidiaries was not realistic. Accordingly,
the bankruptcy plan was amended. The amended plan and disclosure statement were
filed with the Delaware Bankruptcy Court on December 31, 2001. The amended plan
provides for

                                        5

<PAGE>

a liquidation of substantially all of the assets of our debtor subsidiaries,
pursuant to Chapter 11 of the Bankruptcy Code, instead of a reorganization as
previously planned.

         On January 14, 2002, the Delaware Bankruptcy Court approved the amended
disclosure statement, with certain minor modifications, and on March 1, 2002,
the Delaware Bankruptcy Court confirmed the amended plan, again with minor
modifications. On April 3, 2002, the amended plan became effective and a
liquidating trust was formed, with funding provided by us in the amount of $0.2
million. Assets to be liquidated of $0.7 million were transferred to the
liquidating trust during the fourth quarter of fiscal 2002. The purpose of the
liquidating trust is to collect, liquidate and distribute the remaining assets
of the debtor subsidiaries and prosecute certain causes of action against
various third parties, including, without limitation, Qwest Communications
Corporation. No assurance can be given that the liquidating trust will be
successful in liquidating substantially all of the debtor subsidiaries' assets
pursuant to the amended plan. Also, it is not possible to predict the outcome of
the prosecution of causes of action against third parties, including, without
limitation, Qwest, as described in the amended plan and disclosure statement.

         In connection with the bankruptcy proceedings, we provided our debtor
subsidiaries with approximately $1.9 million in secured debtor-in-possession
financing to fund their reorganization efforts. The credit facility made funds
available to permit the debtor subsidiaries to pay employees, vendors,
suppliers, customers and professionals consistent with the requirements of the
Bankruptcy Code. In connection with the amended plan being confirmed by the
Delaware Bankruptcy Court and becoming effective on April 3, 2002, the credit
facility was converted into a new secured note. During fiscal 2003, we provided
additional funding of $0.5 million to the liquidating trust. Interest for the
new secured note is accrued on a monthly basis. The current balance on the new
secured note is approximately $3.3 million which has been fully reserved due to
the uncertainty surrounding the collection of this note. For further details
regarding the funding provided to the debtor subsidiaries, see the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."

         We originally provided administrative services to our debtor
subsidiaries pursuant to an administrative services agreement approved by the
Delaware Bankruptcy Court. The agreement provided that our debtor subsidiaries
pay us $30,000 per week for legal, accounting, human resources and other
services. The original agreement expired on April 2, 2002, and an interim
agreement was reached whereby, the liquidating trust, as successor-in-interest
to our debtor subsidiaries, paid us $40,000 per month for the same services. The
interim agreement expired on August 15, 2002. During the fourth quarter of
fiscal 2003, we negotiated an on-going agreement with the liquidating trust,
whereby we provide administrative services to our debtor subsidiaries on a per
hour basis. Pursuant to the terms of this arrangement, our debtor subsidiaries
owed us $0.65 million at June 30, 2003. Due to the uncertainty surrounding the
collection of this receivable, it has not been recorded in our financial
statements.

         It is not possible to predict the outcome or success of any bankruptcy
proceeding or plan or the effects of such efforts on our business or the
interests of our creditors or stockholders.

         Our principal operating subsidiaries, AxisTel and eVolve, ceased
operations in September 2001 and December 2001, respectively. We are not
currently providing any products or services of any kind to any customers.

         OUR INTEREST IN PACIUGO

         On December 19, 2002, we executed a purchase agreement with Ad Astra
Holdings LP, a Texas limited partnership ("Ad Astra"), Paciugo Management LLC, a
Texas limited liability company and the sole general partner of Ad Astra
("PMLLC"), and the collective equity owners of both Ad Astra and PMLLC, being
Ugo Ginatta, Cristiana Ginatta and Vincent Ginatta (collectively, the "Equity
Owners"). Collectively, Ad Astra and PMLLC, through a number of wholly owned
subsidiaries, own and manage a gelato manufacturing, retailing and catering
business operating under the brand name "Paciugo." Throughout this Annual
Report, we refer collectively to Ad Astra, PMLLC, and their subsidiaries as
"Paciugo." Pursuant to the purchase agreement executed in connection with the
Paciugo interest, we acquired a 33% membership interest in PMLLC and a 32.67%
limited partnership interest in Ad Astra, which results in our holding an
aggregate interest, including the PMLLC general partnership interest, in Paciugo
equal to 33% (the "Initial Interest"), for a purchase price of $2.5 million. Due
to the fact that a portion of our interest in Paciugo resulted from an
acquisition from the Equity Owners, not all of the $2.5 million purchase price
was available to management as additional working capital.

         In addition to the Initial Interest, we hold an option, exercisable
until December 19, 2004, to purchase a 17.3% membership interest in PMLLC and a
17.127% interest in Ad Astra (the "Subsequent Interest") for $1.5 million.
Together,

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the Initial Interest and the Subsequent Interest would result in our holding a
50.3% membership interest in PMLLC and a 49.797% limited partnership interest in
Ad Astra, for a total aggregate interest in Ad Astra, including the PMLLC
general partner interest, of 50.3%. As discussed further below, we do not
currently anticipate exercising our option to acquire the Subsequent Interest.

         Under the terms of the purchase agreement, we provide services to
support the business operations of Paciugo, including administrative,
accounting, financial, human resources, information technology, legal, and
marketing services (the "Support Services"). In exchange for our providing the
Support Services, we receive an annual amount equal to the greater of $250,000
or 2% of the consolidated gross revenues of Paciugo (excluding any gross
revenues shared with third parties under existing contractual arrangements).
Commencing January 1, 2003, we began receiving a monthly payment from Paciugo in
the amount of $20,833, with the positive cumulative difference, if any, between
2% of such gross revenues and $20,833 per month to be paid within ten days of
the end of such month. In August of 2003, certain disagreements arose between us
and Paciugo concerning the amount of the monthly payment for July of 2003, as
well as our performance of the Support Services. As a result, Paciugo has failed
to make the payment due for September of 2003. The loss of these monthly
payments by Paciugo could adversely affect our financial condition. While we are
attempting to work through our disagreements with Paciugo, we can offer no
assurances that these issues will be resolved without any material adverse
effect on our plan of operation.

         We are entitled, under the terms of the purchase agreement, to certain
representation on the governing board of PMLLC (the "Board of Managers").
PMLLC's Board of Managers is composed of Ugo Ginatta and Cristiana Ginatta, as
the Equity Owners' designees, and Barrett N. Wissman, as our designee. PMLLC, as
the sole general partner of Ad Astra, is empowered to make all decisions
associated with Ad Astra (and, therefore, Paciugo), except for those requiring
the approval of the limited partners, as set forth in the limited partnership
agreement of Ad Astra or under applicable law.

         We effectively maintain no ability to control the day-to-day affairs of
our Paciugo interest. On August 25, 2003, Barrett N. Wissman resigned from the
position of President of Paciugo. In addition, during the first and second
calendar quarters of 2003, our Board of Directors became increasingly more
concerned about Paciugo's market position, the industry in which Paciugo
competes and Paciugo's prospects for meaningful success therein. Accordingly,
during this period, we concluded that it was reasonably unlikely that we would
expand our Paciugo interest and exercise our option to acquire the Subsequent
Interest.

         Depending upon a variety of factors, including those outlined above,
most of which are beyond our control, we may determine it necessary to record
impairment charges against the Paciugo interest in our 2004 fiscal year. The
factors that may result in the impairment of our Paciugo interest include,
without limitation:

         -        Paciugo's ability, outside of our exercise of the option to
                  acquire the Subsequent Interest, to locate additional working
                  capital;

         -        Paciugo's ability to expand sales while controlling and
                  reducing costs; and

         -        Paciugo's ability to compete against more well-known gelato,
                  frozen dessert, and ice cream stores, many of which maintain
                  greater management, financial and other resources.

         PLAN OF OPERATION

         Our plan of operation in the near term principally involves locating,
negotiating and, if possible, consummating a transaction for the redeployment of
our remaining cash assets. We intend to examine the following factors, among
others, in deciding upon an appropriate use for our remaining cash assets:

         -        the historical liquidity, financial condition and results of
                  operation of the business or opportunity, if any;

         -        the growth potential and future capital requirements of the
                  business or opportunity;

         -        the nature, competitive position and market potential of the
                  products, processes or services of the business or
                  opportunity;

                                        7

<PAGE>

         -        the relative strengths and weaknesses of the intellectual
                  property of the business or opportunity;

         -        the education, experience and abilities of management and key
                  personnel of the business or opportunity;

         -        the regulatory environment within the business industry or
                  opportunity; and

         -        the market performance of equity securities of similarly
                  companies in the particular industry or opportunity.

         The foregoing is not an exhaustive list of the factors that we consider
when evaluating potential business opportunities. We will also consider other
factors that we deem relevant under the circumstances. In evaluating a potential
opportunity, we intend to conduct a due diligence review that will include,
among other things:

        -         meetings with industry participants;

        -         meetings with management or "promoters;"

        -         inspection of properties, facilities, business models,
                  products, services, material contracts, etc., if any;

        -         analysis of historical financial statements and projections;
                  and

        -         any other inquiry or actions we believe are relevant under the
                  circumstances.

         Our plan of operation for the upcoming twelve months also calls for the
following:

         -        continuing the liquidation of substantially all of the assets
                  of our debtor subsidiaries in accordance with the bankruptcy
                  plan administration process;

         -        minimizing, to the extent possible, the expenses and
                  liabilities incurred by us as the ultimate parent of the
                  debtor subsidiaries;

         -        minimizing, to the extent possible, expenses and liabilities
                  incurred by us pending our decision to redeploy our remaining
                  cash assets;

         -        maintaining the current number of employees until such time as
                  we locate additional business opportunities, if any; and

         -        resolving our open issues with the management of Paciugo, if
                  at all possible, and determining the best course of action
                  with respect to our Paciugo Interest.

         As of June 30, 2003, we maintained cash and cash equivalents of
approximately $3.9 million. We currently anticipate that after paying certain
bankruptcy obligations related to the debtor subsidiaries and current operating
expenses for fiscal year 2004, we will have approximately $1.7 million of
remaining cash available to redeploy into one or more business opportunities and
to support our monthly cash requirements. We currently have a monthly cash
requirement of approximately $0.15 million to fund recurring corporate general
and administrative expenses, excluding costs associated with the debtor
subsidiaries' bankruptcy proceedings. We do not believe that additional funding
sources will be available to us in the near term. Accordingly, the cash assets
available for redeployment may be limited. We may only have the ability to
participate in one business opportunity. Our probable lack of diversification
may subject us to a variety of economic, competitive and regulatory risks, any
or all of which may have a substantial adverse impact on our continued
viability.

         We do not intend to provide information to our stockholders regarding
potential business opportunities that we are considering. Our Board of Directors
has the executive and voting power to unilaterally approve all corporate actions
related to the redeployment of our cash assets. As a result, our stockholders
will have no effective voice in decisions made by our Board of Directors and
will be entirely dependent on its judgment in the selection of an appropriate
business opportunity and the negotiation of the specific terms thereof.

                                        8

<PAGE>

         BUSINESS CONSIDERATIONS

         Implementation of our plan of operation involves a number of distinct
risks and uncertainties, including without limitation, the following:

         RISKS RELATED TO OUR BUSINESS

         We may not continue as a going concern. For the year ended June 30,
2003, we incurred a net loss of approximately $2.8 million. Further, we have no
continuing operations. These factors, among others, raise substantial doubt
about our ability to continue as a going concern, and our auditor's opinion is
modified for this uncertainty. The financial statements do not include any
adjustments that might result should we be unable to continue as a going
concern.

         The bankruptcies of our debtor subsidiaries could negatively affect us,
perhaps materially. All of our operating subsidiaries are in the process of
liquidating their assets for the benefit of their respective creditors. We have
previously guaranteed certain indebtedness of one or more of these debtor
subsidiaries and, depending upon the treatment of and distribution to holders of
such indebtedness under the amended plans, we may be liable for some or all of
this indebtedness. Further, the administration of our debtor subsidiaries'
amended plan could negatively affect our relationship with our current
creditors, vendors and employees. We cannot provide any assurances that we will
not be negatively affected by the bankruptcy of our debtor subsidiaries,
including as it relates to the segregation and protection of our remaining cash
assets.

         We will be functioning as an early stage company. As previously
indicated, we do not presently expect to re-enter the telecommunications
industry. Instead, we expect to seek out opportunities in which to deploy our
remaining cash assets. Consequently, we will not have any history upon which to
base an evaluation of our business and prospects going forward. Our prospects
must be considered in light of the many risks, uncertainties, expenses, delays
and difficulties encountered by companies adopting a new or dramatically changed
business model after the failure (for whatever reason) of a prior business
model. Some of the risks and difficulties we expect to encounter include,
without limitation, our ability to:

         -        create and successfully execute a revised business plan;

         -        locate, invest in and otherwise manage a commercially viable
                  base of suitable opportunities;

         -        manage and adapt to changing operations;

         -        respond effectively to competitive developments;

         -        attract, retain and motivate qualified personnel, including,
                  particularly those with appropriate industry experience; and

         -        overcome the impact of the failure of our previous business
                  model upon our current and future reputation.

         Because of our possible lack of industry experience, we may have
limited insight into trends and conditions that may exist or might emerge and
affect our new business interests. No assurances can be given that we will be in
a position to redeploy our assets at the parent level or, if we do redeploy our
assets, that we will successfully address and overcome these risks.

         We may not be able to fund a modified business plan. Even if we are
successful in identifying a suitable alternative business opportunity, we may
not possess sufficient funds to capitalize on it. No assurances can be made that
adequate levels of financing to fund any new business venture will be available
at all or on acceptable terms. Any financing could involve the issuance of
securities with rights superior to those of our common stockholders. The
issuance of additional securities could also result in significant dilution to
our existing stockholders.

         We may not be able to redeploy our remaining cash assets. The time,
effort and expense associated with implementing an appropriate strategy for our
remaining cash assets cannot be predicted with any degree of accuracy. If we do
not devote adequate time to the investigation, due diligence and negotiation of
appropriate business opportunities or if we are precluded from doing so before
our cash assets are further depleted, we may be unable to successfully redeploy
our remaining cash assets. We cannot assure you that we will be successful in
redeploying our remaining cash assets. Further, to

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<PAGE>

the extent we are able to redeploy our remaining cash assets, we cannot assure
you that our efforts will ultimately prove successful.

         We do not expect to be in a position to diversify our business risk. As
of June 30, 2003, we maintained cash and cash equivalents of approximately $3.9
million. We currently anticipate that after paying certain bankruptcy
obligations related to the debtor subsidiaries and current operating expenses
for fiscal year 2004, we will have approximately $1.7 million of remaining cash
available to redeploy into one or more business opportunities and to support our
monthly cash requirements. We currently have a monthly cash requirement of
approximately $0.15 million to fund recurring corporate general and
administrative expenses, excluding costs associated with the debtor
subsidiaries' bankruptcy proceedings. We do not believe that additional funding
sources will be available to us in the near term. Accordingly, the cash assets
available for redeployment may be limited. We may only have the ability to
participate in one business opportunity. A lack of diversification may subject
us to a variety of economic, competitive and regulatory risks, any or all of
which may have a substantial adverse impact on our continued viability.

         Our stockholders will not be afforded an opportunity to approve any
possible transaction. We do not intend to provide information to our
stockholders regarding potential business opportunities that we are considering.
Our Board of Directors will have the executive and voting power to unilaterally
approve all corporate actions related to the redeployment of our cash assets. As
a result, our stockholders will have no effective voice in decisions made by our
Board of Directors and will be entirely dependent on their judgment in the
selection of an appropriate business opportunity and the negotiation of the
specific terms thereof.

         We may not realize any benefit from our interest in Paciugo. As
indicated above, we have become increasingly more concerned about Paciugo's
market position, the industry in which it competes and its prospects for
meaningful success therein. In addition, certain disagreements have arisen
between us and Paciugo's management concerning the amount of the monthly payment
for July of 2003, as well as our performance of the Support Services. As a
result, Paciugo has failed to make the payment due for September of 2003. The
loss of these monthly payments by Paciugo could adverse affect our financial
condition. While we are attempting to work through our disagreements with
Paciugo, we can offer no assurances that these issues will be resolved without
any material adverse effect on our plan of operation. We will continue to record
our share of the losses generated by Paciugo. Depending on a variety of factors,
most of which are beyond our control, we may determine it necessary to record
impairment changes against our Paciugo interest in our 2004 fiscal year. To the
extent an impairment of our Paciugo interest is necessary:

         -        our reputation is likely to be negatively effected; and

         -        we may become entangled in additional disputes or litigation
                  which may demand management, financial and other resources not
                  available to us.

         No assurances can be given that we will be able to benefit from the
Paciugo interest as originally contemplated.

         EQUITY INVESTMENTS

         Previously, we acquired minority positions in Internet and
communications companies. As of June 30, 2003, we maintained investments in the
following companies:

<TABLE>
<CAPTION>
                                                                                                     CARRYING VALUE
                                                           % OWNERSHIP *             ACCOUNTING           AS OF
                  COMPANY NAME                       COMMON         PREFERRED          METHOD         JUNE 30, 2003
--------------------------------------------         ------------------------        ----------      --------------
<S>                                                  <C>            <C>              <C>             <C>
Paciugo Management LLC ............................   33.3%             0.0%           Equity         $   2,255,523
Gemini Voice Solutions (f/k/a PhoneFree.com) ......   17.2%            31.7%.          Equity                     -
ORB Communications & Marketing, Inc ...............   19.0%           100.0%           Equity                     -
FonBox, Inc .......................................   14.0%            50.0%           Equity                     -
Launch Center 39 ..................................    0.0%             2.1%             Cost                     -
Spydre Labs .......................................    5.0%             0.0%             Cost                     -
                                                                                                      -------------
                                                                                                      $   2,255,523
                                                                                                      =============
</TABLE>

* The percentage ownership reflects our ownership percentage at June 30, 2003.

                                       10

<PAGE>

         Currently, we have minority equity interests in Paciugo and certain
development stage Internet and communications companies. During the second
quarter of fiscal 2003, we purchased the Initial Interest in Paciugo. For
further details regarding this transaction, see the section entitled "Our
Interest in Paciugo." The Initial Interest is accounted for under the equity
method. At such time, if any, as our aggregate ownership interest in Paciugo is
increased to greater than 50% (such as the acquisition of the Subsequent
Interest), we will consolidate the results of Paciugo with ours. Companies in
which we directly or indirectly own more than 50% of the outstanding voting
securities are generally accounted for in such a way. Under consolidation,
Paciugo's accounts will be reflected within our financial statements. As
previously discussed, we do not currently anticipate exercising our option to
acquire the Subsequent Interest.

         As of June 30, 2002, our net asset value in Gemini Voice was
approximately $0.3 million that was written off in fiscal 2003, and in August of
2003, Gemini Voice obtained the approval of its stockholders to begin the
process of winding up its affairs. During fiscal 2002, an impairment loss of
$2.4 million was recorded related to our investment in ORB. On February 14,
2003, ORB filed a voluntary petition under Chapter 7 of the bankruptcy code. The
investments in FonBox, Launch Center 39 and Spydre Labs were written off during
fiscal 2001, resulting in an aggregate impairment loss of $10.8 million.
Impairment in our investments resulted from declining market conditions,
negative operating results of the investment companies, lack of investor
liquidity and other uncertainties surrounding the recoverability of these
investments.

         Gemini Voice offers packetized, network-based, broadband voice
services. It is focused on providing a turnkey, fully managed IP software and
hardware, voice-over-broadband, telephony solution. By doing so, it enables
cable operators and DSL providers to offer local and long-distance services to
their high-speed access customers using a standard telephone. Currently, Gemini
Voice has deployed a managed telephony service with a cable operator, and is
concentrating on growing its customer base, while also seeking to conserve its
available cash and explore strategic alternatives. Gemini Voice maintains
websites at www.geminivoice.com and www.phonefree.com.

         One of our directors, Barrett N. Wissman and a former director, Jan R.
Horsfall, are also members of the seven-member Board of Directors of Gemini
Voice.

         COMPETITION

         We expect to encounter intense competition from other organizations
that have similar business objectives, namely the acquisition of, or
participation in, new business opportunities. In this regard, many of our
potential competitors have significant cash resources that will be available for
use following the acquisition of an initial interest. In addition, many of our
potential competitors possess more experienced management teams, business
evaluation personnel and greater technical, human and other resources than we
do. Further, some of our competitors may possess more attractive business or
industry relationships than we have. Lastly, we may encounter some resistance
from potential business partners due to our prior business model or operating
history. The inherent limitations on our competitive position may give others an
advantage in pursuing attractive business opportunities.

         We do not have any agreements or understandings with respect to any
business opportunity that we currently intend to pursue. We can provide no
assurance that any future transaction will be completed or that, if completed,
any such transaction will prove profitable or otherwise successful. Transactions
of the type proposed involve a number of risks, including, without limitation,
the following:

         -        the potential distraction of company management;

         -        the need for additional working capital;

         -        our ability to manage potentially distinct business
                  opportunities, particularly in light of our possible lack of
                  industry experience;

         -        the obligations associated with our debtor subsidiaries'
                  amended plan including, without limitation, the funding of the
                  liquidating trust and the prosecution of claims against Qwest;

         -        the potential impairment of our reputation and relationships;
                  and

                                       11

<PAGE>

         -        the ability to locate, consummate, fund and integrate suitable
                  business opportunities while we maintain cash assets available
                  for redeployment and numerous other risks and uncertainties.

         For further details regarding the risks associated with the types of
transactions proposed, see the section entitled "Business Considerations."

         DIRECTORS/OFFICERS/EMPLOYEES

         As of June 30, 2003, we had five full-time employees. On August 13,
2003, we announced that Jan Robert Horsfall resigned from our Board of
Directors, effective August 12, 2003, and Susie C. Holliday resigned from her
position as Senior Vice President of Accounting and Principal Accounting
Officer, effective August 1, 2003. Patrick G. Mackey, our Senior Vice President
of Administration has assumed Ms. Holliday's titles and responsibilities. We
also employ a limited number of independent contractors and temporary employees
on a periodic basis. None of the employees are represented by a labor union.

         CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

<TABLE>
<CAPTION>
                                                           Payments due by period
                                ------------------------------------------------------------------------------
                                                 Less than           1-3               4-5           6 years
                                  Total            1 year           years             years          or more
                                ------------------------------------------------------------------------------
<S>                             <C>              <C>              <C>              <C>              <C>
Operating Leases                $  131,894       $   74,441       $   57,453       $       --       $       --
                                ------------------------------------------------------------------------------
Total                           $  131,894       $   74,441       $   57,453       $       --       $       --
</TABLE>

ITEM 2.       PROPERTIES

         Our corporate offices are located at 2311 Cedar Springs Road, Suite
400, Dallas, Texas, occupying approximately 3,300 square feet. Our lease expires
on April 30, 2005. We are currently providing office space to the management of
another corporation on a month to month basis in exchange for the reimbursement
of certain expenses.

ITEM 3.       LEGAL PROCEEDINGS

         As previously reported, Robert Newhouse, the trustee for iGlobal, filed
an adversary proceeding against us in the Texas Bankruptcy Court on April 1,
2003. The lawsuit sought to avoid certain alleged preferential and fraudulent
transfers of approximately $0.3 million. In addition, it sought to disallow our
claim in the bankruptcy proceeding. We denied the receipt of any improper
payments or transfers, and we vigorously defended against the allegations. On
August 25, 2003, an order was entered by the Texas Bankruptcy Court dismissing
all of Mr. Newhouse's claims against us.

         As previously reported, Eos Partners, LP, Eos Partners SBIC, LP, Eos
Partners (Offshore), LP, Kuwait Fund for Arab Economic Development and TBV
Holdings Ltd. (collectively, the "Plaintiffs") filed a lawsuit against us, Fred
Vierra, Barrett N. Wissman, Clark K. Hunt, Mark R. Graham, Olaf Guerrand-Hermes,
Stuart Subotnick, Jan Robert Horsfall, Stuart Chasanoff, John Stevens Robling,
Jr., Samuel Litwin, Mitchell Arthur, BDO Seidman, LP, Hunt Asset Management,
LLC, HW Partners, LP, HW Finance, LLC, HW Capital, LP and HW Group, LLC
(collectively, the "Defendants") in the 190th Judicial District Court of Harris
County, Texas, on December 19, 2002. The lawsuit alleged breach of contract,
fraud and conspiracy in connection with the Plaintiffs' purchase of certain of
our Series C Convertible Preferred Stock in December of 1999 and January of
2000. The Defendants have denied the allegations and intend to vigorously defend
against the Plaintiffs' claims and seek all other appropriate relief. Since the
process has not proceeded beyond the initial pleading stage, no realistic
assessment can be made with respect to the potential exposure, except to refer
to the amounts paid for the stock, approximately $14.5 million, and note that
the Plaintiffs seek to recover compensatory and exemplary damages, interest,
costs of court and attorneys' fees. The Defendants have submitted the claims to
their insurance carriers. The Plaintiffs and Defendants are currently discussing
the possibility of transferring the case from Harris County to Dallas County
within the near future.

         As previously reported, we, along with the liquidating trust, filed a
lawsuit on June 17, 2002, against Qwest, a former customer and vendor, and John
L. Higgins, a former employee and consultant, in the Eighth Judicial District
Court of Clark County, Nevada. The amended plan called for certain causes of
action to be pursued by the liquidating trust against various third parties,
including Qwest, in an attempt to marshal sufficient assets to make
distributions to creditors. We were a co-proponent of the amended plan and
suffered independent damages as a result of Qwest's actions. Accordingly, Novo

                                       12

<PAGE>

Networks and the liquidating trust asserted, among other things, the following
claims against Qwest: (i) breach of contract, (ii) conversion, (iii)
misappropriation of trade secrets, (iv) breach of a confidential relationship,
(v) fraud, (vi) breach of the covenant of good faith and fair dealing, (vii)
tortious interference with existing and prospective business relations, (viii)
aiding and abetting Mr. Higgins's misconduct, (ix) civil conspiracy, and (x)
unjust enrichment. The following claims also have been asserted against Mr.
Higgins: (i) breach of contract, (ii) breach of fiduciary duties, (iii) breach
of a confidential relationship, (iv) fraud, (v) aiding and abetting Qwest's
misconduct, (vi) civil conspiracy, and (vii) unjust enrichment. In addition to
an award of attorneys' fees, Novo Networks and the liquidating trust are seeking
such actual consequential and punitive damages as may be awarded by a jury or
other trier of fact. Qwest filed a motion to stay the litigation and compel
arbitration on August 14, 2002. On March 13, 2003, a hearing was held to
determine the proper forum for the various claims. After listening to oral
arguments, the district judge granted Qwest's motion. On April 2, 2003, we,
along with the liquidating trust, filed a petition with the Supreme Court of
Nevada, asking it to direct the district judge to reconsider her order. On
August 13, 2003, our petition was denied. We now expect the case to proceed
before a panel of arbitrators in Washington, DC.

         We have previously disclosed in other reports filed with the SEC
certain other legal proceedings pending against us and our subsidiaries.
Consistent with the rules promulgated by the SEC, descriptions of these matters
have not been included in this Annual Report because they have neither been
terminated nor has there been any material developments during the fiscal year
ended June 30, 2003. Readers are encouraged to refer to our prior reports for
further information concerning other legal proceedings affecting us and our
subsidiaries.

         We and our subsidiaries are involved in other legal proceedings from
time to time, none of which we believe, if decided adversely to us or our
subsidiaries, would have a material adverse effect on our business, financial
condition or results of operations.

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

         None.

                                     PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS

         Our common stock is currently quoted on the National Association of
Securities Dealers-Over the Counter Bulletin Board ("OTCBB"). Our common stock
has been previously listed as follows:

<TABLE>
<CAPTION>
         From                            To                  Ticker      Market
------------------------         -------------------         ------      ------
<S>                              <C>                         <C>         <C>
January 1, 2002                  Present                      NVNW       OTCBB
December 12, 2000                December 31, 2001 *          NVNW       Nasdaq
November 22, 2000                December 11, 2000            EVNT       Nasdaq
August 25, 1999                  November 21, 2000            EVNT       OTCBB
Prior to August 25, 1999                                      ADII       OTCBB
</TABLE>

* Trading was halted by Nasdaq from July 30, 2001, until December 31, 2001.

         The following table sets forth the high and low bid prices of our
common stock on the applicable market for the quarterly periods indicated. Such
prices reflect inter-dealer prices, without retail mark-up, markdown or
commission, and may not necessarily represent actual transactions:

                                       13

<PAGE>
<TABLE>
<CAPTION>
                                      Bid Price
                                      ---------
   Quarter Ending                 Low         High
-------------------               ---         ----
<S>                              <C>          <C>
June 30, 2003                    0.03         0.07
March 31, 2003                   0.04         0.08
December 31, 2002                0.05         0.12
September 30, 2002               0.01         0.25
June 30, 2002                    0.02         0.21
March 31, 2002                   0.01         0.13
December 31, 2001                *            *
September 30, 2001               *            *
</TABLE>

*        Trading was halted by Nasdaq from July 30, 2001, until December 31,
         2001.

         Our stock has experienced periods, including certain extended periods,
of limited or sporadic quotations.

         As of June 30, 2003, there were 1,217 record holders of our common
stock; 18 record holders of our Series B convertible preferred stock; 7 record
holders of our Series C convertible preferred stock, and 2 record holders of our
Series D convertible preferred stock.

         RECENT SALES OF UNREGISTERED SECURITIES

         None.

         DIVIDEND POLICY

         The holders of our common stock are entitled to receive dividends at
such time and in such amounts as may be determined by our Board of Directors.
However, we have not paid any dividends in the past and do not intend to pay
cash dividends on our common stock for the foreseeable future. The quarterly
dividends due and payable to the holders of our Series D Preferred Stock are
prior in preference to any declaration or payment of any dividend or
distribution to holders of any of our other series of preferred stock or our
common stock.

                                       14

<PAGE>

ITEM 6.       SELECTED FINANCIAL DATA

         The following selected 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 Notes thereto included
elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                            Fiscal Year Ended June 30,
                                                               --------------------------------------------------
                                                                   2003               2002              2001
                                                               ------------       ------------     --------------
<S>                                                            <C>                <C>              <C>
Revenues ...................................................   $          -       $ 10,486,982     $   72,031,554

Operating expenses:
  Direct costs .............................................              -         14,614,766         70,807,489
  Selling, general and administrative expenses .............      3,205,607         14,750,870         28,867,054
  Reorganization and restructuring charge ..................              -                  -          3,898,656
  Impairment loss ..........................................              -          2,400,543        120,476,247
  Depreciation and amortization ............................        149,567          1,370,958         20,453,633
                                                               ------------       ------------     --------------
                                                                  3,355,174         33,137,137        244,503,079
                                                               ------------       ------------     --------------
Loss from operations, before
    other (income) expense .................................     (3,355,174)       (22,650,155)      (172,471,525)

Other (income) expense
    Interest income ........................................       (109,571)          (397,370)        (1,626,831)
    Interest expense .......................................              -            466,965          1,224,455
    Loss in equity investments .............................        509,228          1,720,000          9,023,882
    Foreign currency loss ..................................              -             98,135            130,511
    Net gain on liquidation of debtor subsidiaries .........       (900,500)       (16,074,355)                 -
    Other (income) expense .................................        (62,563)          (668,993)           341,052
                                                               ------------       ------------     --------------
                                                                   (563,406)       (14,855,618)         9,093,069
                                                               ------------       ------------     --------------

Net loss ...................................................     (2,791,768)        (7,794,537)      (181,564,594)

Imputed preferred dividend .................................              -                  -         (2,299,750)
Series D preferred dividends ...............................       (653,175)          (603,432)          (324,860)
                                                               ------------       ------------     --------------

Net loss allocable to common shareholders ..................   $ (3,444,943)      $ (8,397,969)    $ (184,189,204)
                                                               ============       ============     ==============

Net loss per share - (basic and diluted) ...................   $      (0.07)      $      (0.16)    $        (3.53)
                                                               ============       ============     ==============
Weighted average number of shares
    outstanding - (basic and diluted) ......................     52,323,701         52,323,701         52,222,671
                                                               ------------       ------------     --------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                 As of June 30,
                                                               --------------------------------------------------
                                                                   2003               2002              2001
                                                               ------------       ------------     --------------
<S>                                                            <C>                <C>              <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents ..................................   $  3,894,081       $  9,871,305     $   16,696,537
Working capital ............................................      3,831,643          8,274,829          6,048,792
Total assets ...............................................      7,003,808         11,131,053         37,897,369
Capital leases, net of current portion .....................              -                  -          5,189,094
Long term debt .............................................              -                  -                  -
Total stockholders' equity .................................      6,499,430          9,259,253         16,646,296
</TABLE>



                                       15

<PAGE>

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

         The following discussion should be read in conjunction with the
consolidated financial statements and the notes found on pages F-1 to F-42 of
this Annual Report.

         OPERATIONS SUMMARY

         For the year ended June 30, 2003, we effectively had no operations, no
sources of revenue and no profits, and we do not anticipate being in a position
to resume operations until such time, if any, as we promulgate a new business
plan, either as it relates to Paciugo or another opportunity. During fiscal
2003, we purchased the Initial Interest in Paciugo. We cannot predict when or if
we will be successful in such a new business venture or other potential business
opportunities that we may consider, if any. During 2003, we received $125,000
from Paciugo for the provision of Support Services. There can be no assurances
as to the continuation of these payments, as Paciugo has not made the payment
due for September of 2003 due to disagreements between us and Paciugo regarding
these monthly payments. For further details regarding these disputes, see the
section entitled "Our Interest in Paciugo."

         During fiscal 2002, revenues were generated from operations of two of
our debtor subsidiaries: AxisTel and e.Volve. e.Volve's only significant
customer was Qwest, which accounted for approximately 70% of consolidated
revenues for the year ended June 30, 2002. Subsequent to December 31, 2002,
AxisTel and e.Volve ceased all operations, and as part of our debtor
subsidiaries' amended plan, substantially all of the assets associated with such
services were liquidated.

         We currently anticipate that we will not have any revenue from
telecommunications or any other services unless or until we are able to redeploy
our remaining cash assets.

BASIS OF PRESENTATION

         The accompanying consolidated financial statements for the twelve
months ended June 30, 2003, include our accounts. The debtor subsidiaries assets
and liabilities were deconsolidated effective June 30, 2002.

         For the twelve months ended June 30, 2002, the consolidated financial
statements include us and our wholly owned subsidiaries, including the debtor
subsidiaries. The consolidated financial statements as of and for the twelve
months ended June 30, 2002, do not include the assets and liabilities of the
debtor subsidiaries. For us and our subsidiaries not involved in the bankruptcy
plan administration process (such subsidiaries have nominal operations), the
financial statements, consisting primarily of cash, investments and office
equipment, have been prepared in accordance with generally accepted accounting
principles as applicable to a going concern. The assets and liabilities of our
debtor subsidiaries have been deconsolidated, as the liquidating trust controls
the assets of these entities. We recorded an accrual estimate of $0.3 million in
the accompanying financial statements for the costs of completing such
bankruptcy proceedings, including, without limitation, liquidating the assets of
these entities. The estimated realizable values and settlement amounts may be
different from the proceeds ultimately received or payments ultimately made. On
April 2, 2001, iGlobal, one of our subsidiaries, filed a voluntary petition for
protection under Chapter 7 of the Bankruptcy Code. The financial results of
iGlobal are included in the financial statements from its acquisition on March
10, 2000, through commencement of the bankruptcy proceedings on April 2, 2001.
The consolidated balance sheets as of June 30, 2002, and June 30, 2003, do not
include the accounts of iGlobal due to the decision to dispose of iGlobal during
the quarter ended March 31, 2001. During the twelve months ended June 30, 2002,
all of the revenues and direct costs reflected in our consolidated financial
statements resulted from the operations of e.Volve and AxisTel.

         Revenues. Historically, we derived substantially all of our
consolidated revenues from the sale of telecommunications services of AxisTel
and e.Volve. We do not expect to generate any revenues from operations until
such time, if any, as we choose to purchase an interest in Paciugo which
represents greater than a 50% interest (such as the acquisition of the
Subsequent Interest), at which time we would consolidate its operations into our
financial statements, or we successfully redeploy some or all of our remaining
cash assets in another business venture, if at all. We do not currently
anticipate exercising our option to acquire the Subsequent Interest. No
assurances can be given that we will ever generate revenues from operations in
the future.

         Direct Costs. Historically, direct costs included per minute
termination charges, lease payments and fees for fiber optic cable.

                                       16

<PAGE>

         Selling, General and Administrative Expenses. These expenses include
general corporate expenses, management salaries, professional fees, travel
expenses, benefits, rent and administrative expenses. Currently, we maintain our
corporate headquarters in Dallas, Texas. We provide administrative services to
our debtor subsidiaries on an hourly basis pursuant to an administrative
services agreement with the liquidating trust approved by the Delaware
Bankruptcy Court. As of June 30, 2003, we had an outstanding receivable from the
debtor subsidiaries relating to the provision of such administrative services of
approximately $0.65 million that is fully reserved in our financial statements
due to the uncertainty surrounding the collection of the receivable. Under the
terms of the administrative services agreement, any payments to us are deferred
until such time that the trustee receives any funds from the positive outcome of
the Qwest litigation.

         Depreciation and Amortization. Depreciation and amortization represents
the depreciation of property and equipment. Due to significant impairment losses
recorded during fiscal years 2002 and 2001, and the deconsolidation of our
debtor subsidiaries, our depreciation and amortization costs have decreased
significantly, and we do not expect these costs to increase in the near term.

         Equity in Loss of Investments. Equity in loss of investments results
from our minority ownership interests that are accounted for under the equity
method of accounting. Under the equity method, our proportionate share of each
of our subsidiary's operating loss is included in equity in loss of investments.
During the second quarter of fiscal 2003, we purchased the Initial Interest in
Paciugo. The value of our outstanding equity interests, other than Paciugo, have
been reduced to zero either by recording our proportionate share of prior period
losses incurred by each subsidiary up to the cost of that investment or from
impairment losses. We anticipate that our previous strategic investments will
continue to incur operating losses. However, we do not expect to record future
charges related to those losses as the recorded value of these investments on
our books has been written off, and we do not guarantee the debts of any
investment. We will record our proportionate share of future earnings or losses
related to our Initial Interest in Paciugo until such time, if any, that we
either (a) purchase an additional interest in Paciugo (such as the acquisition
of the Subsequent Interest) resulting in our holding a greater than 50% interest
in Paciugo, at which time we would begin to consolidate its operations into our
financial operations or (b) determine that the Initial Interest is permanently
impaired. On February 14, 2003, ORB filed for protection under Chapter 7 of the
Bankruptcy Code, and in August of 2003, Gemini Voice obtained the approval of
its stockholders to begin the process of winding up its affairs.

         Net Gain on Liquidation of Debtor Subsidiaries. Net gain on liquidation
of debtor subsidiaries results from liquidation accounting for our debtor
subsidiaries, which are involved in the bankruptcy plan administration process.
All debtor subsidiary assets were stated at estimated realizable values.
Similarly, liabilities were reflected at estimated settlement amounts, subject
to the approval of the Delaware Bankruptcy Court, with those liabilities secured
by specific assets being offset against such assets, as allowed. The estimated
realizable values and settlement amounts may be different from the proceeds
ultimately received or payments ultimately made.

         Other Income. Other income results from the Support Services we
provided to Paciugo, pursuant to the Purchase Agreement. There can be no
assurances as to the continuation of these payments, as Paciugo has not made the
payment due for September of 2003 due to disagreements between us and Paciugo
regarding these monthly payments. For further details regarding these disputes,
see the section entitled "Our Interest in Paciugo." Other income also results
from the administrative services we provided to our debtor subsidiaries pursuant
to an administrative services agreement approved by the Delaware Bankruptcy
Court. The administrative services agreement with our debtor subsidiaries
initially dictated that our debtor subsidiaries pay us $30,000 per week for
legal, accounting, human resources and other services. The original agreement
expired on April 2, 2002, and an interim agreement was reached whereby, the
liquidating trust, as successor-in-interest to our debtor subsidiaries, paid us
$40,000 per month for some of the same services. The interim agreement expired
on August 15, 2002. During the fourth quarter of fiscal 2003, we negotiated an
on-going agreement with the liquidating trust, whereby we provide administrative
services to our debtor subsidiaries on a per hour basis. Due to the uncertainty
surrounding the collection of this receivable, it has not been fully reserved in
our financial statements.

                                       17

<PAGE>
         SUMMARY OF OPERATING RESULTS

         The table below summarizes our consolidated operating results:

<TABLE>
<CAPTION>
                                                                           For the Fiscal Year Ended June 30,
                                                             --------------------------------------------------------------
                                                                 2003            2002          %          2001          %
                                                             --------------------------------------------------------------
<S>                                                          <C>             <C>             <C>     <C>              <C>
Revenues ..................................................  $          -    $ 10,486,982     100%   $   72,031,554    100%

Operating expenses:
     Direct costs .........................................             -      14,614,766     139%       70,807,489     98%
     Selling, general and administrative expenses .........     3,205,607      14,750,870     141%       28,867,054     40%
     Reorganization and restructuring charge ..............             -               -       1%        3,898,656      5%
     Impairment loss ......................................             -       2,400,543      23%      120,476,247    167%
     Depreciation and amortization ........................       149,567       1,370,958      13%       20,453,633     28%
                                                             -------------------------------------------------------------
                                                                3,355,174      33,137,137               244,503,079
Loss from operations, before
     other (income)  expense ..............................    (3,355,174)    (22,650,155)   (216%)    (172,471,525)  (239%)

Other (income) expense:
     Interest income ......................................      (109,571)       (397,370)     (4%)      (1,626,831)    (2%)
     Interest expense .....................................             -         466,965       4%        1,224,455      2%
     Equity in loss of investments ........................       509,228       1,720,000      16%        9,023,882     13%
     Foreign currency loss ................................             -          98,135       1%          130,511      0%
     Net gain on liquidation of debtor subsidiaries .......      (900,500)    (16,074,355)   (153%)               -      0%
     Other (income) expense ...............................       (62,563)       (668,993)     (5%)         341,052      0%
                                                             -------------------------------------------------------------
                                                                 (563,406)    (14,855,618)   (142%)       9,093,069     13%
                                                             -------------------------------------------------------------

Net loss ..................................................    (2,791,768)     (7,794,537)    (74%)    (181,564,594)  (252%)

Imputed preferred dividend ................................             -               -                (2,299,750)
Series D preferred dividends ..............................      (653,175)       (603,432)                 (324,860)
                                                             ------------    ------------            --------------

Net loss allocable to common shareholders .................  $ (3,444,943)   $ (8,397,969)           $ (184,189,204)
                                                             ============    ============            ==============

Net loss per share - (basic and diluted) ..................  $      (0.07)   $      (0.16)           $        (3.53)
                                                             ============    ============            ==============
Weighted average number of shares
     outstanding - (basic and diluted) ....................    52,323,701      52,323,701                52,222,671
                                                             ------------    ------------            --------------
</TABLE>

         FISCAL YEAR ENDED JUNE 30, 2003 COMPARED TO FISCAL YEAR ENDED JUNE 30,
2002

         Revenues. No revenues were generated during fiscal 2003, compared to
$10.5 million generated during fiscal 2002. No revenues were generated based on
(i) the termination of all operations of our debtor subsidiaries by December of
2001, which have historically provided all of our significant revenues and (ii)
the uncertainties surrounding other potential business opportunities that we may
consider, if any. However, if we should choose to purchase a greater than 50%
interest in Paciugo (such as the acquisition of the Subsequent Interest), we
expect to consolidate its revenue and operations into our consolidated financial
statements at that time. We will continue to record other income from the
provision of the Support Services to Paciugo through August, 2003, as agreed
upon in the Purchase Agreement. However, there can be no assurances as to the
continuation of these payments, as Paciugo has not made the payment due for
September of 2003 due to disagreements between us and Paciugo regarding these
monthly payments. For further details regarding these disputes, see the section
entitled "Our Interest in Paciugo."  Prior to the elimination of our operations,
fiscal 2002 revenues were generated through the sale of: (x) 97% voice services
and (y) 3% broadband services.

         We do not expect to generate any revenues from operations until such
time, if any, we choose to purchase an interest in Paciugo which represents
greater than a 50% interest (such as the acquisition of the Subsequent
Interest), at which time, we would consolidate its operations into our financial
statements, or we successfully redeploy some or all of our remaining cash assets
in another business venture, if at all. We do not currently anticipate that we
will exercise our option to acquire the Subsequent Interest. No assurances can
be given that we will ever generate revenues from operations in the future.

                                       18

<PAGE>

         Direct Costs. No direct costs were incurred during fiscal 2003, as
compared to approximately $14.6 million during fiscal 2002, as we currently have
no operations.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased approximately 78% or $11.4 million during
fiscal 2003 to $3.2 million from $14.8 million in fiscal 2002. The decrease in
selling, general and administrative expenses during fiscal 2003 resulted
primarily from (i) downsizing of the workforce, (ii) the termination of
operations as a result of the various bankruptcy proceedings, (iii) the
reduction in professional fees relating to the bankruptcy plan administrative
process and (iv) an overall reduction of overhead related to office rent,
telephone, office expenses and travel and entertainment.

         Selling, general and administrative expenses for the twelve months
ended June 30, 2003, consisted primarily of approximately (i) $1.0 million of
salaries and benefits, (ii) $0.8 million of legal and professional fees, (iii)
$0.1 million of bad debt expense, (iv) $0.6 million of business insurance and
(v) $0.2 million of other operating expenses. Selling, general and
administrative expenses for the twelve months ended June 30, 2002, consisted
primarily of approximately (i) $2.4 million of salaries and benefits, (ii) $3.2
million of legal and professional fees, (iii) $5.9 million of bad debt expense,
(iv) $1.0 million of office rent, (v) $0.55 million of business insurance and
(vi) $1.15 million of other operating expenses. We anticipate that selling,
general and administrative expenses will remain relatively constant as (i) we
currently have no operations, (ii) we completed personnel reductions and (iii)
we continue to work toward the conclusion of the various bankruptcy proceedings.
We expect our selling, general and administrative expense to continue to be
approximately $0.15 million per month until such time, if any, as we choose to
redeploy our remaining cash assets.

         Impairment Loss. No impairment loss was recorded during fiscal 2003.
During fiscal 2002, an impairment loss of $2.4 million was recorded as we
completely impaired our investment in ORB due to a negative liquidation
analysis.

         Depreciation and Amortization. Depreciation recorded on fixed assets
during fiscal 2003, totaled approximately $0.15 million, as compared to
approximately $1.4 million for fiscal 2002. The decrease in depreciation expense
is the result of asset impairment charges taken during prior fiscal periods. We
expect our depreciation expense to remain relatively constant until such time,
if any, as we choose to redeploy our remaining cash assets.

         Interest (Income) Expense, Net. We recorded interest income from cash
investments of $0.1 million, as compared to interest expense, net of
approximately $70,000 for fiscal 2002. The overall increase in interest income
during the current fiscal year is a result of interest income from cash
balances, and no longer having interest expense from debtor subsidiary capital
lease obligations.

         Equity in Loss of Investments. Equity in loss of investments resulted
from our minority ownership in certain non-impaired interests that are accounted
for under the equity method of accounting. Under the equity method, our
proportionate share of each of our subsidiary's operating loss is included in
equity in loss of investments. Equity in loss of investments was $0.5 million in
fiscal 2003, compared to $1.7 million during fiscal 2002. The fiscal 2003 loss
resulted primarily from our 33% Initial Interest in Paciugo. The value of our
outstanding equity interests, other than Paciugo, have been reduced to zero
either by recording our proportionate share of prior period losses incurred by
each subsidiary up to the cost of that investment or from impairment losses. We
anticipate that those interests will continue to incur operating losses.
However, we do not expect to record future charges related to them since they
are completely impaired. The fiscal 2002 loss primarily resulted from our 22%
equity interest in Gemini Voice. We expect to record our proportionate share of
future earnings or losses related to our Initial Interest in Paciugo, unless we
purchase an additional interest in Paciugo (such as the acquisition of the
Subsequent Interest) resulting in our holding a greater than 50% interest in
Paciugo, at which time we would begin to consolidate its operations into our
financial statements. As previously discussed, we do not currently anticipate
exercising our option to acquire the Subsequent Interest.

         Net Gain on Liquidation of Debtor Subsidiaries. During fiscal 2003, we
recorded a net gain on liquidation of debtor subsidiaries of approximately $0.9
million related to a reduction of estimated liquidation costs for the debtor
subsidiaries. During fiscal 2002, we recorded a net gain on liquidation of
debtor subsidiaries of $16.1 million related to (i) a write down of long-lived
assets of $8.1 million, (ii) an accrual estimate of $0.5 million for the costs
of liquidating substantially all of the assets of the debtor subsidiaries, (iii)
$1.5 million in cash expenditures to settle administrative claims associated
with the bankruptcy, (iv) a gain on the write off of capital lease obligations
of $7.7 million, (v) a net gain on the write off of debtor

                                       19

<PAGE>

subsidiary assets and liabilities of $17.8 million under liquidation accounting
and (vi) a gain of $0.7 million from the deconsolidation of the debtor
subsidiaries liabilities.

         Other income. During fiscal 2003, we recorded other income of
approximately $125,000 compared to other income, net of other expense of
approximately $0.7 million in fiscal 2002. Other income for fiscal 2003,
consisted primarily of monthly payments of $20,833 from Paciugo for the
provision of the Support Services, beginning in January of 2003. However, there
can be no assurances as to the continuation of these payments, as Paciugo has
not made the payment due for September of 2003 due to disagreements between us
and Paciugo regarding these monthly payments. For further details regarding
these disputes, see the section entitled "Our Interest in Paciugo." The net gain
recorded in fiscal 2002 is related to (i) a $0.4 million gain on the receipt of
liquidation investment proceeds from Launch Center 39, an investment written off
in the prior fiscal year and (iv) a $0.3 million net gain on the sale of our
indirect non-debtor subsidiary, e.Volve Technology Group de Mexico, S.A. de C.V.
In a stock purchase agreement dated February 28, 2002, a wholly owned subsidiary
of e.Volve, e.Volve de Mexico, was sold to a company that is owned by one or
more former employees of the subsidiary. The transaction closed on April 12,
2002. The buyer acquired telecommunications assets and assumed certain
liabilities of e.Volve de Mexico and received a payment of approximately
$70,000.

         FISCAL YEAR ENDED JUNE 30, 2002 COMPARED TO FISCAL YEAR ENDED JUNE 30,
2001

         Revenues. Revenues decreased to $10.5 million during fiscal 2002, a
decrease of $61.5 million or 85% from $72.0 million in fiscal 2001. No revenue
was generated for the six months ended June 30, 2002, based on (i) the
termination of operations of our debtor subsidiaries, which have historically
provided all significant revenues for us and (ii) uncertainty surrounding our
plans to explore other opportunities. Prior to the elimination of our
operations, fiscal 2002 revenues were generated through the sale of: (i) 97%
voice services and (ii) 3% broadband services. Fiscal 2001 revenues were
generated through the sale of: (i) 94.5% voice services, (ii) 3.5% broadband
services and (iii) 2% Internet services.

         During fiscal 2002, our subsidiaries transmitted approximately 134
million minutes versus 753 million minutes in fiscal 2001, a decrease of 82%.
The average revenue per minute decreased to approximately $0.08 in fiscal 2002
from $0.10 in fiscal 2001.

         We currently do not anticipate generating additional revenues from
operations until we successfully redeploy some or all of our remaining cash
assets, if at all. No assurances can be given that we will ever generate
revenues from operations in the future.

         Direct Costs. Direct costs decreased to $14.6 million during fiscal
2002 from $70.8 million during fiscal 2001, a decrease of $56.2 million. The
decrease resulted from ceasing operations during fiscal 2002. As a percentage of
revenues, direct costs during fiscal 2002 increased to 139% from 98% during
fiscal 2001. The increase in direct costs as a percentage of revenues was
primarily due to the lack of revenues during the period in which we terminated
the operations of our debtor subsidiaries while fixed line costs remained
relatively constant.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 49% or $14.1 million during fiscal 2002 to
$14.8 million from $28.9 million in fiscal 2001. The decrease in selling,
general and administrative expenses during fiscal 2002 resulted primarily from
(i) downsizing of the workforce, (ii) closing facilities, (iii) termination of
operations as a result of the various bankruptcy proceedings and (iv) a decrease
in professional fees. As a percentage of revenues, selling, general and
administrative expenses during fiscal 2002 increased to 141% from 40% during
fiscal 2001. The increase was primarily due to the lack of revenues during the
period in which we terminated the operations of our debtor subsidiaries while
general and administrative expenses remained relatively constant.

         Reorganization and Restructuring Charge. In October 2000, we began the
execution of a plan to consolidate the operations and management of our wholly
owned subsidiaries into a single broadband network and communication services
company. The plan focused on providing broadband and voice services to other
service providers, which resulted in the discontinuation of retail Internet
access services. We recorded reorganization and restructuring expenses totaling
approximately $3.9 million during fiscal 2001. The reorganization and
restructuring charge of $3.9 million includes cash expenditures totaling $1.5
million related to (i) personnel severance of $0.6 million (ii) lease
abandonment of $0.6 million, and (iii) other costs of $0.3 million and $2.4
million of non-cash charges, primarily for the write-down of impaired assets and
the fair value of stock options granted to a former employee as part of his
separation agreement. The positions eliminated included three senior management
positions as a result of the management consolidation and 16 technical and
support positions related to the discontinuation of the retail Internet access
services.

                                       20

<PAGE>

         Impairment Loss. Impairment loss decreased to $2.4 million during
fiscal 2002 from $120.5 million during fiscal 2001, a decrease of $118.1
million. During fiscal 2002, we completely impaired our investment in ORB due to
a negative liquidation analysis. During fiscal 2001 we recorded an impairment
loss totaling $120.5 million related to (i) our investment in iGlobal, (ii)
goodwill relating to the Initial Transaction, (iii) equity investments and (iv)
property and equipment. As previously discussed, during fiscal 2001 we made the
decision to discontinue all iGlobal product offerings, services and operations
which resulted in recording an impairment loss of $61.6 million, comprised
primarily of the write off of non-cash goodwill. Further, in assessing the
recoverability of the remaining goodwill related to the Initial Transaction, we
recorded an impairment loss of $24.2 million. We also recorded an impairment
loss of $10.8 million related to our equity investments as a result of the
declining market conditions and the uncertainties surrounding the recoverability
of those investments. As a result of the decision to discontinue the historical
business of AxisTel, we recorded an impairment loss of $23.9 million related to
certain of AxisTel's network assets. The impairment charge of $23.9 million
includes the write-down of AxisTel's New York to Los Angeles fiber optic circuit
of $12.4 million and related prepaid maintenance of $1.6 million.

         Depreciation and Amortization. As a result of the reorganization
transactions in September of 1999 and October of 1999 and the acquisition of
iGlobal in March of 2000, we recorded approximately $116.0 million in goodwill.
During fiscal 2001, all of the goodwill was written off; therefore, no
amortization of goodwill was recorded during fiscal 2002. Amortization of
goodwill during fiscal 2001 was $15.3 million. To the extent there are no future
acquisitions, we do not anticipate incurring any additional amortization expense
due to the goodwill impairment charges recorded during the March 2001 period.
Depreciation recorded on fixed assets during the current period totaled $1.4
million compared to $5.2 million for the prior period. Reduced depreciation
expense during the current fiscal year is the result of asset impairment charges
taken during the fiscal year ended June 30, 2001, and liquidation accounting for
our debtor subsidiaries during fiscal 2002, where the assets of the debtor
subsidiaries were impaired and subsequently written off.

         Interest Expense (Income). We recorded interest expense, net of income,
of approximately $70,000 in fiscal 2002 compared to interest income, net of
expense, of approximately $0.4 million in fiscal 2001. The decrease in interest
income is due to lower cash balances during fiscal 2002.

         Loss in Equity Investments. Equity in loss of investments resulted from
our minority ownership in certain investments that are accounted for under the
equity method of accounting. Under the equity method, our proportionate share of
each investment's operating losses is included in equity in loss of investments.
Equity in loss of investments was $1.7 million in fiscal 2002 and $9.0 million
during fiscal 2001. The fiscal 2002 loss primarily resulted from our 22% equity
interest in Gemini Voice. We anticipate that our investments accounted for under
the equity method will continue to recognize operating losses, which will result
in future charges to earnings as we record our proportionate share of such
losses. For those investments that were impaired completely in fiscal 2001, we
have ceased recording our share of losses incurred by the investee.

         Foreign Currency Gain or Loss. Foreign currency loss during fiscal 2002
and 2001 was approximately $0.1 million for each year. This variance was the
result of unfavorable exchange rate fluctuations in the Mexican peso compared to
the United States dollar.

         Net Gain on Liquidation of Debtor Subsidiaries. During fiscal 2002, we
recorded a net gain on liquidation of debtor subsidiaries of $16.1 million
related to (i) a write down of long-lived assets of $8.1 million, (ii) an
accrual estimate of $0.5 million for the costs of liquidating substantially all
of the assets of the debtor subsidiaries, (iii) $1.5 million in cash
expenditures to settle administrative claims associated with the bankruptcy,
(iv) a gain on the write off of capital lease obligations of $7.7 million, (v) a
net gain on the write off of debtor subsidiary assets and liabilities of $17.8
million under liquidation accounting and (vi) a gain of $0.7 million from the
deconsolidation of the debtor subsidiaries assets.

         Other (income) expense. During fiscal 2002, we recorded other income,
net of other expense of approximately $0.7 million compared to other expense,
net of other income of approximately $0.3 million in fiscal 2001. The net gain
recorded in fiscal 2002 is related to (i) a $0.4 million gain on the receipt of
liquidation investment proceeds from Launch Center 39, an investment written off
in the prior fiscal year and (iv) a $0.3 million net gain on the sale of our
indirect non-debtor subsidiary, e.Volve de Mexico. In a stock purchase agreement
dated February 28, 2002, a wholly owned subsidiary of e.Volve, e.Volve de Mexico
was sold to a company that is owned by one or more former employees of the
subsidiary. The transaction closed on April 12, 2002. The buyer acquired
telecommunications assets and assumed certain liabilities of e.Volve de Mexico
and received a payment of approximately $70,000. The net expense for fiscal 2001
of approximately $0.3 million is primarily related to Delaware franchise tax
expense for the period.

                                       21

<PAGE>

         LIQUIDITY AND CAPITAL RESOURCES

         At June 30, 2003, we had consolidated current assets of $4.3 million,
including cash and cash equivalents of approximately $3.9 million and net
working capital of $3.8 million. Historically, we have funded our subsidiaries'
operations primarily through the proceeds of private placements of our common
and preferred stock and borrowings under loan and capital lease agreements. We
do not currently believe that either of these funding sources will be available
in the near term. Principal uses of cash have been to fund (i) operating losses;
(ii) acquisitions and strategic business opportunities; (iii) working capital
requirements and (iv) expenses related to the bankruptcy plan administration
process. Due to our financial performance, the lack of stability in the capital
markets and the economy's downturn, our only current source of funding is
expected to be cash on hand.

         Assuming we complete a transaction within the next year, with no
current return on that transaction, given our current obligations, we expect to
have approximately $1.7 million of cash available for funding potential business
opportunities. Current obligations include (i) funding working capital, (ii)
funding the liquidating trust and (iii) funding the Qwest litigation. No
assurance can be given that we will be able to deploy any remaining cash assets
or that if deployed we can continue as a going concern with the new business
model.

         In connection with the amended plan being confirmed by the Delaware
Bankruptcy Court and becoming effective on April 3, 2002, the credit facility
was converted into a new secured note in the principal amount of approximately
$2.5 million, representing the principal amount of the debtors-in-possession
financing, certain payroll expenses, accrued interest and applicable attorneys'
fees. Subsequent to June 30, 2002, the new secured note was amended to
approximately $2.9 million, representing additional trust funding, certain
payroll expenses and applicable attorneys' fees. The new secured note is
guaranteed by the debtor subsidiaries under an agreement in which the debtor
subsidiaries have pledged substantially all of their remaining assets as
collateral. During fiscal 2003, we provided additional funding of $0.5 million
to the liquidating trust. A new secured note of approximately $3.3 million to
the liquidating trust was signed on May 15, 2003. Interest for the new secured
note is accrued on a monthly basis. Due to the uncertainty surrounding the
collection of the new secured note, it has been fully reserved.

         We currently anticipate that we will not generate any revenue from
operations in the near term based on (i) the termination of the operations of
our debtor subsidiaries, which have historically provided all of our significant
revenues on a consolidated basis, and (ii) the uncertainties surrounding other
potential business opportunities that we may consider, if any. However, if we
choose to purchase a greater than 50% interest in Paciugo (such as the
acquisition of the Subsequent Interest), we expect to consolidate its revenues
and operations into our consolidated financial statements at that time. As
previously discussed, we do not currently anticipate exercising our option to
acquire the Subsequent Interest. In the meantime, we will continue to record
other income from the provision of the Support Services to Paciugo as agreed
upon in the Purchase Agreement. However, there can be no assurances as to the
continuation of these payments, as Paciugo has not made the payment due for
September of 2003 due to disagreements between us and Paciugo regarding these
monthly payments. For further details regarding these disputes, see the section
entitled "Our Interest in Paciugo."

         As noted above, we do not believe that any of the traditional funding
sources will be available to us and that our only option will likely be cash on
hand. Consequently, our failure to (i) purchase the Subsequent Interest or any
additional interest in Paciugo (ii) implement a successful business plan for
Paciugo and (iii) identify other potential business opportunities; if any, will
jeopardize our ability to continue as a going concern. Due to these factors, we
are unable to determine whether current available financing will be sufficient
to meet the funding requirements of (x) our debtor subsidiaries bankruptcy plan
administration process and (y) our ongoing general and administrative expenses.
No assurances can be given that adequate levels of financing will be available
to us on acceptable terms, if at all.

         Our debtor subsidiaries filed bankruptcy proceedings under the
Bankruptcy Code. As the ultimate parent, we agreed to provide our debtor
subsidiaries with up to $1.6 million in secured debtors-in-possession financing.
Immediately prior to the confirmation hearing, we increased this credit facility
to approximately $1.9 million, which was advanced as of March 31, 2002. The
credit facility made funds available to permit the debtor subsidiaries to pay
employees, vendors, suppliers,

                                       22

<PAGE>

customers and professionals consistent with the requirements of the Bankruptcy
Code. The credit facility provided for interest at the rate of prime plus 3.0%
per annum and provided "super-priority" lien status, meaning that we had a valid
first lien, pursuant to the Bankruptcy Code, on substantially all of the debtor
subsidiaries' assets. In addition, the credit facility maintained a default
interest rate of prime plus 5.0% per annum.

         The accompanying consolidated financial statements have been prepared
assuming that we will continue as a going concern. The financial statements do
not include any adjustments that might result should we be unable to continue as
a going concern. No assurances can be given that we will continue as a going
concern.

         The net cash provided by or used in operating, investing, and financing
activities for the years ended June 30, 2003, 2002, and 2001, is summarized
below:

         Cash used in operating activities in fiscal 2003, totaled approximately
$3.4 million as compared to approximately $6.2 million in fiscal 2002. During
fiscal 2003, cash flow used by operating activities primarily resulted from
operating losses, net of non-cash charges, totaling approximately $2.9 million,
and an increase in the note receivable and other receivables for funding the
debtor subsidiaries bankruptcy proceedings of approximately $0.1 million, and
reductions in accrued expenses of $0.4 million. During fiscal 2002, cash flow
used by operating activities primarily resulted from operating losses, net of
non-cash charges, totaling $10.9 million, an decrease in accounts receivable of
$3.6 million, increase in prepaid expenses of $0.3 million, decrease in
restricted cash of $0.2 million, a net increase in accounts payable and accrued
liabilities of $8.3 million.

         Net cash used in investing activities was approximately $2.5 million in
fiscal year 2003. Net cash provided by investing activities was approximately
$0.5 million in fiscal 2002. Cash flows used in investing activities in the
current year period consisted primarily of our Initial Interest in Paciugo.
Investing activities in fiscal 2002 consisted primarily of a distribution from
an investment of approximately $0.4 million.

         Cash flows from financing activities were zero in fiscal 2003. Cash
flows used by financing activities totaled $1.1 million in fiscal 2002 and cash
flows provided by financing activities was $4.1 million in fiscal 2001. Fiscal
2002 financing activities consisted of capital lease payments of $1.1 million.

         CRITICAL ACCOUNTING STANDARDS

         Basis of Presentation

         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 and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The consolidated financial statements include our accounts and those
of our wholly owned subsidiaries.

         The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
applicable to a going concern. Our consolidated financial statements presented
as of June 30, 2001, do not include the accounts of iGlobal due to our
management's decision to abandon iGlobal operations during the quarter ended
March 31, 2001. At June 30, 2002, the assets and liabilities of the debtor
subsidiaries have been deconsolidated, as the liquidating trust controls their
assets. We have recorded an accrual of approximately $0.3 million in the
accompanying financial statements for the estimated costs of liquidating
substantially all of the assets and liabilities of these entities. The estimated
realizable values and settlement amounts may be different from the proceeds
ultimately received or payments ultimately made.

         Principles of Consolidation and Accounting for Ownership in
Subsidiaries. We account for our ownership interests in subsidiaries under three
methods: consolidation, equity method and cost method. The applicable accounting
method is generally determined based on our voting interest in the subsidiary,
as well as our degree of influence over each of the subsidiaries.

         Consolidation. Companies in which we directly or indirectly own more
than 50% of the outstanding voting securities are generally accounted for under
the consolidation method of accounting. Under this method, a subsidiary's
accounts are reflected within our consolidated financial statements, except as
discussed in the "Basis of Presentation" above.

                                       23

<PAGE>

         Equity Method. Subsidiaries whose results are not consolidated, but
over whom we exercise significant influence, are accounted for under the equity
method of accounting. Whether or not we exercise significant influence with
respect to a subsidiary depends on an evaluation of several factors including,
among others, representation on the subsidiary's Board of Directors and
ownership level, which is generally a 20% to 50% interest in the voting
securities of the subsidiary, including voting rights associated with our
holdings in common stock, preferred stock and other convertible instruments in
the subsidiary. Under the equity method of accounting, a subsidiary's accounts
are not reflected within the accompanying consolidated statements of operations.
Our proportionate share of each investment's operating earnings and losses are
included in the caption "Equity in loss of investments" in the accompanying
consolidated statements of operations.

         Cost Method. Subsidiaries not accounted for under either the
consolidation or the equity method of accounting are accounted for under the
cost method of accounting. Under this method, our share of the earnings or
losses of these companies is not included in the accompanying consolidated
statements of operations. In certain cases, we have representation on the Board
of Directors of the subsidiaries accounted for under the cost method.

         EFFECTS ON INFLATION

         We do not believe that the businesses of our subsidiaries are impacted
by inflation to a significantly different extent than is the general economy.
However, there can be no assurances that inflation will not have a material
effect on operations in the future.

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         We are exposed to the impact of interest rates and other risks. We have
investments in money market funds of approximately $3.9 million at June 30,
2003. We believe that the effects of changes in interest rates are limited and
would not materially affect profitability.

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Please refer to pages F-1 to F-42.

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

         On July 30, 2002, our Audit Committee and Board of Directors
unanimously recommended the dismissal of Arthur Andersen LLP as our independent
accountant. Arthur Andersen previously served as our outside auditor since
January 2, 2001. For the year ended June 30, 2001, Arthur Andersen's audit
report did not contain any adverse opinion or a disclaimer of opinion nor was it
qualified or modified as to audit scope or accounting principles, except that
such report did state that substantial doubt existed that we could continue as a
going concern.

         During the period from January 2, 2001, through the end of our fiscal
year ended June 30, 2001, and the subsequent interim period from July 1, 2001,
to July 30, 2002 (the date of the referenced dismissal), there were no
disagreements between us and Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Arthur
Anderson, would have caused it to make reference to the subject matter of the
disagreement in its report. During the period from January 2, 2001, through the
end of our fiscal year ended June 30, 2001, and the subsequent interim period
from July 1, 2001, to July 30, 2002 (the date of the referenced dismissal),
there have been no reportable events (as defined in regulation S-K Item
304(a)(1)(v)).

         Effective July 30, 2002, Grant Thornton LLP was approved by our Audit
Committee and Board of Directors as our new independent accountant. We have not
previously consulted with Grant Thornton concerning any accounting, auditing or
reporting matter.

ITEM 9A.      CONTROLS AND PROCEDURES

         We, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures. Based on that evaluation, the CEO and CFO have
concluded that our disclosure controls and procedures were effective as of June
30, 2003, to ensure that information required to be disclosed by us in reports
that we file or submit under

                                       24

<PAGE>

the Securities Exchange Act of 1934 was recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.

         There were no changes in our internal controls over financial reporting
during our fiscal fourth quarter ended June 30, 2003, that have materially
affected, or are reasonably likely to materially affect our internal controls
over financial reporting.

                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information called for by Item 10 will be set forth under the caption
"Election of Directors" in our 2003 Proxy Statement, which will be filed not
later than 120 days after the end of our fiscal year ended June 30, 2003, and
which is incorporated herein by this reference.

ITEM 11.      EXECUTIVE COMPENSATION

         Information called for by Item 11 will be set forth under the caption
"Executive Compensation and Other Matters" in our 2003 Proxy Statement, which
will be filed not later than 120 days after the end of our fiscal year ended
June 30, 2003, and which is incorporated herein by this reference.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
              RELATED STOCKHOLDER MATTERS

         Information called for by Item 12 will be set forth under the caption
"Security Ownership of Directors, Management and Principal Stockholders" in our
2003 Proxy Statement, which will be filed not later than 120 days after the end
of our fiscal year ended June 30, 2003, and which is incorporated herein by this
reference.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information called for by Item 13 will be set forth under the caption
"Certain Relationships and Related Transactions" in our 2003 Proxy Statement,
which will be filed not later than 120 days after the end of our fiscal year
ended June 30, 2003, and which is incorporated herein by this reference.

ITEM 14.      PRINCIPAL ACCOUNTANT FEES AND SERVICES

         Information called for by Item 14 will be set forth under the caption
"Principal Accountant Fees and Services" in our 2003 Proxy Statement, which will
be filed not later than 120 days after the end of our fiscal year ended June 30
2003, and which is incorporated herein by reference.

                                     PART IV

ITEM 15.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)      The following documents are filed as part of this report.

         1.       Financial Statements:

         Our Consolidated Financial Statements of as of June 30, 2003, 2002 and
         2001

         2.       Financial Statement Schedules

         Schedule II-Valuation and Qualifying Accounts and Reserves

                                       25
<PAGE>

         3.       Exhibits

<TABLE>
<CAPTION>
                                                                          INCORPORATED BY REFERENCE
EXHIBIT                                                               ---------------------------------         FILED
NUMBER                         DESCRIPTION                            FORM         DATE          NUMBER       HEREWITH
-------      ----------------------------------------------------     ----      ----------       ------       --------
<S>          <C>                                                      <C>       <C>              <C>          <C>
  2.1        Proposed Disclosure Statement with respect to the        10-Q         2/14/02         2.1
             Joint Plan by AxisTel Communications, Inc., its
             Affiliated Debtors and Novo Networks, Inc. dated
             December 31, 2001 iTem

  2.2        Joint Plan of Liquidation by and between AxisTel         10-Q         2/14/02         2.2
             Communications, Inc., Novo Networks Global Services,
             Inc., Novo Networks, International Services, Inc.,
             e.Volve, Technology Group, Inc., Novo Networks
             Operating Corp., Novo Networks Metro services, Inc.,
             and Novo Networks, Inc. dated December 31, 2001

  3.1        Amended and Restated Certificate of Incorporation of     10-Q       5/15/2000         3.1
             eVentures Group, Inc.

  3.2        Amended and Restated Certificate of Designation of         10      12/20/1999         3.6
             Rights, Preferences and Privileges of Series A
             Convertible Preferred Stock, dated October 14, 1999.

  3.3        Certificate of Designation of Rights, Preferences          10      12/20/1999         3.7
             and Privileges Series B Convertible Preferred Stock,
             dated as of November 10, 1999

  3.4        Certificate of Amendment, dated as of December 15,         10      12/20/1999         3.8
             1999, to the Certificate of Designation of Rights,
             Preferences and Privileges of Series B Convertible
             Preferred Stock.

  3.5        Certificate of Designation, Preferences and Rights       10/a        3/8/2000         3.9
             of Series C Convertible Preferred Stock, dated as of
             February 22, 2000.

  3.6        Amendment to Amended and Restated Certificate of         10-Q       2/14/2001         3.1
             Incorporation, filed with the Secretary of State of
             the State of Delaware on November 13, 2000.

  3.7        Amendment to Amended and Restated Certificate of         10-Q       2/14/2001         3.2
             Incorporation, filed with the Secretary of State of
             the State of Delaware on December 11, 2000.

  3.8        Certificate of Designation, Rights and Preferences       10-Q       2/14/2001         4.1
             of Series D Convertible Preferred Stock, filed on
             December 5, 2000.
</TABLE>

                                       26

<PAGE>

<TABLE>
<CAPTION>
                                                                          INCORPORATED BY REFERENCE
EXHIBIT                                                               ---------------------------------         FILED
NUMBER                         DESCRIPTION                            FORM         DATE          NUMBER       HEREWITH
-------      ----------------------------------------------------     ----      ----------       ------       --------
<S>          <C>                                                      <C>       <C>              <C>          <C>
  3.9        Amended and Restated By-Laws of eVentures Group, Inc.    10-Q       5/15/2000         3.2

  4.1        Registration Rights Agreement, dated as of                8-K       10/7/1999         4.1
             September 22, 1999, among the Registrant and the
             persons and entities set forth on Schedule 1 thereto
             (the "First Registration Rights Agreement).

  4.2        Addendum to the First Registration Rights Agreement,     10/A        3/8/2000         4.2
             dated as of October 19, 1999, among eVentures Group,
             Inc., the persons set forth n Schedule 1 thereto and
             the other parties to the First Registration Rights
             Agreement.

  4.3        Registration Rights Agreement, dated as of               10/A        3/8/2000         4.3
             November 24, 1999, between eVentures Group, Inc. and
             the person and entities signatories thereto, as
             holders of shares of Series B Convertible Preferred
             Stock.

  4.4        Letter Agreement, dated December 15, 1999, to the        10/A        3/8/2000         4.4
             parties to the Registration Rights Agreement dated
             as of September 27, 1999.

  4.5        Registration Rights Agreement, dated as of               10/A        3/8/2000         4.5
             December 31, 1999, between eVentures Group, Inc. and
             the persons and entities signatories thereto, as
             holders of shares of Series C Convertible Preferred
             Stock.

  4.6        Registration Rights Agreement, dated as of March 10,      8-K       3/27/2000         4.1
             2000, among eVentures Group, Inc. and the persons
             and entities listed on Schedule 1 thereto.

  4.7        Registration Rights Agreement, dated as of April 4,      10-Q       5/15/2000         4.2
             2000, by and among eVentures Group, Inc. and the
             signatories thereto.

  4.8        Registration Rights Agreement, dated as of May 26,       10-K       9/28/2000         4.8
             2000, by and among eVentures Group, Inc., Andrew
             Pakula and Laura Berland.

  4.9        Registration Rights Agreement, dated as of June 16,      10-K       9/28/2000         4.9
             2000, between eVentures Group, Inc. and U.S.
             Telesource.
</TABLE>

                                       27

<PAGE>

<TABLE>
<CAPTION>
                                                                          INCORPORATED BY REFERENCE
EXHIBIT                                                               ---------------------------------         FILED
NUMBER                         DESCRIPTION                            FORM         DATE          NUMBER       HEREWITH
-------      ----------------------------------------------------     ----      ----------       ------       --------
<S>          <C>                                                      <C>       <C>              <C>          <C>
 4.10        Registration Rights Agreement, dated as of               10-Q       2/14/2001        10.1
             December 5, 2000, among Rock Creek Partners, II,
             Ltd., CB Private Equity Partners L.P. and eVentures
             Group, Inc.

  9.1        Voting Agreement, dated as of December 5, 2000,          10-Q       2/14/2001           9
             among Rock Creek Partners II, Ltd, CB Private Equity
             Partners L.P. and eVentures Group, Inc.

 10.1        Securities Purchase Agreement, dated as of June 11,      10/A        3/8/2000        10.1
             1998, among Orix Global Communications, Inc.,
             certain of its shareholders and the purchasers named
             thereunder and Exhibits thereto.

 10.2        Debenture, dated as of June 11, 1998.                      10      12/20/1999        10.2

 10.3        Letter Agreement, dated as of August 19, 1998
             between Orix Global Communications and Infinity
             Investors Limited.

 10.4        Debenture, dated as of August 19, 1998.                    10      12/20/1999        10.4

 10.5        Letter Agreement, dated as of February 9, 1999             10      12/20/1999        10.5
             between Orix Global Communications and Infinity
             Investors Limited.

 10.6        Debenture, dated as of February 9, 1999.                   10      12/20/1999        10.6

 10.7        Letter Agreement, dated as of April 15, 1999 among         10      12/20/1999        10.7
             Orix Global Communications, Inc., Infinity Investors
             Limited and the Founders (as defined therein).

 10.8        Amended and Restated Debenture, dated as of                10      12/20/1999        10.8
             April 15, 1999.

 10.9        Letter Agreement, dated as of April 29, 1999 between       10       12/201999        10.9
             Orix Global Communications and Infinity Investors
             Limited.

 10.10       Debenture, dated as of April 29, 1999.                     10      12/20/1999       10.10

 10.11       Letter Agreement, dated as of April 30, 1999,              10      12/20/1999       10.11
             between Orix Global Communications, Inc. and
             Infinity Investors Limited.

 10.12       Debenture, dated as of April 30, 1999.                     10      12/20/1999       10.12

 10.13       Note, dated as of August 20, 1999.                       10/A        3/8/2000       10.13
</TABLE>

                                       28

<PAGE>

<TABLE>
<CAPTION>
                                                                          INCORPORATED BY REFERENCE
EXHIBIT                                                               ---------------------------------         FILED
NUMBER                         DESCRIPTION                            FORM         DATE          NUMBER       HEREWITH
-------      ----------------------------------------------------     ----      ----------       ------       --------
<S>          <C>                                                      <C>       <C>              <C>          <C>
 10.14       Promissory Note, dated as of March 2, 2000.              10/A        3/8/2000       10.14

 10.15       Warrant Agreement, dated as of March 2, 2000,            10/A        3/8/2000       10.15
             between i2v2.com Inc. and eVentures Group, Inc.

 10.16       Lease Agreement, dated December, 1998, between             10      12/20/1999       10.13
             AxisTel International, Inc. and Evergreen America
             Corporation.

 10.17       Lease Agreement, dated November 24, 1997, between          10      12/20/1999       10.14
             Orix Global Communications, Inc. and Trust F/3959 of
             Banco del Atlantico.

 10.18       Assignment Agreement, dated April 1, 1998, among           10      12/20/1999       10.15
             Orix Global Communications, Inc., Latin Gate de
             Mexico S.A. de C.V. and Trust F/3959 of Banco del
             Atlantico.

 10.19       Letter Agreement, dated April 3, 2000, between           10-K       9/28/2000       10.26
             Marcus & Partners, L.P. and eVentures Group, Inc.

 10.20       Guaranty Agreement by eVentures Group, Inc. as             10      12/20/1999       10.20
             inducement to Telecommunications Finance Group to
             provide a lease to AxisTel Communications, Inc.,
             dated as of October 13, 1999.

 10.21       Amended and Restated 1999 Omnibus Securities Plan,       10/A        3/8/2000       10.23
             dated as of September 22, 1999. (compensatory
             agreement)

 10.22       Employment Agreement, dated as of April 4, 2000,         10-Q       5/15/2000        10.5
             between eVentures Group, Inc. and Daniel J. Wilson.
             (compensatory agreement)

 10.23       Amendment No. 1 to Employment Agreement between          10-Q      11/14/2000        10.2
             eVentures Group, Inc. and Daniel J. Wilson, dated as
             of September 25, 2000.

 10.24       Stock Option Agreement, dated as of April 4, 2000        10-Q       5/15/2000        10.6
             between eVentures Group, Inc. and Daniel J. Wilson.
             (compensatory agreement)

 10.25       Employment Agreement, dated as of April 4, 2000,         10-Q       5/15/2000        10.7
             between eVentures Group, Inc. and Chad E. Coben.
             (compensatory agreement)
</TABLE>

                                       29

<PAGE>

<TABLE>
<CAPTION>
                                                                          INCORPORATED BY REFERENCE
EXHIBIT                                                               ---------------------------------         FILED
NUMBER                         DESCRIPTION                            FORM         DATE          NUMBER       HEREWITH
-------      ----------------------------------------------------     ----      ----------       ------       --------
<S>          <C>                                                      <C>       <C>              <C>          <C>
 10.26       Amendment No. 1 to Employment Agreement between          10-Q      11/14/2000        10.5
             eVentures Group, Inc. and Chad E. Coben, dated as of
             September 25, 2000.

 10.27       Stock Option Agreement, dated as of April 4, 2000        10-Q       5/15/2000        10.8
             between eVentures Group, Inc. and Chad E. Coben.
             (compensatory agreement).

 10.28       Employment Agreement, dated as of April 4, 2000,         10-Q       5/15/2000        10.9
             between eVentures Group, Inc. and Barrett N.
             Wissman. (compensatory agreement).

 10.29       Stock Option Agreement, dated as of April 4, 2000        10-Q       5/15/2000       10.10
             between eVentures Group, Inc. and Barrett N.
             Wissman. (compensatory agreement).

 10.30       Employment Agreement, dated as of April 17, 2000,        10-Q       5/15/2000       10.13
             between eVentures Group, Inc. and Susie C. Holliday.
             (compensatory agreement).

 10.31       Amendment No. 1 to Employment Agreement between          10-Q      11/14/2000        10.6
             eVentures Group, Inc. and Susie C. Holliday, dated
             as of September 25, 2000.

 10.32       Stock Option Agreement, dated as of April 17, 2000       10-Q       5/15/2000       10.14
             between eVentures Group, Inc. and Susie C. Holliday.
             (compensatory agreement).

 10.33       Amendment to Non-Qualified Stock Option Agreement        10-Q      11/14/2000        10.7
             between eVentures Group, Inc. and Susie C. Holliday,
             dated October 2, 2000.

 10.34       Employment Agreement, dated as of March 10, 2000,        10-K       9/28/2000       10.44
             between IGS Acquisition Corporation and David N.
             Link. (compensatory agreement).

 10.35       Amendment No. 1 to Employment Agreement between          10-Q      11/14/2000        10.8
             eVentures Group, Inc. and David N. Link, dated as of
             September 25, 2000.

 10.36       Common Stock Subscription Agreement, dated as of         10-Q       5/15/2000       10.15
             April 4, 2000, by and among eVentures Group, Inc.
             and the signatories thereto.

10.37A       Form of New Directors and Officers Indemnification       10-K       9/28/2000      10.49A
             Agreement.
</TABLE>

                                       30

<PAGE>

<TABLE>
<CAPTION>
                                                                          INCORPORATED BY REFERENCE
EXHIBIT                                                               ---------------------------------         FILED
NUMBER                         DESCRIPTION                            FORM         DATE          NUMBER       HEREWITH
-------      ----------------------------------------------------     ----      ----------       ------       --------
<S>          <C>                                                      <C>       <C>              <C>          <C>
10.37B       Schedule of Parties to New Directors and Officers        10-K       9/28/2000       10.49B
             Indemnification Agreement.

10.38A       Form of Incumbent Directors and Officers                 10-K       9/28/2000       10.50A
             Indemnification Agreement.

10.38B       Schedule of Parties to Incumbent Directors and           10-K       9/28/2000       10.50B
             Officers Indemnification Agreement.

 10.39       Securities Purchase Agreement, dated as of May 3,        10-Q       5/15/2000        10.23
             2000, by and among PhoneFree.com, Inc. and the
             purchasers listed on Schedule A attached thereto.

 10.40       Issuer Option Agreement, dated as of April 10, 2000,     10-Q       5/15/2000        10.16
             between eVentures Group, Inc. and Samuel L. Litwin.
             (compensatory agreement).

 10.41       Issuer Option Agreement, dated as of April 10, 2000,     10-Q       5/15/2000        10.17
             between eVentures Group, Inc. and Mitchell C.
             Arthur. (compensatory agreement)

 10.42       2001 Equity Incentive Plan                               10-Q       5/15/2000         10.1

             Employment Agreement, dated as of July 17, 2001          10-K       9/28/2001        10.42
             between Novo Networks Operating Corp. and Steven R.
             Loglisci.

             Consulting Agreement, dated as of July 30, 2001,         10-K       9/28/2001        10.42
             between Novo Networks Operating Corp. and John L.
             Higgins.

             Employment Agreement, dated as of March 10, 2000,        10-K       9/28/2001        10.42
             between IGS Acquisition Corporation and Patrick G.
             Mackey. (compensatory agreement)

             Amendment No. 1 to Employment Agreement between          10-K       9/28/2001        10.42
             eVentures Group, Inc. and Patrick G. Mackey, dated
             as of September 25, 2000.

             Amendment No. 2 to Employment Agreement between Novo     10-K       9/28/2001        10.42
             Networks, Inc. and Patrick G. Mackey, dated as of
             January 10, 2001.
</TABLE>

                                       31

<PAGE>

<TABLE>
<CAPTION>
                                                                          INCORPORATED BY REFERENCE
EXHIBIT                                                               ---------------------------------         FILED
NUMBER                         DESCRIPTION                            FORM         DATE          NUMBER       HEREWITH
-------      ----------------------------------------------------     ----      ----------       ------       --------
<S>          <C>                                                      <C>       <C>              <C>          <C>
             Credit and Guaranty Agreement dated as of August 9,      10-K       9/28/2001       10.42
             2001 among Axistel Communications, Inc., a
             corporation organized and existing Under the laws of
             Delaware and a debtor and debtor-in-possession
             ("AxisTel"), Novo Networks Global Services, Inc., a
             corporation organized and existing under the laws of
             Delaware and a debtor and debtor-in-possession
             ("NNGS"), Novo Networks International Services,
             Inc., a corporation organized and existing under the
             laws of Delaware and a debtor and
             debtor-in-possession ("NNIS"), and e.Volve
             Technology Group, Inc., a corporation organized and
             existing under the laws of Nevada and a debtor and
             debtor-in-possession ("e.Volve"), Novo Networks
             Operating Corp., a corporation organized and
             existing under the laws of Delaware and a debtor and
             debtor-in-possession ("NNOC" and collectively with
             AxisTel, NNGS, NNIS and e.Volve, the "Borrowers"),
             Novo Networks (UK) Ltd., a corporation organized and
             existing under the laws of the United Kingdom
             ("NNL"), Web2dial Communications, Inc., a
             corporation organized and existing under the laws of
             Delaware ("Web2Dial"), Servicios Profesionales
             J.R.J.S., S.A. DE C.V., a corporation organized and
             existing under the laws of Mexico ("Servicios"),
             Novo Networks Metro Services, Inc., a corporation
             organized and existing under the laws of Delaware
             ("NNMS"), Novo Networks Media Services, Inc., a
             corporation organized and existing under the laws of
             Delaware ("NNMedia"), Novo Networks Metro Services
             (Virginia), Inc., a corporation organized and
             existing under the laws of Virginia ("NNMSV"), and
             e.Volve Technology Group De Mexico, S.A. DE C.V., a
             corporation organized and existing under the laws of
             Mexico ("EGM" and collectively with NNL, Web2Dial,
             Servicios, NNMS, NNMedia and NNMSV, the
             "Guarantors"), and Novo Networks, Inc., a
             corporation organized and existing under the laws of
             Delaware (the "Lender").

 10.43       Switched Services Agreement, dated April 29, 1998,     10-K/A         2/19/02       10.43
             by and between Orix Global Communications, Inc. and
             Qwest Communications Corporation.
</TABLE>

                                       32

<PAGE>

<TABLE>
<CAPTION>
                                                                        INCORPORATED BY REFERENCE
EXHIBIT                                                             ---------------------------------         FILED
NUMBER                         DESCRIPTION                          FORM         DATE          NUMBER       HEREWITH
-------      ----------------------------------------------------   ----      ----------       ------       --------
<S>          <C>                                                    <C>       <C>              <C>          <C>
 10.44       Carrier Service Agreement for International            10-K/A      2/19/02        10.44
             Terminating Traffic, dated September 17, 1998, by
             and between Qwest Communications Corporation and
             Orix Global Communications, Inc.

 10.45       Qwest Communications Corporation Carrier Service       10-K/A      2/19/02        10.45
             Agreement, dated April 12, 1999, by and between
             Qwest Communications Corporation and Orix Global
             Communications, Inc.

 10.46       IRU Agreement, dated September 30, 1999, by and        10-K/A      2/19/02        10.46
             between Qwest Communications Corporation and e.Volve
             Technologies.

 10.47       Amendment No. 1 to IRU Agreement, dated June 16,       10-K/A      2/19/02        10.47
             2000, by and between Qwest Communications
             Corporation, e.Volve Technologies and AxisTel
             Communications, Inc.

 10.48       Letter Agreement, dated June 19, 2000, by and          10-K/A      2/19/02        10.48
             between Qwest Communications Corporation and Axistel
             Communications, Inc.

 10.49       Purchase Agreement by and among Novo Networks, Inc.,      8-K      1/03/03         10.1
             Paciugo Management LLC, Ad Astra Holdings LP, Ugo
             Ginatta, Cristiana Ginatta and Vincent Ginatta

 10.50       Amendment No. 2 to That Certain Agreement Between        10-Q      5/15/03         10.1
             Barrett N. Wissman and Novo Networks, Inc. Dated
             April 4, 2000.

 10.51       Nonqualified Stock Option Agreement between the          10-Q      5/15/03         10.1
             Registrant and Barrett N. Wissman

 10.52       Nonqualified Stock Option Agreement between the          10-Q      5/15/03         10.2
             Registrant and Steven W. Caple

 10.53       Nonqualified Stock Option Agreement between the          10-Q      5/15/03         10.3
             Registrant and Jan Robert Horsfall

 10.54       Nonqualified Stock Option Agreement between the          10-Q      5/15/03         10.4
             Registrant and John Stevens Robling
</TABLE>

                                       33

<PAGE>

<TABLE>
<CAPTION>
                                                                        INCORPORATED BY REFERENCE
EXHIBIT                                                             ---------------------------------         FILED
NUMBER                         DESCRIPTION                          FORM         DATE          NUMBER       HEREWITH
-------      ----------------------------------------------------   ----      ----------       ------       --------
<S>          <C>                                                    <C>       <C>              <C>          <C>
 10.55       Nonqualified Stock Option Agreement between the
             Registrant and Russell W. Beiersdorf                   10-Q        5/15/03         10.5

 10.56       Nonqualified Stock Option Agreement between the        10-Q        5/15/03         10.6
             Registrant and Patrick Mackey

 10.57       Nonqualified Stock Option Agreement between the        10-Q        5/15/03         10.7
             Registrant and Susie C. Holliday

 11.1        Statement re: computation of per share earnings
             (Information regarding the computation of loss per
             share is set forth in the Consolidated Financial
             Statements).                                                                                          X


 21.1        Subsidiaries of Novo Networks, Inc.                                                                   X

 23.1        Consent of Grant Thornton LLP                                                                         X

 23.2        Consent of Arthur Andersen LLP                                                                        *

 31.1        Certification of the Principal Executive Officer                                                      X
             Pursuant to Section 302 of the Sarbanes-Oxley Act of
             2002

 31.2        Certification of the Principal Accounting Officer                                                     X
             Pursuant to Section 302 of the Sarbanes-Oxley Act of
             2002

 32.1        Certification Pursuant to Section 906 of the                                                          X
             Sarbanes-Oxley Act of 2002
</TABLE>

* Not available

         (b)      During the quarter ended June 30, 2003, the Company filed no
Current Reports on Form 8-K. However, on August 14, 2003, we filed a Current
Report on Form 8-K disclosing under Item 5 thereof the resignation of Jan Robert
Horsfall as director and Susie C. Holliday as our Senior Vice President of
Accounting.

                                       34

<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 to be signed on
its behalf by the undersigned, thereunto duly authorized in Dallas, Texas on the
29th day of September, 2003.

                                        Novo Networks, Inc.

                                        By: /s/ STEVEN W. CAPLE
                                           -------------------------------------
                                        Name: Steven W. Caple
                                        Title: President

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed by the following persons in the capacities
and on the dates indicated:

<TABLE>
<CAPTION>
                 SIGNATURE                                             TITLE                                  DATE
--------------------------------------------        --------------------------------------------       ------------------
<S>                                                 <C>                                                <C>
/s/ STEVEN W. CAPLE                                 President                                          September 29, 2003
--------------------------------------------        (Principal Executive Officer)
Steven W. Caple

/s/ PATRICK G. MACKEY                               Senior Vice President                              September 29, 2003
--------------------------------------------        (Principal Financial and Accounting Officer)
Patrick G. Mackey

/s/ BARRETT N. WISSMAN                              Chairman and Director                              September 29, 2003
--------------------------------------------
Barrett N. Wissman

/s/ RUSSELL BEIERSDORF                               Director                                          September 29, 2003
--------------------------------------------
Russell Beiersdorf

/s/ JOHN STEVENS ROBLING, JR.                       Director                                           September 29, 2003
--------------------------------------------
John Stevens Robling, Jr.
</TABLE>

                                       35

<PAGE>

                      NOVO NETWORKS, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                                       <C>
Report of Independent Certified Public Accountants for the fiscal years ended
         June 30, 2003 and 2002.........................................................                   F-2

Report of Independent Public Accountants for the fiscal year ended
         June 30, 2001..................................................................                   F-3

Consolidated Balance Sheets as of June 30, 2003 and 2002................................                   F-4

Consolidated Statements of Operations for the years ended
         June 30, 2003, 2002 and 2001...................................................                   F-5

Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
         June 30, 2003, 2002 and 2001...................................................                   F-6

Consolidated Statements of Cash Flows for the years ended
         June 30, 2003, 2002 and 2001...................................................                   F-8

Notes to Consolidated Financial Statements..............................................                  F-10

Report of Independent Certified Public Accountants on Schedule..........................                  F-28

Financial Statement Schedule:
         Schedule II - Valuation and Qualifying Accounts and Reserves...................                  F-30

Financial Statements of Paciugo Management, LLC.........................................                  F-31
</TABLE>

                                      F-1

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors of
Novo Networks, Inc.

We have audited the accompanying consolidated balance sheet of Novo Networks,
Inc. and subsidiaries (a Delaware corporation) as of June 30, 2003 and 2002 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the two 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 audit. The consolidated
financial statements of Novo Networks, Inc. as of June 30, 2001, and for the
year then ended were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those consolidated financial
statements in their report dated September 19, 2001, except that such report did
state that substantial doubt existed that Novo Networks could continue as a
going concern.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Novo Networks, Inc.
and subsidiaries as of June 30, 2003 and 2002, and the consolidated results of
their operations and their consolidated cash flows for the two years then ended,
in conformity with accounting principles generally accepted in the United States
of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, as discussed in Note 2 to the
financial statements, the Company has no operations, and no sources of capital
to fund business opportunities. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are described in Note 2. The financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.

Grant Thornton LLP
Dallas, Texas
August 29, 2003

                                      F-2

<PAGE>

 This report is a copy of the previously issued report and the auditor has not
                              reissued the report.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Novo Networks, Inc.:

         We have audited the accompanying consolidated balance sheet of Novo
Networks, Inc. and subsidiaries (a Delaware corporation) as of June 30, 2001 and
the related consolidated statements of operations, shareholders' equity
(deficit), 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 financial statements referred to above present
fairly, in all material respects, the financial position of Novo Networks, Inc.
and subsidiaries as of June 30, 2001, and the results of their operations and
their cash flows for the period then ended, in conformity with accounting
principles generally accepted in the United States.

         The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1(b) to the
financial statements, the Company has placed all its operating subsidiaries into
bankruptcy, which raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 2. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.

                               Arthur Andersen LLP

Dallas, Texas
September 19, 2001

                                      F-3

<PAGE>

                      NOVO NETWORKS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                      As of June 30,
                                                                                              ------------------------------
                                                                                                  2003              2002
                                                                                              -------------    -------------
<S>                                                                                           <C>              <C>
                                      ASSETS

CURRENT ASSETS
     Cash and cash equivalents.....................................................           $   3,894,081    $   9,871,305
     Note receivable and other receivables,
       net of allowance ($4,014,008 - 2003, $3,013,726 - 2002).....................                       -                -
     Prepaid expenses..............................................................                 441,940          275,324
                                                                                              -------------    -------------
                                                                                                  4,336,021       10,146,629
                                                                                              -------------    -------------
NON-CURRENT ASSETS
     Prepaid expenses..............................................................                  26,736          187,153
     Deposits......................................................................                   5,745            5,745
     Property and equipment, net...................................................                 379,783          526,775
     Equity investments............................................................               2,255,523          264,751
                                                                                              -------------    -------------
                                                                                                  2,667,787          984,424
                                                                                              -------------    -------------
                                                                                              $   7,003,808    $  11,131,053
                                                                                              =============    =============
                         LIABILITIES & STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable..............................................................           $       5,935    $      28,335
     Accrued other.................................................................                 496,443        1,841,465
     Customer deposits.............................................................                   2,000            2,000
                                                                                              -------------    -------------
                                                                                                    504,378        1,871,800
                                                                                              -------------    -------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
     Preferred stock, $0.00002 par value, $1,000 liquidation preference per
            share, authorized 25,000,000 for 2003 and 2002, issued
            and outstanding 27,480 and 26,839 for 2003 and 2002,
            liquidation value - $27,480,000 and $26,839,000 for 2003 and 2002......                       -                -
     Common stock, $0.00002 par value, authorized 200,000,000 for 2003
            and 2002, issued and outstanding, 52,323,701 for 2003 and 2002.........                   1,050            1,050
     Additional paid-in capital....................................................             257,165,054      256,511,879
     Accumulated deficit...........................................................            (250,666,674)    (247,221,732)
     Deferred compensation.........................................................                       -          (31,944)
                                                                                              -------------    -------------
                                                                                                  6,499,430        9,259,253
                                                                                              -------------    -------------
                                                                                              $   7,003,808    $  11,131,053
                                                                                              -------------    -------------
</TABLE>


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

                                      F-4

<PAGE>

                      NOVO NETWORKS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                        Fiscal Year Ended June 30,
                                            -----------------------------------------------
                                                2003             2002             2001
                                            -------------    -------------    -------------
<S>                                         <C>              <C>              <C>
Revenues.................................   $           -    $  10,486,982    $  72,031,554

Operating expenses:
  Direct costs...........................               -       14,614,766       70,807,489
  Selling, general and administrative
   expenses..............................       3,205,607       14,750,870       28,867,054
  Reorganization and restructuring
   charge................................               -                -        3,898,656
  Impairment loss........................               -        2,400,543      120,476,247
  Depreciation and amortization..........         149,567        1,370,958       20,453,633
                                            -------------    -------------    -------------
                                                3,355,174       33,137,137      244,503,079
                                            -------------    -------------    -------------
Loss from operations, before
     other (income) expense..............      (3,355,174)     (22,650,155)    (172,471,525)
Other (income) expense
  Interest income........................        (109,571)        (397,370)      (1,626,831)
  Interest expense.......................               -          466,965        1,224,455
  Loss in equity investments.............         509,228        1,720,000        9,023,882
  Foreign currency loss..................               -           98,135          130,511
  Net gain on liquidation of debtor
   subsidiaries..........................        (900,500)     (16,074,355)               -
  Other (income) expense.................         (62,563)        (668,993)         341,052
                                            -------------    -------------    -------------
                                                 (563,406)     (14,855,618)       9,093,069
                                            -------------    -------------    -------------

Net loss.................................      (2,791,768)      (7,794,537)    (181,564,594)

Imputed preferred dividend...............               -                -       (2,299,750)
Series D preferred dividends.............        (653,175)        (603,432)        (324,860)
                                            -------------    -------------    -------------
Net loss allocable to common
 shareholders............................   $  (3,444,943)   $  (8,397,969)   $(184,189,204)
                                            =============    =============    =============
Net loss per share - (basic and
 diluted)................................   $       (0.07)   $       (0.16)   $       (3.53)
                                            =============    =============    =============
Weighted average number of shares
     outstanding - (basic and diluted)...      52,323,701       52,323,701       52,222,671
                                            -------------    -------------    -------------
</TABLE>

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

                                      F-5

<PAGE>

                      NOVO NETWORKS, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                      Preferred Stock          Common Stock             Common Stock to be Issued
                                                     -----------------    ------------------------      --------------------------
                                                     Shares    Amount       Shares       Amount          Shares            Amount
                                                     -------   -------    ----------   -----------      ---------          -------
<S>                                                  <C>       <C>        <C>          <C>              <C>                <C>
Balance, July 1, 2000.............................    20,070   $     -    51,989,745   $     1,041        71,513           $     1
Settlement of iGlobal purchase....................         -         -             -             -       (71,513)               (1)
Amortization of deferred compensation.............         -         -             -             -             -                 -
Repayment on note receivable from shareholders....         -         -             -             -             -                 -
Foreclosure on note receivable from shareholders..         -         -      (171,911)            -                               -
Private placement of common and preferred stock...     7,000         -       450,001             9             -                 -
Imputed preferred dividend........................         -         -             -             -             -                 -
Series D Preferred Stock dividends................       325         -             -             -             -                 -
Intrinsic value of stock options..................         -         -             -             -             -                 -
Conversion of Series C Preferred to Common........    (1,000)        -        55,866             -             -                 -
Net loss..........................................         -         -             -             -             -                 -
                                                     -------   -------    ----------   -----------      --------            ------
Balance, June 30, 2001............................    26,395         -    52,323,701         1,050             -                 -
Amortization of deferred compensation.............         -         -             -             -             -                 -
Series D Preferred Stock dividends................       444         -             -             -             -                 -
Net loss..........................................         -         -             -             -             -                 -
                                                     -------   -------    ----------   -----------      --------            ------
Balance, June 30, 2002............................    26,839         -    52,323,701         1,050             -                 -
Amortization of deferred compensation.............         -         -             -             -             -                 -
Series D Preferred Stock dividends................       641         -             -             -             -                 -
Net loss..........................................         -         -             -             -             -                 -
                                                     -------   -------    ----------   -----------      --------            ------
Balance, June 30, 2003............................    27,480   $     -    52,323,701   $     1,050      $      -            $    -
                                                     =======   =======    ==========   ===========      ========            ======
</TABLE>

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

                                      F-6
<PAGE>

                      NOVO NETWORKS, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                        Notes
  Additional                                          Receivable
   Paid-in        Accumulated         Deferred          from
   Capital          Deficit         Compensation     Shareholders       Total
-------------    -------------      ------------     ------------   -------------
<S>              <C>                <C>              <C>            <C>              <C>                <C>
$ 248,907,665    $ (54,634,559)     $(1,274,479)     $(1,048,872)   $ 191,950,797
   (2,073,876)               -                -                -       (2,073,877)
            -                -          835,041                -          835,041
            -                -                -           96,984           96,984
     (951,888)               -                -          951,888                -
    6,523,991                -                -                -        6,524,000
    2,299,750       (2,299,750)               -                -                -
      324,860         (324,860)               -                -                -
      877,945                -                -                -          877,945
            -                -                -                -                -
            -     (181,564,594)               -                -     (181,564,594)
-------------    ----------------------------------------------------------------
  255,908,447     (238,823,763)        (439,438)               -       16,646,296
            -                -          407,494                -          407,494
      603,432         (603,432)               -                -                -
            -       (7,794,537)               -                -       (7,794,537)
-------------    ----------------------------------------------------------------
  256,511,879     (247,221,732)         (31,944)               -        9,259,253
            -                -           31,944                -           31,944
      653,175         (653,175)               -                -                -
            -       (2,791,768)               -                -       (2,791,768)
-------------    ----------------------------------------------------------------
$ 257,165,054    $(250,666,675)     $         -      $         -    $   6,499,429
-------------    ----------------------------------------------------------------
</TABLE>

                                      F-7

<PAGE>
                      NOVO NETWORKS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                      For the Fiscal Year Ended June 30,
                                                                               -----------------------------------------------
                                                                                    2003             2002             2001
                                                                               --------------   --------------   -------------
<S>                                                                            <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net loss ...........................................................   $  (2,791,768)   $  (7,794,537)   $(181,564,594)
        Adjustments to reconcile net loss to net cash used in
                operating activities:
                Depreciation and amortization ..............................         149,567        1,370,958       20,453,633
                Other non-cash charges and credits:
                        Stock-based compensation ...........................          31,944          407,493          835,042
                        Bad debt expense ...................................         510,281        5,895,989        4,038,479
                        Loss in equity investments .........................         509,228        1,720,000        9,023,882
                        Loss on sale of property and equipment .............          (1,661)          69,907        1,483,952
                        Impairment loss ....................................               -        2,400,543      120,476,247
                        Write off of prepaids and other intangibles ........               -                -          121,826
                        Write off of VAT receivable ........................               -        1,405,929                -
                        Intrinsic value of stock options ...................               -                -          877,952
                        Net gain on liquidation of debtor subsidiaries .....        (900,500)     (16,074,355)               -
                        Gain on sale of subsidiary .........................               -         (268,853)               -
                Change in operating assets and liabilities:
                        Accounts receivable ................................               -       (3,585,608)      (3,156,763)
                        Note receivable and other receivables ..............        (510,282)        (167,310)
                        Prepaid expenses ...................................          (6,199)         317,765           95,824
                        VAT receivable .....................................               -                -          725,348
                        Restricted cash ....................................               -         (186,070)         (94,180)
                        Accounts payable ...................................         (22,400)       9,613,825         (990,220)
                        Accrued liabilities ................................        (444,522)      (1,160,425)       3,670,059
                        Accrued interest payable ...........................               -          115,688          186,711
                        Customer deposits and deferred revenues ............               -         (257,693)         235,929
                                                                               -------------    -------------    -------------
Net cash used in operating activities ......................................      (3,476,311)      (6,176,754)     (23,580,873)
                                                                               -------------    -------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Deposits received (made) ...........................................               -           17,335         (250,721)
        Purchase of property and equipment .................................         (11,633)         (77,110)      (3,137,165)
        Sale of property and equipment .....................................          10,720          241,605          124,698
        Net cash resulting from (dispositions) acquisitions ................               -         (102,300)        (262,703)
        Distributions from (investments in) investments ....................      (2,500,000)         391,478       (1,055,112)
                                                                               -------------    -------------    -------------
Net cash provided by (used in) investing activities ........................      (2,500,913)         471,008       (4,581,003)
                                                                               -------------    -------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
        Shareholder repayments .............................................               -                -           96,984
        Payments on capital leases .........................................               -       (1,119,486)      (2,777,721)
        Advances (repayments) on notes payable .............................               -                -          335,000
        Issuance of notes receivable - affiliate ...........................               -                -          (84,096)
        Issuance of common and preferred stock, net of issuance costs ......               -                -        6,524,000
                                                                               -------------    -------------    -------------
Net cash (used in) provided by financing activities ........................               -       (1,119,486)       4,094,167
                                                                               -------------    -------------    -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS ....................................      (5,977,224)      (6,825,232)     (24,067,709)

CASH AND CASH EQUIVALENTS, beginning of year ...............................       9,871,305       16,696,537       40,764,246
                                                                               -------------    -------------    -------------
CASH AND CASH EQUIVALENTS, end of year .....................................   $   3,894,081    $   9,871,305    $  16,696,537
                                                                               -------------    -------------    -------------
</TABLE>

                                      F-8

<PAGE>

                      NOVO NETWORKS, INC. AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)

<TABLE>
<CAPTION>
                                                                                           For the Fiscal Year Ended June 30,
                                                                                     ---------------------------------------------
                                                                                          2003            2002            2001
                                                                                     --------------  --------------  -------------
<S>                                                                                  <C>             <C>             <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

        Cash paid for interest ..................................................    $           -   $     496,839   $   1,039,651
                                                                                     =============   =============   =============
        Cash paid for taxes .....................................................    $           -   $           -   $           -
                                                                                     =============   =============   =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING,
        INVESTING AND FINANCING ACTIVITIES:

        Purchases of equipment under capital leases .............................    $           -   $           -   $   3,296,103
                                                                                     =============   =============   =============

        Conversion of notes receivable to common stock of an equity investment...    $           -   $           -   $     184,096
                                                                                     =============   =============   =============

        Foreclosure on notes receivable from shareholders .......................    $           -   $           -   $     951,888
                                                                                     -------------   -------------   -------------
</TABLE>

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

                                      F-9

<PAGE>

                      NOVO NETWORKS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       BUSINESS

(a)      General

The company now known as Novo Networks (the "Company") was originally
incorporated in Delaware in 1987 as Adina, Inc. ("Adina"). Adina's corporate
existence was permitted to lapse in February of 1996 and was subsequently
reinstated as eVentures Group, Inc., ("eVentures") in August of 1999. During the
Fall of 1999, eVentures completed a series of transactions whereby it became a
holding company with two wholly-owned operating subsidiaries, e.Volve Technology
Group, Inc. ("e.Volve") and AxisTel Communications, Inc. ("AxisTel"), and made a
strategic investment in Gemini Voice Solutions, Inc. ("Gemini Voice"), formerly
PhoneFree.com, Inc. During the Spring of 2000, eVentures acquired Internet
Global Services, Inc. ("iGlobal") and made additional strategic investments. In
December of 2000, eVentures changed its name to Novo Networks. Currently, the
Company owns a minority interest in Paciugo Management, LLC and Ad Astra
Holdings LP and related entities. These entities own and manage a gelato
manufacturing, retailing and catering business operated under the brand name
"Paciugo." This interest is referred to herein as the "Paciugo Interest"

(b)      Bankruptcy Proceedings

On April 2, 2001, the Company's subsidiary iGlobal filed a voluntary petition
under Chapter 7 of Title 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Northern
District of Texas (the "Texas Bankruptcy Court") due to iGlobal's inability to
service its debt obligations, potential contingent liabilities and the Company's
inability to raise sufficient capital to fund operating losses at iGlobal. As a
result of the filing, the Company recorded an impairment loss of $62.4 million
for the year ended June 30, 2001, primarily relating to non-cash goodwill
recorded in connection with the March 2000 acquisition of iGlobal.

On July 30, 2001, five of the Company's direct and indirect wholly-owned
subsidiaries filed voluntary petitions under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the District of Delaware (the
"Delaware Bankruptcy Court"), in order to stabilize their operations and protect
their assets while attempting to reorganize their businesses. The five
subsidiaries that filed for bankruptcy protection were Novo Networks Operating
Corp., AxisTel, e.Volve, Novo Networks International Services, Inc. and Novo
Networks Global Services, Inc. On September 14, 2001, Novo Networks Metro
Services, Inc., a subsidiary of AxisTel, also filed a voluntary petition under
Chapter 11 of the Bankruptcy Code.

         Set forth below is a table summarizing the current status of the
Company's debtor subsidiaries.

                                      F-10

<PAGE>

<TABLE>
<CAPTION>
                                                             DATE
                                                          BANKRUPTCY  STATUS AS OF      SUBJECT TO
                                                DATE      PROTECTION  SEPTEMBER 18,   BANKRUPTCY PLAN
           DEBTOR SUBSIDIARY(1)              ACQUIRED(2)    SOUGHT       2003(3)      OR PROCEEDINGS?
-------------------------------------------  -----------  ----------  -------------  ------------------
<S>                                          <C>          <C>         <C>            <C>
Novo Networks Operating Corp.                  2/8/00(3)    7/30/01     Inactive     Yes, Chapter 11(5)

AxisTel Communications, Inc.                  9/22/99       7/30/01     Inactive     Yes, Chapter 11(5)

Novo Networks International Services, Inc.    9/22/99       7/30/01     Inactive     Yes, Chapter 11(5)

Novo Networks Global Services, Inc.           9/22/99       7/30/01     Inactive     Yes, Chapter 11(5)

Novo Networks Metro Services, Inc.            9/22/99       7/30/01     Inactive     Yes, Chapter 11(5)

e.Volve Technology Group, Inc.               10/19/99       9/14/01     Inactive     Yes, Chapter 11(5)

Internet Global Services, Inc.                3/10/00       4/02/01     Inactive     Yes, Chapter 7

eVentures Holdings, LLC                        9/7/99(3)      N/A       Active(4)            No
</TABLE>

----------

(1)      Web2Dial Communications, Inc., Novo Networks Metro Services Virginia,
         Inc., Novo Networks Media Services, Inc. and Novo Networks (UK) Ltd.,
         which are not debtor subsidiaries, have been dissolved.

(2)      Indicates date of incorporation, if organized by the Company.

(3)      "Active" status indicates current operations within the respective
         entity; "Inactive" status indicates no current operations, but may
         include certain activities associated with the administration of an
         estate pursuant to a bankruptcy filing or plan.

(4)      This entity has no operations other than to hold certain equity
         interests.

(5)      Subsequently amended to a liquidating Chapter 11 proceeding.

As originally contemplated, the goal of the reorganization effort relating to
the Company's debtor subsidiaries that filed voluntary petitions under Chapter
11 of the Bankruptcy Code was to preserve the going concern value of the debtor
subsidiaries' core assets and to provide distributions to their creditors.
However, based largely on the fact that the debtor subsidiaries ceased receiving
traffic from their sole remaining customer, the Company determined that the
continued viability of the debtor subsidiaries was not realistic. Accordingly,
the bankruptcy plan was amended. The amended plan and disclosure statement were
filed with the Delaware Bankruptcy Court on December 31, 2001. The amended plan
provides for a liquidation of substantially all of the assets of the Company's
debtor subsidiaries, pursuant to Chapter 11 of the Bankruptcy Code, instead of a
reorganization as previously planned.

On January 14, 2002, the Delaware Bankruptcy Court approved the amended
disclosure statement, with certain minor modifications, and on March 1, 2002,
the Delaware Bankruptcy Court confirmed the amended plan, again with minor
modifications. On April 3, 2002, the amended plan became effective and a
liquidating trust was formed, with funding provided by the Company in the amount
of $0.2 million. Assets to be liquidated of $0.7 million were transferred to the
liquidating trust during the fourth quarter of fiscal 2002. The purpose of the
liquidating trust is to collect, liquidate and distribute the remaining assets
of the debtor subsidiaries and prosecute certain causes of action against
various third parties, including, without limitation, Qwest Communications
Corporation. No assurance can be given that the liquidating trust will be
successful in liquidating substantially all of the debtor subsidiaries' assets
pursuant to the amended plan. Also, it is not possible to predict the outcome of
the prosecution of causes of action against third parties, including, without
limitation, Qwest, as described in the amended plan and disclosure statement.
The Company has previously guaranteed certain indebtedness of one or more of the
debtor subsidiaries and, depending upon the treatment of and distribution to
holders of such indebtedness under the amended plans, the Company may be liable
for some or all of this indebtedness.

                                      F-11

<PAGE>

In connection with the bankruptcy proceedings, the Company provided its debtor
subsidiaries with approximately $1.9 million in secured debtor-in-possession
financing to fund their reorganization efforts. The credit facility made funds
available to permit the debtor subsidiaries to pay employees, vendors,
suppliers, customers and professionals consistent with the requirements of the
Bankruptcy Code. In connection with the amended plan being confirmed by the
Delaware Bankruptcy Court and becoming effective on April 3, 2002, the credit
facility was converted into a new secured note. During fiscal 2003, the Company
provided additional funding of $0.5 million to the liquidating trust. The
current balance on the new secured note is approximately $3.3 million that has
been fully reserved due to the uncertainty surrounding the collection of this
note. For further details regarding the funding provided to the debtor
subsidiaries, see the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."

The Company originally provided administrative services to its debtor
subsidiaries pursuant to an administrative services agreement approved by the
Delaware Bankruptcy Court. The agreement provided that the debtor subsidiaries
pay the Company $30,000 per week for legal, accounting, human resources and
other services. The original agreement expired on April 2, 2002, and an interim
agreement was reached whereby, the liquidating trust, as successor-in-interest
to the debtor subsidiaries, paid the Company $40,000 per month for the same
services. The interim agreement expired on August 15, 2002. During the fourth
quarter of fiscal 2003, the Company negotiated an on-going agreement with the
liquidating trust, whereby the Company provides administrative services to its
debtor subsidiaries on a per hour basis. Pursuant to the terms of this
arrangement, the debtor subsidiaries owed the Company $0.65 million at June 30,
2003. Due to the uncertainty surrounding the collection of this receivable, it
has not been recorded in the financial statements of the Company.

It is not possible to predict the outcome or success of any bankruptcy
proceeding or plan or the effects of such efforts on the Company's business or
the interests of its creditors or stockholders.

The Company's principal operating subsidiaries, AxisTel and eVolve, ceased
operations in September 2001 and December 2001, respectively. The Company is not
currently providing any products or services of any kind to any customers.

2.       LIQUIDITY AND CAPITAL RESOURCES

General

At June 30, 2003, the Company had consolidated current assets of $4.3 million,
including cash and cash equivalents of approximately $3.9 million and net
working capital of $3.8 million. Historically, the Company has funded its
subsidiaries operations primarily through the proceeds of private placements of
its common and preferred stock and borrowings under loan and capital lease
agreements. The Company does not currently believe that either of these funding
sources will be available in the near term. Principal uses of cash have been to
fund (i) operating losses; (ii) acquisitions and strategic business
opportunities; (iii) working capital requirements and (iv) expenses related to
the bankruptcy plan administration process. Due to the Company's financial
performance, the lack of stability in the capital markets and the economy's
downturn, its only current source of funding is expected to be cash on hand.

Given its current obligations, the Company expects to have approximately $1.7
million of cash available for funding potential business opportunities. Current
obligations include (i) funding working capital, (ii) funding the liquidating
trust and (iii) funding the Qwest litigation. No assurance can be given that the
Company will be able to deploy any remaining cash assets or that if deployed it
can continue as a going concern with a new business model.

As discussed in Note 1(b), the Company's debtor subsidiaries filed bankruptcy
proceedings under the Bankruptcy Code. As the ultimate parent, the Company
agreed to provide its debtor subsidiaries with up to $1.6 million in secured
debtors-in-possession financing. Immediately prior to the confirmation hearing,
the Company increased this credit facility to approximately $1.9 million, which
was advanced as of March 31, 2002. The credit facility made funds available to
permit the debtor subsidiaries to pay employees, vendors, suppliers, customers
and professionals consistent with the requirements of the Bankruptcy Code. The
credit facility provided for interest at the rate of prime plus 3.0% per annum
and provided "super-priority" lien status, meaning that the Company had a valid
first lien, pursuant to the Bankruptcy Code, on substantially all of the debtor
subsidiaries' assets. In addition, the credit facility maintained a default
interest rate of prime plus 5.0% per annum.

                                      F-12

<PAGE>

In connection with the amended plan being confirmed by the Delaware Bankruptcy
Court and becoming effective on April 3, 2002, the credit facility was converted
into a new secured note in the principal amount of approximately $2.5 million,
representing the principal amount of the debtors-in-possession financing,
certain payroll expenses, accrued interest and applicable attorneys' fees.
Subsequent to June 30, 2002, the new secured note was amended to approximately
$2.9 million, representing additional trust funding, certain payroll expenses
and applicable attorneys' fees. The new secured note is guaranteed by the debtor
subsidiaries under an agreement in which the debtor subsidiaries have pledged
substantially all of their remaining assets as collateral. During fiscal 2003,
the Company provided additional funding of $0.5 million to the liquidating
trust. A new secured note of approximately $3.3 million to the liquidating trust
was signed on May 15, 2003. Due to the uncertainty surrounding the collection of
the new secured note, it has been fully reserved.

For the six months ended December 31, 2001, AxisTel and e.Volve provided
telecommunications services. These debtor subsidiaries ceased operations
effective September of 2001 and December of 2001, respectively. Since the latter
date, neither the Company nor any of the debtor subsidiaries have conducted
operations or generated revenue. The Company is currently not providing any
products or services of any kind (including telecommunications services) to any
customers. During fiscal 2002, e.Volve's only significant customer had been
Qwest, which accounted for approximately 70% of consolidated revenues. e.Volve
is no longer providing services to Qwest, and as part of the debtor
subsidiaries' amended plan, certain causes of action have been brought against
Qwest.

As noted above, the Company does not believe that any of the traditional funding
sources will be available and that its only option will likely be cash on hand.
Consequently, the failure to (i) purchase the Subsequent Interest or any
additional interest in Paciugo, (ii) implement a successful business plan for
Paciugo and (iii) identify other potential business opportunities, if any, will
jeopardize the Company's ability to continue as a going concern. Due to these
factors, the Company is unable to determine whether current available financing
will be sufficient to meet the funding requirements of (i) the debtor
subsidiaries bankruptcy plan administration process, (ii) ongoing general and
administrative expenses and (iii) the undetermined capital requirements of
Paciugo and such other business opportunities as may arise in the future, if
any.

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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 and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of Novo Networks and
all of its wholly owned subsidiaries.

The consolidated financial statements for Novo Networks and its subsidiaries
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The consolidated financial statements of Novo
Networks presented as of June 30, 2002 do not include the assets and liabilities
of the debtor subsidiaries. These entities have been deconsolidated, as the
liquidating trust controls the assets of the debtor subsidiaries. For further
detail regarding the bankruptcy proceedings, see Note 1(b) entitled "Business -
Bankruptcy Proceedings." For the period ended June 30, 2003, the Company has an
outstanding accrual of approximately $0.3 million in the accompanying financial
statements for the estimated costs of liquidating substantially all of the
assets and liabilities of these entities. The estimated realizable values and
settlement amounts may be different from the proceeds ultimately received or
payments ultimately made.

All significant inter company accounts have been eliminated.

Principles of Consolidation and Accounting for Ownership in Subsidiaries

Novo Networks accounts for its ownership interests in subsidiaries under three
methods: consolidation, equity method and cost method. The applicable accounting
method is generally determined based on Novo Networks'

                                      F-13
<PAGE>

voting interest in the subsidiary, as well as Novo Networks' degree of influence
over each of the subsidiaries.

Consolidation. Companies in which Novo Networks directly or indirectly owns more
than 50% of the outstanding voting securities are generally accounted for under
the consolidation method of accounting. Under this method, a subsidiary's
accounts are reflected within Novo Networks' consolidated financial statements,
except as discussed in the Basis of Presentation above.

Equity Method. Subsidiaries whose results are not consolidated, but over whom
the Company exercises significant influence, are accounted for under the equity
method of accounting. Whether or not the Company exercises significant influence
with respect to a subsidiary depends on an evaluation of several factors
including, among others, representation on the subsidiary's Board of Directors
and ownership level, which is generally a 20% to 50% interest in the voting
securities of the subsidiary, including voting rights associated with Novo
Networks' holdings in common stock, preferred stock and other convertible
instruments in the subsidiary. Under the equity method of accounting, a
subsidiary's accounts are not reflected within the accompanying consolidated
statements of operations. The Company's proportionate share of each investment's
operating earnings and losses are included in the caption "Loss in equity
investments" in the accompanying consolidated statements of operations.

Cost Method. Subsidiaries not accounted for under either the consolidation or
the equity method of accounting are accounted for under the cost method of
accounting. Under this method, Novo Networks' share of the earnings or losses of
these companies is not included in the accompanying consolidated statements of
operations. In certain cases, the Company has representation on the Board of
Directors of the subsidiaries accounted for under the cost method.

Cash and Cash Equivalents

Novo Networks considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents. At June 30, 2003, cash
equivalents totaled approximately $3.9 million and consisted of a money market
account. The Company maintains its cash and cash equivalents with one financial
institution. A significant amount of the cash balance is in excess of the FDIC
insurance limit.

Prepaid Expenses

Prepaid expenses are recorded as assets and expensed in the period in which the
related services are received.

Deposits

Deposits at June 30, 2003 and June 30, 2002, were for Novo Networks office
space.

Long-lived Assets

The Company's long-lived assets consist of property and equipment. The Company
evaluates impairment of its long-lived assets in accordance with the Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS No. 144 establishes one accounting model to be used for long-lived
assets to be disposed of by sale and broadens the presentation of discontinued
operations to include more disposal transactions. SFAS No. 144 supercedes SFAS
No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of" and the accounting and reporting provisions of APB
Opinion No. 30.

The Company assesses the recoverability of long-lived assets by determining
whether the net book value of the assets can be recovered through projected
undiscounted future cash flows. The amount of impairment, if any, is measured
based on fair value and is charged to operations in the period in which the
impairment occurs. No impairment losses were recorded during the fiscal year
ended June 30, 2003. During the fiscal year ended June 30, 2002, long-lived
assets related to the debtor subsidiaries were written off by recording a charge
of $7.5 million to the Company's net gain on liquidation of debtor subsidiaries
account. During the fiscal year ended June 30, 2001, Novo Networks recorded
impairment losses related to goodwill and certain property and equipment
totaling $120.5 million.

                                      F-14

<PAGE>

Property and Equipment

Property and equipment consist of leasehold improvements, computer equipment and
furniture and fixtures. Each class of assets is recorded at cost and depreciated
using the straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized over the term of the lease or the
estimated useful life, whichever is shorter. Maintenance and repairs are charged
to expense as incurred. Significant renewals and betterments are capitalized. As
of the time of retirement or other disposition of property and equipment, the
cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in operations.

Goodwill

Goodwill arising from the excess of cost over net assets of businesses acquired
by Novo Networks was amortized on a straight-line basis over periods ranging
from five to ten years. During the fiscal year ended June 30, 2001, the Company
recorded an impairment loss of $86.6 million relating to (i) iGlobal goodwill
from the disposal of iGlobal operations of approximately $62.4 million and (ii)
impairment of goodwill related to the acquisition of Axistel and e.Volve of
approximately $24.2 million.

Accrued Liabilities

At June 30, 2003 and June 30, 2002, an accrual of approximately $0.3 million and
$1.2 million, respectively is included in accrued liabilities, which represents
the estimated costs of liquidating substantially all of the assets of the debtor
subsidiaries.

Revenue Recognition

As of December 31, 2001, and pursuant to the amended bankruptcy filings, the
Company effectively has no operations, no sources of revenue and no profits
unless and until it implements a new business plan. Prior to December of 2001,
revenues for communication services were recorded based on minutes (or fractions
thereof) of customer usage. Internet access subscription service revenues were
recognized over the period that services are provided, which relates to fiscal
2001 before the disposal of iGlobal. Server collocation service revenues were
recognized ratably over the contractual period.

Foreign Currency Gain or Loss

The functional currency of a wholly owned subsidiary formed for the purpose of
transacting business in Mexico is the United States dollar. However, certain
transactions are conducted in Mexican pesos and are remeasured at the time in
which the services are rendered to the Company and are settled in United States
dollars. Foreign currency transaction gains and losses are recognized as
incurred in accordance with SFAS No. 52, Foreign Currency Translation. Novo
Networks does not currently maintain any financial hedges against future
fluctuations in the peso to dollar exchange rate. During the fiscal year ended
June 30, 2002, the Company's Mexican subsidiary was sold. The Company did not
have any gain or loss associated with foreign currency during the fiscal year
ended June 30, 2003 and do not expect any in the immediate future.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the carrying amounts of
existing assets and liabilities in the financial statements and their respective
tax basis. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on the deferred tax assets and liabilities of a change in tax rates is
recognized as income in the period that includes the enactment date. A valuation
allowance is provided for significant deferred tax assets when it is more likely
than not, that such assets will not be recovered.

                                  F-15
<PAGE>

Stock Based Compensation

The FASB issued SFAS No. 123, "Accounting for Stock Based Compensation," which
defines a fair value based method of accounting for stock-based compensation.
However, SFAS No. 123 allows an entity to continue to measure compensation cost
related to stock and stock options issued to employees using the intrinsic
method of accounting prescribed by Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees". Entities electing to follow
APB No. 25 must make pro forma disclosures of net income and earnings per share,
as if the fair value method of accounting defined in SFAS No. 123 had been
applied. Novo Networks has elected to account for its stock-based compensation
to employees under APB No. 25.

The Company has adopted the disclosure-only provision of SFAS 123, "Accounting
for Stock Based Compensation." SFAS 123 requires pro forma information to be
presented as if the Company had accounted for the stock options granted during
the fiscal periods presented using the fair value method. The Company did not
grant any stock options during fiscal 2002. The fair value for options granted
during the fiscal years ended 2003 and 2001 were estimated as of the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:

<TABLE>
<CAPTION>
                                                       FISCAL       FISCAL
                                                        2003         2001
                                                       ------       ------
<S>                                                    <C>          <C>
Expected volatility ..............................     4865.0%      280.0%
Risk-free interest rate ..........................        3.9%        4.5%
Dividend yield ...................................        0.0%        0.0%
Expected life (years) ............................        9.9         8.2
</TABLE>

         For purposes of pro forma disclosure, the estimated fair values of the
options are amortized to expense over the options' vesting period.

<TABLE>
<CAPTION>
PRO FORMA NET LOSS                                                    FISCAL 2003        FISCAL 2002        FISCAL 2001
                                                                    ----------------   ----------------   ----------------
<S>                                                                 <C>                <C>                <C>
Net loss allocable to common shareholders as reported .....         $     (3,444,943)  $     (8,397,969)  $   (184,189,204)
Compensation expense recorded .............................                   31,944            407,494            835,042
Additional compensation expense under SFAS 123 ............               (8,396,040)       (16,805,590)       (76,692,199)
                                                                    ----------------   ----------------   ----------------
Net loss allocable to common shareholders, pro forma ......         $    (11,809,039)  $    (24,796,065)  $   (260,046,361)
                                                                    ================   ================   ================
Net loss per share, pro forma .............................         $          (0.23)  $          (0.47)  $          (4.98)
Net loss per share, basic and diluted, as reported ........         $          (0.07)  $          (0.16)  $          (3.53)
</TABLE>

Loss Per Share

The Company calculates earnings (loss) per share in accordance with SFAS No.
128, "Earnings Per Share" ("EPS"). SFAS No. 128 requires dual presentation of
basic EPS and diluted EPS on the face of the income statement for all entities
with complex capital structures. Basic EPS is computed as net income (loss) less
preferred dividends divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur from common shares issuable through stock options, warrants and
convertible debentures. Diluted EPS has not been presented, as the effect would
be antidilutive. Accordingly, basic and diluted EPS did not differ for any
period presented. Had the effect not been antidilutive due to losses in each
period, 68,580,645, 71,227,758, and 68,843,290 shares would have been included
in the diluted earnings per share calculation for the year ended June 30, 2003,
June 30, 2002, and June 30, 2001, respectively.

Fair Value of Financial Instruments

The carrying value of cash equivalents approximated fair value as of June 30,
2003, and 2002 due to their short maturity.

Segment Information

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", established standards for reporting information about operating
segments in the consolidated financial statements. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing performance. Novo Networks has determined that it operates in
one segment.

Accounting 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 and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.


                                      F-16
<PAGE>

4.       GOODWILL AND OTHER INTANGIBLES, NET

During the fiscal year ended June 30, 2001, the Company recorded an impairment
loss of $86.6 million relating to goodwill. As a result of the decision to
dispose of iGlobal operations, iGlobal related goodwill of $62.4 million was
written off. Additionally, in assessing the recoverability of the goodwill
related to the Initial Transaction, the Company wrote off the remaining goodwill
of $24.2 million. No goodwill impairment was recorded during fiscal 2003 and
2002.

5.       PROPERTY AND EQUIPMENT

During the fourth quarter of fiscal 2001, the Company made the decision to no
longer transmit traffic for certain of its domestic and international routes,
which were determined to be unprofitable, or low margin routes. As a result,
certain network assets identified to be phased out of operations, were
determined to be impaired. The Company recorded an impairment loss totaling
$22.3 million during fiscal 2001 relating to such property and equipment.

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                                         June 30,
                                                                 Useful       ---------------------------
                                                                  Life           2003            2002
                                                               ------------   ------------   ------------
<S>                                                            <C>            <C>            <C>
Leasehold improvements .....................................    2-10 Yrs.     $     22,929   $     12,482
Computer equipment .........................................     3-5 Yrs.          302,941        301,712
Furniture and fixtures .....................................     3-7 Yrs           479,882        500,772
                                                                              ------------   ------------
                                                                                   805,752        814,966
Accumulated depreciation and amortization .................................       (425,969)      (288,191)
                                                                              ------------   ------------
                                                                              $    379,783   $    526,775
                                                                              ------------   ------------
</TABLE>

During the years ended June 30, 2003, 2002 and 2001, depreciation and
amortization expense totaled approximately $0.15 million, $1.4 million, and
$20.5 million, respectively.

                                      F-17
<PAGE>

6.       EQUITY INVESTMENTS

Subsidiaries whose results are not consolidated, but over whom the Company
exercises significant influence, are generally accounted for under the equity
method of accounting. Whether the Company exercises significant influence with
respect to a subsidiary depends on an evaluation of several factors, including,
without limitation, representation on the subsidiary's governing board and
ownership level, which is generally a 20% to 50% interest in the voting
securities of the subsidiary, including voting rights associated with the
Company's holdings in common stock, preferred stock and other convertible
instruments in the subsidiary. Under the equity method of accounting, the
subsidiary's accounts will not be reflected in the Company's consolidated
financial statements. The proportionate share of a subsidiary's operating
earnings and losses will be included in the caption "Loss in equity of
investments" in the Company's consolidated statements of operations.

Currently, the Company has minority equity interests in Paciugo and certain
development stage Internet and communications companies. During the second
fiscal 2003 quarter, the Company purchased the Paciugo Interest. For further
details regarding this transaction, see Note 1(a) "Business - General." The
Paciugo Interest is accounted for under the equity method.

During the fiscal years ended June 30, 2003, 2002 and 2001, the Company recorded
equity losses totaling $0.5 million, $1.7 million and $9.0 million,
respectively. The value of the Company's outstanding equity interests, other
than Paciugo, have been reduced to zero either by recording its proportionate
share of losses incurred by the subsidiary up to the cost of that interest or
from impairment losses. Due to declining market conditions, negative operating
results of those companies, lack of subsidiary liquidity and other uncertainties
surrounding the recoverability of those interests, the Company recorded
impairment losses of $13.2 million in prior fiscal periods. For those equity
interests previously impaired completely, the Company ceased recording its share
of losses incurred by the subsidiary.

Equity investments consists of the following at June 30, 2003 and 2002 :

<TABLE>
<CAPTION>
                                                                                                       BALANCE AT JUNE 30,
                                                            % OWNERSHIP *             ACCOUNTING    ---------------------------
                  COMPANY NAME                          COMMON        PREFERRED         METHOD          2003           2002
--------------------------------------------------   ----------------------------    ------------   ------------   ------------
<S>                                                  <C>             <C>             <C>            <C>            <C>
Paciugo Management LLC ...........................       33.3%           0.0%           Equity      $  2,255,523   $          -
Gemini Voice Solutions (f/k/a PhoneFree.com) .....       17.2%          31.7%           Equity                 -        264,751
ORB Communications & Marketing, Inc. .............       19.0%         100.0%           Equity                 -              -
FonBox, Inc. .....................................       14.0%          50.0%           Equity                 -              -
Launch Center 39 .................................        0.0%           2.1%           Cost                   -              -
Spydre Labs ......................................        5.0%           0.0%           Cost                   -              -
                                                                                                    ------------   ------------
                                                                                                    $  2,255,523   $    264,751
                                                                                                    ============   ============
</TABLE>

* The percentage ownership reflects Novo Networks' ownership percentage at June
30, 2003.

During fiscal 2003, ORB Communications & Marketing, Inc. filed for Chapter 7
bankruptcy and is in the process of liquidating that entity. During fiscal 2002,
Novo Networks received a cash distribution from Launch Center 39 of
approximately $0.8 million, of which $0.4 million was recorded against the
investment balance and $0.4 million in other income.

                                      F-18
<PAGE>

For the fiscal year ended June 30, 2003, Paciugo met the criteria for a
"significant subsidiary" as set forth in Rule 1.02(w) of Regulation S-X.
Summarized financial information for Paciugo as of and for the twelve months
ended June 30, 2003 is as follows:

<TABLE>
<S>                                        <C>
Financial position information:
   Current assets ......................   $  1,285,028
   Non-current assets ..................      1,883,502
   Current liabilities .................        558,487
   Non-current liabilities .............        497,525
   Net assets ..........................      2,112,518
Income statement information:
   Revenues ............................      1,893,523
   Gross profit ........................      1,576,340
   Net loss ............................     (1,420,299)

Our equity in Paciugo's net loss .......   $   (244,477)
</TABLE>

7.       ACQUISITION AND DISPOSAL OF iGLOBAL

On March 10, 2000, Novo Networks issued an aggregate of 2,551,087 shares of
common stock to the stockholders of iGlobal in exchange for all of the
outstanding voting securities of iGlobal. In connection therewith, a total of
385,876 warrants and 580,678 options to purchase shares of common stock of
iGlobal were converted into an aggregate of 139,378 warrants and 209,732 options
to purchase shares of Novo Networks' common stock pursuant to the terms of each
agreement. Allocation of consideration given for the purchase of 100% of iGlobal
is as follows:

<TABLE>
<S>                                                  <C>
Cost of investment ...............................   $ 85,352,404
Add: Net liabilities acquired ....................      1,655,034
                                                     ------------
Excess attributed to goodwill ....................   $ 87,007,438
Less: Value attributed to shares not issued ......     (2,073,877)*
                                                     ------------
Adjusted excess attributed to goodwill ...........     84,933,561
                                                     ============
</TABLE>

* The value of 71,513 shares to be issued was initially included in the cost of
the investment. During fiscal 2001, it was determined that iGlobal did not meet
the required performance criteria and the shares were not issued.

In addition to the amounts presented above, Novo Networks incurred approximately
$0.4 million in transaction costs, which were capitalized in goodwill.

In March 2001, Novo Networks made the decision to dispose of its investment in
iGlobal. On April 2, 2001, iGlobal filed a voluntary petition for bankruptcy
under Chapter 7 of the United States Bankruptcy Code. In conjunction with the
bankruptcy filing all of iGlobal's product offerings were discontinued or
abandoned. As a result of the disposition, the Company recorded an impairment
loss of $62.4 million during fiscal 2001 related to non-cash goodwill recorded
in connection with the initial acquisition of iGlobal. The iGlobal results of
operations have been included from March 10, 2000, the date of acquisition,
through April 2, 2001. As a result of the disposition, the Company eliminated
$3.7 million in assets excluding goodwill and $9.1 million in liabilities from
its consolidated balance sheet. The Company believes it has no further
liabilities or contingencies resulting from the iGlobal disposition.

8.       REORGANIZATION AND RESTRUCTURING CHARGE

In October of 2000, Novo Networks began execution of a plan to consolidate the
assets, network and management of its wholly owned operating subsidiaries into a
single broadband network and communication services company. The plan had a
focus on providing broadband and voice services to other service providers,
which resulted in the discontinuation of retail Internet access services
offered, principally, digital subscriber line access and dial-up access. A
reorganization and restructuring charge totaling approximately $3.9 million was
recorded during fiscal 2001.

                                      F-19
<PAGE>

The restructuring charge of $3.9 million includes cash expenditures totaling
$1.5 million related to (i) personnel severance of $0.6 million, (ii) lease
abandonment of $0.6 million, and (iii) other costs of $0.3 million and non-cash
charges of $2.4 million, primarily for the write-down of impaired assets and the
intrinsic value of stock options granted to a former employee as part of his
separation agreement. The positions eliminated included three senior management
positions as a result of the management consolidation and 16 technical and
support positions related to the discontinuation of retail Internet access
services.

9.       COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company is a lessee under certain non-cancelable operating leases. Terms of
the leases call for monthly payments ranging from $4,000 to $6,000. During the
years ended June 30, 2003, 2002 and 2001, the Company incurred rental expense of
approximately $1.0 million, $3.3 million and $2.6 million, respectively. Future
minimum lease payments under these non-cancelable operating leases are as
follows:

<TABLE>
<C>                                                  <C>
For the Fiscal Year Ended June 30,
2004..............................................   $   74,441
2005..............................................       57,453
2006..............................................            -
                                                     ----------
                                                     $  131,894
                                                     ==========
</TABLE>

Litigation

Robert Newhouse, the trustee for iGlobal, filed an adversary proceeding against
the Company in the Texas Bankruptcy Court on April 1, 2003. The lawsuit sought
to avoid certain alleged preferential and fraudulent transfers of approximately
$0.3 million. In addition, it sought to disallow the Company's claim in the
bankruptcy proceeding. The Company denied the receipt of any improper payments
or transfers, and it vigorously defended against the assertions of Mr. Newhouse
and protected its rights. On August 25, 2003, an order was entered by the Texas
Bankruptcy Court dismissing all of Mr. Newhouse's claims against the Company.

Eos Partners, LP, Eos Partners SBIC, LP, Eos Partners (Offshore), LP, Kuwait
Fund for Arab Economic Development and TBV Holdings Ltd. (collectively, the
"Plaintiffs") filed a lawsuit against the Company, Fred Vierra, Barrett N.
Wissman, Clark K. Hunt, Mark R. Graham, Olaf Guerrand-Hermes, Stuart Subotnick,
Jan Robert Horsfall, Stuart Chasanoff, John Stevens Robling, Jr., Samuel Litwin,
Mitchell Arthur, BDO Seidman, LP, Hunt Asset Management, LLC, HW Partners, LP,
HW Finance, LLC, HW Capital, LP and HW Group, LLC (collectively, the
"Defendants") in the 190th Judicial District Court of Harris County, Texas, on
December 19, 2002. The lawsuit alleged breach of contract, fraud and conspiracy
in connection with the Plaintiffs' purchase of certain of the Company's Series C
Convertible Preferred Stock in December of 1999 and January of 2000. The
Defendants have denied the allegations and intend to vigorously defend against
the Plaintiffs' claims and seek all other appropriate relief. Since the process
has not proceeded beyond the initial pleading stage, no realistic assessment can
be made with respect to the potential exposure, except to refer to the amounts
paid for the Series C Stock, approximately $12 million, and note that the
Plaintiffs seek to recover compensatory and exemplary damages, interest, costs
of court and attorneys' fees. The Defendants have submitted the claims to their
insurance carriers. The Defendants expect the case of be transferred from Harris
County to Dallas County within the near future.

The Company along with the liquidating trust filed a lawsuit on June 17, 2002,
seeking damages resulting from numerous disputes over business dealings and
agreements with Qwest, a former customer and vendor, and John L. Higgins, a
former employee and consultant, in the Eighth Judicial District Court of Clark
County, Nevada. Qwest filed a motion to stay the litigation and compel
arbitration on August 14, 2002. On March 13, 2003, a hearing was held to
determine the proper forum for the various claims. After listening to oral
arguments, the district judge granted Qwest's motion. On April 2, 2003, the
Company, along with the liquidating trust, filed a petition with the

                                      F-20
<PAGE>

Supreme Court of Nevada, asking it to direct the district judge to reconsider
her order. On August 13, 2003, our petition was denied. The Company now expects
the case to proceed before a panel of arbitrators in Washington, DC.

The Company and its subsidiaries are involved in other legal proceedings from
time to time, including those described above of which the Company believes, if
decided adversely to the Company or its subsidiaries, would have a material
adverse effect on the business, financial condition or results of operations of
the Company.

Employment Agreements

The Company has entered into multi-year employment agreements or management
contracts with two of its senior executives. These agreements mature at various
times through April of 2004 and provide for annual salaries ranging between
$180,000 and $190,000. In addition, certain of these employees were granted
options to purchase Novo Networks' common stock. These options, if exercised,
would represent the right to purchase 1,620,000 shares of common stock at
various exercise prices ranging from $0.055 to $28.50 per option.

10.      CUSTOMER AND VENDOR CONCENTRATIONS

The Company has concentrations of credit risk related to customers, and vendors
as follows:

Customer Concentrations

During fiscal years 2002 and 2001, sales to Qwest represented 36% and 68% of
total revenues, respectively. No other customer represented greater than 10% of
total revenues during these fiscal periods.

Vendor Concentrations

During fiscal years 2002 and 2001, the Company purchased 43% and 55% of its
carrier and termination costs from four and three major vendors, respectively.

11.      INCOME TAXES

There is no provision for income tax expense since the Company incurred net
losses for all periods presented. At June 30, 2003, the Company had net
operating loss carryforwards ("NOLs") of approximately $91.3 million. The NOLs
expire incrementally through 2021.

NOL's generated from operations may be limited due to limitations on the annual
amount of NOLs which can be utilized if certain changes in ownership occur. The
NOL's were reduced by $28.7 million in fiscal 2002 from the forgiveness of the
debtor subsidiaries' liabilities pursuant to Internal Revenue Code Section 108
(b).

Deferred tax assets and liabilities for fiscal 2003 and fiscal 2002 reflect the
impact of temporary differences between the amounts of assets and liabilities
for financial reporting and income tax reporting purposes. Temporary differences
that give rise to deferred tax assets and liabilities at June 30, 2003, and June
30, 2002, are as follows:

                                      F-21
<PAGE>

<TABLE>
<CAPTION>
                                                                        2003           2002
                                                                    ------------   ------------
<S>                                                                 <C>            <C>
Deferred tax assets:
        Net operating loss carryforwards ........................   $ 33,779,984   $ 36,962,986
        Accrued expenses ........................................              -         12,950
        Accounts receivable reserves ............................      1,611,119      1,333,220
        Investment basis difference .............................      8,028,491      7,840,076
        Fixed asset impairment ..................................              -              -
                                                                    ------------   ------------
                       Total gross deferred tax assets ..........     43,419,594     46,149,232
        Less valuation allowance ................................    (43,432,105)   (45,984,270)
                                                                    ------------   ------------
                       Net deferred tax assets ..................        (12,511)       164,962
                                                                    ------------   ------------
Deferred tax liabilities:
        Accelerated depreciation ................................        (12,511)       164,962
        Other ...................................................              -              -
                                                                    ------------   ------------
                       Total gross deferred tax liabilities .....        (12,511)       164,962
                                                                    ------------   ------------
                       Net deferred tax assets ..................   $          -   $          -
                                                                    ------------   ------------
</TABLE>

Net deferred tax assets at June 30, 2003, and June 30, 2002, have been fully
offset by valuation allowances as it is more likely than not that the Company
will not ultimately realize any benefits resulting from such NOLs. Deferred tax
assets resulting from net operating losses include $3,445,046 relating to NOLs
the Company acquired through acquisitions.

A reconciliation setting forth the differences between the effective tax rate of
the Company and the United States statutory rate is as follows:

<TABLE>
<CAPTION>
                                                         2003                     2002                      2001
                                                ----------------------   ----------------------   ----------------------
<S>                                             <C>            <C>       <C>            <C>       <C>            <C>
Statutory federal income tax benefit ........   $    949,201       34%   $  2,650,143       34%   $ 64,605,262       35%
State tax rate, net of federal benefit ......         82,916        4%        290,977        4%      3,691,729        2%
Non-deductible expense ......................         11,262        2%        141,439        0%    (43,167,691)     (23%)
Other .......................................              -       10%        822,347       10%      1,282,346        1%
NOLs not benefited ..........................      1,508,789      153%     11,982,248      153%              -        -
NOL reduction under Section 108(b) ..........                    (136%)   (10,627,035)    (136%)             -        -
Decrease (increase) in valuation allowance ..      2,552,165      (67%)    (5,260,119)     (67%)   (26,411,646)     (15%)
                                                ------------   ------    ------------   ------    ------------   ------
Effective rate, net .........................   $          -        -    $          -        -    $          -        -
                                                ------------   ------    ------------   ------    ------------   ------
</TABLE>

12.      STOCKHOLDERS' EQUITY

As of June 30, 2003, pursuant to the Amendment to the Amended and Restated
Certificate of Incorporation of Novo Networks, Inc. dated November 13, 2000, the
Company is authorized to issue 225,000,000 shares, consisting of (i) 200,000,000
shares of common stock, par value $0.00002 per share, and (ii) 25,000,000 shares
of preferred stock, par value $0.00002 per share.

Preferred Stock

The Company's Board of Directors is authorized to establish and designate series
of preferred stock, to fix the number of shares constituting each series, and to
fix the designations and the preferences, limitations, and relative rights,
including voting rights, of the shares of each series. As of June 30, 2003, the
Company's Board of Directors had designated four series of preferred stock
consisting of the following:

Series A Convertible Preferred Stock ($.00002 par value, 5,000 shares
authorized, 0 shares issued and outstanding at June 30, 2003). Holders of Series
A Convertible Preferred Stock are not entitled to vote, except as provided by
law and are not entitled to receive any dividends. In the event of liquidation,
holders of Series A Convertible Preferred Stock are entitled to receive $1,000
per share out of the assets available for distribution to the Company's
stockholders.

                                      F-22
<PAGE>

Series B Convertible Preferred Stock ($.00002 par value, 25,000 shares
authorized, 4,500 shares issued and outstanding at June 30, 2003). Holders of
Series B Convertible Preferred Stock are not entitled to vote, except as
provided by law and are not entitled to receive any dividends. In the event of
liquidation, holders of Series B Convertible Preferred Stock are entitled to
receive $1,000 per share out of the assets available for distribution to the
Company's stockholders under the same terms as the holders of any outstanding
shares of Series A Convertible Preferred Stock.

Series C Convertible Preferred Stock ($.00002 par value, 30,000 shares
authorized, 14,570 shares issued and outstanding at June 30, 2003). Holders of
Series C Convertible Preferred Stock are not entitled to vote, except as
provided by law and are not entitled to receive any dividends. In the event of
liquidation, holders of Series C Convertible Preferred Stock are entitled to
receive $1,000 per share out of the assets available for distribution to the
Company's stockholders under the same terms as the holders of any outstanding
shares of Series A and Series B Convertible Preferred Stock.

Series D Convertible Preferred Stock (50,000 shares authorized, 8,410 shares
issued and outstanding). The par value of shares of Series D Convertible
Preferred Stock is $0.00002 with a liquidation value of $1,000 per share.
Holders of Series D Convertible Preferred Stock are entitled to vote on all
matters to be voted on by the Company's stockholders. Each share of Series D
Convertible Preferred Stock shall have one vote for each share of common stock
into which it may be converted.

On December 5, 2000, the Company issued 7,000 shares of Series D Convertible
Preferred Stock and 450,001 shares of the Company's common stock for
approximately $7.0 million in cash and a minority interest in a private
communications company. The shares of Series D Convertible Preferred Stock are
convertible into shares of the Company's common stock at a price of $7.00 per
share. During fiscal 2003, 2002 and 2001 an additional 641, 444 and 325 shares
of Series D Convertible Preferred Stock were issued for payment of dividends,
respectively.

Stock Options

At June 30, 2003, the Company sponsors two stock option plans, the 1999 Omnibus
Securities Plan ("the 1999 Plan") and the 2001 Equity Incentive Plan ("the 2001
Plan"). The Company has elected to account for those plans under Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees."

The 1999 Plan provides for the grant of incentive stock options and
non-qualified stock options. The terms of the options are set by the Company's
Board of Directors. The options expire no later than ten years after the date
the stock option is granted. The number of shares authorized for grants under
the Plan is 15% of the total outstanding common stock, provided that no more
than 4 million options can be "incentive" stock options. The 2001 Plan provides
for the grant of a maximum of 12 million incentive stock options that expire no
later than ten years after the date the stock option is granted.

During February of 2003, the Company issued 1.6 million options to officers and
directors of the Company under the 1999 Plan. The Company's four members of the
Board of Directors were issued 25,000 shares each, which vested immediately. The
Company's three officers were issued 0.5 million shares each, vesting over four
years, with one fourth vesting on the date of grant, or February 21, 2003, and
the remaining three-fourths vesting in equal amounts on each of the next three
anniversaries of the date of grant thereafter. The exercise price for all of the
options granted is $0.055. The options expire no later than ten years after the
date the stock option is granted. A summary of activity for the fiscal year
ended June 30, 2003, is presented below:

                                      F-23
<PAGE>

<TABLE>
<CAPTION>
                                                      2001 PLAN                     1999 PLAN                     NON-PLAN
                                             ---------------------------   ---------------------------   ---------------------------
                                                              WEIGHTED                      WEIGHTED                      WEIGHTED
                                                              AVERAGE                       AVERAGE                       AVERAGE
                                               NUMBER         EXERCISE        NUMBER        EXERCISE        NUMBER        EXERCISE
                                              OF SHARES        PRICE        OF SHARES        PRICE        OF SHARES        PRICE
                                             ------------   ------------   ------------   ------------   ------------   ------------
<S>                                          <C>            <C>            <C>            <C>            <C>            <C>
Options Outstanding at June 30, 2000 .....              -   $          -      4,049,663   $      13.98      9,684,574   $      22.68
                                             ============   ============   ============   ============   ============   ============

Options Granted
     At Fair Market Value ................     10,227,163   $       4.63      1,138,499   $       8.69              -   $          -
     Below Fair Market Value .............              -              -              -              -              -              -
Options Exercised ........................              -              -              -              -              -              -
Options Cancelled ........................     (3,281,038)          4.63     (1,874,997)          4.66     (3,430,667)         23.00
                                             ------------                  ------------                  ------------
Options Outstanding at June 30, 2001 .....      6,946,125   $       4.63      3,313,165   $      13.24      6,253,907   $      22.50
                                             ============   ============   ============   ============   ============   ============

Options exercisable at June 30, 2001 .....      4,644,625   $       4.63      1,720,163   $      11.97      4,519,858   $      22.77
                                             ============   ============   ============   ============   ============   ============
Weighted average fair value of
     options granted during fiscal 2001 .................   $       4.63                  $       4.84                  $          -
                                                            ============                  ============                  ============

Options Granted
     At Fair Market Value ................              -   $          -              -   $          -              -   $          -
     Below Fair Market Value .............              -              -              -              -              -              -
Options Exercised ........................              -              -              -              -              -              -
Options Cancelled ........................       (184,125)          4.63     (1,991,665)          8.87        (60,333)         23.00
                                             ------------                  ------------                  ------------
Options Outstanding at June 30, 2002 .....      6,762,000   $       4.63      1,321,500   $      19.84      6,193,574   $      21.73
                                             ============   ============   ============   ============   ============   ============

Options exercisable at June 30, 2002 .....      5,541,000   $       4.63      1,009,540   $      18.61      5,326,549   $      22.23
                                             ============   ============   ============   ============   ============   ============

Weighted average fair value of
     options granted during fiscal 2002 .................   $          -                  $          -                  $          -
                                                            ============                  ============                  ============

Options Granted
     At Fair Market Value ................              -   $          -      1,600,000   $       0.06              -   $          -
     Below Fair Market Value .............              -              -              -              -              -              -
Options Exercised ........................              -              -              -              -              -              -
Options Cancelled ........................     (1,184,490)          4.63       (661,500)         22.04       (382,500)         23.00
                                             ------------                  ------------                  ------------
Options Outstanding at June 30, 2003 .....      5,577,510   $       4.63      2,260,000   $       5.19      5,811,074   $      21.73
                                             ============   ============   ============   ============   ============   ============

Options exercisable at June 30, 2003 .....      5,213,311   $       4.63      1,085,000   $      10.29      5,811,074   $      22.23
                                             ============   ============   ============   ============   ============   ============

Weighted average fair value of
     options granted during fiscal 2003 .................   $          -                  $       0.06                  $          -
                                                            ------------                  ------------                  ------------
</TABLE>

                                      F-24
<PAGE>

At June 30, 2003, the range of exercise prices, weighted average exercise price
and weighted average remaining contractual life for options outstanding are as
follows:

<TABLE>
<CAPTION>
                                                           OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
                                             --------------------------------------------------      --------------------------
                                                              WEIGHTED             WEIGHTED                            WEIGHTED
                                               NUMBER         AVERAGE               AVERAGE            NUMBER          AVERAGE
                      OPTION PRICE               OF           EXERCISE             REMAINING             OF            EXERCISE
                         RANGE                 SHARES          PRICE           CONTRACTUAL LIFE        SHARES           PRICE
                ------------------------     ----------       --------         ----------------      -----------       --------
<S>             <C>                          <C>              <C>              <C>                   <C>               <C>
2001 PLAN       $   2.50   to     $ 5.00      5,577,510       $   4.63             6.70 years          5,213,311       $   4.63

1999 PLAN       $   0.06   to     $ 5.00      1,600,000       $   0.06             9.63 years            475,000       $   0.06
                $   5.01   to     $10.00        350,000       $  10.00             6.29 years            300,000       $  10.00
                $  15.01   to     $20.00         60,000       $  16.68             7.00 years             60,000       $  16.68
                $  25.01   to     $30.00        250,000       $  28.50             6.71 years            250,000       $  28.50

NON-PLAN        $  10.01   to     $15.00        191,574       $  12.00             6.71 years            191,574       $  12.00
                $  15.01   to     $20.00        200,000       $  18.00             6.79 years            200,000       $  18.00
                $  20.01   to     $25.00      5,419,500       $  23.00             6.75 years          5,419,500       $  23.00
</TABLE>

The Company follows APB 25 in accounting for its stock options, and,
accordingly, in fiscal 2000, recorded deferred compensation of approximately
$3.3 million equal to the intrinsic value of options granted to employees that
had an exercise price lower than the market price of the underlying stock on the
day of the grant. The deferred compensation was amortized over the related
vesting periods and the amortization is included in selling, general and
administrative expenses in the statement of operations. During fiscal periods
2003, 2002 and 2001, amortization of deferred compensation totaled approximately
$31,911, $0.4 million and $0.8 million respectively. At June 30, 2003, the
Company has no remaining deferred compensation.

Warrants and Options Issued in Connection with the iGlobal Acquisition

In connection with the iGlobal acquisition on March 10, 2000, the Company issued
139,378 warrants to purchase shares of common stock of the Company to holders of
iGlobal warrants. The warrants have exercise prices of $0.01384 and $9.6899 and
expire in fiscal 2004 through 2006. The fair value of the warrants on March 10,
2000, of approximately $3.8 million was included in the initial cost of the
global acquisition. Additionally, the Company issued 209,732 options to purchase
Novo Networks stock in exchange for fully vested options of iGlobal. The fair
value of the options of approximately $5.5 million was included in the initial
cost of the iGlobal acquisition. The fair value of the warrants and options was
determined using the Black-Scholes option-pricing model.

13.      RELATED PARTY TRANSACTIONS

Sales to Affiliates

During fiscal 2003 and 2002, there were no sales to affiliates. During fiscal
2001, sales to Gemini Voice totaled approximately $0.1 million. Such
transactions occurred in the normal course of business.

Administrative Expenses

Novo Networks originally provided administrative services to its debtor
subsidiaries pursuant to an administrative services agreement approved by the
Delaware Bankruptcy Court. The agreement provided that the Company's debtor
subsidiaries pay the Company $30,000 per week for legal, accounting, human
resources and other services. The original agreement expired on April 2, 2002,
and an interim agreement was reached whereby, the liquidating trust, as
successor-in-interest to the debtor subsidiaries, paid the Company $40,000 per
month for the same services. The interim agreement expired on August 15, 2002.
During the fourth quarter of fiscal 2003, the Company negotiated an on-going
agreement with the liquidating trust, whereby the Company provides
administrative services to its debtor subsidiaries on a per hour basis. Pursuant
to the terms of this arrangement, the debtor subsidiaries owed

                                      F-25
<PAGE>

the Company $0.65 million at June 30, 2003. Due to the uncertainty surrounding
the collection of this receivable, it has not been recorded in the financial
statements of the Company.

During fiscal 2002, Novo Networks paid a former e.Volve employee approximately
$64,000 for consulting services.

                                      F-26
<PAGE>

14.      UNAUDITED QUARTERLY RESULTS OF OPERATIONS

The following table presents unaudited summary data relating to the Company's
results of operations for each quarter of the fiscal years ended June 30, 2003,
2002 and 2001:

<TABLE>
<CAPTION>
                                                                   FOR THE FISCAL YEAR ENDED JUNE 30, 2003
                                                       -------------------------------------------------------------
                                                        First Quarter  Second Quarter  Third Quarter  Fourth Quarter      Total
                                                       --------------  --------------  -------------  --------------  -------------
                                                                                  (unaudited)
<S>                                                    <C>             <C>             <C>            <C>             <C>
Revenues ............................................  $            -  $            -  $           -  $            -  $           -

Loss from operations before other (income) expense ..  $     (761,888) $     (832,567) $  (1,071,654) $     (689,065) $  (3,355,174)
Net loss ............................................  $     (909,727) $     (544,349) $    (958,573) $     (379,119) $  (2,791,768)
Net loss allocable to common shareholders ...........  $   (1,069,506) $     (707,349) $  (1,121,245) $     (546,843) $  (3,444,943)
Net loss per share (basic and diluted) ..............  $        (0.02) $        (0.01) $       (0.02) $        (0.01) $       (0.05)
Avg. shares outstanding (basic and diluted) .........      52,323,701      52,323,701     52,323,701      52,323,701     52,323,701
</TABLE>

<TABLE>
<CAPTION>
                                                                   FOR THE FISCAL YEAR ENDED JUNE 30, 2002
                                                       -------------------------------------------------------------
                                                        First Quarter  Second Quarter  Third Quarter  Fourth Quarter      Total
                                                       --------------  --------------  -------------  --------------  -------------
                                                                                  (unaudited)
<S>                                                    <C>             <C>             <C>            <C>             <C>
Revenues.............................................  $    8,687,677  $    1,799,305  $           -  $            -  $  10,486,982

Loss from operations before other (income) expense...  $   (7,485,041) $   (6,326,113) $  (1,958,837) $   (6,880,164) $ (22,650,155)
Net income (loss)....................................  $   (7,655,136) $    8,412,975  $  (4,128,002) $   (5,027,806) $  (8,397,969)
Net income (loss) per share (basic and diluted)......  $        (0.14) $         0.16  $       (0.08) $        (0.10) $       (0.16)
Avg. shares outstanding (basic and diluted)..........      52,323,701      52,323,701     52,323,701      52,323,701     52,323,701
</TABLE>

<TABLE>
<CAPTION>
                                                                   FOR THE FISCAL YEAR ENDED JUNE 30, 2001
                                                       -------------------------------------------------------------
                                                        First Quarter  Second Quarter  Third Quarter  Fourth Quarter      Total
                                                       --------------  --------------  -------------  --------------  -------------
                                                                                  (unaudited)
<S>                                                    <C>             <C>             <C>            <C>             <C>
Revenues ............................................  $   18,597,027  $   20,593,654  $  19,749,715  $   13,091,158  $  72,031,554

Loss from operations before other (income) expense ..  $  (12,356,818) $  (18,756,695) $(125,133,484) $  (16,224,528) $(172,471,525)
Net loss ............................................  $  (16,193,938) $  (22,294,775) $(127,280,871) $  (18,419,620) $(184,189,204)
Net loss per share (basic and diluted) ..............  $        (0.31) $        (0.43) $       (2.43) $        (0.35) $       (3.53)
Avg. shares outstanding (basic and diluted) .........      51,989,562      52,121,108     52,462,631      52,323,701     52,222,671
</TABLE>

                                      F-27
<PAGE>

         REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE

Board of Directors and Stockholders
Novo Networks, Inc.

In connection with our audit of the consolidated financial statements of Novo
Networks, Inc. and subsidiaries referred to in our report dated August 29, 2003,
which is included in Part II of this Form 10-K, we have also audited Schedule II
for the years ended June 30, 2003 and 2002. In our opinion, this schedule
presents fairly, in all material respects, the information set forth therein.

Dallas, Texas
August 29, 2003

                                      F-28
<PAGE>
           This report is a copy of the previously issued report and
                    the auditor has not reissued the report

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

         To the Board of Directors of Novo Networks, Inc.:

         We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of Novo Networks, Inc. (a
Delaware corporation) and subsidiaries as of June 30, 2001, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year in the period ended June 30, 2001 included in this report on Form 10-K
and have issued our report thereon dated September 19, 2001. Our audit was made
for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. Schedule II of this report on Form 10-K is the
responsibility of the company's management and is presented for the purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects, the
financial data required to be set forth therein in relation to the basic
consolidated financial statements as of June 30, 2001 and for the year then
ended taken as a whole.

Arthur Andersen LLP

Dallas, Texas
September 19, 2001

                                      F-29
<PAGE>

                      NOVO NETWORKS, INC. AND SUBSIDIARIES
                                   SCHEDULE II
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
                                                   BALANCE          CHARGED                           BALANCE
                                                      AT            TO COSTS                            AT
                                                  BEGINNING           AND          DEDUCTIONS/        END OF
                                                  OF PERIOD         EXPENSES        WRITEOFFS         PERIOD
                                                --------------   --------------   --------------   --------------
<S>                                             <C>              <C>              <C>              <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:

    Year ended June 30, 2001 ................   $      793,900   $    4,038,479   $     (242,732)  $    4,589,647

    Year ended June 30, 2002 ................   $    4,589,647   $    6,063,299   $  (10,652,946)  $            -

    Year ended June 30, 2003 ................   $            -   $            -   $            -   $            -

RESERVE FOR NOTES AND OTHER RECEIVABLES:

    Year ended June 30, 2001 ................   $            -   $            -   $            -   $            -

    Year ended June 30, 2002 ................   $            -   $    3,603,299   $            -   $    3,603,299

    Year ended June 30, 2003 ................   $    3,603,299   $      510,281   $      (99,572)  $    4,014,008
</TABLE>

                                      F-30
<PAGE>

Combined Financial Statements and Report of Independent Certified Public
Accountants

PACIUGO MANAGEMENT LLC

June 30, 2003

                                      F-31
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Partners
Paciugo Management LLC

We have audited the accompanying combined balance sheet of Paciugo Management
LLC and related entities (collectively, the "Company") as of June 30, 2003, and
the related combined statements of operations, changes in partners' capital 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 of America. 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 financial statements referred to above present fairly, in
all material respects, the combined financial position of the Company as of June
30, 2003, and the combined results of their operations and their combined cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company incurred a net loss of $1,420,299 for the year
ended June 30, 2003 and used $848,767 in operating activities. These matters,
among others, raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regards to these matters are also
described in Note C. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

GRANT THORNTON LLP

Dallas, Texas
August 27, 2003

                                      F-32
<PAGE>

                             PACIUGO MANAGEMENT LLC

                             COMBINED BALANCE SHEET

                                  June 30, 2003

<TABLE>
<CAPTION>
<S>                                                                      <C>
                                     ASSETS

CURRENT ASSETS
    Cash and cash equivalents                                            $    776,781
    Accounts receivable                                                        54,147
    Inventories                                                               328,804
    Prepaid expenses                                                          125,296
                                                                         ------------
                                                                            1,285,028

NON-CURRENT ASSETS

    Property and equipment, at cost - net                                   1,875,247
    Other assets                                                                8,255
                                                                         ------------
                                                                            1,883,502
                                                                         ------------
                                                                         $  3,168,530
                                                                         ============

                        LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES

    Current maturities of long-term debt                                 $    322,828
    Accounts payable                                                          125,921
    Accrued liabilities                                                       109,738
                                                                         ------------
                                                                              558,487

LONG-TERM DEBT, LESS CURRENT MATURITIES                                        47,525

NOTE PAYABLE TO PARTNERS                                                      450,000

COMMITMENTS AND CONTINGENCIES                                                       -

PARTNERS' CAPITAL

    Partners' capital                                                       3,792,962
    Accumulated deficit                                                    (1,680,444)
                                                                         ------------
                                                                            2,112,518
                                                                         ------------
                                                                         $  3,168,530
                                                                         ============
</TABLE>

         The accompanying notes are an integral part of this statement.

                                      F-33
<PAGE>

                             PACIUGO MANAGEMENT LLC

                        COMBINED STATEMENT OF OPERATIONS

                        For the year ended June 30, 2003

<TABLE>
<CAPTION>
<S>                                                                      <C>
Net sales                                                                $  1,893,523

Operating expenses
    Cost of goods sold                                                        317,183
    Selling, general and administrative expenses                            2,452,870
    Depreciation and amortization                                             473,865
                                                                         ------------
                                                                            3,243,918
                                                                         ------------

                  OPERATING LOSS                                           (1,350,395)

Interest expense - non related parties                                         24,798
Interest expense on note payable to partners                                   45,106
                                                                         ------------

                  NET LOSS                                               $ (1,420,299)
                                                                         ============
</TABLE>

         The accompanying notes are an integral part of this statement.

                                      F-34
<PAGE>

                             PACIUGO MANAGEMENT LLC

               COMBINED STATEMENT OF CHANGES IN PARTNERS' CAPITAL

                        For the year ended June 30, 2003

<TABLE>
<CAPTION>
                                                 Partners'    Accumulated
                                                  capital       deficit         Total
                                                -----------   -----------    -----------
<S>                                             <C>           <C>            <C>
Balance at July 1, 2002                         $    50,000   $  (260,145)   $  (210,145)

Conversion of note payable to partners to
   partners' capital                              1,242,962             -      1,242,962

Capital contribution from Novo Networks, Inc.     2,500,000             -      2,500,000

Net loss                                                  -    (1,420,299)    (1,420,299)
                                                -----------   -----------    -----------

Balance at June 30, 2003                        $ 3,792,962   $(1,680,444)   $ 2,112,518
                                                ===========   ===========    ===========
</TABLE>

         The accompanying notes are an integral part of this statement.

                                      F-35

<PAGE>

                             PACIUGO MANAGEMENT LLC

                        COMBINED STATEMENT OF CASH FLOWS

                        For the year ended June 30, 2003

<TABLE>
<S>                                                                                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                                                            $ (1,420,299)
    Adjustments to reconcile net loss to net cash used in
       operating activities
          Depreciation and amortization                                                      473,865
          Change in operating assets and liabilities
              Accounts receivable                                                              8,554
              Inventory                                                                     (222,724)
              Prepaid expenses                                                               (97,060)
              Other assets                                                                   249,524
              Accounts payable                                                                69,469
              Accrued liabilities                                                             89,904
                                                                                        ------------

                  Net cash used in operating activities                                     (848,767)

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property and equipment                                                      (926,441)

CASH FLOWS FROM FINANCING ACTIVITIES
    Payment on long-term debt                                                               (250,994)
    Advances from note payable to partners                                                   726,358
    Payment on note payable to partners                                                     (450,000)
    Capital contribution from Novo Networks, Inc.                                          2,500,000
                                                                                        ------------

                  Net cash provided by financing activities                                2,525,364
                                                                                        ------------

                  Net change in cash and cash equivalents                                    750,156

Cash and cash equivalents at beginning of year                                                26,625
                                                                                        ------------

Cash and cash equivalents at end of year                                                $    776,781
                                                                                        ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
    Cash paid for interest                                                              $     71,020
    Cash paid for income taxes                                                          $          -

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
    Conversion of notes payable to partners to partners' capital                        $  1,242,962
</TABLE>

         The accompanying notes are an integral part of this statement.

                                      F-36
<PAGE>

                             PACIUGO MANAGEMENT LLC

                     NOTES TO COMBINED FINANCIAL STATEMENTS

                                  June 30, 2003

NOTE A - BUSINESS

    General

    Paciugo Management LLC ("PMLLC"), a Texas limited liability company formed
    in May 2001, is the sole general partner of Ad Astra Holdings LP ("Ad
    Astra"), a Texas limited partnership (formerly Paciugo Holdings LLC) and
    Authentic Gelato LP, Paciugo Supply Company LP, Paciugo Franchising LP and
    Paciugo Properties LP (collectively the "Operating Partnerships"). PMLLC,
    through its partnership interest in Ad Astra and the Operating Partnerships,
    manages a gelato manufacturing, retailing and catering business operating
    under the brand name "Paciugo." Throughout these financial statements, we
    refer collectively to PMLLC, Ad Astra and the Operating Partnerships as
    "Paciugo" or the "Company."

    Prior to May 2001, the Company operated as Authentic Gelato LLC, a Texas
    limited liability company that was formed on April 5, 2000. In May 2001,
    Authentic Gelato LLC reorganized into Authentic Gelato LP.

    Nature of Operations

    Paciugo is in the business of owning and operating a series of retail
    locations that sell authentic Italian gelato. Paciugo opened its first store
    in September 2000. As of June 30, 2003, the Company has eight retail
    locations in Dallas, Texas, which are either dedicated Paciugo stores or
    kiosks that operate in larger retail venues as a small "store within a
    store." In addition to the retail gelato business, a portion of its revenues
    are derived from catering activities conducted primarily out of its
    corporate headquarters. These activities typically involve the serving of
    Paciugo gelato at a variety of special events, including, private
    celebrations, philanthropic gatherings and third-party retail promotions.

    Seasonality

    In general, the market for frozen desserts experiences a certain degree of
    seasonal fluctuation, which is less marked in regions that experience
    consistently colder year-round climates. Paciugo enjoys higher sales volume
    during the period between May and August.

    Investment by Novo Networks, Inc.

    On December 19, 2002, PMLLC and Ad Astra executed a purchase agreement (the
    "Purchase Agreement") with Novo Networks, Inc. Pursuant to the Purchase
    Agreement, Novo Networks purchased a 33% membership interest in PMLLC and a
    32.67 % interest in Ad Astra, which results in Novo Networks holding an
    aggregate interest, including the PMLLC general partnership interest, in Ad
    Astra equal to 33% (the "Initial Interest"), for a purchase price of $2.5
    million.

                                      F-37
<PAGE>

                             PACIUGO MANAGEMENT LLC

               NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED

                                  June 30, 2003

NOTE A - BUSINESS - CONTINUED

    Novo Networks holds an option, exercisable for a period of two years from
    December 19, 2002, to purchase an additional 17.3% membership interest in
    PMLLC and a 17.127% interest in Ad Astra (the "Subsequent Interest") for
    $1.5 million. Together, the Initial Interest and the Subsequent Interest
    would result in Novo Networks holding a 50.3% membership interest in PMLLC
    and a 49.797% limited partnership interest in Ad Astra, for a total
    aggregate interest in Ad Astra, including the PMLLC general partner
    interest, of 50.3%.

    Novo Networks provides services to support the business operations of
    Paciugo, including administrative, accounting, financial, human resources,
    information technology, legal, and marketing services (the "Support
    Services"). The Support Services expressly exclude providing certain capital
    expenditures as well as services that are customarily performed by third
    party professionals. In exchange for Novo Networks providing the Support
    Services, Paciugo pays Novo Networks an annual amount equal to the greater
    of $0.25 million or 2% of the combined gross revenues of Paciugo (excluding
    any gross revenues shared with third parties under existing contractual
    arrangements). Paciugo makes monthly payments to Novo Networks in the amount
    of $20,833, with the positive cumulative difference, if any, between 2% of
    such gross revenues and $20,833 per month to be paid within ten days of the
    end of such month. Paciugo may not cancel or alter the scope of the Support
    Services without Novo Networks' prior approval or consent.

    Novo Networks is entitled to and currently maintains representation on the
    governing board of PMLLC (the "Board of Managers") as is proportionate to
    its ownership interests therein. PMLLC, as the sole general partner of Ad
    Astra, is empowered to make all decisions associated with Ad Astra, except
    for those requiring the approval of the limited partners, as set forth in
    the limited partnership agreement of Ad Astra or under applicable law.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Principles of Consolidation

    The combined financial statements of Paciugo include the accounts of PMLLC,
    Ad Astra and the Operating Partnerships. Control of each entity is vested in
    the same group of owners, their operations are interrelated and they are
    under common management. All material intercompany balances and transactions
    have been eliminated.

    Cash and Cash Equivalents

    Paciugo considers all highly liquid instruments purchased with an original
    maturity of three months or less to be cash equivalents. At June 30, 2003,
    cash equivalents totaled approximately $577,000. The Company maintains its
    cash and cash equivalents with two financial institutions. The cash balance
    is in excess of the FDIC insurance limit.

                                      F-38
<PAGE>

                             PACIUGO MANAGEMENT LLC

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

    Inventory

    Inventory is comprised of gelato ingredients, goods used in producing gelato
    and other items needed for the retail sale of gelato, which are valued at
    the lower of cost or market on a first-in first-out basis. Inventory
    reserves are provided for excess inventory based on management's estimate of
    demand and future sales. As of June 30, 2003, no inventory reserve was
    deemed necessary.

    Long-Lived Assets

    The Company's long-lived assets consist of property and equipment vehicles
    and leasehold improvements. In accordance with Statement of Financial
    Accounting Standards ("SFAS") No. 144, impairment is measured based on the
    difference between the carrying amount of the asset and the fair value of
    the asset and is charged to operations in the period in which the impairment
    occurs.

    Income Taxes

    Paciugo consists of partnerships and limited liability companies in which
    the partners individually report their share of taxable income or loss.

    Revenue Recognition

    Revenue is recognized at the time of sale. Revenues include that net
    concession fees resulting from revenue sharing agreements with a retail
    grocery store chain. Accounts receivable represent the concession fees not
    yet collected at the balance sheet date. No reserve is provided against
    these amounts as they are believed to be fully collectible.

    Fair Value of Financial Instruments

    The carrying value of financial instruments consisting of cash, receivables,
    trade payables and notes payable approximate fair value as of June 30, 2003,
    due to their short maturity. The fair value of notes payable to partners is
    not determinable due to the related party nature of the notes.

                                      F-39
<PAGE>

                             PACIUGO MANAGEMENT LLC

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

    Accounting Estimates

    In preparing financial statements in conformity with accounting principles
    generally accepted in the United States of America, management is required
    to make estimates and assumptions that affect the reported amounts of assets
    and liabilities and the disclosure of contingent assets and liabilities at
    the date of the financial statements and revenues during the reporting
    period. Actual results could differ from those estimates.

    Advertising Costs

    Advertising costs are expensed as incurred. Total advertising expenses for
    the year ending June 30, 2003, were $32,638.

NOTE C - LIQUIDITY MATTERS

    The accompanying financial statements have been prepared in conformity with
    accounting principles generally accepted in the United States of America,
    which contemplate continuation of the Company as a going concern. However,
    the Company incurred a net loss of $1,420,299 for the year ended June 30,
    2003 and used $848,767 in operations. In December 2002, Novo Networks
    contributed $2.5 million to acquire an interest in Paciugo (see Note A and
    Note G) which was used for opening a new location and for operations. As of
    June 30, 2003, the Company had $776,781 in cash.

    The Company's ability to continue as a going concern is dependent on
    significantly improving operating results and cash flows or obtaining
    another source of financing, such as the Subsequent Interest from Novo
    Networks. There can be no assurance that the Company will be successful in
    any of these matters or that Novo Networks will exercise its option to
    acquire the Subsequent Interest.

NOTE D - PROPERTY AND EQUIPMENT

    Depreciation is provided on a straight-line basis for owned assets. Leased
    assets and improvements are amortized over the shorter of the lease term or
    the useful life of the asset. Property and equipment consists of the
    following:

<TABLE>
<CAPTION>
                                                      Useful
                                                       life
                                                    ----------
<S>                                                 <C>            <C>
Equipment                                            3-5 years     $1,178,729
Leasehold improvements                              2-10 years        951,776
Furniture and fixtures                               5-7 years        108,629
Vehicles                                               5 years        250,968
                                                                   ----------
                                                                    2,490,102
Accumulated depreciation and amortization                            (614,855)
                                                                   ----------

                                                                   $1,875,247
                                                                   ==========
</TABLE>

                                      F-40
<PAGE>

                             PACIUGO MANAGEMENT LLC

               NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED

                                 JUNE 30, 2003

NOTE E - NOTES PAYABLE

<TABLE>
<S>                                                                                     <C>
Note payable to a law firm, non-interest bearing. Principal payments are due
  in monthly installments of $12,045, with the final payment due in March 2004.
  The note is not collateralized.                                                       $  108,404

Note payable to a bank, bearing interest at the higher of (i) the daily
   Prime Rate or (ii) the daily Federal Funds Rate plus 50 basis points
   (4.5% at June 30, 2003). Interest and principal are due in monthly
   installments of approximately $26,000, with the term of the note
   expiring on December 31, 2003. The note is collateralized by certain
   assets of the Company and a personal guarantee from a founding
   partner. The note payable contains financial covenants. As of June 30,
   2003, the Company was in violation of the debt service coverage ratio,
   but has obtained a waiver of such covenant from the bank.                               161,864

Notes payable to four lenders for financing business vehicles and
   equipment, bearing interest at fixed rates ranging from 4.75% to
   9.00%. Interest and principal are due in monthly installments ranging
   from $334 to $1,700. These notes mature from May 2003 to October 2007.
   These notes are collateralized by vehicles and equipment.                                78,187

Note payable to a bank, bearing interest at a fixed rate of 5.75%. Interest and
   principal are due in monthly installments of $2,000, with the final payment
   due June 2004. These notes are collateralized by computers.                              21,898
                                                                                        ----------
                                                                                           370,353
   Less:  current portion                                                                  322,828
                                                                                        ----------

                                                                                        $   47,525
                                                                                        ==========
</TABLE>

The following are scheduled maturities of notes payable as of June 30, 2003:

<TABLE>
<CAPTION>
 For the
year ended
 June 30,
----------
<S>                                                                                     <C>
   2004                                                                                 $  322,828
   2005                                                                                     22,079
   2006                                                                                     19,737
   2007                                                                                      4,284
   2008                                                                                      1,425
                                                                                        ----------

                                                                                        $  370,353
                                                                                        ==========
</TABLE>

                                      F-41
<PAGE>

                             PACIUGO MANAGEMENT LLC

               NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED

                                 JUNE 30, 2003

NOTE F - COMMITMENTS AND CONTINGENCIES

    Operating Leases

    Paciugo is a lessee under certain non-cancelable operating leases. Terms of
    the leases call for monthly payments ranging from $2,860 to $10,290. For the
    year ended June 30, 2003, the Company incurred rental expense of
    approximately $366,000.

    Future minimum lease payments under these non-cancelable operating leases
    are as follows:

<TABLE>
<CAPTION>
 For the
year ended
 June 30,
----------
<S>                                                                                     <C>
   2004                                                                                 $  519,217
   2005                                                                                    521,040
   2006                                                                                    460,558
   2007                                                                                    400,362
   2008                                                                                    105,314
   Thereafter                                                                               56,306
                                                                                        ----------

                                                                                        $2,062,797
                                                                                        ==========
</TABLE>

    Employment Agreement

    The Company has entered into multi-year employment agreements with three of
    its executives. These agreements mature during December 2005 and provide for
    annual salaries ranging between $80,000 and $150,000.


NOTE G - RELATED PARTY TRANSACTIONS

    In December of 2002, Novo Networks acquired an Initial Interest in Paciugo
    by contributing $2.5 million. Under the Purchase Agreement, certain partners
    received a $450,000 payment on their outstanding note payable. The Purchase
    Agreement required all amounts due to the partners, including outstanding
    interest to be converted to partners' capital except for an outstanding
    balance of $450,000. Under the terms of the Purchase Agreement, in the event
    that Novo Networks purchases the Subsequent Interest in Paciugo, the note
    payable of $450,000 will be paid to the partners. If Novo Networks does not
    purchase the Subsequent Interest, any remaining debt to the partners will be
    converted to partners' capital.

    For the year ended June 30, 2003, the company paid $125,000 to Novo Networks
    for management fees.

                                      F-42
<PAGE>

                                     INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT                                                                          FILED
NUMBER                               DESCRIPTION                               HEREWITH
-------                              -----------                               --------
<S>                                                                            <C>
 11.1      Statement re: computation of per share earnings. (Information       X
           regarding the computation of loss per share is set forth in the
           Consolidated Financial Statements).

 21.1      Subsidiaries of Novo Networks, Inc.                                 X

 23.1      Consent of Grant Thornton LLP                                       X

 23.2      Consent of Arthur Andersen LLP                                      *

 31.1      Certification of the Principal Executive Officer Pursuant           X
           to Section 302 of the Sarbanes-Oxley Act of 2002

 31.2      Certification of the Principal Accounting Officer Pursuant to       X
           Section 302 of the Sarbanes-Oxley Act of 2002

 32.1      Certification Pursuant to Section 906 of the Sarbanes-Oxley         X
           Act of 2002
</TABLE>

* Not Available