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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended
June 30, 2003

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________________ to _____________

Commission file number 1-8662

eRESOURCE CAPITAL GROUP, INC.

(Name of small business issuer in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 23-2265039                          
|                                                               |  |                                     
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               |  |                                     
|6836 MORRISON BLVD., SUITE 200, CHARLOTTE, NC                  |  | 28211                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          

Issuers telephone number (704) 366-5054

Securities registered under Section 12(b) of the Exchange Act:

|                               |  |                                          
|------------------------------ |  | -----------------------------------------
|Title of each class            |  | Name of each exchange on which registered
|                               |  |                                          
|Common Stock, par value, $0.04 |  | American Stock Exchange                  
|                               |  |                                          

Securities registered under Section 12(g) of the Exchange Act: NONE

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. [X] Yes [  ] No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [  ]

The issuers revenues for its most recent fiscal year (12 months ending June
30, 2003): $75,824,171

The aggregate market value of the voting common equity held by non-affiliates
as of September 29, 2003 as $26,241,000.

The number of shares outstanding of each of the issuers Common Stock as of
September 29, 2003: 15,553,551





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TABLE OF CONTENTS

|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | Page
|PART I   |  |                                                                                       |  |     
|ITEM 1.  |  | Description of Business                                                               |  | 2   
|         |  | General                                                                               |  | 2   
|         |  | Aviation Travel Services                                                              |  | 3   
|         |  | Home Technology                                                                       |  | 4   
|         |  | Technology Solutions                                                                  |  | 5   
|         |  | Telecommunications Call Center                                                        |  | 6   
|         |  | Recent Business Developments                                                          |  | 6   
|         |  | Factors Affecting Future Results and Forward-looking Statements                       |  | 6   
|         |  | Discontinued Operations                                                               |  | 13  
|         |  | Employees                                                                             |  | 13  
|ITEM 2.  |  | Properties                                                                            |  | 15  
|ITEM 3.  |  | Legal Proceedings                                                                     |  | 15  
|ITEM 4.  |  | Vote of Security Holders                                                              |  | 15  
|PART II  |  |                                                                                       |  |     
|ITEM 5.  |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 15  
|ITEM 6.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 17  
|         |  | Recent Accounting Pronouncements                                                      |  | 22  
|ITEM 7.  |  | Financial Statements                                                                  |  | 22  
|ITEM 8.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 47  
|ITEM 8A  |  | Controls and Procedures                                                               |  | 47  
|PART III |  |                                                                                       |  |     
|ITEM 9.  |  | Directors and Executive Officers                                                      |  | 48  
|ITEM 10. |  | Executive and Director Compensation                                                   |  | 49  
|ITEM 11. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 53  
|ITEM 12. |  | Certain Relationships and Related Transactions                                        |  | 54  
|ITEM 13. |  | Exhibits List and Reports on Form 8-K                                                 |  | 55  




PART I




ITEM 1. DESCRIPTION OF BUSINESS




GENERAL

eResource Capital Group, Inc. and its subsidiaries (RCG, We or the
Company) is a network of travel and entertainment and technology services
companies brought together under one operating company to benefit from
synergistic relationships and the infusion of intellectual and capital
resources. The Company is engaged in the operation of aviation travel services,
home technology and technology solutions businesses and a call center
operation. RCG is a Delaware corporation incorporated in 1982. The Companys
fiscal year ends on June 30.

In fiscal 2001, the Company brought in new executive management and
modified its business plan to focus on acquiring and enhancing travel and
entertainment and technology services companies and, as a result, acquired
companies in the telecommunications call center, home technology and technology
solutions business segments. The Company also brought in new management to its
aviation business and completed the acquisition of an aviation services company
that, together, have expanded that business into a highly specialized travel
organization that delivers a unique turnkey air service. This air travel
services business generated $62 million and $27 million in revenue in fiscal
years 2003 and 2002, respectively, and has contracts with two affiliates of the
largest air inclusive tour operator in the world. As a result of this growth,
the Company has increased its focus on the travel and entertainment sector and
plans to continue to acquire substantial interests in, operate and enhance the
value of expansion phase companies operating in the travel and entertainment
sectors. The Company is in the early phases of our expanded strategy and
continues to focus on existing operations as well as our efforts to implement
this strategy.

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At different times prior to fiscal 2000, the Company operated businesses
in several industries including drug-screening, computer software and
residential and commercial real estate development, all of which have been
discontinued. During fiscal 2000, the Company, under the name flightserv.com,
Inc. was engaged in the development of an Internet website to provide access to
private aviation travel services. In March 2000, the Company launched its
private aviation program, called Private SeatsTM. The Company was able to
generate only minimal customer bookings through the Private
SeatsTM program and
did not book any flights under this program after June 2000.

In October 2000, the Company changed its name to eResource Capital Group,
Inc. to reflect the new business direction.

Certain statements contained in this report, including, without
limitation, statements containing the words believes, anticipates,
expects, and words of similar import, constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors that may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: international, national and local general economic and market
conditions; the ability of the Company to sustain, manage or forecast its
growth; the ability of the Company to successfully make and integrate
acquisitions; existing governmental regulations and changes in or the failure
to comply with, governmental regulations; adverse publicity; competition;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; and other factors referenced
in this report. Certain of these factors are discussed in more detail elsewhere
in this report. Given these uncertainties, readers of this report and investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.

AVIATION TRAVEL SERVICES

The Company acquired Internet Aviation Services, Ltd. (IASL), a leisure
and business travel services company which provided charter aviation services,
in August 2000. IASL was integrated into our aviation travel services business
through our flightserv subsidiary.

flightserv.com, Inc. (flightserv), headquartered in Atlanta, GA, is a
nationally recognized airline and travel program management company providing
tour operators, corporate travel departments, sports teams and casinos with
cost effective and reliable charter air transportation on a scheduled and
ad-hoc basis. flightserv acts as a program manager by providing turnkey
charter services including aircraft and related services such as ground support
and aircraft fueling, passenger service and support, and real-time flight
tracking. flightserv also provides its clients with Internet-ready
reservations services and aviation consulting. flightserv differentiates
itself in the charter travel industry by focusing on full program management
services, which combines the functions of aircraft brokerage, flight
operations, airport operations, contract negotiation between clients and air
service providers, airport subsidy negotiations and consumer marketing.
flightserv does not own or operate any aircraft.

flightserv has an agreement with Vacation Express, a member of the
MyTravel Group, ending in December 2004, to operate a passenger hub at Atlanta
Hartsfield Airport. Pursuant to the terms of the agreement, six commercial jet
aircraft originate in six eastern and mid-western cities and serves six
Caribbean destinations. Also, in July 2002, flightserv entered into a
three-year agreement with Suntrips, Inc., a sister company of Vacation Express
in the MyTravel Group, to operate scheduled weekly flights between three west
coast cities and two Mexican destinations. The majority of the revenue of
flightserv and the Company is generated pursuant to these contracts. During
the three month period ended June 30, 2003, sales to Vacation Express,
represented approximately 76% of the Companys consolidated revenue. For the
fiscal year ended June 30, 2003, sales to Vacation Express represented
approximately 73% of consolidated revenue.

In fiscal 2002 and 2003, flightserv developed and implemented a trial scheduled
charter flight operation d/b/a Interstate Jet. Initial service began between
Allentown PA/Newburgh NY and Las Vegas NV/Los Angeles CA. The
origination cities were chosen as a result of direct cash subsidies and
marketing support from the respective airport authorities. While the first
trials of these cities did not yield adequate passenger loads and yields to
break even, flightserv plans to continue to

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work with airport authorities to develop and implement new scheduled air
service to minimize reliance on fixed length tour operator contracts.

During fiscal year 2003, flightserv started two joint ventures, flightfuel,
Inc. (flightfuel) and Platinum Air Charter,
LLC (Platinum), with initial
investments of $5,000 and $60,000, respectively. Both are 50% owned by
flightserv. flightfuel began operations in January, 2003 and provides fuel
management services to its clients. flightfuel has temporarily suspended
further fuel sales, while it seeks to recover through litigation past due fuel
amounts (approximately $360,000) from a former client. Platinum, a Dallas,
Texas based company, began operations in July, 2003 and provides charter air
program management services to its clients. Platinum specializes in charter
flights that can utilize smaller non-commercial airports (FBOs). Platinum
currently has contracts primarily with casinos and NCAA colleges.

HOME TECHNOLOGY

The Company operates its home technology business through Lifestyle
Innovations, Inc. (Lifestyle), a separate publicly traded company of which
the Company owns approximately 77% of the outstanding common stock. Lifestyle is a full
service home technology integration company providing complete installation and
equipment for structured wiring, home security, PC networking, home audio, home
theater, central vacuum and accent lighting. Lifestyle creates relationships
with high-end residential homebuilders (those that build residences with value
equal to or greater than $250,000) and provides such homebuilders with a basic
structured wiring and security package in exchange for an agreement to
introduce the homeowner to a Lifestyle sales consultant and to offer the
homeowner a visit to the local Lifestyle showroom. While in the showroom, the
homeowner is introduced to the complete line of home security, entertainment,
lighting, and home office options. Lifestyle has also secured relationships
with product manufacturers, distributors and service providers (cable, Internet
service provider, broadband and security) to ensure the highest quality and
most attractive pricing for the homeowners needs.

During fiscal 2001, Lifestyle expanded from its headquarters in Charlotte,
NC to Raleigh, NC; Greenville, SC; Columbia, SC and Hilton Head, SC. In the
fourth quarter of fiscal 2001, Lifestyle began development of a national
franchising program, which was implemented in September 2001. In connection
with the franchising program through June 2002, Lifestyle sold its Raleigh,
Hilton Head, Greenville and Columbia locations to franchisees and has sold
franchises in 14 total markets.

On April 3, 2001, the Company acquired Lifestyle in exchange of 1,153,525
shares of Common Stock pursuant to certain stock purchase agreements. Including
direct acquisition costs, the total purchase price aggregated $7,695,586 and
the transaction was recorded using the purchase method of accounting. The
excess value of the purchase price over the fair value of Lifestyles net
assets on the acquisition date aggregating $8,069,669 was allocated to
goodwill.

On July 10, 2001, the Company, through Lifestyle, acquired certain net
assets, liabilities and the business of a home technology company located in
Atlanta, GA for an aggregate purchase price of $1,255,000, which was paid by
delivery of a cash payment ($275,000), Common Stock (139,365 shares) and a
four-year term promissory note ($250,000). Including direct acquisition costs,
the total purchase price for this business, which is operated as Lifestyle
Technologies Atlanta, Inc. (LSTA) aggregated $1,260,000 and the transaction
was accounted for using the purchase method of accounting. The excess value of
the purchase price over the fair value of the net assets on the acquisition
date aggregated approximately $1,208,000, which was allocated to goodwill.

On September 5, 2002 the Company closed the sale (the LFSI Transaction)
of its subsidiary LST, Inc. (LST) to Lifestyle Innovations, Inc. (LFSI).
LFSI is a fully reporting company whose common stock is publicly traded on the
over the counter market. The Companys consolidated financial statements should
be read in conjunction with all publicly available information of LFSI.
Pursuant to this transaction, LST became a wholly-owned subsidiary of LFSI and
the Company received 16,000,000 shares of LFSI restricted common stock, which
represented approximately 77% of the outstanding stock of LFSI at the closing
date. LFSI agreed to complete a registration statement within 90 days of
closing (the Triggering Date) to register the shares of LFSI common stock
received by the Company in the LFSI Transaction. LFSI issued an option to the
Company for 1,000,000 shares of LFSI common stock at 20% of the last bid price
for the LFSI common stock on the Triggering Date. Such option was exercisable
only if the registration statement was not filed by the Triggering Date. As a
result of the acquisition of FutureSmart Systems, Inc. (FutureSmart) by LFSI,
the Company and LFSI agreed to extend the deadline for the registration
statement to May 31, 2003, or a later date consistent with any registration
rights associated with

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the acquisition of FutureSmart or otherwise, or as the parties mutually agree.
The registration statement has not been completed and therefore the LFSI common
stock held by the Company remains restricted. The LFSI Transaction added
approximately $320,000 of cash, $50,000 of which was received in fiscal 2002,
and $65,000 of other assets to the existing assets of LST. Additionally, in
September 2002 and subsequent to the closing of the LFSI Transaction, LFSI
received approximately an additional $870,000 in equity funding from its
private placements.

In connection with LFSIs acquisition of FutureSmart as discussed below,
the Company agreed that for a period equal to the lesser of (i) March 3, 2005,
and (ii) one (1) year from the registration of the shares of common stock of
the FutureSmart shareholders, in the event that the Company proposes to
transfer fifteen percent (15%) or more of the shares of LFSIs capital stock
owned by the Company (other than registered offerings, sales to certain
investors, and related party sales), then certain of the FutureSmart
shareholders shall have the right to participate in such transfer of stock on
the same terms and conditions, and the number of shares of LFSI stock that the
Company may sell in the transaction shall be correspondingly reduced; provided,
however, that the aggregate number of shares that the FutureSmart shareholders
may sell in any proposed sale transaction may not exceed twenty-five percent
(25%) of the total number of shares to be sold by the Company.

On May 28, 2003 the Board of Directors of the Company approved a plan to
dispose of FutureSmart. Accordingly, its operations since March 7, 2003 have
been included in discontinued operations.

LFSI completed its acquisition of FutureSmart effective March 7, 2003
after which date the results of operations of FutureSmart are included in the
consolidated financial statements. The purchase price of $876,910 consisted of
the issuance of 1,000,000 shares of LFSIs $.10 par value preferred stock, a
bridge loan by LFSI to FutureSmart of $224,830 and $552,080 in direct
transaction costs.

The acquisition of FutureSmart was accounted for as a purchase in
accordance with SFAS No. 141, and the Company has accordingly allocated
the purchase price of FutureSmart based upon the fair values of the net
assets acquired and liabilities assumed. The allocation of the purchase
price resulted in the Company recording goodwill in the amount of
$2,939,072.

Pursuant to the acquisition agreement, the shareholders of
FutureSmart could receive Earn out Consideration of up to 1,200,000
LFSI common shares if FutureSmart achieves certain Performance
Milestones.

FutureSmart
is a manufacturer of structured wiring and home networking
systems. FutureSmart develops and distributes home technology products
designed to meet the current and future needs of homeowners for computer
networking, audio/video distribution and home automation.

The Company records minority interest, which represents the minority
shareholders share of income or losses of LFSI, a consolidated subsidiary. The
minority interest in the consolidated balance sheet reflects the original
investment by these minority shareholders in this consolidated subsidiary,
along with their proportional share of the losses of the subsidiary. Minority
interest also reflects LFSIs subsequent sales of LFSI common stock, issuance
of common stock warrants and preferred stock, and the Companys cost basis in
LFSI stock sold.

TECHNOLOGY SOLUTIONS

Our technology solutions business is the result of our acquisitions of
Avenel Alliance, Inc. (Avenel Alliance) in February 2001 and Logisoft Corp.
(f/k/a Logisoft Computer Products Corp., Logisoft), and its wholly-owned
subsidiary eStorefronts.net Corp. in June 2001. Avenel Alliance was a
wholly-owned subsidiary of Avenel Ventures, Inc. (Avenel Ventures), which was
also acquired by us in February 2001 and integrated into our corporate unit.

Our technology solutions business provides integrated products and
services to assist customers in meeting their strategic technology initiatives.
Our products and services include distribution of third-party published
software titles to the educational market and corporate customers, full service
Internet development, Internet site hosting and co-location and Internet
business development services encompassing partner site management and
marketing. In our Internet business development and marketing services
business, we generally participate in the development and implementation of the
business plan in exchange for revenue-sharing and/or equity-based arrangements.

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On February 13, 2001, the Company acquired all of the outstanding capital
stock of Avenel Ventures, and its wholly-owned subsidiary Avenel Alliance, in
exchange of 957,143 shares of Common Stock pursuant to a stock purchase
agreement dated as of November 8, 2000. The total purchase price aggregated
$6,834,000 and the transaction was recorded using the purchase method of
accounting. The excess value of the purchase price over the fair value of
Avenel Ventures net assets on the acquisition date aggregating $5,610,000 was
allocated to goodwill. This goodwill was allocated to the technology solutions
business segment, except for, $1,000,000 that was allocated to the Companys
Corporate segment in the Companys adoption of Statement of Financial
Accounting Standards (FASB) No. 142.

On June 19, 2001, the Company acquired Logisoft in exchange of 785,714
shares of Common Stock pursuant to that certain agreement and plan of merger.
The total purchase price aggregated $5,504,879 and the transaction was recorded
using the purchase method of accounting. The excess value of the purchase price
over the fair value of Logisofts net assets on the acquisition date
aggregating $4,146,000 was allocated to goodwill. The aggregate purchase price
and goodwill were both adjusted in fiscal 2002 by $42,000 to reflect the
issuance of earn-out shares to certain members of Logisofts management.

On June 10, 2003 eStorefronts.net Corporation, 100% owned by Logisoft, a
subsidiary of the Company, purchased a 75% interest in Premier Shoe Group, LLC
(Premier) for $187,000. A one-year 10% note of $147,000 was signed at closing
and $40,000 cash was paid. Premier operates a website named 123Shoes.com which
sells brand name shoes. The results of Premier will be consolidated on
Logisofts financial statements and the portion of income or loss attributable
to the minority interest as an increase or decrease to the minority interest
recorded.

TELECOMMUNICATIONS CALL CENTER

We operate our telecommunications call center business through our
subsidiary DM Marketing, Inc. (DMM). DMM operates a thirty-five seat
telecommunications call center located in Pensacola, Florida which is equipped
to provide telemarketing, help desk and other services to companies.

In December 2002, the Companys aviation travel services business assumed
operational responsibility of the call center operations located in Pensacola
FL. Investments have been made in new reservations software, related computer
equipment, and additional employees to support increased call volumes
associated with the Companys Interstate Jet programs. The Southeast Airlines
Club 59 program has been discontinued due to reduced call volumes from
Southeast and the reservations center is now focusing on the Interstate Jet
programs.

In January 2003, DMM was operated and managed by flightserv and provided
in-bound reservations call center services to Southeast Airlines and
flightservs Interstate Jet. From January through June 2003 DMM booked
approximately 65,000 passenger segment reservations for Southeast Airlines and
Interstate Jet.

RECENT BUSINESS DEVELOPMENTS

During the first quarter of fiscal year 2004, the Company received funding
from private investors of $50,000 at $.25 per share and $938,000 at $1.12 per
share. During August 2003, the Company converted certain debt and certain
accounts payable totaling $879,779 to common stock at $1.12 per share.

On September 1, 2003, DMM, a subsidiary of the Company, closed the
Pensacola, FL call center facility. DMM is currently negotiating with the
landlord for alternative uses of the Pensacola location, or a negotiated lease
buyout for the present lease which expires in June 2004. Future DMM programs
will be managed by flightserv.com, Inc., either at its existing office in
Atlanta, GA or new space depending on the size and profit projections of the
specific program.

FACTORS AFFECTING FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS

The Companys business, results of operations and financial condition are
subject to many risks, including those set forth below. The following
discussion highlights some of these risks and others are discussed elsewhere
herein or in other

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documents filed by the Company with the SEC. In addition, statements in
this report relating to matters that are not historical facts are
forward-looking statements based on managements belief and assumptions using
currently available information. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
cannot give any assurances that these expectations will prove to be correct.
Such statements involve a number of risks and uncertainties, including, but not
limited to, those set forth below.



| |  | WE MAY NEED TO RAISE ADDITIONAL FUNDS IN ORDER TO CONTINUE TO OPERATE AND
GROW OUR BUSINESS.
| |  | --------------------------------------------------------------------------------------------

The Company believes that its existing balances of cash and cash
equivalents and investments will be sufficient to meet working capital and
capital expenditure requirements of our continuing operations through the end
of fiscal 2004. If we are unable to grow our business or improve our operating
cash flows as expected, we suffer significant losses on our investments or are
unable to realize adequate proceeds from those investments, including our
holdings of LFSI stock, then we will need to secure alternative debt or equity
financing to provide us with additional working capital. However, there can be
no assurance that we will be able to complete such financing if required. If
we raise funds through debt financing, then we will incur additional interest
expense going forward. If we raise additional funds by issuing additional
equity securities, then the percentage ownership of our current stockholders
will be diluted. We cannot be certain that additional financing will be
available when and to the extent required or that, if available, it will be on
acceptable terms. In addition, our ability to complete future financings may
be affected by the market price of our Common Stock. If adequate funds are not
available on acceptable terms, then we will not be able to continue to fund our
existing businesses or our planned expansion or take other steps necessary to
enhance our business or continue our operations.



| |  | WE HAVE BEEN INCURRING OPERATING LOSSES AND THERE CAN BE NO ASSURANCE THAT WE
WILL ACHIEVE OR SUSTAIN PROFITABILITY.
| |  | --------------------------------------------------------------------------------------------------------------------

We incurred operating losses in our fiscal years ended June 30, 2003,
2002, 2001 and 2000. Certain of our other operating businesses have incurred
and continue to incur operating losses. In particular, we have, and continue
to, incur operating losses in connection with our efforts to grow our home
technology business. We expect to continue to incur significant operating
costs in connection with our efforts to expand our existing businesses and to
grow through acquisitions. As a result of these costs and uncertain revenue
growth, there can be no assurance that we will achieve or sustain profitability
for any annual period.



| |  | THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE.
| |  | ------------------------------------------------

The stock market in general, and the market for travel, entertainment and
technology services companies has recently experienced extreme volatility.
Similarly, the per share trading price of our Common Stock during the year
ended June 30, 2003, as reported by the American Stock Exchange, fluctuated
from a high of $1.50 to a low of $0.26. Fluctuations in the price of our
Common Stock may occur, among other reasons, in response to:



| |  |  | operating results;                                  
| | - |  | ----------------------------------------------------
|
| |  |  | regulatory changes;                                 
|
| |  |  | economic changes;                                   
|
| |  |  | market valuation of firms in related businesses; and
|
| |  |  | general market conditions.                          

In addition, the volume of shares of our Common Stock bought and sold on
any trading day has been subject to wide fluctuations which also contributes to
fluctuations in the trading price of our Common Stock. The trading price of our
Common Stock could continue to be subject to wide fluctuations in response to
these or other factors, many of which are beyond our control. If the market
price of our Common Stock decreases, stockholders may not be able to sell their
shares of Common Stock at a profit.



| |  | WE MAY BE UNABLE TO MAINTAIN OUR LISTING ON THE AMERICAN STOCK EXCHANGE.
| |  | ------------------------------------------------------------------------

Our Common Stock is presently listed and trading on the American Stock
Exchange (the Exchange). The Exchange has previously raised the question of
whether the Company meets the qualifications for continued listing and may
raise

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such questions in the future. The Company believes that it meets the
standards for continued listing but such a determination is subjective and no
assurance can be given that the Exchange will agree or that our Common Stock
will be trading on the Exchange at the time that the stockholders are able to
sell shares under applicable securities laws.



| |  | CERTAIN OF OUR BUSINESSES HAVE LIMITED OPERATING HISTORIES.
| |  | -----------------------------------------------------------

We acquired DMM, IASL, Avenel Ventures, and its subsidiary Avenel
Alliance, and Lifestyle during the fiscal year ended June 30, 2001. DMM was
formed in October 1998 and IASL, Avenel Ventures and Lifestyle were each formed
during calendar year 2000. Each of these companies has incurred losses since
their inception and has a limited operating history. Furthermore, due to these
losses, we have significantly curtailed the operations of Avenel Ventures and
DMM. As a result, there is limited information upon which to base an
evaluation of these components of our business and their prospects. You should
evaluate the chances of financial and operating success of these businesses in
view of the risks, uncertainties, expenses, delays and difficulties associated
with starting new businesses.



| |  | WE HAVE BEEN UNSUCCESSFUL IN IMPLEMENTING OUR PRIOR BUSINESS PLANS, HAVE
RECENTLY MODIFIED OUR BUSINESS PLAN AND MAY NOT BE ABLE TO SUCCESSFULLY
IMPLEMENT OUR CURRENT BUSINESS PLAN.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During our fiscal year ended June 30, 2000, we incurred substantial
expenses developing our Private SeatsTM program. We were unable to generate
sufficient customer use of our Private SeatsTM program and had to discontinue
the service shortly after it was launched. As a result, we made a decision to
diversify through the acquisitions of DMM, IASL, Avenel Ventures, Lifestyle and
Logisoft in fiscal 2001, expanding our business plan to attempt to acquire
expansion-stage travel, entertainment and technology services companies. At the
same time, we have had a change in our executive team. However, we have limited
resources and there can be no assurance that we will be able to implement our
expanded business plan or achieve profitability. In addition, if we are not
successful in implementing our strategy or if we otherwise believe it to be in
our best interest, then we may modify or change our business plans.



| |  | WE MAY BE UNABLE TO SUCCESSFULLY EXECUTE OUR ACQUISITION STRATEGY.
| |  | ------------------------------------------------------------------

We anticipate that a portion of our future growth will be accomplished
through acquisitions. The success of this plan depends upon our ability to:



| |  |  | identify suitable acquisition opportunities;                                                          
| | - |  | ------------------------------------------------------------------------------------------------------
|
| |  |  | effectively integrate acquired personnel, operations, products and technologies into our organization;
|
| |  |  | retain and motivate the personnel of acquired businesses;                                             
|
| |  |  | retain customers of acquired businesses; and                                                          
|
| |  |  | obtain necessary financing on acceptable terms or use Common Stock as consideration for acquisitions. 

In addition, turbulence in financial markets and the slowdown in the U.S.
economy may result in a diminished pool of companies that meet our criteria for
acquisition. Even if we are successful in acquiring companies, we may be
unable to integrate them into our business model or achieve the expected
synergies.



| |  | OUR ACQUISITION STRATEGY HAS AND WILL CONTINUE TO DILUTE OUR CURRENT
STOCKHOLDERS OWNERSHIP.
| |  | ---------------------------------------------------------------------------------------------

Our acquisition strategy contemplates that we will continue to issue
shares of our Common Stock to make strategic acquisitions and attempt to grow
our business. However, each of the acquisitions that we complete in the future,
involving the issuance of Common Stock, will further dilute our current
stockholders ownership interest in the Company.



| |  | WE FACE COMPETITION FROM OTHER ACQUIRORS AND INVESTORS WHICH MAY PREVENT US
FROM REALIZING STRATEGIC OPPORTUNITIES.
| |  | -------------------------------------------------------------------------------------------------------------------

We plan to acquire or invest in existing companies to fulfill our business
plan. In pursuing these opportunities, we face competition from other capital
providers and operators of companies, including publicly-traded companies,
venture capital companies and large corporations. Some of these competitors
have greater financial, operational and human resources than

8



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##### 



we do. This competition may limit our opportunity to acquire interests in
companies that we believe could help us fulfill our business plan and increase
our value.



| |  | OUR SUBSIDIARIES FACE SIGNIFICANT COMPETITION.
| |  | ----------------------------------------------

Our success depends on our ability to grow our subsidiaries businesses,
all of which operate in highly competitive business segments. Many of our
subsidiaries competitors have substantially greater financial, operational and
human resources than we do. As a result, our subsidiaries may be unable to
compete successfully with such competitors.



| |  | OUR GROWTH PLACES STRAIN ON OUR MANAGERIAL, OPERATIONAL AND FINANCIAL
RESOURCES.
| |  | --------------------------------------------------------------------------------

Our growth has placed, and is expected to continue to place, a significant
strain on our managerial, operational and financial resources. Further growth
will increase this strain on our managerial, operational and financial
resources, which may inhibit our ability to successfully implement our business
plan.



| |  | WE DEPEND ON CERTAIN IMPORTANT EMPLOYEES, AND THE LOSS OF ANY OF THOSE
EMPLOYEES MAY HARM OUR BUSINESS.
| |  | -------------------------------------------------------------------------------------------------------

Our performance is substantially dependent on the performance of our
executive officers, Michael D. Pruitt and Melinda Morris Zanoni and other key
employees. The familiarity of these key employees with the technology industry
and the familiarity of the key employees of our charter aviation business, Kent
Elsbree and Cary Evans, with the charter services business makes them
especially critical to our success. In addition, our success is dependent on
our ability to attract, train, retain and motivate high quality personnel,
especially for our management team. The loss of the services of any of our
executive officers or key employees may harm our business. Our success also
depends on our continuing ability to attract, train, retain and motivate other
highly qualified technical and managerial personnel. Competition for such
personnel is intense and our limited resources are likely to make it more
difficult for us to attract and retain such personnel.



| |  | OUR AVIATION TRAVEL SERVICES BUSINESS IS DEPENDENT UPON A FEW, KEY CUSTOMERS
AND SERVICE PROVIDERS.
| |  | ---------------------------------------------------------------------------------------------------

During the three month periods ended June 30, 2003 and 2002, sales to
Vacation Express, a MyTravel Group company and a customer of the Companys
aviation travel services business, represented 76% and 63%, respectively, of
the Companys consolidated revenue. For the years then ended, sales to
Vacation Express represented 73% and 54%, respectively, of the Companys
consolidated revenue. This concentration of revenue with Vacation Express, and
its sister company, Suntrips, Inc. (Suntrips), increased in July 2002 with
the beginning of a new program for Suntrips.

If these customers default under the contracts that they presently have
with the Company, or otherwise are unable to fulfill their obligations under
such contracts, the Companys aviation travel services business would suffer
operating losses which may result in a material adverse impact on the Companys
financial position and its ability to continue operations.

The Companys aviation travel services business generally contracts with
one to two carriers for each of the long-term tour operator contracts discussed
above. While this concentration generally reduces the costs of the carrier
service, if one or more of these carriers is unable to perform under its
contract, our aviation travel services business may experience service
interruptions which could reduce its revenue. Additionally, the Companys
aviation travel services business may be forced to replace such a carrier which
could result in higher operating costs for the carrier services, thereby
reducing profitability.

The Companys aviation travel services business has a dispute of
approximately $2.3 million with Pace Airlines, Inc. (Pace) related to amounts
due to Pace for calendar year 2002 for shortages related to guaranteed flying
revenue and expenses associated with relocating the air hub with the Vacation
Express contract. Management believes these claims to be baseless and no funds
are due Pace. In the event that funds were ultimately determined to be due
Pace, management believes the payment responsibility would be with Vacation
Express, or their parent company, My Travel. Accordingly a liability
has not been booked in fiscal year 2003.



| |  | FUTURE EVENTS SIMILAR TO THOSE OF SEPTEMBER 11, 2001 MAY HAVE AN ADVERSE
EFFECT ON OUR BUSINESSES.
| |  | --------------------------------------------------------------------------------------------------

The terrorist attack against the United States on September 11, 2001
produced great uncertainty in the economy in general and in the aviation
industry in particular. Industry reports indicate that these events are still
having a negative impact on the air travel industry. These events may
drastically alter the long-term demand for charter services. In addition,
these events may lead the Federal Aviation Administration to place additional
restrictions on charter flight operators, which may increase the cost of
private charter services. The long-term impact of these events on the aviation

9



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industry and the chartered services segment of that industry are not
known. These events could have a material adverse effect on our aviation
travel services business including the operation of our charter hub service
through Atlanta, Georgia.

Also, additional terrorist attacks against the United States could produce
uncertainty in the financial markets, which could negatively effect economic
performance of the United States. These events could also have a material
adverse effect on our home technology business and our other business segments.



| |  | IF OUR AVIATION TRAVEL SERVICES BUSINESS DOES NOT PRODUCE REVENUE AS
FORECASTED, THEN WE WILL NEED TO RAISE ADDITIONAL CAPITAL SOONER THAN
EXPECTED.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant to an agreement with a major tour operator, we created and
operate a passenger hub at Atlantas Hartsfield Airport. Pursuant to the terms
of the related agreement, aircraft originate in six eastern and mid-western
cities and serve six Caribbean destinations. This program began operations in
December 2001. This agreement represents the majority of our fiscal 2003
aviation services revenue, and along with a similar three year agreement to
service several Mexican destinations from several western cities that
flightserv signed in July 2002, is expected to comprise the majority of our
revenue in fiscal 2004. However, due in part to the slowdown and uncertainty
in the economy in general and in the air travel industry in particular, there
can be no guarantee that the revenue from these agreements will materialize.
In fact, our customer for the Atlanta hub operation has reduced its scheduled
flights between August 2003 and December 2003. These schedule changes are
expected to reduce the Companys aviation services revenue, from the original
schedule by approximately $1 million and gross profit during that period by
$100,000. If our aviation travel services business does not generate the
forecasted revenue, then our aviation travel services business may not operate
profitably and we would not be able to offset any operating losses in other
business segments or corporate expenses. As a result, we would need to raise
additional capital, through debt or equity financing, sooner than expected.



| |  | AVIATION SERVICES CONTRACTS MAY RESULT IN LOSSES.
| |  | -------------------------------------------------

The Company actively pursues opportunities to operate scheduled and ad-hoc
charter service outside of its two primary aviation services contracts with
major tour operators, in order to utilize capacity on aircraft that it has
under contract. These programs often require the Company to provide such
services for a fixed fee or with limited ability to pass along increases in
operating costs over the amounts estimated during the bid process. If actual
operating costs are higher than forecast, the Company may lose money on such
programs and these losses may exceed the operating profit generated on other
aviation travel services contracts. For example, in fiscal 2003, the Companys
Interstate Jet and DMM reservations center lost approximately $550,000 for the
fiscal year due primarily to start up costs associated with the DMM reservation
center, lower than anticipated load and yield factors for Interstate Jet and
higher than anticipated fuel and aircraft costs. Management believes that
passenger demand was significantly adversely effected by the war in Iraq, which
coincided with the startup of some of the scheduled Interstate Jet service.



| |  | GOVERNMENT REGULATION OF THE TRAVEL INDUSTRY COULD IMPACT OUR AVIATION TRAVEL
SERVICES BUSINESS OPERATIONS.
| |  | ------------------------------------------------------------------------------------------------------------

Certain segments of the travel industry are regulated by the United States
Government and, while we are not currently required to be certified or licensed
under such regulation, certain services offered by our aviation travel services
business are affected by such regulation. Charter flights operators, upon which
our aviation travel services business depends, are subject to vigorous and
continuous certification requirements by the Federal Aviation Administration.
Changes in the regulatory framework for charter aviation travel could adversely
affect our aviation travel services business operations and financial
condition.



| |  | OUR AVIATION TRAVEL SERVICES BUSINESS FACES INTENSE COMPETITION FOR CUSTOMERS
FROM THE TRAVEL INDUSTRY.
| |  | -------------------------------------------------------------------------------------------------------

We provide leisure charter jet travel and face intense competition from
commercial airlines for the potential customers who travel to these locations
and other locations that we may serve in the future. These commercial airlines
have greater resources, marketing efforts and brand equity than we do and they
also offer a potential customer more flights to these locations. Furthermore,
travelers have numerous choices of location when choosing travel destinations.
Since we offer only limited travel destinations, we face intense competition
from travel agents, commercial airlines, hotels, resorts,

10



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casinos and other organizations in the travel industry that offer
alternative travel destinations to those offered by us. Such competitors
possess far greater capital and human resources, marketing efforts and brand
equity than we do. If we are unable to compete effectively with these various
competitors in the travel industry, we may not be able to maintain
profitability.



| |  | HOME TECHNOLOGY BUSINESS MAY NOT ACHIEVE OR SUSTAIN PROFITABILITY.
| |  | ------------------------------------------------------------------

Our home technology business began operations in March 2000 and since then
has not achieved profitability for a sustained period of time. Through our
home technology business, we provide homeowners complete installation and
equipment for structured wiring, home security, PC networking, home audio, home
theater, central vacuum and accent lighting. We also provide similar services
to the commercial market. Our planned expansion of this business through
franchising and entering new markets may fail due to intense competition from
competitors in the residential technology industry who have greater capital,
technical, operational, marketing and human resources and greater experience
and brand equity than we do. Furthermore, we may have overestimated the depth
of the residential technology industry and the demand for our home technology
products. Our inability to execute the expansion plan of Lifestyle and to
attract and retain customers for this business would likely result in our home
technology business continuing to operate at a loss.



| |  | OUR EFFORTS TO GROW OUR HOME TECHNOLOGY BUSINESS THROUGH THE SALE OF
FRANCHISES MAY NOT SUCCEED.
| |  | ------------------------------------------------------------------------------------------------

We began franchising our home technology business in September 2001.
There is no guarantee that efforts to franchise our home technology business
model will be successful. To the extent we are successful in selling
franchises, we may incur significant costs related to supervising and
monitoring our franchisees and protecting our proprietary rights associated
with our business model. Furthermore, franchise operations are regulated by
the federal and state governments and compliance with such regulations may
cause us to incur additional costs. We cannot be certain that we will generate
adequate revenue from our franchise activities to offset these costs.



| |  | OUR TECHNOLOGY SOLUTIONS BUSINESS GENERALLY DOES NOT HAVE LONG-TERM
CONTRACTS.
| |  | ------------------------------------------------------------------------------

The clients of our technology solutions business are generally retained on
project-by-project basis, rather than pursuant to long-term contracts. As a
result, a client may or may not engage us for further services once a project
is completed or may unilaterally reduce the scope of, or terminate, existing
projects. The absence of long-term contracts creates an uncertain revenue
stream, which could negatively affect the financial condition of our technology
solutions business.



| |  | THE DEVELOPING MARKET FOR STRATEGIC INTERNET SERVICES AND THE LEVEL OF
ACCEPTANCE OF THE INTERNET AS A BUSINESS MEDIUM WILL AFFECT OUR TECHNOLOGY
SOLUTIONS BUSINESS.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

The market for strategic Internet services is relatively new and is
evolving rapidly. The future growth of our technology solutions business is
dependent upon the ability of such business to provide strategic Internet
services that are accepted by existing and future clients. Demand and market
acceptance for recently introduced services are subject to a high level of
uncertainty. The level of demand and acceptance of strategic Internet services
is dependent upon a number of factors, including:



| |  |  | the growth in consumer access to and acceptance of new interactive technologies such as the Internet;          
| | - |  | ---------------------------------------------------------------------------------------------------------------
|
| |  |  | companies adopting Internet-based business models;                                                             
|
| |  |  | the development of technologies that facilitate two-way communication
between companies and targeted audiences;
|
| |  |  | the level of capital spending on Internet, technology and communications initiatives; and                      
|
| |  |  | the extent and nature of any domestic or international regulation of e-business or uses of the Internet.       

Significant issues concerning the commercial use of these technologies
include security, reliability, cost, ease of use and quality of service. These
issues remain unresolved and may inhibit the growth of Internet business
solutions that utilize these technologies.

11



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Industry analysts and others may have made many predictions concerning the
growth of the Internet as a business medium. You should not rely upon these
predictions. Recently, the market for strategic Internet services in
particular has contracted. If the market for strategic Internet services fails
to develop, or develops more slowly than expected, or if the services provided
by our technology solutions business do not achieve market acceptance, then
revenue and operating results of such business may be volatile and our
technology solutions business may be unable to achieve or sustain operating
profits.



| |  | OUR TECHNOLOGY SOLUTIONS BUSINESS MAY NOT BE ABLE TO KEEP UP WITH THE
CONTINUOUS TECHNOLOGICAL CHANGE IN ITS MARKET.
| |  | --------------------------------------------------------------------------------------------------------------------

The success of our technology solutions business will depend, in part, on
its ability to respond to technological advances. This business may not be
successful in responding quickly, cost-effectively and sufficiently to these
developments. Many of the competitors of our technology solutions business are
larger than we are and have significantly more financial resources to invest in
advances in technology, products, engagement methodology and other areas
central to providing technology and Internet solutions. Our technology
solutions business will not be able to compete effectively or meet its growth
objectives if it is unable, for technical, financial or other reasons, to adapt
in a timely manner in response to technological advances. In addition,
employee time allocated to responding to technological advances will not be
available for client engagements.



| |  | THE SUCCESS OF OUR TECHNOLOGY SOLUTIONS BUSINESS IS LARGELY DEPENDENT UPON
ITS ABILITY TO RETAIN ITS MANUFACTURER AUTHORIZATIONS THAT ALLOW IT TO SELL
SOFTWARE TO EDUCATIONAL CUSTOMERS AT DISCOUNTED PRICING.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our technology solutions business has been accumulating authorizations
from key software manufacturers that allow it to sell products to educational
facilities at deep discounts. If our technology solutions business were to
lose any of these authorizations, its ability to sell computer products to
educational customers would be adversely impacted, which could have a similar
impact on its sales, profitability and ability to expand within this business
line. In addition, this business uses credit lines extended by software and
hardware manufacturers and distributors. The loss of any of these credit lines
would limit the ability of our technology solutions business to meet customer
demand, thereby reducing sales and profits.



| |  | THE EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS COULD SUBSTANTIALLY DILUTE
EXISTING STOCKHOLDERS AND COULD HAVE A NEGATIVE EFFECT OUR STOCK PRICE.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

We have adopted the eResource Capital Group, Inc. Stock Option Plan (the
Plan) and our stockholders have authorized the issuance of options to acquire
up to 20,000,000 shares of Common Stock under the Plan. As of June 30, 2003, we
have outstanding options for 2,409,750 shares, under the Plan that have been
granted to our officers, directors, employees and other service providers of
which options for 1,276,993 shares, are vested. There have been zero options
exercised for fiscal year 2003 of Common Stock that were issued under the Plan.
In addition to options issued under the Plan, we currently have outstanding
warrants as of June 30, 2003 for up to 2,329,660 shares. Our outstanding
options and warrants have exercise prices ranging from $0.28 to $28.00. The
exercise of these options or warrants will dilute the percentage ownership of
our current stockholders and the potential sale of shares issued upon the
exercise of these warrants or options could have a negative impact on the
market price of our Common Stock.



| |  | THE CONVERSION OF DEBT BY EXISTING DEBT HOLDERS COULD SUBSTANTIALLY DILUTE
EXISTING STOCKHOLDERS AND COULD HAVE A NEGATIVE EFFECT OUR STOCK PRICE.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------

We have entered into debt conversion agreements with certain debt holders
to give such parties the option to convert up to $1.049 million of debt and
interest of the Company and two of its subsidiaries into the right to receive
shares of the Companys Common Stock. The terms of these agreements allow such
debt holders to convert balances due them into shares of our Common Stock at a
20% discount to an average market price, but no less than $1.12 per share, and
require us to register the shares underlying the convertible debt on a
registration statement. Up to 714,286 shares may be issued in connection with
such debt conversions. During August, 2003 three debt holders elected to
convert debt to common stock at $1.12 per share. Mr. G. David Gordon, a Company
Stockholder and owner of six LFSI franchises, converted a total of

12



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$308,738 of outstanding debt and accrued interest into 275,658 restricted
common shares.. GAIA Holdings, Inc., a privately held company, converted a
total of $552,439 of outstanding debt and accrued interest into 387,445
restricted common shares. The Company incurred this debt during fiscal 2001 and
fiscal 2002. These transactions occurred in accordance with the conversion
terms contained in the debt agreements.

In addition, $18,603 owed to a vendor was converted to 36,000 shares of
restricted common stock of the Company during August 2003.

In addition, we have $650,000 of debt outstanding that is convertible at
$4.55 per share, the principal of which is due in August 2003, and $750,000
that is convertible at $2.10 per share or a mutually agreed upon discounted
market price, the principal of $150,000 which is due in December 2003 and
$600,000 which is due in December 2004.

Conversions of debt to shares of the Companys Common Stock will result in
dilution of a stockholders investment in the Company and the potential sales
of Common Stock by the Selling Stockholders could have a negative impact on the
market price of our Common Stock.



| |  | THE FUTURE SALES OF RESTRICTED SECURITIES COULD HAVE A NEGATIVE EFFECT ON OUR
STOCK PRICE.
| |  | ------------------------------------------------------------------------------------------

The market price of our Common Stock could be negatively affected by the
future sale of shares of restricted Common Stock, including shares of
restricted Common Stock underlying options and warrants that have been or will
be issued by us. As of June 30, 2003 and 2002, approximately 2,100,000 of our
13,948,160 and 2,100,000 of our 12,280,820, respectively, issued and
outstanding shares of Common Stock are believed to be restricted securities as
defined in Rule 144 promulgated under the Securities Act or otherwise not
available for trading by the public. Rule 144 provides generally that
restricted securities must be held for a one year period prior to resale and
provides certain additional limitations on the sale of such shares, including
limitations on the volume of such shares that a beneficial owner may sell in
any three month period thereafter. Generally, non-affiliated stockholders may
sell restricted shares that have been held for at least two years without any
limitations. In addition, Rule 145 permits the sale by non-affiliates of
restricted securities issued in connection with certain business combinations
one year after such shares are issued. As restricted shares become eligible for
resale pursuant to Rule 144 or Rule 145, the number of sellers of our Common
Stock could increase significantly and, as a result, the market price of our
Common Stock could decrease.



| |  | INABILITY TO PROTECT INTELLECTUAL PROPERTY RIGHTS.
| |  | --------------------------------------------------

We rely primarily on a combination of intellectual property laws and
contractual provisions to protect our proprietary rights and technologies,
brand and marks. These laws and contractual provisions provide only limited
protection of proprietary rights and technology. If we are not able to protect
our intellectual property, proprietary rights and technology, we could lose
those rights and incur substantial costs policing and defending those rights.
Our means of protecting our intellectual property, proprietary rights and
technology may not be adequate.

DISCONTINUED OPERATIONS

On March 7, 2003 LFSI completed its acquisition of FutureSmart Systems,
Inc., a manufacturer and distributor of structured wiring and home networking
distribution panels. On May 28, 2003 LFSIs Board of Directors approved a
plan to dispose of FutureSmart. Accordingly, its operations since March 7,
2003 have been included in discontinued operations.

In fiscal 2001, the Company discontinued its commercial real estate
business, which consisted of two strip-mall shopping centers in the Atlanta, GA
area. In May 2001, the Company entered a contract to sell its two shopping
centers, which closed on August 31, 2001. As a result, the Company recorded a
gain of approximately $575,000 in August 2001.

EMPLOYEES

At June 30, 2003, the Company had 116 full-time employees in its
continuing businesses as follows:

13



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|                              |  |  |    | 
|----------------------------- |  |  | -- | 
|Aviation Travel Services      |  |  | 22 | 
|Home Technology               |  |  | 24 | 
|Technology Solutions          |  |  | 25 | 
|Telecommunication Call Center |  |  | 2  | 
|Corporate                     |  |  | 5  | 
|                              |  |  |    | 
|                              |  |  | 78 | 
|                              |  |  |    | 

The Company has no collective bargaining agreements with any unions and
believes that overall relations with its employees are good.

14



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ITEM 2. PROPERTIES

At June 30, 2003 the Companys continuing businesses leased office
building space as follows:

|                         |  |                            |  |             |        |           |  |             |         |  |  |            |  |  |  | 
|------------------------ |  | -------------------------- |  | ----------- | ------ | --------- |  | ----------- | ------- |  |  | ---------- |  |  |  | 
|Business Segment         |  | Locations                  |  | Square Feet |        | Ann. Rent |  | Termination
|                         |  |                            |  |             |        |           |  |            
|Aviation Travel Services |  | Atlanta, GA                |  |             | 5,989  |           |  | $           | 79,200  |  |  | Nov 2003  
|Home Technology          |  | Charlotte, NC/Atlanta, GA  |  |             | 22,963 |           |  | $           | 236,273 |  |  | June 2007 
|Technology Solutions     |  | Fairport, NY/Charlotte, NC |  |             | 8,499  |           |  | $           | 158,274 |  |  | Dec. 2009 
|Call Center              |  | Pensacola, FL              |  |             | 7,380  |           |  | $           | 33,863  |  |  | June 2004 
|Corporate                |  | Charlotte, NC              |  |             | 3,304  |           |  | $           | 66,080  |  |  | Sept. 2004

Management believes that all property occupied by the Company and its
subsidiaries is adequately covered by insurance.

ITEM 3. LEGAL PROCEEDINGS

The Company and its subsidiaries are involved from time to time in various
claims and legal actions in the ordinary course of business. In the opinion of
management, the Company is not party to any legal proceedings the adverse
outcome of which would have any material adverse effect on its business, its
assets, or results of operations.

The Companys aviation services business is seeking to recover through
litigation approximately $70,000 from Southeast Airlines, Inc. related to a
fiscal year 2003 charter flight program. Flightfuel, Inc. a joint venture of
the Companys aviation travel services business is seeking to recover through
litigation approximately $360,000 in unpaid aviation fuel from Southeast
Airlines, Inc.

ITEM 4. VOTE OF SECURITY HOLDERS

There were no shareholders meetings or submission of matters to a vote of
security holders during the fiscal year ended June 30, 2003.

PART II

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

Market Information

The Companys $.04 par value common stock (Common Stock) is listed on
the American Stock Exchange under the symbol RCG. The prices reflect
inter-dealer prices, without retail markup, mark-down or commission and may not
represent actual transactions. The following table shows the high and low
trading and closing prices of the Common Stock during the last two fiscal years
as reported on the Exchange:

15



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|               |  |      |      |     |  |       |     |  |  |   |     | 
|-------------- |  | ---- | ---- | --- |  | ----- | --- |  |  | - | --- | 
|Fiscal 2003    |  | High |      | Low |  | Close
|               |  |      |      |     |  |      
|First Quarter  |  | $    | 1.50 |     |  | $     | .66 |  |  | $ | .80 | 
|Second Quarter |  |      | .93  |     |  |       | .35 |  |  |   | .61 | 
|Third Quarter  |  |      | .65  |     |  |       | .26 |  |  |   | .31 | 
|Fourth Quarter |  |      | .70  |     |  |       | .27 |  |  |   | .55 | 

|               |  |      |      |     |  |       |      |  |  |   |      | 
|-------------- |  | ---- | ---- | --- |  | ----- | ---- |  |  | - | ---- | 
|Fiscal 2002    |  | High |      | Low |  | Close
|               |  |      |      |     |  |      
|First Quarter  |  | $    | 6.30 |     |  | $     | 4.27 |  |  | $ | 4.62 | 
|Second Quarter |  |      | 4.34 |     |  |       | 1.12 |  |  |   | 1.54 | 
|Third Quarter  |  |      | 2.38 |     |  |       | .84  |  |  |   | .98  | 
|Fourth Quarter |  |      | 1.82 |     |  |       | .70  |  |  |   | .95  | 

Dividends

The Company has never paid cash dividends and currently intends to retain any
future earnings to expand its operations. Therefore, it is not contemplated
that cash dividends will be paid on the Companys Common Stock in the
foreseeable future.

Record Holders

The approximate number of record holders of the Companys Common Stock as
of September 29, 2003 was 5,000.

Securities authorized for issuance under equity compensation plans

The following table summarizes certain information as of the end of the
Companys fiscal year 2003 with respect to compensation plans (including
individual compensation arrangements) under which Common Stock of the Company
are authorized for issuance:

|                                                           |  |                            |           |                              |  |                         |      |  |  |  |            | 
|---------------------------------------------------------- |  | -------------------------- | --------- | ---------------------------- |  | ----------------------- | ---- |  |  |  | ---------- | 
|                                                           |  | Number of securities to be |           |                              |  |                         |      |  |  | 
|                                                           |  | issued upon exercise of    |           | Weighted average exercise    |  | Number of securities   
|                                                           |  | outstanding options,       |           | price of outstanding         |  | remaining available for
|Plan category                                              |  | warrants and rights        |           | options, warrants and rights |  | future issuance        
|                                                           |  |                            |           |                              |  |                        
|Equity compensation plans approved by
security holders     |  |                            | 2,409,750 |                              |  | $                       | 2.10 |  |  |  | 17,590,250 | 
|Equity compensation plans not approved by
security holders |  |                            | 2,329,660 |                              |  | $                       | 9.31 |  |  |  |           | 
|                                                           |  |                            |           |                              |  |                         |      |  |  |  |            | 
|Total                                                      |  |                            | 4,739,410 |                              |  | $                       | 5.65 |  |  |  | 17,590,250 | 
|                                                           |  |                            |           |                              |  |                         |      |  |  |  |            | 

The material features of the Companys stock option plan, the data for
which is summarized under the equity compensation plans approved by security
holders in the table above, and its warrant arrangements with vendors and other
service providers are summarized in Note 11 to the consolidated financial
statements that appear in Item 7 of this Annual Report.

Sales of Unregistered Securities

16



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##### 





| |  | During the quarter ended June 30, 2003, the Company issued 1,300,000 shares
of restricted Common Stock at $.25 per share in connection with a private
placement sale of Common Stock. The shares were issued to four
investors. The offering was exempt from registration pursuant to
section 4(2) of the Securities Act. All investors were
accredited. The investors received information concerning the Company
and had an opportunity to ask questions about the Company. The shares
issued to the investors contain a legend restricting
their transferability absent registration or an applicable exemption.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In fiscal 2003, the Company issued options to purchase its Common Stock to
employees and directors. Following is a summary of options issued in fiscal
2003:

|                 |           |                 |  |            |      |         |  |          |          |        |  |  |    |  |  |         |    | 
|---------------- | --------- | --------------- |  | ---------- | ---- | ------- |  | -------- | -------- | ------ |  |  | -- |  |  | ------- | -- | 
|                 |           |                 |  |            |      |         |  |          |          |        |  |  |    |  |  | Vesting
|Number of Shares |           | Exercise        |  |            |      |         |  | Term     |          | Period
|Purchasable      |           | Price Per Share |  | Grant Date |      | (Years) |  | (Months)
|                 |           |                 |  |            |      |         |  |         
|                 | 580,000   |                 |  | $          | .55  |         |  |          | 10/17/02 |        |  |  | 10 |  |  |         | 12 | 
|                 | 439,500   |                 |  |            | .55  |         |  |          | 4/15/03  |        |  |  | 7  |  |  |         | 48 | 
|                 | *350,000  |                 |  |            | .74  |         |  |          | 10/1/02  |        |  |  | 7  |  |  |         | 48 | 
|                 | 1,500     |                 |  |            | 1.15 |         |  |          | 9/13/02  |        |  |  | 7  |  |  |         | 45 | 
|                 | 1,500     |                 |  |            | 1.15 |         |  |          | 9/13/02  |        |  |  | 7  |  |  |         | 35 | 
|                 |           |                 |  |            |      |         |  |          |          |        |  |  |   
|                 | 1,372,500 |                 |  |            |      |         |  |          |          |        |  |  |   

*     As of
July 30, 2003, these options are no longer exercisable.

All of the options indicated in the above table were granted under the
Companys option plan which was originally registered on
Form S-8. The options were issued under the exemption from
registration pursuant to section 4(2) of the Securities Act.

ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Results of Continuing Operations

The following table summarizes results of continuing operations by
business segment for fiscal 2003 and 2002:

|                               |  |                         |            |                         |  |              |           |         |  |              |            |              |  |   |            |  |  |   |           |  |  |   |            |  
|------------------------------ |  | ----------------------- | ---------- | ----------------------- |  | ------------ | --------- | ------- |  | ------------ | ---------- | ------------ |  | - | ---------- |  |  | - | --------- |  |  | - | ---------- | -
|                               |  | Year Ended June 30,2003 |            | Year Ended June 30,2002
|                               |  |                         |            |                        
|                               |  | Revenue                 |            | Gross Profit            |  | Profit(Loss) |           | Revenue |  | Gross Profit |            | Profit(Loss)
|                               |  |                         |            |                         |  |              |           |         |  |              |            |             
|Aviation Travel Services       |  | $                       | 62,589,274 |                         |  | $            | 3,527,736 |         |  | $            | 1,005,055  |              |  | $ | 27,209,440 |  |  | $ | 908,547   |  |  | $ | (794,421   | )
|Home Technology                |  |                         | 2,208,442  |                         |  |              | 895,948   |         |  |              | (3,536,314 | )            |  |   | 2,877,804  |  |  |   | 1,020,118 |  |  |   | (1,183,764 | )
|Technology Solutions           |  |                         | 11,007,552 |                         |  |              | 1,551,762 |         |  |              | (347,154   | )            |  |   | 10,294,141 |  |  |   | 1,922,854 |  |  |   | (609,099   | )
|Telecommunications Call Center |  |                         | 18,169     |                         |  |              | 18,057    |         |  |              | (117,173   | )            |  |   | 63,380     |  |  |   | 63,380    |  |  |   | (151,440   | )
|Corporate                      |  |                         | 734        |                         |  |              | 734       |         |  |              | (1,257,361 | )            |  |   | 279,101    |  |  |   | 279,101   |  |  |   | (1,439,411 | )
|                               |  |                         |            |                         |  |              |           |         |  |              |            |              |  |   |            |  |  |   |           |  |  |   |            |  
|                               |  | $                       | 75,824,171 |                         |  | $            | 5,994,237 |         |  | $            | (4,252,947 | )            |  | $ | 40,723,866 |  |  | $ | 4,194,000 |  |  | $ | (4,178,135 | )
|                               |  |                         |            |                         |  |              |           |         |  |              |            |              |  |   |            |  |  |   |           |  |  |   |            |  

The Companys revenue in the year ended June 30, 2003 was $75,824,171
compared to $40,723,866 in 2002. The increase of $35,100,305 or 86% in 2003 is
due to the aviation travel services expanded charter aviation business. These
increases were partially offset by a decline in the call center operations and
corporate not earning fees for business advisory services.

During the three month periods ended June 30, 2003 and 2002, sales to
Vacation Express Inc. (Vacation Express) and Suntrips, Inc. (Suntrips),
both subsidiaries of MyTravel Group plc (MyTravel Group), customers of the
Companys aviation travel services business, represented 76% and 63%,
respectively, of the Companys consolidated revenue. For the years then ended,
sales to these customers represented 73% and 54%, respectively, of the
Companys consolidated revenue.

Gross profit in 2003 was $5,994,237 compared to $4,194,000 in the prior
year, an increase of $1,800,237 or 43%. The increase in the current period is
due to the gross profit generated by the expanded charter aviation business and
elimination of the jet shuttle business, which operated at a gross margin
deficit. The Company reported an 8% overall gross margin in 2003 as compared
to 10% in 2002. The decrease in margin was due to aviation services increase
in the dollar amount as a proportion of consolidated gross profit. In
addition, business advisory services revenue and gross profit decreased by
$278,367 from fiscal 2002 to 2003, which contributed to the decrease in the
Companys overall gross margin percentage due to the high margin on these
services.

17



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In the year ended June 30, 2003, the Company reported $647,168 of non-cash
expense related to the issuance of stock options and warrants, an increase of
$618,343 from 2002. The Company incurred higher costs mainly because it granted
options as a result of Lifestyles acquisition of Futuresmart during the
current year.

Selling, general and administrative expenses-other in the year ended June
30, 2003 was $8,069,781 compared with $7,706,185 in fiscal 2002, an increase of
$363,596 or 5%. This increase is due to expenses of the newly acquired
businesses and increased staff in the aviation travel services business to
support its expanded charter operations partially offset by lower marketing
expenses, due to the termination of the jet shuttle service and reduced
corporate expenses. Selling, general and administrative expenses-other as a
percentage of revenue were reduced to 11% of revenue from 19% of revenue in
2002.

Bad debt expense decreased to $189,941 in fiscal 2003 from $264,641 in
fiscal 2002, as a result of sharp decreases in all the Companys segments
except for the home technology segment, which experienced collection problems
with certain builders and with one of its franchisees.

The Companys depreciation and amortization expense in the year ended June
30, 2003 was $471,176 as compared with $385,678 in the prior year. The
increase is due primarily to the continuing expansion of the aviation travel
services segment.

In fiscal 2003, the Company incurred $464,358 of net interest expense
related to its debt portfolio, which increased from $3,260,652 at June 30, 2002
to $4,140,071 at June 30, 2003.

In the years ended June 30, 2003 and 2002, the Company recorded a net gain
on investments of $277,774 and $146,000, respectively. These amounts consist of
$108,118 and $421,000, respectively, relating to net losses on market value
adjustments of stock purchase warrants offset by a net realized gain of
$385,892 and $567,000, respectively, on sales of securities. These results are
reported primarily in the Corporate segment results. The Companys operating
results for 2003 also include a loss of $67,355, primarily on the sale of two
office units by the technology solutions business. The Companys operating
results for 2002 also include a gain of $164,691, primarily on the sale of
certain home technology net assets to companies that are presently operating
these businesses as franchise locations.

The Company realized a gain of $575,824 on the sale of its discontinued
commercial real estate business in the quarter ended September 30, 2001.

The Companys operating segments were tested for impairment at the end of
fiscal 2003. The fair value of the reporting units were estimated based upon
the expected present value of future cash flows and comparison to similar
companies.

The Company completed its valuation of goodwill and made an adjustment of
$2,020,772 to write-down the goodwill associated with its home technology
segment. The adjustment reduced the carrying value of goodwill from $8,920,226
to $6,899,454 for the home technology segment. The decline in the fair value
is attributed to lower than expected sales growth rates and fewer franchise
sales. In fiscal 2002, the Company recorded the cumulative effect of a change
in accounting principle of $693,000, increasing the Companys reported net
loss, as a result of its implementation of FAS 142. This adjustment was
recorded as of July 1, 2001.

The Company experiences some seasonality in its aviation travel services
and technology solutions businesses. The seasonality in the aviation travel
services business is due to the higher level of charter travel to Caribbean and
Mexican destinations during the vacation season, which coincides with the
Companys first and fourth fiscal quarters. The Companys technology solutions
business generally experiences higher revenue in the first and fourth fiscal
quarters, with the largest amount being recognized in the fourth quarter, due
to the fact that the Companys year end coincides with the year end of many
schools and universities. These customers are tied to strict budgets and
normally purchase more software at the start and the end of their fiscal year.

Liquidity and Capital Resources

18



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The Companys shareholders equity decreased $5,037,000 during fiscal year
2003. This decrease was due primarily to a net loss for the year of $5,251,000,
unrealized losses on marketable securities of $225,000, termination of an
agreement with a service provider resulting in the cancellation of unvested
options and a reduction in additional paid-in capital of $45,000 and the
Companys Common Stock receipt into treasury in partial payment of balances
owed to the Company resulting in an increase in treasury stock of $24,000.
These decreases were partially offset by an increase to shareholders equity
related to the sale of Common Stock, with net proceeds of $444,000 and a net
increase in shareholders equity of $64,000, as a result of the final
settlements of contracts with two service providers.

Minority interest increased due to the LFSI transaction described above which
resulted in net funding of $561,000, LFSI sales of stock under its private
placements resulting in an increase in minority interest of $611,000, LFSIs
issuance of preferred stock and common stock warrants in connection with its
purchase of FutureSmart, which resulted in increases in minority interest of
$100,000 and $206,000, respectively, and the Companys sale or disposition of
LFSI restricted stock obtained in the LFSI transaction, which resulted in an
increase in minority interest of $100,000. These increases were offset by the
minority shareholders portion of LFSIs operating losses of $1,165,000 and
discontinued operating losses of $998,000.

For fiscal year 2003, continuing operations used $145,000 of cash. This amount
includes $263,000 received in grant proceeds from a government assistance
program designed to provide grants to companies whose businesses were directly
impacted by the events of September 11, 2001. For fiscal year 2003, net cash
used in continuing investing activities was $163,000, due to LFSIs purchase of
FutureSmart which used cash of $439,000 and $50,000 relating to the purchase of
eGolf by the technology solutions division, and net property and equipment
purchases of $356,000, offset by cash received from the sale of investments of
$461,000 and from the sale of the Companys technology solutions prior office
space resulting in net proceeds of $221,000.

In September 2002, the Company completed the private sale of 125,000 shares of
LFSI restricted common stock to a private investor. The Company sold these
shares at $2.00 per share and received $250,000 in proceeds as a result of this

19



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sale. $150,000 of the proceeds was received in September 2002 with the balance
being received in October 2002. During the three months ended December 31, 2002
the Company completed the private sale of an additional 60,000 shares of the
LFSI restricted stock to the same private investor. These shares were also sold
for $2.00 per share, resulting in proceeds to the Company of $120,000. During
the quarter ended December 31, 2002 the Company issued 78,359 shares of the
LFSI restricted stock to a debt holder of the Company in satisfaction of
outstanding principal and interest totaling $156,718; or $2.00 per share.
During the quarter ended March 31, 2003 the Company issued 25,000 shares of the
LFSI restricted stock as prepaid interest on the $250,000 loan secured during
January of 2003 and another 20,000 shares of LFSI restricted stock as payment
for a certain sponsorship.

In connection with LFSIs acquisition of FutureSmart as discussed in the
consolidated financial statements, the Company agreed that for a period equal
to the lesser of (i) March 3, 2005, and (ii) one (1) year from the registration
of the shares of common stock of the FutureSmart shareholders, in the event
that the Company proposes to transfer fifteen percent (15%) or more of the
shares of LFSIs capital stock owned by the Company (other than registered
offerings, sales to certain investors, and related party sales), then certain
of the FutureSmart shareholders shall have the right to participate in such
transfer of stock on the same terms and conditions, and the number of shares of
LFSI stock that the Company may sell in the transaction shall be
correspondingly reduced; provided, however, that the aggregate number of shares
that the FutureSmart shareholders may sell in any proposed sale transaction may
not exceed twenty-five percent (25%) of the total number of shares to be sold
by the Company.

For fiscal year 2003, net cash flow from financing activities was
$2,928,000 as a result of $4,548,000 in debt financing, $274,000 raised through
the LFSI transaction, $1,159,000 raised through LFSIs private placement sale
of common stock and $444,000 raised through the sale of the Companys Common
Stock. These amounts were offset by principal debt repayments of $3,497,000. At
June 30, 2003, the Company had a working capital deficit of $6,032,000. At June
30, 2003 the Company held cash and cash equivalents of $3,491,000 and
investments of $403,000.

The Companys significant working capital deficit is due primarily to
$3,379,000 of current debt, of which $1.8 million is due in the quarter ended
September 30, 2003, $720,000 is due on demand and $250,000 is due on demand any
time after July 27, 2003. On August 21, 2003, $467,500 of debt due in August
2003 in addition to $51,177 of accrued interest was converted into 464,103
shares of Common Stock. On August 21, 2003 the Company converted a note in the
amount of $300,000 plus accrued interest in the amount of $42,500 into 200,000
shares of RCG common stock. The Company also has reached an agreement to
extend $941,782 in debt that was due in August 2003. Additionally, the Company
is in negotiations to extend the $250,000 due on demand, of which $25,000 was
paid on October 2, 2003.

In October 2003 the the home technologies business received a commitment to
provide additional financing in the amount of $300,000. The financing may
either be debt or equity.

20



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The Company is currently exploring additional sources of liquidity,
including debt and equity financing alternatives and potential sales of
additional shares of LFSI, a portion of which may or may not be sold from time
to time depending on market conditions and the effectiveness of a LFSI
registration statement, to provide additional cash to support operations,
working capital and capital expenditure requirements for the next 12 months and
to meet the scheduled debt repayments in fiscal year 2004. Additionally, the
Company plans on negotiating with its debt holders to extend or convert into
stock some or all of this debt. If (i) we are unable to grow our business or
improve our operating cash flows as expected, (ii) we suffer significant losses
on our investments, or (iii) we are unable to realize adequate proceeds from
investments, including our holdings of LFSI restricted stock, then we will need
to secure alternative debt or equity financing to provide us with additional
working capital. There can be no assurance that additional financing will be
available when needed or, if available, that it will be on terms favorable to
the Company and its stockholders. If the Company is not successful in
generating sufficient cash flow from operations, or in raising additional
capital when required in sufficient amounts and on terms acceptable to the
Company, these failures would have a material adverse effect on the Companys
business, results of operations and financial condition. If additional funds
are raised through the issuance of equity securities, the percentage ownership
of the current stockholders will be diluted.

The Companys Board of Directors had previously considered distributing a
portion of the LFSI shares to the shareholders of the Company. The Board of
Directors currently believe the most prudent use of these shares is the sale of
LFSI shares to external parties and does not currently intend to distribute any
shares as a dividend.

The Companys aviation travel service business reported an operating profit of
$1,005,005 for the year. The increase from the prior year represents both
increases in charter air revenue related to the Suntrips contract which began
in July 2002, and gross profit margin improvements resulting from re-negotiated
ground services agreements and other cost reductions. The company is heavily
reliant on tour operator contracts which have a fixed expiration, including
Vacation Express and Suntrips. Accordingly, new business development projects
were implemented including upgrading the systems at the telecommunications call
center and Interstate Jet. The call center provided reservations services for
Interstate Jet for a start up program subsidized by the airport authorities in
Allentown, PA and Newburg, NY with service to Las Vegas, NV and Los Angeles,
CA. Management believes demand for these programs was negatively impacted by
the war in Iraq and regional economic conditions. These programs resulted in
an operating loss of approximately $550,000.

In the quarter ended September 30, 2001, the Company implemented a
national franchising program for its home technology business. Since its
launch, the Company has sold 14 geographic markets to franchisees, primarily in
the south and southeastern United States. During the years ended June 30, 2003
and 2002, the Company recognized revenue for the sale of 4.5 and 14 franchises
sold, respectively. Total revenue from franchise sales and royalties was
$896,000 and $1,020,000 for the years ended June 30, 2003 and 2002,
respectively. For the years ended June 30, 2003 and 2002, the Companys home
technology business reported a loss from continuing operations of $3,536,000 and $1,184,000,
respectively due primarily to investments made in the establishment and growth
of the franchising program and operating losses in the two markets that the
Company presently operates, Charlotte, NC and Atlanta, GA and an asset
impairment charge in 2003 of $2,021,000.

In fiscal 2003, the Companys technology solutions business has grown
through the expansion of its products, services and its sales force while
reducing its operating expenses. These initiatives, focused on concurrent
revenue growth and cost control, have resulted in improved operating results
for fiscal year 2003. During the years ended June 30, 2003 and 2002, the
technology solutions business reported an operating loss of $347,000 and
$609,000, respectively. On February 28, 2003, the Companys technology
solutions business secured a $1,000,000 revolving credit facility. The balance
at June 30, 2003 is $274,000.

The Companys corporate expense in the current year decreased from a year
ago due to the issuance of fewer stock options and warrants, staff reductions,
lower public and investor relations costs, including a benefit from the
resolution of a contract with a service provider, lower legal and professional
fees and other costs saving measures.

The Companys business, results of operations, and financial condition are
subject to many risks. In addition, statements in this report relating to
matters that are not historical facts are forward-looking statements based on
managements belief and assumptions based on currently available information.
Such forward-looking statements include statements relating to estimates of
future revenue and operating income, cash flow and liquidity. Words such as

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anticipates, expects, intends, believes, may, will, future
or similar expressions are intended to identify certain forward-looking
statements. In addition, any statements that refer to expectations,
projections or other characterizations of future events or circumstances are
forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
cannot give any assurances that these expectations will prove to be correct.
Such statements involve a number of risks and uncertainties, including, but not
limited to, those discussed herein or in other documents filed by the Company
with the SEC.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 requires that a
liability be recognized on the date on which the company had committed to an
exit plan. In fiscal 2003 the Company adopted this statement with no effect on
its financial position or results of operations, however, disclosure was
modified to conform to the requirements of SFAS 146.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure. This Statement amends SFAS 123, Accounting for Stock-Based
Compensation to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
Company adopted the provisions of this statement effective January 1, 2003 with
no impact on its financial position or results of operations.

Effective January 1, 2003, we adopted SFAS Interpretation No. (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the
disclosures that must be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees. It also
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The adoption of this interpretation did not have a
material effect on our financial position or results of operations.

In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires a
variable interest entity (VIE) to be consolidated by the primary beneficiary
of the entity under certain circumstances. FIN 46 is effective for all new
VIEs created or acquired after January 31, 2003. For VIEs created or
acquired prior to February 1, 2003, the provisions of FIN 46 must be applied
for the first interim or annual period beginning after June 15, 2003. The
Company does not expect adoption of this interpretation will have a material
impact on its financial position or results of operations.

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS 133, Accounting for Derivative Instruments and
Hedging Activities. The Statement is effective for contracts entered into or
modified after June 30, 2003 and is to be applied prospectively. The Company
adopted this Statement on April 30, 2003 with no impact on its financial
position or results of operations.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the Statement and still
existing at the beginning of the interim period of adoption. Restatement is
not permitted. The Company does not expect the adoption of this Statement to have a material
impact on its financial position or results of operations.

ITEM 7. FINANCIAL STATEMENTS

The following financial statements are contained in this Item 7:

Independent Auditors Report.

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

Consolidated Statements of Operations for the years ended June 30, 2003 and
2002.

Consolidated Statements of Changes in Shareholders Equity for the years ended
June 30, 2003 and 2002.

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

Notes to the Consolidated Financial Statements.

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INDEPENDENT AUDITORS REPORT

To the Board of Directors
eResource Capital Group, Inc. and Subsidiaries
Charlotte, North Carolina

We have audited the accompanying consolidated balance sheets of eResource
Capital Group, Inc. and Subsidiaries as of June 30, 2003 and 2002, and the
related consolidated statements of operations, shareholders equity and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as 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 eResource Capital
Group, Inc. and Subsidiaries as of June 30, 2003 and 2002, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.

/S/ CRISP HUGHES EVANS LLP
Charlotte North Carolina

October 10, 2003

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eRESOURCE CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                                                                                   |                                                                                                                              |                                            |            |              |            |          |            |             |            |  |  | 
|-------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------------ | ---------- | -------- | ---------- | ----------- | ---------- |  |  | 
|                                                                                                   |                                                                                                                              |                                            |            |              |            | June 30,
|                                                                                                   |                                                                                                                              |                                            |            |              |            |         
|                                                                                                   |                                                                                                                              |                                            |            |              |            | 2003     |            | 2002       
|                                                                                                   |                                                                                                                              |                                            |            |              |            |          |            |            
|ASSETS                                                                                             |                                                                                                                              |                                            |            |              |            |          |            |            
|Cash and cash equivalents                                                                          |                                                                                                                              | $                                          | 3,490,730  |              |            | $        | 1,511,502  |            
|Accounts receivable, net of allowance for doubtful accounts of
$235,529 and $258,169, respectively |                                                                                                                              |                                            | 2,435,628  |              |            |          | 3,135,270  |            
|Note receivable, net of reserve of $48,829                                                         |                                                                                                                              |                                            | 48,828     |              |            |          |           |            
|Inventory                                                                                          |                                                                                                                              |                                            | 145,976    |              |            |          | 210,514    |            
|Investments                                                                                        |                                                                                                                              |                                            | 402,532    |              |            |          | 813,554    |            
|Prepaid expenses                                                                                   |                                                                                                                              |                                            | 2,674,204  |              |            |          | 2,918,295  |            
|                                                                                                   |                                                                                                                              |                                            |            |              |            |          |            |            
|                                                                                                   |                                                                                                                              | Total current assets                       |            |              | 9,197,898  |          |            |             | 8,589,135  | 
|Deferred costs and other assets                                                                    |                                                                                                                              |                                            | 429,091    |              |            |          | 321,199    |            
|Property and equipment, net                                                                        |                                                                                                                              |                                            | 1,090,914  |              |            |          | 1,471,837  |            
|Net non-current assets of discontinued operations, net                                             |                                                                                                                              |                                            | 724,753    |              |            |          |           |            
|Goodwill, net                                                                                      |                                                                                                                              |                                            | 16,540,825 |              |            |          | 18,489,884 |            
|                                                                                                   |                                                                                                                              |                                            |            |              |            |          |            |            
|                                                                                                   |                                                                                                                              | Total assets                               |            | $            | 27,983,481 |          |            | $           | 28,872,055 | 
|                                                                                                   |                                                                                                                              |                                            |            |              |            |          |            |            
|LIABILITIES AND SHAREHOLDERS EQUITY                                                               |                                                                                                                              |                                            |            |              |            |          |            |            
|Notes payable - current portion                                                                    |                                                                                                                              | $                                          | 3,378,991  |              |            | $        | 407,221    |            
|Notes and amounts due to affiliates                                                                |                                                                                                                              |                                            | 337,526    |              |            |          | 144,440    |            
|Accounts payable and accrued expenses                                                              |                                                                                                                              |                                            | 7,463,563  |              |            |          | 6,147,405  |            
|Net current liabilities of discontinued operations                                                 |                                                                                                                              |                                            | 724,753    |              |            |          |           |            
|Unearned income                                                                                    |                                                                                                                              |                                            | 4,049,346  |              |            |          | 3,328,888  |            
|                                                                                                   |                                                                                                                              |                                            |            |              |            |          |            |            
|                                                                                                   |                                                                                                                              | Total current liabilities                  |            |              | 15,954,179 |          |            |             | 10,027,954 | 
|Notes payable                                                                                      |                                                                                                                              |                                            | 761,080    |              |            |          | 2,853,431  |            
|                                                                                                   |                                                                                                                              |                                            |            |              |            |          |            |            
|                                                                                                   |                                                                                                                              | Total liabilities                          |            |              | 16,715,259 |          |            |             | 12,881,385 | 
|Minority interest                                                                                  |                                                                                                                              |                                            | 314,464    |              |            |          |           |            
|Shareholders equity:                                                                              |                                                                                                                              |                                            |            |              |            |          |            |            
|                                                                                                   | Common stock, $0.04 par value, 200,000,000 shares authorized,
13,948,160 and 12,381,463 issued and outstanding, respectively |                                            |            | 557,927      |            |          |            | 495,259     |           
|                                                                                                   | Preferred stock, $0.01 par value, 10,000,000 shares authorized, none outstanding                                             |                                            |            |             |            |          |            |            |           
|                                                                                                   | Additional paid-in capital                                                                                                   |                                            |            | 114,329,103  |            |          |            | 114,040,111 |           
|                                                                                                   | Accumulated deficit                                                                                                          |                                            |            | (103,024,910 | )          |          |            | (97,774,118 | )         
|                                                                                                   | Accumulated other comprehensive loss                                                                                         |                                            |            | (276,347     | )          |          |            | (51,493     | )         
|                                                                                                   | Treasury stock at cost (131,214 and 92,643 shares, respectively)                                                             |                                            |            | (632,015     | )          |          |            | (719,089    | )         
|                                                                                                   |                                                                                                                              |                                            |            |              |            |          |            |            
|                                                                                                   |                                                                                                                              | Total shareholders equity                 |            |              | 10,953,758 |          |            |             | 15,990,670 | 
|                                                                                                   |                                                                                                                              |                                            |            |              |            |          |            |            
|                                                                                                   |                                                                                                                              | Total liabilities and shareholders equity |            | $            | 27,983,481 |          |            | $           | 28,872,055 | 
|                                                                                                   |                                                                                                                              |                                            |            |              |            |          |            |            

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

24



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##### 



eRESOURCE CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |       |            |  
|------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------------------- | ---------- | ---------------------------- | ---------- | ---- | ---------- | ----- | ---------- | -
|                                                                                                              |                                                     |                                                                 |            | For the Years ended June 30,
|                                                                                                              |                                                     |                                                                 |            | 2003                         |            | 2002
|                                                                                                              |                                                     |                                                                 |            |                              |            |     
|Revenues:                                                                                                     |                                                     |                                                                 |            |                              |            |      |            |      
|Services                                                                                                      |                                                     | $                                                               | 64,008,814 |                              |            | $    | 29,566,365 |      
|Product sales                                                                                                 |                                                     |                                                                 | 11,815,357 |                              |            |      | 11,157,501 |      
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|                                                                                                              |                                                     | Total revenue                                                   |            |                              | 75,824,171 |      |            |       | 40,723,866 |  
|Cost of revenues:                                                                                             |                                                     |                                                                 |            |                              |            |      |            |      
|Services                                                                                                      |                                                     |                                                                 | 59,558,460 |                              |            |      | 26,868,834 |      
|Product sales                                                                                                 |                                                     |                                                                 | 10,271,474 |                              |            |      | 9,661,032  |      
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|                                                                                                              |                                                     | Total cost of revenue                                           |            |                              | 69,829,934 |      |            |       | 36,529,866 |  
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|                                                                                                              |                                                     | Gross profit                                                    |            |                              | 5,994,237  |      |            |       | 4,194,000  |  
|Selling, general and administrative expenses  compensation
related to issuance of stock options and warrants |                                                     |                                                                 | 647,168    |                              |            |      | 28,825     |      
|Selling, general and administrative expenses  other                                                          |                                                     |                                                                 | 8,069,781  |                              |            |      | 7,706,185  |      
|Provision for bad debts                                                                                       |                                                     |                                                                 | 189,941    |                              |            |      | 264,641    |      
|Depreciation and amortization                                                                                 |                                                     |                                                                 | 471,176    |                              |            |      | 385,678    |      
|Goodwill impairment                                                                                           |                                                     |                                                                 | 2,020,772  |                              |            |      |           |      
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|                                                                                                              |                                                     | Operating costs and expenses                                    |            |                              | 11,398,838 |      |            |       | 8,385,329  |  
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|                                                                                                              |                                                     | Operating loss                                                  |            |                              | (5,404,601 | )    |            |       | (4,191,329 | )
|Interest expense, net                                                                                         |                                                     |                                                                 | 464,358    |                              |            |      | 297,972    |      
|Other income                                                                                                  |                                                     |                                                                 | (237,535   | )                            |            |      |           |      
|Equity in earnings of joint ventures                                                                          |                                                     |                                                                 | (3,494     | )                            |            |      |           |      
|Loss (Gain) on sale of assets                                                                                 |                                                     |                                                                 | 67,355     |                              |            |      | (164,691   | )    
|Gain on investments, net                                                                                      |                                                     |                                                                 | (277,774   | )                            |            |      | (146,475   | )    
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|                                                                                                              |                                                     | Loss from continuing operations before minority interest        |            |                              | (5,417,511 | )    |            |       | (4,178,135 | )
|Minority Interest                                                                                             |                                                     |                                                                 | 1,164,564  |                              |            |      |           |      
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|                                                                                                              |                                                     | Loss from continuing operations                                 |            |                              | (4,252,947 | )    |            |       | (4,178,135 | )
|Loss on discontinued operations, net of minority interest of $388,051                                         |                                                     |                                                                 | (997,845   | )                            |            |      |           |      
|Gain on disposal of discontinued operations                                                                   |                                                     |                                                                 |           |                              |            |      | 575,824    |      
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|                                                                                                              |                                                     | Loss before cumulative effect of change in accounting principle |            |                              | (5,250,792 | )    |            |       | (3,602,311 | )
|Cumulative effect of change in accounting principle                                                           |                                                     |                                                                 |           |                              |            |      | (693,000   | )    
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|                                                                                                              |                                                     | Net loss                                                        |            | $                            | (5,250,792 | )    |            | $     | (4,295,311 | )
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|Basic and diluted net loss per share:                                                                         |                                                     |                                                                 |            |                              |            |      |            |      
|                                                                                                              | Loss from continuing operations                     |                                                                 | $          | (0.34                        | )          |      | $          | (0.36 | )         
|                                                                                                              | Loss of discontinued operations                     |                                                                 |            | (0.08                        | )          |      |            |      |           
|                                                                                                              | Gain (loss) on disposal of discontinued operations  |                                                                 |            |                             |            |      |            | 0.05  |           
|                                                                                                              | Cumulative effect of change in accounting principle |                                                                 |            |                             |            |      |            | (0.06 | )         
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|                                                                                                              |                                                     | Net loss                                                        |            | $                            | (0.42      | )    |            | $     | (0.37      | )
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|Weighted average shares outstanding                                                                           |                                                     |                                                                 | 12,661,743 |                              |            |      | 11,520,096 |      
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      
|Weighted average shares outstanding, assuming dilution                                                        |                                                     |                                                                 | 12,661,743 |                              |            |      | 11,520,096 |      
|                                                                                                              |                                                     |                                                                 |            |                              |            |      |            |      

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

25



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##### 



eRESOURCE CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE YEARS ENDED JUNE 30, 2003 AND 2002

|                                                   |                    |  |              |   |            |   |             |   |               |   |               |   |       |   |              |            |   |   |             |          |   |   |          |   |  |   |            |            |  
|-------------------------------------------------- | ------------------ |  | ------------ | - | ---------- | - | ----------- | - | ------------- | - | ------------- | - | ----- | - | ------------ | ---------- | - | - | ----------- | -------- | - | - | -------- | - |  | - | ---------- | ---------- | -
|                                                   |                    |  |              |   |            |   |             |   |               |   |               |   |       |   |              |            |   |   | Accumulated |          |   |   |          |   |  |   |           
|                                                   |                    |  | Common Stock |   | Additional |   |             |   |               |   | Other         |   |       |   |              |            |   |   |            
|                                                   |                    |  |              |   | Paid-In    |   | Accumulated |   | Comprehensive |   | Treasury      |   |       |   |             
|                                                   |                    |  | Shares       |   | Amounts    |   | Capital     |   | Deficit       |   | Income (Loss) |   | Stock |   | Total       
|                                                   |                    |  |              |   |            |   |             |   |               |   |               |   |       |   |             
|Balance at June 30, 2001                           |                    |  | 10,833,390   |   |            | $ | 433,335     |   |               | $ | 111,957,090   |   |       | $ | (93,478,807  | )          |   | $ | 87,634      |          |   | $ | (11,333  | ) |  | $ | 18,987,919 |           
|Comprehensive loss:                                |                    |  |              |   |            |   |             |   |               |   |               |   |       |   |              |            |   |   |             |          |   |   |          |   |  |   |            |           
|Net loss June 30, 2002                             |                    |  |             |   |            |   |            |   |               |   |              |   |       |   | (4,295,311   | )          |   |   |            |          |   |   |         |   |  |   | (4,295,311 | )         
|Unrealized loss on investments
available for sale  |                    |  |             |   |            |   |            |   |               |   |              |   |       |   |             |            |   |   | (139,127    | )        |   |   |         |   |  |   | (139,127   | )         
|                                                   |                    |  |              |   |            |   |             |   |               |   |               |   |       |   |              |            |   |   |             |          |   |   |          |   |  |   |            |           
|                                                   | Comprehensive loss |  |              |  |            |   |             |  |               |   |               |  |       |   |              | (4,295,311 | ) |   |             | (139,127 | ) |   |          |  |  |   |            | (4,434,438 | )
|Sale of Common Stock                               |                    |  | 1,251,429    |   |            |   | 50,057      |   |               |   | 808,443       |   |       |   |             |            |   |   |            |          |   |   |         |   |  |   | 858,500    |           
|Purchase of Business                               |                    |  | 172,103      |   |            |   | 6,884       |   |               |   | 767,075       |   |       |   |             |            |   |   |            |          |   |   |         |   |  |   | 773,959    |           
|Issuance of common stock for services              |                    |  | 53,112       |   |            |   | 2,124       |   |               |   | 178,163       |   |       |   |             |            |   |   |            |          |   |   |         |   |  |   | 180,287    |           
|Issuance of common stock for loan fee              |                    |  | 71,429       |   |            |   | 2,859       |   |               |   | 129,340       |   |       |   |             |            |   |   |            |          |   |   |         |   |  |   | 132,199    |           
|Issuance of treasury stock for services            |                    |  |             |   |            |   |            |   |               |   |              |   |       |   |             |            |   |   |            |          |   |   | 3,604    |   |  |   | 3,604      |           
|Capital contribution                               |                    |  |             |   |            |   |            |   |               |   | 200,000       |   |       |   |             |            |   |   |            |          |   |   |         |   |  |   | 200,000    |           
|Return of shares pursuant to contract settlement   |                    |  |             |   |            |   |            |   |               |   |              |   |       |   |             |            |   |   |            |          |   |   | (711,360 | ) |  |   | (711,360   | )         
|                                                   |                    |  |              |   |            |   |             |   |               |   |               |   |       |   |              |            |   |   |             |          |   |   |          |   |  |   |            |           
|Balance at June 30, 2002                           |                    |  | 12,381,463   |   |            | $ | 495,259     |   |               | $ | 114,040,111   |   |       | $ | (97,774,118  | )          |   | $ | (51,493     | )        |   | $ | (719,089 | ) |  | $ | 15,990,670 |           
|Comprehensive loss:                                |                    |  |              |   |            |   |             |   |               |   |               |   |       |   |              |            |   |   |             |          |   |   |          |   |  |   |            |           
|Net loss June 30, 2003                             |                    |  |             |   |            |   |            |   |               |   |              |   |       |   | (5,250,792   | )          |   |   |            |          |   |   |         |   |  |   | (5,250,792 | )         
|Unrealized loss on investments
available for sale  |                    |  |             |   |            |   |            |   |               |   |              |   |       |   |             |            |   |   | (224,854    | )        |   |   |         |   |  |   | (224,854   | )         
|                                                   |                    |  |              |   |            |   |             |   |               |   |               |   |       |   |              |            |   |   |             |          |   |   |          |   |  |   |            |           
|                                                   | Comprehensive loss |  |              |  |            |   |             |  |               |   |               |  |       |   |              | (5,250,792 | ) |   |             | (224,854 | ) |   |          |  |  |   |            | (5,475,646 | )
|Issuance of treasury stock for services            |                    |  |              |   |            |   |             |   |               |   | (97,288       | ) |       |   |              |            |   |   |             |          |   |   | 110,859  |   |  |   | 13,571     |           
|Issuance/cancellation of common stock for services |                    |  | 89,554       |   |            |   | 3,582       |   |               |   | 1,368         |   |       |   |              |            |   |   |             |          |   |   |          |   |  |   | 4,950      |           
|Return of treasury stock for loan fee settlement   |                    |  |              |   |            |   |             |   |               |   |               |   |       |   |              |            |   |   |             |          |   |   | (23,785  | ) |  |   | (23,785    | )         
|Sale of Common Stock                               |                    |  | 1,477,143    |   |            |   | 59,086      |   |               |   | 384,912       |   |       |   |             |            |   |   |            |          |   |   |         |   |  |   | 443,998    |           
|                                                   |                    |  |              |   |            |   |             |   |               |   |               |   |       |   |              |            |   |   |             |          |   |   |          |   |  |   |            |           
|Balance at June 30, 2003                           |                    |  | 13,948,160   |   |            | $ | 557,927     |   |               | $ | 114,329,103   |   |       | $ | (103,024,910 | )          |   | $ | (276,347    | )        |   | $ | (632,015 | ) |  | $ | 10,953,758 |           
|                                                   |                    |  |              |   |            |   |             |   |               |   |               |   |       |   |              |            |   |   |             |          |   |   |          |   |  |   |            |           

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

26



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##### 



eRESOURCE CAPITAL GROUP, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |           |            |           |            |  
|------------------------------------------------ | --------------------------------------------------------------------------- | ----------------------------------------------------------------- | -------------------------------------------------------------- | ---------- | ---------------------------- | --------- | --------- | ---------- | --------- | ---------- | -
|                                                 |                                                                             |                                                                   |                                                                |            | For the Years ended June 30,
|                                                 |                                                                             |                                                                   |                                                                |            | 2003                         |           | 2002     
|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |          
|Cash flows from operating activities:            |                                                                             |                                                                   |                                                                |            |                              |           |           |           
|                                                 | Net loss                                                                    |                                                                   | $                                                              | (5,250,792 | )                            |           | $         | (4,178,135 | )        
|                                                 | Loss on discontinued operations, net of minority interest of $388,051       |                                                                   |                                                                | (997,845   | )                            |           |           |           |          
|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |           |            |          
|                                                 | Loss from continuing operations before minority interest                    |                                                                   |                                                                | (4,252,947 | )                            |           |           | (4,178,135 | )        
|                                                 | Adjustments to reconcile net loss to net cash used in operating activities: |                                                                   |                                                                |            |                              |           |           |            |          
|                                                 |                                                                             | Depreciation and amortization                                     |                                                                |            | 471,176                      |           |           |            | 385,678   |           
|                                                 |                                                                             | Bad debt expense                                                  |                                                                |            | 189,941                      |           |           |            | 264,641   |           
|                                                 |                                                                             | Common stock issued for services and settlement of contract       |                                                                |            |                             |           |           |            | (31,315   | )         
|                                                 |                                                                             | Stock purchase warrants received for services                     |                                                                |            |                             |           |           |            | (279,100  | )         
|                                                 |                                                                             | Affiliate balance converted on sale of home technology franchises |                                                                |            | (140,000                     | )         |           |            | (120,000  | )         
|                                                 |                                                                             | Gain on sale of investments                                       |                                                                |            | (277,774                     | )         |           |            | (146,475  | )         
|                                                 |                                                                             | (Gain) loss on sale of assets                                     |                                                                |            | 67,355                       |           |           |            | (164,691  | )         
|                                                 |                                                                             | Compensation expense related to stock options and warrants        |                                                                |            | 647,168                      |           |           |            | 28,825    |           
|                                                 |                                                                             | Goodwill impairment                                               |                                                                |            | 2,020,772                    |           |           |            |          |           
|                                                 |                                                                             | Deferred debt cost amortization                                   |                                                                |            | 43,150                       |           |           |            |          |           
|                                                 |                                                                             | Minority interest                                                 |                                                                |            | (1,164,564                   | )         |           |            |          |           
|                                                 |                                                                             | Changes in operating assets and liabilities:                      |                                                                |            |                              |           |           |            |           |           
|                                                 |                                                                             |                                                                   | Accounts and notes receivables                                 |            |                              | (265,806  | )         |            |           | (1,492,573 | )
|                                                 |                                                                             |                                                                   | Inventory                                                      |            |                              | (928      | )         |            |           | (168,284   | )
|                                                 |                                                                             |                                                                   | Prepaid expenses                                               |            |                              | 187,485   |           |            |           | (1,784,406 | )
|                                                 |                                                                             |                                                                   | Deferred costs and other assets                                |            |                              | (128,460  | )         |            |           | (46,631    | )
|                                                 |                                                                             |                                                                   | Accounts payable and accrued expenses                          |            |                              | 1,655,332 |           |            |           | 2,014,652  |  
|                                                 |                                                                             |                                                                   | Due to affiliates                                              |            |                              | 82,410    |           |            |           |           |  
|                                                 |                                                                             |                                                                   | Deposits and other liabilities                                 |            |                              |          |           |            |           | (440,000   | )
|                                                 |                                                                             |                                                                   | Unearned income                                                |            |                              | 720,458   |           |            |           | 2,167,832  |  
|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |           |            |          
|                                                 |                                                                             |                                                                   | Cash used in continuing operations                             |            |                              | (145,232  | )         |            |           | (3,989,982 | )
|                                                 |                                                                             |                                                                   | Net cash provided by (used in) discontinued operations         |            |                              | (466,246  | )         |            |           | 150,000    |  
|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |           |            |          
|                                                 |                                                                             |                                                                   | Net cash used in operating activities                          |            |                              | (611,478  | )         |            |           | (3,839,982 | )
|Cash flows from investing activities:            |                                                                             |                                                                   |                                                                |            |                              |           |           |           
|                                                 |                                                                             | Purchase of property and equipment                                |                                                                |            | (355,728                     | )         |           |            | (327,051  | )         
|                                                 |                                                                             | Sale of investments                                               |                                                                |            | 461,238                      |           |           |            | 1,214,437 |           
|                                                 |                                                                             | Sale of assets                                                    |                                                                |            | 220,881                      |           |           |            | (44,859   | )         
|                                                 |                                                                             | Cash paid in connection with business acquisitions, net           |                                                                |            | (489,107                     | )         |           |            | (271,991  | )         
|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |           |            |          
|                                                 |                                                                             |                                                                   | Net cash provided by (used in) continuing investing activities |            |                              | (162,716  | )         |            |           | 570,536    |  
|                                                 |                                                                             |                                                                   | Net cash used in discontinued operations                       |            |                              | (174,248  | )         |            |           |           |  
|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |           |            |          
|                                                 |                                                                             |                                                                   | Net cash provided by (used in) investing activities            |            |                              | (336,964  | )         |            |           | 570,536    |  
|Cash flows from financing activities:            |                                                                             |                                                                   |                                                                |            |                              |           |           |           
|                                                 |                                                                             | Notes payable proceeds                                            |                                                                |            | 4,547,676                    |           |           |            | 2,652,488 |           
|                                                 |                                                                             | Repayments of debt from affiliates                                |                                                                |            |                             |           |           |            | (2,270    | )         
|                                                 |                                                                             | Principal debt repayments                                         |                                                                |            | (3,496,740                   | )         |           |            | (63,764   | )         
|                                                 |                                                                             | Capital contribution by shareholder                               |                                                                |            |                             |           |           |            | 50,000    |           
|                                                 |                                                                             | Cash raised through LFSI transaction                              |                                                                |            | 273,518                      |           |           |            |          |           
|                                                 |                                                                             | LFSI private placement sale of common stock                       |                                                                |            | 1,159,216                    |           |           |            |          |           
|                                                 |                                                                             | Sale of RCG common stock                                          |                                                                |            | 444,000                      |           |           |            | 858,500   |           
|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |           |            |          
|                                                 |                                                                             |                                                                   | Net cash provided by financing activities                      |            |                              | 2,927,670 |           |            |           | 3,494,954  |  
|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |           |            |          
|Net increase in cash and cash equivalents        |                                                                             |                                                                   | 1,979,228                                                      |            |                              |           | 225,508   |           
|Cash and cash equivalents at beginning of period |                                                                             |                                                                   | 1,511,502                                                      |            |                              |           | 1,285,994 |           
|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |           |            |          
|Cash and cash equivalents at end of period       |                                                                             | $                                                                 | 3,490,730                                                      |            |                              | $         | 1,511,502 |           
|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |           |            |          
|                                                 | Supplemental cash flow information - Cash paid during the period for:       |                                                                   |                                                                |            |                              |           |           |            |          
|                                                 |                                                                             | Interest                                                          |                                                                | $          | 163,089                      |           |           | $          | 95,225    |           
|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |           |            |          
|                                                 |                                                                             | Income taxes                                                      |                                                                |            |                              |           |           | $          |          |           
|                                                 |                                                                             |                                                                   |                                                                |            |                              |           |           |            |          

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

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eRESOURCE CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

These financial statements include the operations of eResource Capital
Group, Inc. (RCG) and its subsidiaries (collectively the Company). At June
30, 2003, the Company operated businesses in the aviation travel services, home
technology, technology solutions and telecommunications call center segments in
the United States. In October 2001, the Company changed its name from
flightserv.com, Inc. to eResource Capital Group, Inc. to better reflect its
plan to acquire substantial interests in, operate and enhance the value of
expansion phase companies operating in the travel, entertainment and technology
services sectors. Prior to that time, the Company was engaged in the
development of its private aviation business and limited commercial real estate
activities.

The Company experienced an operating loss from continuing operations of
$4.2 million during fiscal 2003 and used cash of
$.6 million in operating activities
during the year. This cash loss was offset by the raising of debt and equity
financing and the sales of investments. At June 30, 2003, the Company has cash
and cash equivalents of $3.5 million and investments of $0.4 million. The
Company believes that its existing balances of cash and cash equivalents and
investments, including debt conversions as described in the Liquidity and
Capital Resources section of Managements Discussion and Analysis, and
receiving, as of October 8, 2003, $1.145 million of a $1.2 million private
placement at $1.12 per share of Common Stock, will be sufficient to meet the
working capital and capital expenditure requirements of our continuing
operations through the end of fiscal 2004.

CONSOLIDATION

The Companys consolidated financial statements include the assets and
liabilities and results of operations of RCG and each business acquired by RCG
from the date of its acquisition through June 30, 2003. All significant
intercompany balances and transactions have been eliminated. Certain prior
period amounts have been reclassified to conform to the fiscal 2003
presentation.

CASH AND CASH EQUIVALENTS

The Company classifies as cash equivalents any investments which can be
readily converted to cash and have an original maturity of less than three
months. At times cash and cash equivalent balances at a limited number of banks
and financial institutions may exceed insurable amounts. The Company believes
it mitigates its risks by depositing cash or investing in cash equivalents in
major financial institutions.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, accounts receivable,
investments, and notes payable. The Company places its temporary cash with high
credit quality principal institutions. The Company performs periodic credit
evaluations of its customers financial condition and generally does not
require collateral. Although due dates of receivables vary based on contract
terms, credit losses have been within managements estimates in determining the
level of allowance for doubtful accounts. Overall financial strategies are
reviewed periodically.

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:



| |  |  | Cash and cash equivalents: The carrying amount
reported in the balance sheet for cash approximates its fair
value.
| | - |  | ------------------------------------------------------------------------------------------------------------------

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| |  |  | Accounts receivable and accounts payable: Due to
their short term nature, the carrying amounts reported in the
balance sheet for accounts receivable and accounts payable
approximate their fair value. The Company provides for any
losses through its allowance for doubtful accounts.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Investments: The fair values for available-for-sale
equity securities are based on quoted market prices.                                                                                                                                                                                
|
| |  |  | Notes Payable: The carrying amount of the Companys
notes payable approximate their fair value.                                                                                                                                                                                         

During fiscal year 2003 and 2002 , sales to Vacation Express, a MyTravel
Group company, a customer of the Companys aviation travel services business,
represented 73% and 63%, respectively, of the Companys consolidated revenue.
This concentration of revenue with Vacation Express, and its sister company,
Suntrips, Inc. (Suntrips), both part of the MyTravel Group, increased in July
2002 with the beginning of a new scheduled charter program for Suntrips.

TRADE ACCOUNTS RECEIVABLE

Accounts receivable from the sale of products or services are recorded at
net realizable vale and the Company grants credit to customers on an unsecured
basis. The Company provides an allowance for doubtful collections that is
based upon a review of outstanding receivables, historical collection
information, and existing economic conditions. Normal trade receivables are
due from 15 to 30 days after the issuance of an invoice. Receivables past due
more than 120 days are considered delinquent. Delinquent receivables are
written off based on individual credit evaluation and specific circumstances of
the customer.

The Company computes finance charges on accounts that are 30 days past due.
The finance charges are recognized into income when accrued unless collection
is doubtful.

INVENTORY

Inventory consists mainly of purchased-in components used in the Companys
Home Technology business. Inventory is recorded at the lower of cost or market
with cost being determined on a first-in, first-out basis.

INVESTMENTS

Investments, including certificates of deposit with maturities of greater
than three months, not readily marketable equity securities, and other
marketable securities, are classified as available for sale. Investment
securities that are not readily marketable include securities (a) for which
there is no market on a securities exchange or no independent publicly quoted
market, (b) that cannot be publicly offered or sold unless registration has
been effected under the Securities Act of 1933, or (c) that cannot be offered
or sold because of other arrangements, restrictions, or conditions applicable
to the securities or the Company. Certificates of deposit are recorded at cost
plus accrued interest. Marketable equity securities are recorded at estimated
values based on quoted market values for marketable securities of the investee
discounted for trading restrictions. If there is no quoted market value, the
recorded values are based on the most recent transactions in the securities
discounted for lack of marketability. Investment securities transactions are
recorded on a trade date basis. The difference between cost and fair value is
recorded as unrealized gain or loss on available for sale securities as a
component of comprehensive income.

Investments also include stock purchase warrants, which the Company
periodically receives as part of its compensation for services. Stock purchase
warrants from companies with publicly traded common stock are considered
derivatives in accordance with SFAS 133 Accounting for Derivative Investments
and Hedging Activities. The Company recognizes revenue at the fair value of
such stock purchase warrants when earned based on the Black - Scholes valuation
model. The Company recognizes unrealized gains or losses in the statement of
operations based on the changes in value in the stock purchase warrants as
determined by the Black - Scholes valuation model subsequent to the date
received.

PREPAID EXPENSES

Prepaid expenses include insurance, deferred costs, certain taxes, and
charter flight costs. Depending upon the volume and timing of charter flight
activity, the amount of prepaid charter flight costs can fluctuate
significantly.

PROPERTY AND EQUIPMENT

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Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed on the straight-line basis over the assets estimated
useful lives. Expenditures for maintenance and repairs are expensed as
incurred. Expenditures for improvements which extend the useful life or add
value to the asset are capitalized and then expensed over that assets
remaining useful life.

Sales and disposals of assets are recorded by removing the related cost
and accumulated depreciation amounts with any resulting gain or loss reflected
in the statement of operations.

The carrying value of property and equipment and predevelopment costs is
reviewed for impairment whenever events or changes in circumstances indicate
that such amounts may not be recoverable. If such an event occurred, the
Company would prepare projections of future results of operations for the
remaining useful lives of such assets. If such projections indicated that the
expected future net cash flows (undiscounted and without interest) are less
than the carrying amounts of the property and equipment and the predevelopment
costs, the Company would record an impairment loss in the period such
determination is made.

GOODWILL AND INTANGIBLE ASSETS

The Company records goodwill and intangible assets arising from business
combinations in accordance with Financial Accounting Standards Board Statement
(FASB) No. 141 Business Combinations (FASB 141) which requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS 141 also specifies the criteria applicable to
intangible assets acquired in a purchase method business combination to be
recognized and reported apart from goodwill.

The Company accounts for goodwill and intangible assets in accordance with
SFAS No. 142 Goodwill and Other Intangible Assets (SFAS 142). The Company
adopted SFAS 142 effective July 1, 2001. In completing the adoption of SFAS
142, the Company has allocated its previously existing goodwill as of July 1,
2001 to its reporting units, as defined in SFAS 142, and performed an initial
test for impairment as of that date. The results of the Companys adoption of
SFAS 142 are summarized in Note 5 to these financial statements.

In accordance with SFAS 142, the Company no longer amortizes goodwill.
SFAS 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead be tested at least annually for
impairment. SFAS 142 also requires that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and be reviewed for impairment.

Goodwill, which represents the cost in excess of fair value of net assets
acquired, is subject to an impairment test on an annual basis, or when there is
reason to believe that the value has been diminished or impaired. The fair
value of the Companys identified reporting units was estimated using the
expected present value of corresponding future cash flows and market values of
comparable businesses where available. The Company completed the valuations of
its reporting units that include goodwill in fiscal 2003 and concluded that an
impairment charge of $2,020,772 was required for its home technology segment.
Included in discontinued operations is an additional write-down of $556,275
relating to FutureSmart. The decline in the fair value is attributed to lower
than expected sales growth rates and fewer franchise sales.

REVENUE RECOGNITION

Charter Travel Aviation

Revenue related to the Companys aviation travel services consists of fees
for charter flights and is recognized upon completion of the related flight.

Home Technology

30



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The Companys home technology services work is completed in three phases 
pre-wiring, trim-out and then hardware installation. The Company invoices its
customers and records revenue as work is completed on each project. For alarm
monitoring service contracts sold by the Company, revenue is recognized only
when the contracts are sold to third party finance companies or as billed if
the Company holds and services the contract. The Company sells substantially
all of its alarm monitoring contracts immediately subsequent to the date the
contracts are signed by the customer.

Sales of franchise licenses are recognized as revenue when the Companys
obligations under the franchise agreement are substantially complete. The
Company generally defines substantially complete as the completion of
training by the franchisees General Manager and the approval by the Company of
the franchise location plan.

Royalties are based on a percentage of the sales recorded by franchisees
and are recorded as earned. Procurement fees charged to franchisees are
recorded in the month that the related product is shipped to the franchisee.

Technology Solutions

Internet website development services project revenue is recognized on a
percentage of completion basis for fixed fee contracts, based on the ratio of
costs incurred to total estimated costs for individual projects. Revenue is
recognized as services are performed for time and material contracts at the
applicable billing rates.

Unbilled revenue represents revenue earned under contracts in advance of
billings. Such amounts are normally converted to accounts receivable within 90
days. Unearned income represents amounts billed or cash received in advance of
services performed or cost incurred under contracts. Any anticipated losses on
contracts are charged to operations when identified.

The Company provides e-commerce marketing and business development
services to clients pursuant to contracts with varying terms. The contracts
generally provide for monthly payments and, in some cases, advance deposits.
Revenue is recognized over the respective contract period as services are
provided.

Revenue from uncollateralized e-commerce sales or sales of hardware and
software is recognized upon passage of title of the related goods to the
customer.

NET LOSS PER SHARE

The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share which requires dual presentations of basic and diluted
earnings per share.

Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares outstanding and
potentially dilutive shares outstanding during the period. Options and warrants
to purchase 4,739,410 and 3,763,392 shares of Common Stock were outstanding at
June 30, 2003 and 2002, respectively. Such outstanding options and warrants
could potentially dilute earnings per share in the future but have not been
included in the computation of diluted net loss per share in 2003 and 2002 as
the impact would have been anti-dilutive.

ADVERTISING

The Company expenses advertising costs as incurred. Advertising expense
aggregated $151,835 and $378,004 for the years ended June 30, 2003 and 2002,
respectively.

INCOME TAXES

The Company accounts for income taxes in accordance with the liability
method as provided under SFAS No. 109, Accounting for Income Taxes.
Accordingly, deferred income taxes are recognized for the tax consequences of
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. The

31



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measurement of deferred tax assets is reduced, if necessary, by the amount
of any benefits that, based on available evidence, are not expected to be
realized.

USE OF ESTIMATES

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

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 requires that a
liability be recognized on the date on which the company had committed to an
exit plan. In fiscal 2003 the Company adopted this statement with no effect on
its financial position or results of operations, however, disclosure was
modified to conform to the requirements of SFAS 146.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure. This Statement amends SFAS 123, Accounting for Stock-Based
Compensation to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
Company adopted the provisions of this statement effective January 1, 2003 with
no impact on its financial position or results of operations.

Effective January 1, 2003, we adopted FASB Interpretation No. (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the
disclosures that must be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees. It also
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The adoption of this interpretation did not have a
material effect on our financial position or results of operations.

In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires a
variable interest entity (VIE) to be consolidated by the primary beneficiary
of the entity under certain circumstances. FIN 46 is effective for all new
VIEs created or acquired after January 31, 2003. For VIEs created or
acquired prior to February 1, 2003, the provisions of FIN 46 must be applied
for the first interim or annual period beginning after June 15, 2003. The
Company does not expect adoption of this interpretation will have a material
impact on its financial position or results of operations.

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS 133, Accounting for Derivative Instruments and
Hedging Activities. The Statement is effective for contracts entered into or
modified after June 30, 2003 and is to be applied prospectively. The Company
adopted this Statement on April 30, 2003 with no impact on its financial
position or results of operations.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the Statement and still
existing at the beginning of the interim period of adoption. Restatement is
not permitted. The

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Company does not expect the adoption of this Statement to have a material
impact on its financial position or results of operations.

NOTE 2. GROUP BUSINESSES AND ACQUISITIONS

AVIATION TRAVEL SERVICES

The Companys aviation travel services business provides tour operators,
corporate travel departments, sports teams and casinos cost effective and
reliable charter air transportation. The Company acts as a program manager for
these customers by providing turnkey aircraft services including ground support
and aircraft fueling, passenger service and support, and real-time flight
tracking.

HOME TECHNOLOGY

The Companys home technology business is a full service home technology
integration company providing complete installation and equipment for
structured wiring, home security, PC networking, home audio, home theater,
central vacuum and accent lighting. It offers these products to residential
homeowners through its relationships with home builders and to the commercial
market. The Company operates two company owned locations in Charlotte, NC and
Atlanta, GA and has franchise operations in 14 other markets in the south,
southeast and Texas.

On March 7, 2003 LFSI completed its acquisition of FutureSmart Systems,
Inc. (FutureSmart), a manufacturer and distributor of structured wiring and home networking
distribution panels. On May 28, 2003 the Board of Directors approved a plan to
dispose of FutureSmart. Accordingly, its operations since March 7, 2003 have
been included in discontinued operations.

The purchase price of $876,910 consisted of the issuance of 1,000,000 shares of
LFSIs $.10 par value preferred stock, a bridge loan by LFSI to FutureSmart of
$224,830 and $552,080 in direct transaction costs. Total consideration was
allocated as follows:

|                                     |                           |                                 |            |            |         | 
|------------------------------------ | ------------------------- | ------------------------------- | ---------- | ---------- | ------- | 
|Current assets                       |                           | $                               | 1,244,416  |           
|Property and equipment               |                           |                                 | 309,296    |           
|Goodwill and other intangible assets |                           |                                 | 2,939,072  |           
|Other                                |                           |                                 | 26,280     |           
|                                     |                           |                                 |            |           
|                                     | Total assets acquired     |                                 |            | 4,519,064  |        
|Current liabilities                  |                           |                                 | (1,616,381 | )         
|Non-current liabilities              |                           |                                 | (2,025,773 | )         
|                                     |                           |                                 |            |           
|                                     | Total liabilities assumed |                                 |            | (3,642,154 | )      
|                                     |                           |                                 |            |           
|                                     |                           | Purchase price                  |            |            | 876,910 | 
|Preferred stock issued               |                           |                                 | (100,000   | )         
|Common stock warrants issued         |                           |                                 | (206,295   | )         
|Cash acquired                        |                           |                                 | (131,508   | )         
|                                     |                           |                                 |            |           
|                                     |                           | Cash paid, net of cash acquired |            | $          | 439,107 | 
|                                     |                           |                                 |            |           

The acquisition of FutureSmart was accounted for as a purchase in accordance
with SFAS 141, and the Company has accordingly allocated the purchase price of
FutureSmart based upon the fair values of the net assets acquired and
liabilities assumed.

Pursuant to the acquisition agreement, the shareholders of FutureSmart could
receive Earn out Consideration of up to 1,200,000 LFSI common shares if
FutureSmart achieves certain Performance Milestones.

In connection with LFSIs acquisition of FutureSmart RCG agreed until March 3,
2005, or one year from the registration of the shares of common stock for the
FutureSmart shareholders if sooner, that if RCG proposes to transfer 15% or
more of the shares of LFSI owned by RCG (excluding registered offerings, sales
to certain investors and related party sales) then

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certain of the FutureSmart shareholders shall have the right to participate in
such transfer of stock on the same terms and conditions for up to 25% of the
total sale.

Net non-current assets of FutureSmart at June 30, 2003 consisted of the
following:

|                                                        |                    |   |            |           | 
|------------------------------------------------------- | ------------------ | - | ---------- | --------- | 
|Goodwill                                                |                    | $ | 2,382,797  |          
|Property and equipment, net                             |                    |   | 298,487    |          
|Deferred costs and other assets                         |                    |   | 41,102     |          
|                                                        |                    |   |            |          
|                                                        | Non-current assets |   |            | 2,722,386 | 
|Long-term debt and capital leases, less current portion |                    |   | (1,997,633 | )        
|                                                        |                    |   |            |          
|Net non-current assets of discontinued operations       |                    | $ | 724,753    |          
|                                                        |                    |   |            |          

Net current liabilities of FutureSmart at June 30, 2003 consisted of the following:

|                                                     |                                                    |   |            |            |  
|---------------------------------------------------- | -------------------------------------------------- | - | ---------- | ---------- | -
|Accounts payable and accrued expenses                |                                                    | $ | (1,888,356 | )         
|Current portion of long-term debt and capital leases |                                                    |   | (95,997    | )         
|                                                     |                                                    |   |            |           
|                                                     | Total current liabilities                          |   |            | (1,984,353 | )
|Cash                                                 |                                                    |   | 139,523    |           
|Accounts receivable, net                             |                                                    |   | 402,253    |           
|Inventories                                          |                                                    |   | 717,824    |           
|                                                     |                                                    |   |            |           
|                                                     | Net current liabilities of discontinued operations |   | $          | (724,753   | )
|                                                     |                                                    |   |            |           

TECHNOLOGY SOLUTIONS

The Companys technology solutions business provides integrated products
and services to assist customers in meeting their strategic technology
initiatives. The Companys products and services include distribution of
third-party published software titles to the educational market and corporate
customers, full service Internet development, Internet site hosting and
co-location and Internet business development services encompassing partner
site management and marketing. In its Internet business development and
marketing services, the Company generally participates in the development and
implementation of the business plan in exchange for revenue-sharing and/or
equity-based arrangements.

TELECOMMUNICATIONS CALL CENTER

The Company operates a thirty-five (35) seat telecommunications call
center providing telemarketing, help desk and other services for Internet
related and other companies. The call center provides support to aviation
travel services businesses as a reservations and customer care center for
airlines, tour operators and for internal programs for which the Company takes
reservations from travelers.

DISCONTINUED OPERATIONS

Home Technology

On March 7, 2003 LFSI completed its acquisition of FutureSmart Systems, Inc., a
manufacturer and distributor of structured wiring and home networking
distribution panels. On May 28, 2003 the Board of Directors approved a
plan to dispose of FutureSmart. Accordingly, its operations since March 7,
2003 have been included in discontinued operations.

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Commercial Real Estate

In fiscal 2001, the Company discontinued its commercial real estate
business, which consisted of two strip-mall shopping centers in the Atlanta, GA
area, classifying the operating results for this business, a loss of $332,000,
as loss from discontinued operations. In May 2001, the Company entered into a
contract to sell its two shopping centers which provided for closing on August
31, 2001. In August 2001, the Company completed the sale of all of the
outstanding shares of the capital stock of the Companys subsidiary which owned
the commercial real estate business in exchange for cash ($312,500) and a
60-day note receivable ($62,500), which was collected in October 2001. The
Company realized a gain of approximately $576,000 on the sale in the quarter
ended September 30, 2001.

NOTE 3. INVESTMENTS

Investments consist of the following at June 30, 2003 and 2002:

|                        |  |      |         |        |  |               |          |      |  |        |         |       |  |            |         |               |  |   |         |   |  |   |         | 
|----------------------- |  | ---- | ------- | ------ |  | ------------- | -------- | ---- |  | ------ | ------- | ----- |  | ---------- | ------- | ------------- |  | - | ------- | - |  | - | ------- | 
|                        |  |      |         |        |  | June 30, 2003 |          |      |  |        |         |       |  |            |         | June 30, 2002 |  |   |         |  
|                        |  |      |         |        |  |               |          |      |  |        |         |       |  |            |         |               |  |   |         |  
|                        |  |      |         |        |  | Net           |          |      |  |        |         |       |  |            |         | Net           |  |   |         |  
|                        |  |      |         |        |  | Unrealized    |          | Fair |  |        |         |       |  | Unrealized |         | Fair         
|                        |  | Cost |         | (Loss) |  | Value         |          | Cost |  | (Loss) |         | Value
|                        |  |      |         |        |  |               |          |      |  |        |         |      
|Equity securities       |  | $    | 585,298 |        |  | $             | (276,347 | )    |  | $      | 308,951 |       |  | $          | 711,696 |               |  | $ | (51,493 | ) |  | $ | 660,203 | 
|Private joint ventures  |  |      | 67,994  |        |  |               |          |      |  |        | 67,994  |       |  |            |         |               |  |   |         |   |  |   |         | 
|Certificates of deposit |  |      | 25,587  |        |  |               |         |      |  |        | 25,587  |       |  |            | 51,879  |               |  |   |        |   |  |   | 51,879  | 
|                        |  |      |         |        |  |               |          |      |  |        |         |       |  |            |         |               |  |   |         |   |  |   |         | 
|                        |  | $    | 678,879 |        |  | $             | (276,347 | )    |  |        | 402,532 |       |  | $          | 763,575 |               |  | $ | (51,493 | ) |  |   | 712,082 | 
|                        |  |      |         |        |  |               |          |      |  |        |         |       |  |            |         |               |  |   |         |   |  |   |         | 
|Stock purchase warrants |  |      |         |        |  |               |          |      |  |        |        |       |  |            |         |               |  |   |         |   |  |   | 101,472 | 
|                        |  |      |         |        |  |               |          |      |  |        |         |       |  |            |         |               |  |   |         |   |  |   |         | 
|                        |  |      |         |        |  |               |          |      |  | $      | 402,532 |       |  |            |         |               |  |   |         |   |  | $ | 813,554 | 
|                        |  |      |         |        |  |               |          |      |  |        |         |       |  |            |         |               |  |   |         |   |  |   |         | 

The Companys certificate of deposit at June 30, 2003 was pledged as collateral
security for letters of credit for a trade credit line for home technology and
at June 30, 2002 additionally for an office space lease. The unrealized loss
on equity securities at June 30, 2003 and 2002 consists of unrealized
accumulated losses of $321,000 and $96,000, respectively, offset by unrealized
accumulated gains of $45,000 and $45,000, respectively. Gross proceeds from
investment sales for the years ended June 30, 2003 and 2002 were $xx,xxx and
$xx,xxx, respectively. Gross realized gains from investment sales for the
years ended June 30, 2003 and 2002 were $xx,xxx and $xx,xxx, respectively.

NOTE 4. PREPAID EXPENSES

At June 30, 2003 and 2002 prepaid expenses consist of the following:

|                     |  |          |           |      |  |   |           | 
|-------------------- |  | -------- | --------- | ---- |  | - | --------- | 
|                     |  | June 30,
|                     |  |         
|                     |  | 2003     |           | 2002
|                     |  |          |           |     
|Compensation         |  | $        | 2,375     |      |  | $ | 123,400   | 
|Charter flight costs |  |          | 2,375,919 |      |  |   | 2,454,754 | 
|Other                |  |          | 295,910   |      |  |   | 340,141   | 
|                     |  |          |           |      |  |   |           | 
|                     |  | $        | 2,674,204 |      |  | $ | 2,918,295 | 
|                     |  |          |           |      |  |   |           | 

35



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##### 



NOTE 5. PROPERTY AND EQUIPMENT

At June 30, 2003 and 2002 property and equipment consists of the
following:

|                                 |  |          |            |      |  |   |           |  
|-------------------------------- |  | -------- | ---------- | ---- |  | - | --------- | -
|                                 |  | June 30,
|                                 |  |         
|                                 |  | 2003     |            | 2002
|                                 |  |          |            |     
|Land, buildings and improvements |  | $        | 159,843    |      |  | $ | 381,992   |  
|Furniture and fixtures           |  |          | 368,557    |      |  |   | 430,364   |  
|Computers and office equipment   |  |          | 1,404,209  |      |  |   | 1,154,711 |  
|Software                         |  |          | 264,001    |      |  |   | 251,499   |  
|Showroom (home technology)       |  |          | 146,929    |      |  |   | 102,468   |  
|Vehicles (home technology)       |  |          | 12,074     |      |  |   | 12,074    |  
|                                 |  |          |            |      |  |   |           |  
|                                 |  |          | 2,355,613  |      |  |   | 2,333,108 |  
|Accumulated depreciation         |  |          | (1,264,699 | )    |  |   | (861,271  | )
|                                 |  |          |            |      |  |   |           |  
|                                 |  | $        | 1,090,914  |      |  | $ | 1,471,837 |  
|                                 |  |          |            |      |  |   |           |  

36



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##### 



NOTE 6. GOODWILL

The changes in goodwill, by business segment, for the fiscal years ended
June 30, 2003 and June 30, 2002 are as follows:

|                                                                          |  |          |         |            |  |            |           |           |  |       |            |   |  |   |           |  |  |   |            |  
|------------------------------------------------------------------------- |  | -------- | ------- | ---------- |  | ---------- | --------- | --------- |  | ----- | ---------- | - |  | - | --------- |  |  | - | ---------- | -
|                                                                          |  | Aviation |         |            |  |            |           |           |  |       |            |   |  |   |           |  |  |  
|                                                                          |  | Travel   |         | Technology |  | Home       |           |           |  |       |            |   |  |  
|                                                                          |  | Services |         | Solutions  |  | Technology |           | Corporate |  | Total
|                                                                          |  |          |         |            |  |            |           |           |  |      
|Balance at June 30, 2001                                                  |  | $        | 939,088 |            |  | $          | 8,259,991 |           |  | $     | 7,699,128  |   |  | $ | 1,000,000 |  |  | $ | 17,898,207 |  
|Cumulative effect of change in accounting
principle (adoption of FAS 142) |  |          |        |            |  |            | (693,000  | )         |  |       |           |   |  |   |          |  |  |   | (693,000   | )
|                                                                          |  |          |         |            |  |            |           |           |  |       |            |   |  |   |           |  |  |   |            |  
|Balance on July 1, 2001                                                   |  |          | 939,088 |            |  |            | 7,566,991 |           |  |       | 7,699,128  |   |  |   | 1,000,000 |  |  |   | 17,205,207 |  
|Goodwill acquired during period                                           |  |          |        |            |  |            |          |           |  |       | 1,207,669  |   |  |   |          |  |  |   | 1,207,669  |  
|Other goodwill adjustments                                                |  |          |        |            |  |            | 63,684    |           |  |       | 13,324     |   |  |   |          |  |  |   | 77,008     |  
|                                                                          |  |          |         |            |  |            |           |           |  |       |            |   |  |   |           |  |  |   |            |  
|Balance at June 30, 2002                                                  |  | $        | 939,088 |            |  | $          | 7,630,675 |           |  | $     | 8,920,121  |   |  | $ | 1,000,000 |  |  | $ | 18,489,884 |  
|Goodwill acquired during period                                           |  |          |         |            |  |            | 74,580    |           |  |       | 2,939,072  |   |  |   |           |  |  |   | 3,013,652  |  
|Goodwill transferred to discontinued operations                           |  |          |         |            |  |            |           |           |  |       | (2,939,072 | ) |  |   |           |  |  |   | (2,939,072 | )
|Goodwill impairment                                                       |  |          |         |            |  |            |           |           |  |       | (2,020,772 | ) |  |   |           |  |  |   | (2,020,772 | )
|Other goodwill adjustments                                                |  |          |        |            |  |            | (2,972    | )         |  |       | 105        |   |  |   |          |  |  |   | (2,867     | )
|                                                                          |  |          |         |            |  |            |           |           |  |       |            |   |  |   |           |  |  |   |            |  
|Balance at June 30, 2003                                                  |  | $        | 939,088 |            |  | $          | 7,702,283 |           |  | $     | 6,899,454  |   |  | $ | 1,000,000 |  |  | $ | 16,540,825 |  
|                                                                          |  |          |         |            |  |            |           |           |  |       |            |   |  |   |           |  |  |   |            |  

For fiscal 2003 goodwill was reduced by $2,020,772 in the home technology
segment as a result of impairment testing.
The decline in the fair value is attributed to lower than expected sales
growth rates and fewer franchise sales. For fiscal 2002 goodwill was reduced
by $693,000 in the technology solutions segment as a result of the
implementation of FAS 142. This adjustment relates primarily to the
discounting of the future net cash flows in the segments Internet business
development activity that was acquired as a part of the purchase of Avenel
Alliance.

Goodwill allocated to the Corporate segment relates to business advisory
activities that were acquired by the Company as a part of the acquisition of
Avenel Ventures in February 2001 and integrated into Corporate.

During fiscal 2003, goodwill increased by $75,000 as a result of the
technology solutions segment acquiring the assets of eGolf.com, an internet web
site specializing in the retail sales of golf equipment. The goodwill
adjustment is a reclassification of mortgage acquisition costs. During fiscal
2002, goodwill increased by $42,000 in the technology solutions business as a
result of the issuance of 32,738 shares of Common Stock in accordance with the
contingent consideration provisions of the related acquisition agreement. The
remaining goodwill adjustments in fiscal 2002 relate to resolutions of
contingencies that existed as of the dates that the related businesses were
acquired by the Company.

37



---



##### 



NOTE 7. NOTES PAYABLE

Notes payable consists of the following at June 30, 2003 and 2002:

|                                                                                                                                                                                |  |          |            |      |  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ---------- | ---- |  | - | --------- | -
|                                                                                                                                                                                |  | June 30,
|                                                                                                                                                                                |  |         
|                                                                                                                                                                                |  | 2003     |            | 2002
|                                                                                                                                                                                |  |          |            |     
|Note payable  due on demand bearing interest at the prime rate plus 1.0% and secured by assets pledged by an
affiliate of the Company (1)                                      |  | $        | 100,000    |      |  | $ | 100,000   |  
|Note payable  unsecured and due on demand                                                                                                                                      |  |          | 85,000     |      |  |   | 55,000    |  
|Note payable  due on demand bearing interest at 10% secured by certain real estate                                                                                             |  |          | 34,919     |      |  |   |          |  
|Notes payable  due in August 2003 with interest imputed at 8% and unsecured (2)                                                                                                |  |          | 267,500    |      |  |   | 462,500   |  
|Note payable  due in August 2003 with interest at 10% and collateralized by certain home technology assets (2)                                                                 |  |          | 300,000    |      |  |   | 300,000   |  
|Note payable  due in August 2003 with interest at 10% and unsecured (2)                                                                                                        |  |          | 200,000    |      |  |   | 200,000   |  
|Note payable  due in August 2003 with interest at 12% and unsecured (3)                                                                                                        |  |          | 291,782    |      |  |   | 381,782   |  
|Note payable  due July 27, 2003 and unsecured (4)                                                                                                                              |  |          | 250,000    |      |  |   |          |  
|Note payable  due in August 2003 with interest at 12% and collateralized by certain home technology
accounts receivable and inventory (3,5)                                    |  |          | 650,000    |      |  |   | 650,000   |  
|Note payable  due in monthly installments of $3,000 and a balloon payment in July 2005,
interest payable at 8.00% and collateralized by home technology accounts receivable    |  |          | 181,000    |      |  |   | 217,000   |  
|Revolving credit facility  secured by a portion of the accounts receivable of the technology solutions business                                                                |  |          | 273,807    |      |  |   |          
|Capital lease obligation at 12% due in monthly installments of $590 through September 2004                                                                                      |  |          | 4,725      |      |  |   | 11,498    |  
|Capital lease obligation at 8.5% due in monthly installments of $1,007 through November 2005                                                                                    |  |          | 26,338     |      |  |   |          |  
|Note payable  unsecured and due on demand bearing interest at 6%                                                                                                               |  |          | 500,000    |      |  |   |          |  
|Note payable  due January 1, 2004 with interest at 12% and unsecured                                                                                                           |  |          | 225,000    |      |  |   |          |  
|Mortgage payable to a bank in monthly installments of $1,751, including interest
at 7.96% through October 2015 and collateralized by a building                                 |  |          |           |      |  |   | 179,271   |  
|Note payable  $150,000 due December 31, 2003 and $600,000 due December 31, 2004 with interest at 12% and
collateralized by certain aviation travel service business assets (6) |  |          | 750,000    |      |  |   | 703,601   |  
|                                                                                                                                                                                |  |          |            |      |  |   |           |  
|                                                                                                                                                                                |  |          | 4,140,071  |      |  |   | 3,260,652 |  
|Less current maturities, including demand notes                                                                                                                                 |  |          | (3,378,991 | )    |  |   | (407,221  | )
|                                                                                                                                                                                |  |          |            |      |  |   |           |  
|Long-term portion                                                                                                                                                               |  | $        | 761,080    |      |  | $ | 2,853,431 |  
|                                                                                                                                                                                |  |          |            |      |  |   |           |  



|(1) |  | Mr. Pruitt repaid the $100,000 due on the line of credit with personal funds on August 8, 2003 in exchange for a note from
LFSI. The note bears interest at 8% per annum and is due on demand.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The principal and accrued interest on this note payable are convertible to
shares of Common Stock at the greater of (i) $1.12 per share or                                                    

| |  | (ii) a 20% discount to the average closing price of the Common Stock for the five days immediately preceding the conversion
date. The three debts referred to above, plus accrued interest, were converted into RCG
Common Stock on August 21, 2003 in accordance with above terms.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | The home technology company has reached an agreement to extend these debts.                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(4) |  | On October 1, 2003, $25,000 of principal was paid. The Company currently is negotiating with the debt holder to extend the
term or agree on a payment schedule                                                                                                                                                                                                                                                                                                                       
|   
|(5) |  | At the option of the noteholder, this note can be converted into RCGs Common Stock at a ratio of one (1) share of Common Stock
for each $4.55 of outstanding principal and interest.                                                                                                                                                                                                                                                                                                
|   
|(6) |  | In connection with this note, the Company issued 71,429 shares of
restricted stock and 42,857 warrants to purchase its Common Stock at a
price of $2.45 and for a term of three years, both as loan origination
fees. This note is convertible into the
Companys Common Stock at the option of the debt holder at a per share price of the lesser of $2.10 or a 25% discount. The
Company can force the debt holder to convert to stock at $7.00 per share under
certain conditions.

Future maturities of the debt and notes payable are as follows at June 30,
2003:

|            |  |   |           | 
|----------- |  | - | --------- | 
|Fiscal Year |  |   |           | 
|            |  |   |           | 
|2004        |  | $ | 3,378,991 | 
|2005        |  |   | 647,158   | 
|2006        |  |   | 113,922   | 
|            |  |   |           | 
|            |  | $ | 4,140,071 | 
|            |  |   |           | 

38



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##### 



NOTE 8. INCOME TAXES

Deferred income tax assets and (liabilities) consist of the following as
of June 30, 2003 and 2002:

|                                                         |                                  |   |             |            |      |   |             |            | 
|-------------------------------------------------------- | -------------------------------- | - | ----------- | ---------- | ---- | - | ----------- | ---------- | 
|                                                         |                                  |   | June 30,   
|                                                         |                                  |   |            
|                                                         |                                  |   | 2003        |            | 2002
|                                                         |                                  |   |             |            |     
|Deferred income tax assets:                              |                                  |   |             |            |      |   |             |           
|Warrants and stock options                               |                                  | $ |            |            |      | $ | 18,957,496  |           
|Net operating loss carryforwards                         |                                  |   | 19,575,969  |            |      |   | 14,897,002  |           
|Other                                                    |                                  |   | 327,735     |            |      |   | 271,513     |           
|                                                         |                                  |   |             |            |      |   |             |           
|                                                         | Total deferred income tax assets |   |             | 19,903,704 |      |   |             | 34,126,011 | 
|Deferred income tax liabilities - property and equipment |                                  |   | (167,057    | )          |      |   | (167,057    | )         
|                                                         |                                  |   |             |            |      |   |             |           
|Net deferred income tax assets                           |                                  |   | 19,736,647  |            |      |   | 33,958,954  |           
|Deferred income tax asset valuation allowance            |                                  |   | (19,736,647 | )          |      |   | (33,958,954 | )         
|                                                         |                                  |   |             |            |      |   |             |           
|                                                         | Net deferred income tax assets   |   | $           |           |      |   | $           |           | 
|                                                         |                                  |   |             |            |      |   |             |           

A reconciliation of the Companys effective income tax rate (-0-%) to the
statutory income tax rate (34%) is as follows:

|                                                 |  |                     |             |      |  |   |            |  
|------------------------------------------------ |  | ------------------- | ----------- | ---- |  | - | ---------- | -
|                                                 |  | Year Ended June 30,
|                                                 |  |                    
|                                                 |  | 2003                |             | 2002
|                                                 |  |                     |             |     
|Federal tax benefit at statutory rate            |  | $                   | (1,744,099  | )    |  | $ | (1,460,406 | )
|State tax benefit, net of federal                |  |                     | (150,497    | )    |  |   | (214,766   | )
|Permanent differences                            |  |                     | 700,579     |      |  |   | 303,672    |  
|Other                                            |  |                     | (3,541,172  | )    |  |   | 891,286    |  
|Elimination of warrants and stock options        |  |                     | 18,957,496  |      |  |   |            |  
|Change in deferred tax asset valuation allowance |  |                     | (14,222,307 | )    |  |   | 480,214    |  
|                                                 |  |                     |             |      |  |   |            |  
|Income tax expense - actual                      |  | $                   |            |      |  | $ |           |  
|                                                 |  |                     |             |      |  |   |            |  

As of June 30, 2003 the Company had approximately $50,000,000 of net
operating loss carry forwards (NOLs) for federal income tax purposes, which
expire between 2020 through 2023. A deferred income tax asset valuation
allowance has been established against all deferred income tax assets as
management is not certain that the deferred income tax assets will be realized.
In addition, due to substantial limitations placed on the utilization of net
operating losses following a change in control, utilization of such NOLs could
be limited.

In fiscal 2001, the Company received a preliminary Internal Revenue
Service report on the Companys 1996 and 1997 and one of its subsidiarys 1994
and 1995 tax returns, which the Company has appealed. At June 30, 2003, the
Company had recorded a federal tax liability of $305,830 related to such
assessment.

NOTE 9. UNEARNED INCOME

Following is a summary of unearned income at June 30, 2003 and 2002:

39



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##### 



|                       |  |          |           |      |  |   |           | 
|---------------------- |  | -------- | --------- | ---- |  | - | --------- | 
|                       |  | June 30,
|                       |  |         
|                       |  | 2003     |           | 2002
|                       |  |          |           |     
|Charter flight revenue |  | $        | 3,995,944 |      |  | $ | 3,223,969 | 
|Other unearned income  |  |          | 53,402    |      |  |   | 104,919   | 
|                       |  |          |           |      |  |   |           | 
|                       |  | $        | 4,049,346 |      |  | $ | 3,328,888 | 
|                       |  |          |           |      |  |   |           | 

NOTE 10. COMMON STOCK AND PAID IN CAPITAL

In fiscal 2003, the Company issued 89,554 shares of restricted Common
Stock in payment of certain services.

In fiscal 2003, the Company terminated an agreement with a service
provider. The Company had granted warrants to the service provider that vested
over a year resulting in additional paid-in capital of $98,000. Upon the
cancellation of the agreement, the Company reversed the unvested warrants
resulting in a reduction of additional paid-in capital of $45,200.

In the first quarter of fiscal 2003, the Company issued an aggregate of
177,143 shares of restricted Common Stock in connection with the Companys
private placement sale of Common Stock at $0.70 per share.

In the fourth quarter of fiscal 2003, the Company issued an aggregate of
1,300,000 shares of restricted Common Stock in connection with the Companys
private placement sale of Common Stock at $0.25 per share.

In fiscal 2002 the Company issued an aggregate of 1,251,429 shares of
restricted Common Stock in connection with this private placement at $0.70 per
share.

In July 2002, the Company issued 14,286 shares of restricted Common Stock
from treasury stock with the termination of a contract with a service provider.

In fiscal 2002, the Company issued 139,365 shares of restricted Common
Stock in connection with the acquisition of LSTA and 32,738 shares of
restricted Common Stock to management of Logisoft in exchange for Logisoft
reaching certain performance criteria set forth in the purchase agreement
governing the Companys acquisition of Logisoft.

During the year ended June 30, 2002, the Company issued 54,746 shares of
restricted Common Stock in exchange for consulting and legal services and as a
reimbursement of expenses for one employee. Included in this amount are 10,884
shares issued to two directors of the Company as reimbursement for their
service to the Company as directors.

On June 17, 2002 the Company implemented a reverse stock split exchanging
one share of Common Stock for every seven shares held by the Companys
stockholders as of the close of business on June 14, 2002. As a result, an
adjustment was recorded to reduce the recorded amount of common stock and
increase additional paid in capital, each by $2,600,014. The reverse stock
split was approved by the Companys shareholders at its annual meeting held on
May 17, 2002. All of the share amounts in these financial statements have been
adjusted for this reverse stock split.

During fiscal 2002, the Company received a capital contribution of
$200,000 in connection with the launch of its national franchising program for
its home technology business.

During fiscal 2002, the Company terminated a public relations contract
pursuant to which it had issued 132,000 shares of restricted Common Stock
during fiscal 2001. Pursuant to the terms of the settlement, 89,143 shares
were returned to the Company and were placed in treasury stock as of June 30,
2002.

NOTE 11. STOCK OPTIONS AND WARRANTS

40



---



##### 



The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting For Stock Issued To Employees and options and
warrants issued to non-employees under SFAS No. 123, Accounting For Stock
Based Compensation. For the options and warrants issued to non-employees, the
fair value of each award has been calculated using the Black-Scholes Model in
accordance with SFAS No. 123.

At the July 11, 2000 meeting, the shareholders approved the Companys 2000
Stock Option Plan (the Option Plan). The Companys Option Plan provides for
the granting of either incentive stock options or non-qualified options to
purchase shares of the Company`s Common Stock to provide incentives to
employees, directors and other individuals or companies at the discretion of
the Board of Directors. The Plan allows participants to purchase Common Stock
of the Company at prices set by the Board of Directors, but in the case of
incentive stock options not less than fair market value at the date the option
is granted. Unexercised options expire 10 years or less after the date of grant
unless otherwise specified by the Board of Directors. At the January 10, 2001
annual shareholders meeting, the shareholders increased the number of shares
available for the granting of incentive stock options under the Option Plan
from 10,000,000 to 20,000,000 shares.

In 2003, the Company issued options to purchase 1,372,500 shares of Common
Stock to certain employees, officers and directors under the Option Plan versus
255,715 options in fiscal 2002.

In fiscal 2003 and 2002, the Company cancelled stock options totaling
283,981 and 329,237, respectively, primarily in connection with employee
terminations.

The following table summarizes the outstanding options at June 30, 2003
and 2002:

|              |  |              |        |         |  |               |    |            |        |          |        |          |         |          |           |        |      |              |       |          |    |  |      |          |    |          |    | 
|------------- |  | ------------ | ------ | ------- |  | ------------- | -- | ---------- | ------ | -------- | ------ | -------- | ------- | -------- | --------- | ------ | ---- | ------------ | ----- | -------- | -- |  | ---- | -------- | -- | -------- | -- | 
|June 30, 2003 |  |              |        |         |  | June 30, 2002 |    |            |        |         
|              |  | Vesting      |        |         |  | Vesting      
|              |  | Exercise     |        | Term    |  | Period        |    |            |        |          |        | Exercise |         | Term     |           | Period
|Shares        |  | Price        |        | (Years) |  | (Months)      |    | Shares     |        | Price    |        | (Years)  |         | (Months)
|              |  |              |        |         |  |               |    |            |        |          |        |          |         |         
|1,019,500     |  |              | $ 0.55 |         |  | 7 to 10 *     |    | 12 to 48 * |        |          | 87,857 |          |         |          | $ 1.26    |        |      |              | 10    | *        |    |  | 48 * |         
|350,000       |  |              | 0.75   |         |  |               | 7  | **         |        |          | 48     | **       |         |          | 479,286   |        |      | 1.75 to 1.96 |       |          | 10 |  |      | 12 to 48
|3,000         |  |              | 1.15   |         |  |               | 7  |            |        | 33 to 43 |        |          | 328,571 |          |           |        | 4.90 |              |       |          | 10 |  |      |          | 12 |         
|72,857        |  |              | 1.26   |         |  |               | 7  |            |        |          | 48     |          |         |          | 142,857   |        |      |              | 5.25  |          |    |  | 10   |          |    |          |   | 
|432,142       |  | 1.75 to 1.96 |        | 7 to 10 |  | 12 to 48      |    |            | 8,328  |          |        |          | 5.46    |          |           |        | 10   |              |       |          | 18 | 
|242,857       |  |              | 4.90   |         |  |               | 10 |            |        |          | 12     |          |         |          | 35,714    |        |      |              | 5.88  |          |    |  | 10   |          |    | 36 to 42
|142,857       |  |              | 5.25   |         |  |               | 5  |            |        |          |       |          |         |          | 96,476    |        |      |              | 5.95  |          |    |  | 10   |          |    | 12 to 38
|42,965        |  | 5.46 to 6.65 |        | 6 to 10 |  | 33 to 39      |    |            | 38,571 |          |        |          | 6.65    |          |           |        | 10   |              |       | 12 to 46
|14,286        |  |              | 7.00   |         |  |               | 10 |            |        |          | 46     |          |         |          | 14,286    |        |      |              | 7.00  |          |    |  | 10   |          |    |          | 46 | 
|71,429        |  |              | 10.06  |         |  |               | 3  |            |        |          |       |          |         |          | 71,429    |        |      |              | 10.08 |          |    |  | 10   |          |    |          |   | 
|17,857        |  |              | 21.00  |         |  |               | 7  |            |        |          |       |          |         |          | 17,857    |        |      |              | 21.00 |          |    |  | 10   |          |    |          |   | 
|              |  |              |        |         |  |               |    |            |        |          |        |          |         |          |           |        |      |              |       |          |    |  |      |          |    |          |    | 
|2,409,750     |  |              |        |         |  |               |    |            |        |          |        |          |         |          | 1,321,232 |        |      |              |       |          |    |  |      |          |    |          |    | 
|              |  |              |        |         |  |               |    |            |        |          |        |          |         |          |           |        |      |              |       |          |    |  |      |          |    |          |    | 



|*  |  | 35,714 non-qualified options issued to an employee in December 2001 have a
three-year term and are fully vested.
|-- |  | ----------------------------------------------------------------------------------------------------------------
|  
|** |  | Employee resigned from the company on 4/30/03 and options were cancelled as
of 7/30/03.                         

In fiscal 2003 and 2002, the Company issued warrants to purchase zero and
203,571 shares of its Common Stock, respectively, in exchange for consulting
and legal services and as debt issuance costs.

The following table summarizes the outstanding warrants at June 30, 2003
and 2002:

41



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##### 



|              |           |               |  |              |       |          |    |        |     |       |         |          |           |              |  |   |       |  |  |  |     |  
|------------- | --------- | ------------- |  | ------------ | ----- | -------- | -- | ------ | --- | ----- | ------- | -------- | --------- | ------------ |  | - | ----- |  |  |  | --- | -
|June 30, 2003 |           | June 30, 2002
|              |           |              
|              |           |               |  | Exercise     |       | Term     |    |        |     |       |         | Exercise |           | Term        
|              | Shares    |               |  | Price        |       | (Months) |    | Shares |     | Price |         | (Months)
|              |           |               |  |              |       |          |    |        |     |      
|              | 793,768   |               |  | $            | 0.55  |          |    |        | 54  |       |         |          | 793,768   |              |  | $ | 0.28  |  |  |  | 54  |  
|              | 37,500    |               |  | 1.05 to 1.75 |       |          | 36 |        |     |       | 150,000 |          |           | 1.05 to 1.75 |  |   | 36    | 
|              | 42,857    |               |  |              | 2.45  |          |    |        | 36  |       |         |          | 42,857    |              |  |   | 2.45  |  |  |  | 36  |  
|              | 57,143    |               |  |              | 3.50  |          |    |        | 120 |       |         |          | 57,143    |              |  |   | 3.50  |  |  |  | 120 |  
|              | 679,106   |               |  |              | 5.25  |          |    |        | 120 |       |         |          | 679,106   |              |  |   | 5.25  |  |  |  | 120 |  
|              | 14,286    |               |  |              | 5.67  |          |    |        | 48  |       |         |          | 14,286    |              |  |   | 5.67  |  |  |  | 48  |  
|              | 1,429     |               |  |              | 7.00  |          |    |        |    |       |         |          | 1,429     |              |  |   | 7.00  |  |  |  |    |  
|              | 7,143     |               |  |              | 7.70  |          |    |        | 36  |       |         |          | 7,143     |              |  |   | 7.70  |  |  |  | 36  |  
|              | 96,428    |               |  |              | 12.25 |          |    |        |    |       |         |          | 96,428    |              |  |   | 12.25 |  |  |  |    |  
|              | 82,143    |               |  |              | 21.00 |          |    |        |     | *     |         |          | 82,143    |              |  |   | 21.00 |  |  |  |     | *
|              | 517,857   |               |  |              | 28.00 |          |    |        | 120 | *     |         |          | 517,857   |              |  |   | 28.00 |  |  |  | 120 | *
|              |           |               |  |              |       |          |    |        |     |       |         |          |           |              |  |   |       |  |  |  |     |  
|              | 2,329,660 |               |  |              |       |          |    |        |     |       |         |          | 2,442,160 |              |  |   |       |  |  |  |     |  
|              |           |               |  |              |       |          |    |        |     |       |         |          |           |              |  |   |       |  |  |  |     |  



|* |  | All of the $21.00 warrants and 82,143 of the $28.00 warrants in the above
table have a term that
is variable, subject to the market value of the Common Stock and other
conditions.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All of the warrants issued by the Company are exercisable, except for
79,377 with an exercise price of $0.28 that vest in December 2002, 14,286 with
an exercise price of $5.67 that vest over 3 years, 150,000 that vest in equal
quarterly amounts in September 2002, December 2002, March 2003 and June 2003
and 16,667 that vest upon the holder meeting the requirements of a capital
raise commitment.

Following is a summary of certain information regarding the Companys
options and warrants for fiscal 2003 and 2002:

42



---



##### 



|                                   |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |           |  |            |           |             |   |       |      |   |   |      |          |          |          |   |   | 
|---------------------------------- | ----------------- |  | --------- | --------- | ----- | - | ---------- | ---- | ---------- | - | ----------- | - | ----- | -------- | ---------- | - | --------- |  | ---------- | --------- | ----------- | - | ----- | ---- | - | - | ---- | -------- | -------- | -------- | - | - | 
|                                   |                   |  |           |           |       |   |            |      |            |   |             |   |       |          | Weighted   |   |           |  |            |           |             |   |       |      |   |   |      |          | Weighted
|                                   |                   |  |           |           |       |   | Weighted   |      | Weighted   |   | Average     |   |       |          |            |   | Weighted  |  | Weighted   |           | Average    
|                                   |                   |  |           |           |       |   | Average    |      | Average    |   | Remaining   |   |       |          |            |   | Average   |  | Average    |           | Remaining  
|                                   |                   |  |           |           |       |   | Exercise   |      | Grant-date |   | Contractual |   |       |          |            |   | Exercise  |  | Grant-date |           | Contractual
|                                   |                   |  | Number    |           | Price |   | Fair Value |      | Life       |   | Number      |   | Price |          | Fair Value |   | Life     
|                                   |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |          
|Outstanding at beginning of year   |                   |  | 3,763,392 |           |       | $ | 7.31       |      |            |   |             |   |       |          |            |   |           |  | 3,633,343  |           |             | $ | 10.57 |      |   |   |      |          |          |          |   |  
|                                   |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |           |  |            |           |             |   |       |      |   |   |      |          |          |          |   |  
|Grants during the year:            |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |           |  |            |           |             |   |       |      |   |   |      |          |          |          |   |  
|Exercise price greater than market |                   |  | 650,000   |           |       | $ | 0.66       |      |            | $ | 0.43        |   |       |          | 7.70       |   |           |  | 387,143    |           |             | $ | 2.66  |      |   | $ | 1.26 |          |          | 6.1 yrs.
|Exercise price equal to market     |                   |  | 722,500   |           |       | $ | 0.55       |      |            | $ | 0.43        |   |       |          | 7.80       |   |           |  | 72,143     |           |             | $ | 1.27  |      |   | $ | 0.98 |          |          | 6.0 yrs.
|Exercise price below market        |                   |  |          |           |       |   |            |      |            | $ |            |   |       |          |           |   |           |  |           |           |             | $ |      |      |   | $ |     |          |          |          |  |  
|                                   |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |           |  |            |           |             |   |       |      |   |   |      |          |          |          |   |  
|                                   | Total granted     |  |           | 1,372,500 |       |   | $          | 0.60 |            |   | $           |  |       |          |            |  |           |  |            | 459,286   |             |   | $     | 0.79 |   |   | $    |         |          |          |   |  | 
|                                   |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |           |  |            |           |             |   |       |      |   |   |      |          |          |          |   |  
|Exercised during the year          |                   |  |          |           |       |   |            |      |            | $ |            |   |       |          |           |   |           |  |           |           |             | $ | 0.74  |      |   | $ |     |          |          |          |  |  
|Cancelled during the year          |                   |  | 396,482   |           |       | $ | 4.75       |      |            | $ |            |   |       |          |           |   |           |  | 329,237    |           |             | $ | 4.07  |      |   | $ |     |          |          |          |  |  
|                                   |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |           |  |            |           |             |   |       |      |   |   |      |          |          |          |   |  
|Outstanding at end of year:        |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |           |  |            |           |             |   |       |      |   |   |      |          |          |          |   |  
|Exercisable at $0.28 to $1.96      |                   |  | 2,708,768 |           |       | $ | 0.72       |      |            |   |            |   |       | 5.7 yrs. |            |   | 1,510,912 |  |            | $         | 0.95        |   |       |      |  |   |      | 4.4 yrs.
|Exercisable at $2.94 to $7.00      |                   |  | 1,237,785 |           |       | $ | 5.06       |      |            |   |            |   |       | 3.4 yrs. |            |   | 1,459,623 |  |            | $         | 5.14        |   |       |      |  |   |      | 3.3 yrs.
|Exercisable at $7.70 to $12.25     |                   |  | 175,000   |           |       | $ | 11.17      |      |            |   |            |   |       | 3.4 yrs. |            |   | 175,000   |  |            | $         | 11.17       |   |       |      |  |   |      | 0.9 yrs.
|Exercisable at $14.00 to $21.00    |                   |  | 100,000   |           |       | $ | 21.00      |      |            |   |            |   |       | 1.2 yrs. |            |   | 100,000   |  |            | $         | 21.00       |   |       |      |  |   |      | 1.3 yrs.
|Exercisable at $28.00              |                   |  | 517,857   |           |       | $ | 28.00      |      |            |   |            |   |       | 3.9 yrs. |            |   | 517,857   |  |            | $         | 28.00       |   |       |      |  |   |      | 0.7 yrs.
|                                   |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |           |  |            |           |             |   |       |      |   |   |      |          |          |          |   |  
|                                   | Total outstanding |  |           | 4,739,410 |       |   | $          | 5.65 |            |   |             |   |       |          |            |   |           |  |            | 3,763,392 |             |   | $     | 7.31 |   |   |      |          |          |          |   |   | 
|                                   |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |           |  |            |           |             |   |       |      |   |   |      |          |          |          |   |  
|Exercisable at end of year:        |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |           |  |            |           |             |   |       |      |   |   |      |          |          |          |   |  
|Exercisable at $0.28 to $1.96      |                   |  | 1,594,195 |           |       | $ | 0.78       |      |            |   |            |   |       |          |           |   |           |  | 1,170,105  |           |             | $ | 0.85  |      |   |   |     |          |          |          |  |  
|Exercisable at $2.94 to $7.00      |                   |  | 1,216,030 |           |       | $ | 5.04       |      |            |   |            |   |       |          |           |   |           |  | 1,356,338  |           |             | $ | 5.08  |      |   |   |     |          |          |          |  |  
|Exercisable at $7.70 to $12.25     |                   |  | 167,857   |           |       | $ | 11.13      |      |            |   |            |   |       |          |           |   |           |  | 167,858    |           |             | $ | 11.13 |      |   |   |     |          |          |          |  |  
|Exercisable at $14.00 to $21.00    |                   |  | 100,000   |           |       | $ | 21.00      |      |            |   |            |   |       |          |           |   |           |  | 100,000    |           |             | $ | 21.00 |      |   |   |     |          |          |          |  |  
|Exercisable at $28.00              |                   |  | 517,857   |           |       | $ | 28.00      |      |            |   |            |   |       |          |           |   |           |  | 517,857    |           |             | $ | 28.00 |      |   |   |     |          |          |          |  |  
|                                   |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |           |  |            |           |             |   |       |      |   |   |      |          |          |          |   |  
|                                   | Total exercisable |  |           | 3,595,939 |       |   | $          | 7.19 |            |   |             |   |       |          |            |   |           |  |            | 3,312,158 |             |   | $     | 7.95 |   |   |      |          |          |          |   |   | 
|                                   |                   |  |           |           |       |   |            |      |            |   |             |   |       |          |            |   |           |  |            |           |             |   |       |      |   |   |      |          |          |          |   |  

Pro forma information regarding net loss is required by SFAS No. 123,
which also requires that the information be determined as if the Company had
accounted for its employee stock options granted subsequent to July 1, 1996
under the fair value method of that statement. The fair value for these options
was estimated at the date of grant using the Black-Scholes Model with the
following weighted average assumptions for fiscal 2003; risk-free interest rate
range of 2.72% to 4.76%; no dividend yield; volatility factor of the expected
market price of the Companys Common Stock for 2003 and 2002 of 1.16 and .974,
respectively; and an expected life of the option of 3 to 5 years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Companys employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can naturally affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of the Companys employee stock options.

The Companys pro forma net loss and net loss per share assuming
compensation cost was determined under SFAS No. 123 for all options would have
been the following for the years ended June 30, 2003 and 2002:

|                                                                                                              |  |                              |            |      |  |   |            |  
|------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | ---- |  | - | ---------- | -
|                                                                                                              |  | For the years ended June 30,
|                                                                                                              |  |                             
|                                                                                                              |  | 2003                         |            | 2002
|                                                                                                              |  |                              |            |     
|Net loss as reported                                                                                          |  | $                            | (5,250,792 | )    |  | $ | (4,295,311 | )
|Add: Stock-based employee compensation included in net loss as reported                                       |  |                              | 647,168    |      |  |   | 28,825     |  
|Deduct: Stock-based compensation expense determined under FAS 123                                             |  |                              | (4,714,628 | )    |  |   | (1,326,211 | )
|                                                                                                              |  |                              |            |      |  |   |            |  
|Pro forma net loss as if stock-based compensation had been reported under FAS 123                             |  | $                            | (9,318,252 | )    |  | $ | (5,592,697 | )
|                                                                                                              |  |                              |            |      |  |   |            |  
|Pro forma basic and diluted net loss per share as if stock-based compensation had
been reported under FAS 123 |  | $                            | (0.37      | )    |  | $ | (0.12      | )
|                                                                                                              |  |                              |            |      |  |   |            |  

43



---



##### 



NOTE 12. GENERAL AND ADMINISTRATIVE
EXPENSE - OTHER

Following is a summary of the Companys general and administrative
expenses for the years ended June 30, 2003 and 2002:

|                              |  |                     |           |      |  |   |           | 
|----------------------------- |  | ------------------- | --------- | ---- |  | - | --------- | 
|                              |  | Year ended June 30,
|                              |  |                    
|                              |  | 2003                |           | 2002
|                              |  |                     |           |     
|Compensation expense          |  | $                   | 4,712,467 |      |  | $ | 4,153,266 | 
|Legal and professional fees   |  |                     | 632,162   |      |  |   | 604,203   | 
|Public and investor relations |  |                     | 93,034    |      |  |   | 10,674    | 
|Marketing and advertising     |  |                     | 151,835   |      |  |   | 378,004   | 
|Rent expense                  |  |                     | 582,511   |      |  |   | 579,357   | 
|Insurance                     |  |                     | 293,751   |      |  |   | 364,448   | 
|Telecommunications            |  |                     | 321,986   |      |  |   | 313,183   | 
|Office and printing expense   |  |                     | 507,836   |      |  |   | 457,848   | 
|Travel and entertainment      |  |                     | 397,450   |      |  |   | 375,768   | 
|Other                         |  |                     | 376,749   |      |  |   | 469,434   | 
|                              |  |                     |           |      |  |   |           | 
|                              |  | $                   | 8,069,781 |      |  | $ | 7,706,185 | 
|                              |  |                     |           |      |  |   |           | 

NOTE 13. RELATED PARTY TRANSACTIONS

During fiscal 2002, Mr. Pruitt, President and CEO of the Company, pledged
certain of his personal assets to secure a $100,000 bank line of credit for
Lifestyle Innovations, Inc., (LFSI). LFSI is a separately traded public
company, of which the Company owns approximately 15.6 million restricted common
shares as of June 30, 2003. These shares represent an equity ownership of
approximately 76.5% of the company. At June 30, 2003, the line of credit was in
default with an outstanding balance of $100,000. Mr. Pruitt repaid the $100,000
due on the line of credit with personal funds on August 8, 2003 in exchange for
a note from LFSI. The note bears interest at 8% per annum and is due on demand.

In addition to this note, LFSI owed Mr. Pruitt, as of June 30, 2003, $57,514.
This amount is the result of loans made to LFSI by Mr. Pruitt prior to fiscal
year 2003.

Mr. Pruitt owns 33.3% and is a director in a company that purchased
franchise licenses and business operations from LFSI in three markets located
in South Carolina. Mr. Pruitt also owns 15% of another company that is a LFSI
franchisee in the state of Maryland. The franchise locations in the Carolinas
owed the Company and its subsidiaries $43,777 at June 30, 2003. The franchise
location in Maryland owed the Company and its subsidiaries $5,379 at June 30,
2003.

In April, 2003, Mr. Pruitt purchased 500,000 shares of restricted Common
Stock at a price of $0.25 per share, or $125,000.

During fiscal year 2002, Mr. Pruitt loaned money to the Company. At June
30, 2003, $5,000 was due to Mr. Pruitt. The $5,000 was payable to Mr. Pruitt on
demand. The interest rate on the note is 8%. This note was repaid on October 2,
2003.

During fiscal 2003, Mr. Pruitt elected to receive only a portion of his
salary from the Company. He received $30,000 in compensation from the Company,
of which $15,000 was paid to a company owned by Mr. Pruitt.

44



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##### 



Mr. G. David Gordon, a Company Stockholder, has an ownership interest in
six LFSI franchises, including two locations that were purchased from the
Company during fiscal 2002 and for which the Company recorded a gain on sale of
$119,000. Mr. Gordon also acts as legal counsel to the Company from time to
time. Mr. Gordon has an ownership interest in the Charleston, SC, and Hilton
Head, NC markets along with Mr. Pruitt, and the Dallas, TX, market along with
Mr. Johnson. Mr. Gordon is an investor in a Company that owns the franchise
locations in Raleigh, Wilmington, and Greensboro, NC. These six franchise
locations collectively owed LFSI and its subsidiaries $199,385 at June 30,
2003.

At June 30, 2003, total debt outstanding to Mr. Gordon and a company in
which he is the president and a 65% shareholder, as $1,032,500 which is
included in notes payable on the Companys Consolidated Balance Sheet. The
loans, which arose during fiscal 2002 and fiscal 2003, bear interest at rates
between 8% and 12%. As of June 30, 2003, outstanding accrued interest on these
obligations was $58,063. These debts are due on demand or mature in fiscal 2004
and 2005. The above outstanding debt includes a Note for $750,000 that is
convertible into Common Stock of the Company at the lesser of $2.10 per share
and a 25% discount to the fair market value of the Companys Common Stock.

During August, 2003, Mr. Gordon elected to convert certain outstanding
debt into the Companys Common Stock. These transactions occurred in accordance
with the conversion terms contained in the debt agreements. The Company
incurred this debt during fiscal 2001 and fiscal 2002. A total of $308,738 of
outstanding debt and accrued interest was converted at $1.12 per share in
August 2003 into 275,658 restricted shares of Company Common Stock.

In April, 2003, a group of investors related to Mr. Gordon agreed to
purchase 1,000,000 shares of restricted Common Stock at a price of $0.25 per
share, or $250,000. The spouse of Mr. Gordon, purchased 100,000 shares and two
educational trusts, which are for the benefit of Mr. Gordons two children,
collectively purchased 900,000 shares. As of June 30, 2003, the Company has
received $200,000, or 800,000 shares. The remaining investment was received in
the first quarter of fiscal year 2004. Mr. Gordon is not the trustee of these
trusts and has no voting or investment power over these shares.

LFSI and its subsidiaries also have various outstanding debt obligations
due to Mr. Gordon and his spouse. As of June 30, 2003, these obligations
totaled $974,370, $500,000 of which is due to Mr. Gordons spouse.

Paul B. Johnson, a former director of the Company, is an investor in a
company, which in November 2001 became a franchisee of LFSI in the Dallas,
Texas market and purchased franchises for two additional Dallas, Texas markets
during the quarter ended March 31, 2003. In addition, Mr. Johnson was named
Chief Executive Officer and a board member of LFSI, which acquired the
Companys home technology business in September 2002. Mr. Johnson resigned as a
director of the Company effective October 31, 2002 due to his being appointed
the CEO of LFSI. Mr. Johnson resigned as CEO and as a board member from LFSI
during March 2003 and remained President and Treasurer. Mr. Johnson is also an
officer and director of various LFSI subsidiaries. The Dallas franchise
locations owed the Company and its subsidiaries $116,409 at June 30, 2003.

Revenues from the franchisees discussed above for the years ended June 30,
2003 and 2002 are as follows:

|                                         |  |      |         |      |  |   |         | 
|---------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                         |  | 2003 |         | 2002
|Houston and three North Carolina markets |  | $    | 258,000 |      |  | $ | 90,000  | 
|Three South Carolina markets             |  |      | 270,000 |      |  |   | 22,000  | 
|Three Maryland markets                   |  |      | 47,000  |      |  |   | 5,000   | 
|LVA and subsidiaries                     |  |      | 183,000 |      |  |   | 29,000  | 
|Dallas                                   |  |      | 134,000 |      |  |   | 14,000  | 
|                                         |  |      |         |      |  |   |         | 
|                                         |  | $    | 892,000 |      |  | $ | 160,000 | 
|                                         |  |      |         |      |  |   |         | 

During fiscal 2002, Glenn Barrett resigned as President of Lifestyle
Technologies, Inc. and began LVA Technologies LLC (LVA), a low voltage wiring
business that operates as a Lifestyle franchisee headquartered in Charlotte, NC
to serve the commercial market. The Company waived LVAs initial franchise fee
for the commercial franchise. LVA also owns the Greenville and Columbia, SC
franchises of LFSI. LVAs low voltage wiring business pays royalties on
products purchased from LFSI at the same rate as LFSIs other franchisees,
however, it does not pay royalties on revenue generated

45



---



##### 



from products purchased elsewhere as required of the Companys other
franchisees, including the Greenville and Columbia, SC franchises. LVA and its
subsidiaries owed the Company and its subsidiaries $271,136 as of June 30,
2003.

In the quarter ended March 31, 2003, the Company received into treasury
52,857 shares of Common Stock from Mr. Barrett in partial payment of balances
owed by Mr. Barrett to the Company. The shares were valued at $24,000.

In September 2003, P. Roger Byer, a director of the Company, purchased
89,285 shares of restricted Common Stock for $100,000 or $1.12 per share. Mr.
Byer subscribed to purchase an additional 44,642 shares of restricted Common
Stock for $50,000 which was closed in early October, 2003.

The Company owns an equity interest in a privately held company in which
the executive vice president of the Companys aviation travel services business
is a director and shareholder. Avenel Ventures, Inc. owned this equity interest
prior to being acquired by the Company in fiscal 2002.

NOTE 14. BUSINESS SEGMENT INFORMATION

Information related to business segments is as follows (in thousands):

Year ended June 30, 2003:

|                                         |  |          |        |        |  |            |      |            |  |           |        |       |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------------------- |  | -------- | ------ | ------ |  | ---------- | ---- | ---------- |  | --------- | ------ | ----- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                         |  | Aviation |        |        |  |            |      |            |  |           |        |       |  |   |        |   |  |   |        |   |  |  
|                                         |  | Travel   |        | Call   |  | Technology |      | Home       |  |           |        |       |  |   |        |  
|                                         |  | Services |        | Center |  | Solutions  |      | Technology |  | Corporate |        | Total
|                                         |  |          |        |        |  |            |      |            |  |           |        |      
|Revenue                                  |  | $        | 62,589 |        |  | $          | 18   |            |  | $         | 11,008 |       |  | $ | 2,208  |   |  | $ | 1      |   |  | $ | 75,824 |  
|Income (loss) from continuing operations |  |          | 1,005  |        |  |            | (117 | )          |  |           | (347   | )     |  |   | (3,537 | ) |  |   | (1,257 | ) |  |   | (4,253 | )
|Identifiable assets                      |  |          | 7,389  |        |  |            | 54   |            |  |           | 10,281 |       |  |   | 8,635  |   |  |   | 1,624  |   |  |   | 27,983 |  
|Capital expenditures                     |  |          | 197    |        |  |            |     |            |  |           | 74     |       |  |   | 85     |   |  |   |       |   |  |   | 356    |  
|Depreciation and amortization            |  |          | 73     |        |  |            | 28   |            |  |           | 256    |       |  |   | 100    |   |  |   | 14     |   |  |   | 471    |  

Year ended June 30, 2002:

|                                         |  |          |        |        |  |            |      |            |  |           |        |       |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------------------- |  | -------- | ------ | ------ |  | ---------- | ---- | ---------- |  | --------- | ------ | ----- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                         |  | Aviation |        |        |  |            |      |            |  |           |        |       |  |   |        |   |  |   |        |   |  |  
|                                         |  | Travel   |        | Call   |  | Technology |      | Home       |  |           |        |       |  |   |        |  
|                                         |  | Services |        | Center |  | Solutions  |      | Technology |  | Corporate |        | Total
|                                         |  |          |        |        |  |            |      |            |  |           |        |      
|Revenue                                  |  | $        | 27,210 |        |  | $          | 63   |            |  | $         | 10,294 |       |  | $ | 2,878  |   |  | $ | 279    |   |  | $ | 40,724 |  
|Income (loss) from continuing operations |  |          | (795   | )      |  |            | (151 | )          |  |           | (609   | )     |  |   | (1,184 | ) |  |   | (1,439 | ) |  |   | (4,178 | )
|Identifiable assets                      |  |          | 5,551  |        |  |            | 192  |            |  |           | 11,197 |       |  |   | 9,950  |   |  |   | 1,982  |   |  |   | 28,872 |  
|Capital expenditures                     |  |          | 21     |        |  |            |     |            |  |           | 67     |       |  |   | 238    |   |  |   | 1      |   |  |   | 327    |  
|Depreciation and amortization            |  |          | 58     |        |  |            | 18   |            |  |           | 229    |       |  |   | 65     |   |  |   | 15     |   |  |   | 385    |  

NOTE 15. CONTINGENCIES

Legal Proceedings

During the normal course of business, the Company is subject to various
lawsuits, which may or may not have merit. Management intends to vigorously
pursue and/or defend such suits, as applicable, and believes that they will not
result in any material loss to the Company.

The Companys aviation services business is seeking to recover through
litigation approximately $70,000 from Southeast Airlines, Inc. related to a
fiscal year 2003 charter flight program. Flightfuel, Inc. a joint venture of
the Companys aviation travel services business is seeking to recover through
litigation approximately $360,000 in unpaid aviation fuel from Southeast
Airlines, Inc.

Commitments

The Companys aviation travel services business has a dispute of
approximately $2.3 million with Pace Airlines, Inc. (Pace) related to amounts
due to Pace for calendar year 2002 for shortages related to guaranteed flying
revenue and expenses associated with relocating the air hub with the Vacation
Express contract. Management believes these claims to be baseless and no funds
are due Pace. In the event that funds were ultimately determined to be due
Pace, management believes the payment responsibility would be with Vacation
Express, or their parent company, My Travel. Accordingly a liability
has not been booked in fiscal year 2003.

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The Company leases office space under non-cancelable office leases and
also enters into vehicle lease arrangements for its home technology business.
The future minimum lease payments required under these leases at June 30, 2003
are as follows:

|            |  |       |           | 
|----------- |  | ----- | --------- | 
|Fiscal Year |  | Total
|            |  |      
|2004        |  | $     | 568,464   | 
|2005        |  |       | 429,408   | 
|2006        |  |       | 427,038   | 
|2007        |  |       | 391,377   | 
|2008        |  |       | 176,352   | 
|Thereafter  |  |       | 88,176    | 
|            |  |       |           | 
|            |  | $     | 2,080,815 | 
|            |  |       |           | 

Rent expense under operating leases aggregated $582,511 and $579,357 for
the years ended June 30, 2003 and 2002, respectively.

NOTE 16. NON-CASH TRANSACTIONS

Non-cash transactions occurring during the years ended June 30, 2003 and 2002
are as follows:

|                                   |                                                                                                            |  |                      |         |      |  |   |           | 
|---------------------------------- | ---------------------------------------------------------------------------------------------------------- |  | -------------------- | ------- | ---- |  | - | --------- | 
|                                   |                                                                                                            |  | Years ended June 30,
|                                   |                                                                                                            |  | 2003                 |         | 2002
|                                   |                                                                                                            |  |                      |         |     
|Schedule of non-cash transactions: |                                                                                                            |  |                      |         |      |  |   |          
|                                   | Common stock issued for acquired businesses                                                                |  | $                    |        |      |  | $ | 775,962   | 
|                                   |                                                                                                            |  |                      |         |      |  |   |           | 
|                                   | Sale of real estate in exchange for note receivable                                                        |  | $                    |        |      |  | $ | 162,500   | 
|                                   |                                                                                                            |  |                      |         |      |  |   |           | 
|                                   | Issuance of compensatory stock purchase warrants in connection
with strategic alliances and other services |  | $                    | 568,748 |      |  | $ | 94,900    | 
|                                   |                                                                                                            |  |                      |         |      |  |   |           | 
|                                   | Payment for services with common stock                                                                     |  | $                    | 99,950  |      |  | $ | 36,513    | 
|                                   |                                                                                                            |  |                      |         |      |  |   |           | 
|                                   | Value of investments received in capital contribution                                                      |  | $                    |        |      |  | $ | 150,000   | 
|                                   |                                                                                                            |  |                      |         |      |  |   |           | 
|                                   | Payment of notes payable through forgiveness of accounts receivable                                        |  | $                    | 90,000  |      |  | $ | 197,560   | 
|                                   |                                                                                                            |  |                      |         |      |  |   |           | 
|                                   | Unrealized loss on available for sale investments                                                          |  | $                    | 224,854 |      |  | $ | 139,127   | 
|                                   |                                                                                                            |  |                      |         |      |  |   |           | 
|                                   | Issuance of common stock and warrants for loan origination fees                                            |  | $                    | 217,500 |      |  | $ | 130,197   | 
|                                   |                                                                                                            |  |                      |         |      |  |   |           | 
|                                   | Return of stock to the Company in settlement of services contract                                          |  | $                    |        |      |  | $ | 627,570   | 
|                                   |                                                                                                            |  |                      |         |      |  |   |           | 
|                                   | Cumulative effect of adoption of FAS 142, reducing goodwill                                                |  | $                    |        |      |  | $ | 693,000   | 
|                                   |                                                                                                            |  |                      |         |      |  |   |           | 
|                                   | Impact of reverse stock split effected in June 2002                                                        |  | $                    |        |      |  | $ | 2,600,014 | 
|                                   |                                                                                                            |  |                      |         |      |  |   |           | 

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On January 31, 2002, the Company dismissed Ernst & Young LLP (EY) as the
Companys independent public accountants. In connection with the dismissal of
EY, the Company engaged Crisp Hughes Evans LLP (CHE) as the Companys
independent public accountants for fiscal year 2002. EY reported on the
Companys financial statements for the fiscal years ended June 30, 2000 and
2001. Such reports contained no adverse opinion or disclaimer of opinion and
were not modified as to uncertainty, audit scope or accounting principles. The
Companys Audit Committee and Board of Directors approved the decision to
change the Companys independent public accountants. In connection with the
audits of the Companys financial statements for the fiscal years ended June
30, 2000 and 2001 and through January 31, 2002, there were no disagreements
with EY on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of EY, would have caused it to make a reference to the subject
matter of the disagreement in connection with its reports on the Companys
financial statements for such years.

ITEM 8A. CONTROLS AND PROCEDURES

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(a)  Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in the reports
that are filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities
and Exchange Commissions rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports that are filed under the
Exchange Act is accumulated and communicated to management, including the
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure. Under the supervision of
and with the participation of management, including the principal executive
officer and principal financial officer, the Company has evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures as of June 30, 2003, and, based on its evaluation, our principal
executive officer and principal financial officer have concluded that these
controls and procedures are effective.

(b)  Changes in Internal Controls

There have been no significant changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of the
evaluation described above, including any corrective actions with regard to
significant deficiencies and material weaknesses.

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS

Set forth below are the names, ages (at September 29, 2003), positions and
offices held and a brief description of the business experience during the past
five years of each person who is an executive officer or director of the
Company.

Michael D. Pruitt (age 43) became the Companys Chief Executive Officer
and President on November 8, 2000. He has served as a director of the
Company since October 3, 2000. Additionally, Mr. Pruitt served as the Companys
Chairman from July 2001 to February 2003. Mr. Pruitt was also the founder
of Avenel Ventures, Inc., a business development company, and has served as
President, Chief Executive Officer and director of Avenel Ventures, Inc. since
its formation in June 2000. From May 1999 to June 2000, Mr. Pruitt was
involved in founding Avenel Financial Group, Inc., a financial services firm
specializing in e-commerce and technology. From October 1997 to May 1999,
Mr. Pruitt was the Executive Vice President of Marketers World International. Mr.
Pruitt was an independent consultant from January 1997 to October 1997. From
January 1992 to January 1997, Mr. Pruitt was the COO of Ty Pruitt
Trucking,
Inc.

Jeffrey F. Willmott (age 55), has served as a director of the Company
since October 17, 2002 and as Chairman of the Board since February 19,
2003. From 2001 to 2002, Mr. Willmott was Chairman and Chief Executive Officer of EKN
Asset Management, a registered investment advisory firm in New York City. From
1999 to 2000, Mr. Willmott served as the managing director of Trenwith
Securities, a middle market investment bank, were he was responsible for the
origination and execution of corporate finance engagements. From 1991 to 1999,
Mr. Willmott was a Senior Vice President at Warburg Dillon Read (now UBS
Warburg), where he was responsible for business development. From 1983 to 1990,
he was a regional director of sales and marketing at Westinghouse Broadcasting.

Melinda
Morris Zanoni (age 33) has served as Executive Vice President of
the Company since November 8, 2000. Additionally,
Ms. Zanoni served as a director of the Company from
January 19, 2001 to April 16, 2003, as well as a director
and Executive Vice President of Avenel Ventures, Inc., since June
2000. From February 1996 to June 2000, Ms. Zanoni was an
attorney with the law firm of Nelson Mullins Riley & Scarborough,
LLP in Charlotte, North Carolina where she concentrated in the areas
of mergers and acquisitions and commercial finance. From May 1994 to
February 1996, she was a transactional attorney concentrating in
corporate law at Fagel & Haber in Chicago, Illinois.

Dr. James A. Verbrugge (age 63) has served as a director of the Company
since January 11, 1999. Dr. Verbrugge is a Professor of Finance (Emeritus)
at the University of Georgia where he has been employed since 1968. He is also the
Director of the Center for Strategic Risk Management in the Terry College of
Business at the University of Georgia and is actively involved in executive
education programs. Since July 2001, Dr. Verbrugge has also been a director of
Crown Crafts, Inc.

P. Roger Byer (age 58), CPA, has served as a director of the Company since
June 2003. From May 2001 to September 2002, Mr. Byer served as CEO and
President of Stellex Aerostructures, Inc., a manufacturer of commercial
and defense RF electronics and military machined aerostructure components. From
July 1997 to September 2000, Mr. Byer was the COO

48



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of Mentmore Holdings Corporation, a New York based private equity firm with aggregate portfolio
companies generating over $1 billion in revenues. Mr. Byer also served as CFO
for several of the portfolio companies. From 1986 to 1997, he served as Vice
President and CFO for KDI Corporation.

There are no family relationships among any of the executive officers or
directors of the Company. No arrangement or understanding exists between any
executive officer or any other person pursuant to which any executive officer
was selected as an executive officer of the Company. Executive officers of the
Company are elected or appointed by the Board and hold office until their
successors are elected or until their death, resignation or removal.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Companys directors, executive officers, and persons who own
beneficially more than 10% of a registered class of the Companys equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of such securities of the Company. Directors, executive
officers and greater than 10% stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file. To the
Companys knowledge, based solely on review of the copies of such reports
furnished to the Company, all Section 16(a) filing requirements applicable to
its directors, executive officers and greater than 10% beneficial owners were
complied with during the fiscal year ended June 30, 2003.

ITEM 10. EXECUTIVE AND DIRECTOR COMPENSATION

EXECUTIVE COMPENSATION

The following table sets forth for the fiscal years ended 2001, 2002 and 2003
the cash and non-cash compensation awarded, earned or paid by the Company to
all individuals serving as Chief Executive Officer of the Company at any time
during fiscal year 2003 and all executive officers of the Company who
received salary and bonuses in excess of $100,000 during fiscal year 2003
(collectively, the Named Executives).

|                                                    |  |        |      |        |  |       |         |                  |  |              |   |              |  |              |         |  |  |   |   | 
|--------------------------------------------------- |  | ------ | ---- | ------ |  | ----- | ------- | ---------------- |  | ------------ | - | ------------ |  | ------------ | ------- |  |  | - | - | 
|                                                    |  |        |      |        |  |       |         |                  |  |              |   |              |  | Long-Term    |         |  |  |  
|                                                    |  | Fiscal |      |        |  |       |         |                  |  |              |   | Compensation |  | Other Annual
|Name and Principal Position                         |  | Year   |      | Salary |  | Bonus |         | Stock Options(1) |  | Compensation
|                                                    |  |        |      |        |  |       |         |                  |  |             
|Jeffrey F. Willmott, Chairman (2)                   |  |        | 2003 |        |  | $     | 40,000  | (2)              |  |              |  |              |  |              | 175,000 |  |  | $ |  | 
|                                                    |  |        | 2002 |        |  |       |        |                  |  |              |  |              |  |              |        |  |  |   |  | 
|                                                    |  |        | 2001 |        |  |       |        |                  |  |              |  |              |  |              | 85,714  |  |  |   |  | 
|Michael D. Pruitt, President/CEO (3)                |  |        | 2003 |        |  | $     | 30,000  | (3)              |  |              |  |              |  |              | 175,000 |  |  | $ |  | 
|                                                    |  |        | 2002 |        |  |       |        | (3)              |  |              |  |              |  |              |        |  |  |   |  | 
|                                                    |  |        | 2001 |        |  |       |        |                  |  |              |  |              |  |              |        |  |  |   |  | 
|Melinda Morris Zanoni, Executive Vice President (4) |  |        | 2003 |        |  | $     | 160,000 |                  |  |              |  |              |  |              | 125,000 |  |  | $ |  | 
|                                                    |  |        | 2002 |        |  |       | 147,167 |                  |  |              |  |              |  |              |        |  |  |   |  | 
|                                                    |  |        | 2001 |        |  |       | 93,333  |                  |  |              |  |              |  |              | 85,714  |  |  |   |  | 

(1)  The stock options listed below have an exercise price at or above the
fair market value of the Common Stock on the date of grant of such
options, unless otherwise noted.

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(2)  Mr. Willmotts employment contract dated April 15, 2003 provides for
an annual base salary of $120,000. During fiscal 2003, the Company did
not pay any cash compensation to Mr. Willmott, but rather accrued $40,000 for
services rendered from March, 2003 through June, 2003. The Company
anticipates paying this compensation to Mr. Willmott during fiscal
2004.

(3)  Mr. Pruitts employment contract dated November 7, 2002 provides for
an annual base salary of $180,000. Mr. Pruitt agreed to forego his
salary in fiscal 2002 and elected to receive only a portion of his 2003 salary,
which was paid directly to Mr. Pruitt and to a Company owned by Mr. Pruitt.

(4)  Ms. Zanonis employment contract dated November 7, 2002, provides for
an annual base salary of $160,000.

Long-term Compensation  Stock Options

The following table sets forth information regarding the grant of stock
options to the Named Executives during the fiscal year ended June 30, 2003:

|                      |  |            |         |                 |  |          |      |            |  |   |      |  |  |  |            |    
|--------------------- |  | ---------- | ------- | --------------- |  | -------- | ---- | ---------- |  | - | ---- |  |  |  | ---------- | ---
|                      |  | Number of  |         |                 |  |          |      |            |  |   |      |  |  | 
|                      |  | Securities |         | % of Total      |  |          |      |            |  |   |      | 
|                      |  | Underlying |         | Options Granted |  |          |      |            |  |   |      | 
|                      |  | Options    |         | to Employees    |  | Exercise |      | Expiration
|Name                  |  | Granted    |         | in Fiscal 2003  |  | Price    |      | Date      
|                      |  |            |         |                 |  |          |      |           
|Jeffrey F. Willmott   |  |            | 175,000 | (1)             |  |          | 12.6 | %          |  | $ | 0.55 |  |  |  | 10/17/2012 | (2)
|Michael D. Pruitt     |  |            | 175,000 |                 |  |          | 12.0 | %          |  | $ | 0.55 |  |  |  | 11/7/2012  |    
|Melinda Morris Zanoni |  |            | 125,000 |                 |  |          | 9.0  | %          |  | $ | 0.55 |  |  |  | 11/7/2012  |    

(1)  Includes 85,000 options granted for serving as a director of the Company.

(2)  90,000 stock options have an expiration date of April 15, 2013.

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The following table sets forth information concerning each exercise of
options during the last completed fiscal year by each of the Named Executives
and the value of unexercised options held by the Named Executives as of June
30, 2002.

|                      |  |                 |   |             |  |                           |   |                              |  |                      |                |                      |  |  |         | 
|--------------------- |  | --------------- | - | ----------- |  | ------------------------- | - | ---------------------------- |  | -------------------- | -------------- | -------------------- |  |  | ------- | 
|                      |  |                 |   |             |  |                           |   |                              |  | Number of Securities |                |                      |  | 
|                      |  |                 |   |             |  |                           |   |                              |  | Underlying           |                | Value Of Unexercised
|                      |  |                 |   |             |  |                           |   |                              |  | Unexercised Options  |                | In-The-Money        
|                      |  | Shares Acquired |   | Value       |  | At 6/30/03                |   | Options At 6/30/03          
|Name                  |  | On Exercise     |   | Realized(1) |  | Exercisable/Unexercisable |   | Exercisable/Unexercisable(2)
|                      |  |                 |   |             |  |                           |   |                             
|Jeffrey F. Willmott   |  |                 | 0 |             |  |                           | 0 |                              |  |                      | 42,500/132,500 |                      |  |  | -0-/-0- | 
|Michael D. Pruitt     |  |                 | 0 |             |  |                           | 0 |                              |  |                      | 158,928/87,500 |                      |  |  | -0-/-0- | 
|Melinda Morris Zanoni |  |                 | 0 |             |  |                           | 0 |                              |  |                      | 148,214/62,500 |                      |  |  | -0-/-0- | 

(1)  Calculated by determining the difference between the fair market value
of the shares of Company Common Stock underlying this option and the exercise
price of such option on the date of exercise.

(2)  The dollar values of the Companys stock options are calculated by
determining the difference between the fair market value of the shares of the
Companys Common Stock underlying the options at June 30, 2003 and the exercise
price of such options.

COMPENSATION OF DIRECTORS

Directors of the Company who are not employees of the Company receive
compensation of $1,000 per regular Board meeting, $750 per telephonic Board
meeting, and $500 per committee meeting not held on the same day as a regular
or telephonic Board meeting. The Board expects to meet at least on a quarterly
basis in fiscal 2004. Directors are also entitled to reimbursement of
reasonable out-of-pocket expenses incurred by them in attending Board meetings.
In fiscal 2003, the Company expensed $32,750 for director fees and expenses.

In October 2002, the Board of Directors approved stock options for each
independent director to purchase 85,000 shares of Common Stock at an exercise
price of $0.55 and vesting quarterly over one year. Dr. Verbrugge received an
additional 15,000 options for serving as the Chairman of the Audit Committee.
Mr. Byer was awarded 85,000 options in July 2003. These options have exercise
an price of $0.55 and vest quarterly over one year. At the dates these options
grants occurred, the fair market value of Company Common Stock was at or below
$0.55.

EMPLOYMENT CONTRACTS

On November 7, 2002, the Company entered an employment agreement (the
Pruitt Agreement) with Mr. Michael Pruitt to serve as the Companys President
and CEO. The Pruitt Agreement provides for an annual base salary of $180,000
and an initial term of two (2) years. After the initial term, the Pruitt
Agreement renews automatically for one (1) year unless either party gives 60
days written notice. Mr. Pruitt is also entitled to receive an annual bonus in
the amount and manner approved by the Board (or by the Compensation Committee
thereof). Upon a termination following a change of control, resignation with
cause, termination without cause, or termination for disability, Mr. Pruitt
will be entitled to severance equal to 12 months salary and health benefits.

On April 15, 2003, the Company entered an employment agreement (the
Willmott Agreement) with Mr. Jeffrey Willmott to serve as the Companys
Chairman of the Board. The Willmott Agreement provides for an annual base
salary of $120,000 and an initial term of one (1) year. After the initial term,
the Willmott Agreement renews automatically for one (1) year unless either
party gives 30 days written notice. Mr. Willmott is also entitled to receive
an annual bonus in the amount and manner approved by the Board (or by
the Compensation Committee thereof). Upon a termination following a change of
control, resignation with cause, termination without cause, or termination for
disability, Mr. Willmott will be entitled to severance equal to 1 months
salary and health benefits.

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On November 7, 2002, the Company entered an employment agreement (the
Zanoni Agreement) with Ms. Melinda Morris Zanoni to serve as the Companys
Executive Vice President. The Zanoni Agreement provides for an annual base
salary of $160,000 and an initial term of two (2) years. After the initial
term, the Zanoni Agreement renews automatically for one (1) year unless either
party gives 60 days written notice. Ms. Zanoni is also entitled to receive an
annual bonus in the amount and manner approved by the Board (or by the
Compensation Committee thereof). Upon a termination following a change of
control, resignation with cause, termination without cause, or termination for
disability, Ms. Zanoni will be entitled to severance equal to 12 months salary
and health benefits.

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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the
beneficial ownership of the Companys Common Stock as of September 29,
2003 by: (i) each person known by the Company to beneficially own more than 5% of
the outstanding shares of Common Stock; (ii) each of the Companys directors;
(iii) each of the Companys named executive officers included in the Summary
Compensation Table included elsewhere herein; and (iv) all of the Companys
current directors and executive officers as a group. Except as otherwise noted,
the person or entity named has sole voting and investment power over the shares
indicated.

|                                                                       |  |                        |           |                       |  |  |      |  
|---------------------------------------------------------------------- |  | ---------------------- | --------- | --------------------- |  |  | ---- | -
|                                                                       |  | Shares of Common Stock |           | Beneficially Owned(1)
|Name                                                                   |  | Number                 |           | Percent (2)          
|                                                                       |  |                        |           |                      
|Michael D. Pruitt + ++(3)                                              |  |                        | 1,542,627 |                       |  |  | 9.9  | %
|Jeffrey F. Willmott + ++(4)                                            |  |                        | 156,000   |                       |  |  | 1.0  |  
|Dr. James A. Verbrugge ++(5)                                           |  |                        | 193,300   |                       |  |  | 1.2  |  
|P. Roger Byer ++(6)                                                    |  |                        | 110,535   |                       |  |  | *    |  
|Melinda Morris Zanoni +(7)                                             |  |                        | 496,428   |                       |  |  | 3.2  |  
|All
Current Executive Officers and Directors as a Group (5 persons)(8) |  |                        | 2,498,890 |                       |  |  | 16.1 | %

+   Executive Officer of the Company
++ Director of the Company
*   Less than 1%



|(1) |  | Information as to beneficial ownership of Common Stock has been furnished
to the Company either by or on behalf of the indicated person or is taken
from reports on file with the SEC.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | In computing the percentage ownership of a person, shares of Common Stock
that are acquirable by such person within 60 days of September 29, 2003
are deemed outstanding. These shares of Common Stock, however, are not
deemed outstanding for the purpose of computing the percentage ownership
of any other person. As of September 29, 2003, there were 15,553,551
shares of Common Stock outstanding.                                                                                                                                                                                                                    
|   
|(3) |  | Includes 959,130 shares of Common Stock and 246,428 options owned
directly by Mr. Pruitt. Includes 318,142 owned by Avenel Financial Group,
Inc., which is 100% owned by Mr. Pruitt. Includes 8,171 shares of Common
Stock owned by The Housman Foundation, of which Mr. Pruitt is the trustee.
Includes 2,185 shares owned by Mr. Pruitts spouse. Mr. Pruitt does not
have voting or investment power with respect to the shares owned by his
spouse. Includes 8,571 shares in three separate custodian accounts in the
names of Mr. Pruitts three children. Mr. Pruitt is the trustee of each of
these custodian accounts.
|   
|(4) |  | Represents 130,000 shares issuable upon exercise of options. Excludes
45,000 shares issuable upon exercise of options that are not exercisable
on or within 60 days of September 29, 2003. Includes 26,000 shares of
Common Stock, of which 10,000 shares owned by Mr. Willmotts spouse. Mr.
Willmott does not have voting or investment power over the shares owned by
his spouse.                                                                                                                                                                                                                                          
|   
|(5) |  | Consists of 7,586 shares of Common Stock and 185,714 shares issuable upon
exercise of options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(6) |  | Includes 89,285 restricted shares of Common Stock and 21,250 shares
issuable upon exercise of options. Mr. Byer purchased the 89,285 shares of
restricted Common Stock in a September 2003 private placement and purchased an
additional 44,642 restricted shares of the Company which in early October,
2003. The purchase price of the Common Stock was $1.12 Excludes 63,750 shares
issuable upon exercise of options that are not exercisable on or within 60 days
of September 29, 2003.                                                                                                                                 
|   
|(7) |  | Consists of 285,714 shares of Common Stock and 210,714 shares issuable upon
exercise of options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(8) |  | Excludes 108,750 shares of Common Stock issuable upon exercise of
options that are not exercisable on or within 60 days of September 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

53



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##### 



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During fiscal 2002, Mr. Pruitt, President and CEO of the Company, pledged
certain of his personal assets to secure a $100,000 bank line of credit for
Lifestyle Innovations, Inc., (LFSI). LFSI is a separately traded public
company, of which the Company owns approximately 15.6 million restricted common
shares as of June 30, 2003. These shares represent an equity ownership of
approximately 76.5% of the company. At June 30, 2003, the line of credit was in
default with an outstanding balance of $100,000. Mr. Pruitt repaid the $100,000
due on the line of credit with personal funds on August 8, 2003 in exchange for
a note from LFSI. The note bears interest at 8% per annum and is due on demand.

In addition to this note, LFSI owed Mr. Pruitt, as of June 30, 2003, $57,514.
This amount is the result of loans made to LFSI by Mr. Pruitt prior to fiscal
year 2003.

Mr. Pruitt owns 33.3% and is a director in a company that purchased
franchise licenses and business operations from LFSI in three markets located
in South Carolina. Mr. Pruitt also owns 15% of another company that is a LFSI
franchisee in the state of Maryland. The franchise locations in the Carolinas
owed the Company and its subsidiaries $43,777 at June 30, 2003. The franchise
location in Maryland owed the Company and its subsidiaries $5,379 at June 30,
2003.

In April, 2003, Mr. Pruitt purchased 500,000 shares of restricted Common
Stock at a price of $0.25 per share, or $125,000.

During fiscal year 2002, Mr. Pruitt loaned money to the Company. At June
30, 2003, $5,000 was due to Mr. Pruitt. The $5,000 was payable to Mr. Pruitt on
demand. The interest rate on the note is 8%. This note was repaid on October 2,
2003.

During fiscal 2003, Mr. Pruitt elected to receive only a portion of his
salary from the Company. He received $30,000 in compensation from the Company,
of which $15,000 was paid to a company owned by Mr. Pruitt.

Mr. G. David Gordon, a Company Stockholder, has an ownership interest in
six LFSI franchises, including two locations that were purchased from the
Company during fiscal 2002 and for which the Company recorded a gain on sale of
$119,000. Mr. Gordon also acts as legal counsel to the Company from time to
time. Mr. Gordon has an ownership interest in the Charleston, SC, and Hilton
Head, NC markets along with Mr. Pruitt, and the Dallas, TX, market along with
Mr. Johnson. Mr. Gordon is an investor in a Company that owns the franchise
locations in Raleigh, Wilmington, and Greensboro, NC. These six franchise
locations collectively owed LFSI and its subsidiaries $199,385 at June 30,
2003.

At June 30, 2003, total debt outstanding to Mr. Gordon and a company in
which he is the president and a 65% shareholder, as $1,032,500 which is
included in notes payable on the Companys Consolidated Balance Sheet. The
loans, which arose during fiscal 2002 and fiscal 2003, bear interest at rates
between 8% and 12%. As of June 30, 2003, outstanding accrued interest on these
obligations was $58,063. These debts are due on demand or mature in fiscal 2004
and 2005. The above outstanding debt includes a Note for $750,000 that is
convertible into Common Stock of the Company at the lesser of $2.10 per share
and a 25% discount to the fair market value of the Companys Common Stock.

During August, 2003, Mr. Gordon elected to convert certain outstanding
debt into the Companys Common Stock. These transactions occurred in accordance
with the conversion terms contained in the debt agreements. The Company
incurred this debt during fiscal 2001 and fiscal 2002. A total of $308,738 of
outstanding debt and accrued interest was converted at $1.12 per share in
August 2003 into 275,658 restricted shares of Company Common Stock.

In April, 2003, a group of investors related to Mr. Gordon agreed to
purchase 1,000,000 shares of restricted Common Stock at a price of $0.25 per
share, or $250,000. The spouse of Mr. Gordon, purchased 100,000 shares and two
educational trusts, which are for the benefit of Mr. Gordons two children,
collectively purchased 900,000 shares. As of June 30, 2003, the Company has
received $200,000, or 800,000 shares. The remaining investment was received in
the first quarter of fiscal year 2004. Mr. Gordon is not the trustee of these
trusts and has no voting or investment power over these shares.

LFSI and its subsidiaries also have various outstanding debt obligations
due to Mr. Gordon and his spouse. As of June 30, 2003, these obligations
totaled $974,370, $500,000 of which is due to Mr. Gordons spouse.

Paul B. Johnson, a former director of the Company, is an investor in a
company, which in November 2001 became a franchisee of LFSI in the Dallas,
Texas market and purchased franchises for two additional Dallas, Texas markets
during the quarter ended March 31, 2003. In addition, Mr. Johnson was named
Chief Executive Officer and a board member of LFSI, which acquired the
Companys home technology business in September 2002. Mr. Johnson resigned as a
director of the Company effective October 31, 2002 due to his being appointed
the CEO of LFSI. Mr. Johnson resigned as CEO and as a board member from LFSI
during March 2003 and remained President and Treasurer. Mr. Johnson is also an
officer and director of various LFSI subsidiaries. The Dallas franchise
locations owed the Company and its subsidiaries $116,409 at June 30, 2003.

Revenues from the franchisees discussed above for the years ended June 30,
2003 and 2002 are as follows:

|                                         |  |      |         |      |  |   |         | 
|---------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                         |  | 2003 |         | 2002
|Houston and three North Carolina markets |  | $    | 258,000 |      |  | $ | 90,000  | 
|Three South Carolina markets             |  |      | 270,000 |      |  |   | 22,000  | 
|Three Maryland markets                   |  |      | 47,000  |      |  |   | 5,000   | 
|LVA and subsidiaries                     |  |      | 183,000 |      |  |   | 29,000  | 
|Dallas                                   |  |      | 134,000 |      |  |   | 14,000  | 
|                                         |  |      |         |      |  |   |         | 
|                                         |  | $    | 892,000 |      |  | $ | 160,000 | 
|                                         |  |      |         |      |  |   |         | 

During fiscal 2002, Glenn Barrett resigned as President of Lifestyle
Technologies, Inc. and began LVA Technologies LLC (LVA), a low voltage wiring
business that operates as a Lifestyle franchisee headquartered in Charlotte, NC
to serve the commercial market. The Company waived LVAs initial franchise fee
for the commercial franchise. LVA also owns the Greenville and Columbia, SC
franchises of LFSI. LVAs low voltage wiring business pays royalties on
products purchased from LFSI at the same rate as LFSIs other franchisees,
however, it does not pay royalties on revenue generated from
products purchased elsewhere as required of the Companys other
franchisees, including the Greenville and Columbia, SC franchises. LVA and its
subsidiaries owed the Company and its subsidiaries $271,136 as of June 30,
2003.

In the quarter ended March 31, 2003, the Company received into treasury
52,857 shares of Common Stock from Mr. Barrett in partial payment of balances
owed by Mr. Barrett to the Company. The shares were valued at $24,000.

In September 2003, P. Roger Byer, a director of the Company, purchased
89,285 shares of restricted Common Stock for $100,000 or $1.12 per share. Mr.
Byer subscribed to purchase an additional 44,642 shares of restricted Common
Stock for $50,000 which was closed in early October, 2003.

The Company owns an equity interest in a privately held company in which
the executive vice president of the Companys aviation travel services business
is a director and shareholder. Avenel Ventures, Inc. owned this equity interest
prior to being acquired by the Company in fiscal 2002.

NOTE 14. BUSINESS SEGMENT INFORMATION

Information related to business segments is as follows (in thousands):

Year ended June 30, 2003:

|                                         |  |          |        |        |  |            |      |            |  |           |        |       |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------------------- |  | -------- | ------ | ------ |  | ---------- | ---- | ---------- |  | --------- | ------ | ----- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                         |  | Aviation |        |        |  |            |      |            |  |           |        |       |  |   |        |   |  |   |        |   |  |  
|                                         |  | Travel   |        | Call   |  | Technology |      | Home       |  |           |        |       |  |   |        |  
|                                         |  | Services |        | Center |  | Solutions  |      | Technology |  | Corporate |        | Total
|                                         |  |          |        |        |  |            |      |            |  |           |        |      
|Revenue                                  |  | $        | 62,589 |        |  | $          | 18   |            |  | $         | 11,008 |       |  | $ | 2,208  |   |  | $ | 1      |   |  | $ | 75,824 |  
|Income (loss) from continuing operations |  |          | 1,005  |        |  |            | (117 | )          |  |           | (347   | )     |  |   | (3,537 | ) |  |   | (1,257 | ) |  |   | (4,253 | )
|Identifiable assets                      |  |          | 7,389  |        |  |            | 54   |            |  |           | 10,281 |       |  |   | 8,635  |   |  |   | 1,624  |   |  |   | 27,983 |  
|Capital expenditures                     |  |          | 197    |        |  |            |     |            |  |           | 74     |       |  |   | 85     |   |  |   |       |   |  |   | 356    |  
|Depreciation and amortization            |  |          | 73     |        |  |            | 28   |            |  |           | 256    |       |  |   | 100    |   |  |   | 14     |   |  |   | 471    |  

Year ended June 30, 2002:

|                                         |  |          |        |        |  |            |      |            |  |           |        |       |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------------------- |  | -------- | ------ | ------ |  | ---------- | ---- | ---------- |  | --------- | ------ | ----- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                         |  | Aviation |        |        |  |            |      |            |  |           |        |       |  |   |        |   |  |   |        |   |  |  
|                                         |  | Travel   |        | Call   |  | Technology |      | Home       |  |           |        |       |  |   |        |  
|                                         |  | Services |        | Center |  | Solutions  |      | Technology |  | Corporate |        | Total
|                                         |  |          |        |        |  |            |      |            |  |           |        |      
|Revenue                                  |  | $        | 27,210 |        |  | $          | 63   |            |  | $         | 10,294 |       |  | $ | 2,878  |   |  | $ | 279    |   |  | $ | 40,724 |  
|Income (loss) from continuing operations |  |          | (795   | )      |  |            | (151 | )          |  |           | (609   | )     |  |   | (1,184 | ) |  |   | (1,439 | ) |  |   | (4,178 | )
|Identifiable assets                      |  |          | 5,551  |        |  |            | 192  |            |  |           | 11,197 |       |  |   | 9,950  |   |  |   | 1,982  |   |  |   | 28,872 |  
|Capital expenditures                     |  |          | 21     |        |  |            |     |            |  |           | 67     |       |  |   | 238    |   |  |   | 1      |   |  |   | 327    |  
|Depreciation and amortization            |  |          | 58     |        |  |            | 18   |            |  |           | 229    |       |  |   | 65     |   |  |   | 15     |   |  |   | 385    |  

NOTE 15. CONTINGENCIES

Legal Proceedings

During the normal course of business, the Company is subject to various
lawsuits, which may or may not have merit. Management intends to vigorously
pursue and/or defend such suits, as applicable, and believes that they will not
result in any material loss to the Company.

The Companys aviation services business is seeking to recover through
litigation approximately $70,000 from Southeast Airlines, Inc. related to a
fiscal year 2003 charter flight program. Flightfuel, Inc. a joint venture of
the Companys aviation travel services business is seeking to recover through
litigation approximately $360,000 in unpaid aviation fuel from Southeast
Airlines, Inc.

Commitments

The Companys aviation travel services business has a dispute of
approximately $2.3 million with Pace Airlines, Inc. (Pace) related to amounts
due to Pace for calendar year 2002 for shortages related to guaranteed flying
revenue and expenses associated with relocating the air hub with the Vacation
Express contract. Management believes these claims to be baseless and no funds
are due Pace. In the event that funds were ultimately determined to be due
Pace, management believes the payment responsibility would be with Vacation
Express, or their parent company, My Travel. Accordingly a liability
has not been booked in fiscal year 2003.

54



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##### 



ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K

(a) Exhibits

|        |  |                                                                                                                                                                                                                                                                        
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                        
|Number  |  | Exhibit Description                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                        
|2.1     |  | Stock Purchase Agreement dated as of August 16, 2000
between the Company, Michael Pruitt, and Darek
Childress (incorporated by reference to Exhibit 2.1
to the Companys Current Report on Form 8-K filed on
September 22, 2000).                                      
|        |  |                                                                                                                                                                                                                                                                        
|2.2     |  | Stock Purchase Agreement dated as of August 11, 2000
between the Company and Caliente Consulting
(incorporated herein by reference to exhibit 2.1 to
the Companys Current Report on Form 8-K filed on
September 22, 2000).                                            
|        |  |                                                                                                                                                                                                                                                                        
|2.3     |  | Share Exchange Purchase Agreement dated as of
November 8, 2000 between the Company and Avenel
(incorporated by reference to Exhibit 2.2 to the
Companys Current Report on Form 10-QSB for the
quarter ended December 31, 2000 filed on February 14,
2001).            
|        |  |                                                                                                                                                                                                                                                                        
|2.4     |  | Stock Purchase Agreement between the Company and the
majority of the stockholders of Lifestyle (incorporated by
reference to the Companys Current Report on Form 8-K
filed on April 18, 2001).                                                                        
|        |  |                                                                                                                                                                                                                                                                        
|2.5     |  | Stock Purchase Agreement dated as of March 16, 2001
between the Company and Glenn Barrett, Jr.
(incorporated by reference to Exhibit 2.2 to the
Companys Current Report on Form 8-K filed on April
18, 2001).                                                         
|        |  |                                                                                                                                                                                                                                                                        
|2.6     |  | Stock Purchase Agreement dated as of March 31, 2001
between the Company and Brandon Holdings, Inc.
(incorporated by reference to Exhibit 2.3 to the
Companys Current Report on Form 8-K filed on April
18, 2001).                                                     
|        |  |                                                                                                                                                                                                                                                                        
|2.7     |  | Agreement and Plan of Merger dated as of June 5, 2001
between the Company, Logisoft Acquisition Corporation
and the individuals listed on Exhibit A thereto
(incorporated by reference to Exhibit 2.1 the
Companys Current Report on Form 8-K filed on June
13, 2001).
|        |  |                                                                                                                                                                                                                                                                        
|2.8     |  | Joinder to the Merger Agreement executed by Logisoft
(incorporated by reference to Exhibit 2.2 the
Companys Current Report on Form 8-K filed on June
13, 2001).                                                                                                       
|        |  |                                                                                                                                                                                                                                                                        
|2.9     |  | Asset Purchase Agreement dated as of June 20, 2001,
by and among Greater Atlanta Alarm Services, Inc.,
the Company, Glenda Watson and David Watson
(incorporated by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K filed on August
14, 2001).    
|        |  |                                                                                                                                                                                                                                                                        
|2.10    |  | Stock Purchase Agreement dated as of May 15, 2001
between the Company and Brikor, Inc. (incorporated by
reference to Exhibit 2.1 to the Companys Current
Report on Form 8-K filed on September 17, 2001).                                                             
|        |  |                                                                                                                                                                                                                                                                        
|2.11    |  | Agreement and Plan of Merger dated as of August 30, 2002 among the
Company, LST, Inc., Lifestyle Innovations, Inc. and LFSI Merger
Corporation (incorporated by reference to
Exhibit 2.1 of the Companys Current report on Form 8-K filed                             

55



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##### 



|        |  |                                                                                                                                                                                                                                                                                                                         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                         
|Number  |  | Exhibit Description                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                         
|        |  | on September 20, 2002).                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                         
|3.1     |  | Restated Certificate of Incorporation of the Company
dated as of January 19, 2001 (incorporated by
reference to Exhibit 3.1 to the Companys Quarterly
report on Form 10-QSB for the quarter ended December
31, 2000 filed on February 14, 2001).                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                         
|3.2     |  | Amended and Restated Bylaws of the Company
(incorporated by reference to the Companys Annual
Report on Form 10-KSB for the year ended June 30,
2000 filed on September 28, 2000).                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                         
|3.3     |  | Certificate of Amendment of Restated Certificate of Incorporation
of eResource Capital Group, Inc. dated June 17, 2002                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                         
|4.1     |  | Registration Rights Agreement between the Company and
Worldspan, L.P. dated as of June 26, 2000
(incorporated by reference to the Companys Annual
Report on Form 10-KSB for the year ended June 30,
2000 filed on September 28, 2000).                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                         
|4.2     |  | Registration Rights Agreement between the Company,
Four Corners Capital, LLC and DC Investment Partners
Exchange Fund, L.P. dated as of January 23, 2001
(incorporated by reference to Exhibit 4.1 of the
Companys Quarterly Report on Form 10-QSB for the
quarter ended December 31, 2000 filed on February 14,
2001).
|        |  |                                                                                                                                                                                                                                                                                                                         
|4.3     |  | Registration Rights Agreement between the Company and
Acqua Wellington Value Fund, Ltd. Dated as of January
23, 2001 (incorporated by reference to exhibit 4.2 of
the Companys Quarterly Report on Form 10-QSB for the
quarter ended December 31, 2000 filed on February 14,
2001).                                    
|        |  |                                                                                                                                                                                                                                                                                                                         
|4.4     |  | flightserv.com 2000 Stock Option Plan (incorporated
by reference to exhibit B to the Companys Definitive
Proxy Statement on Schedule 14A filed on June 19,
2000).                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                         
|4.5     |  | Registration Rights Agreement between the Company and
each of the stockholders of Lifestyle(incorporated by
reference to Exhibit 4.2 to the Companys Current
Report on Form 8-K filed on April 18, 2001).                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                         
|10.1    |  | Form of Officer/Director Non-Qualified Option
Agreement dated as of July 2, 1999 (incorporated by
reference to Exhibit 10.9 to the Companys Annual
Report on Form 10-KSB for the year ended June 30,
1999 filed on September 28, 1999).                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                         
|10.2    |  | Schedule of Option Agreements granted in February,
April and July, 1999 (incorporated by reference to
Exhibit 10.10 to the Companys Annual Report on Form
10-KSB for the year ended June 30, 1999 filed on
September 28, 1999).                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                         
|10.3    |  | Form of Officer/Director Non-Qualified Option
Agreement dated December 2, 1999 (incorporated by
reference to Exhibit 10.1 to the Companys Quarterly
Report on Form 10-QSB for the quarter ended December
31, 1999 filed on February 14, 2000).                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                         
|10.4    |  | Schedule of Option Agreements granted December 2,
1999 (incorporated by reference to Exhibit 10.2 to
the Companys Quarterly Report on Form 10-QSB for the
quarter ended December 31, 1999 filed on February 14,                                                                                                        

56



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##### 



|        |  |                                                                                                                                                                                                                                                                                                                                        
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                        
|Number  |  | Exhibit Description                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                        
|        |  | 2000).                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.5    |  | Employment Agreement between the Company and Todd
Bottorff (represents a compensatory plan or
arrangement) (incorporated by reference to Exhibit
10.3 to the Companys Annual Report on Form 10-KSB
for the year ended June 30, 2000 filed on September
28, 2000).                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.6    |  | Agreement between the Company and Arthur G. Weiss
dated as of July 27, 2000 (represents a compensatory
plan or arrangement) (incorporated by reference to
Exhibit 10.14 to the Companys Annual Report on Form
10-KSB for the year ended June 30, 2000 filed on
September 28, 2000).                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.7    |  | Agreement between the Company and C. Beverly Lance
dated as of July 27, 2000 (represents a compensatory
plan or arrangement) (incorporated by reference to
Exhibit 10.15 to the Companys Annual Report on Form
10-KSB for the year ended June 30, 2000 filed on
September 28, 2000).                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.8    |  | Consulting Agreement between the Company and Todd
Bottorff dated as of January 17, 2001 (incorporated
by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-QSB for the quarter ended
December 31, 2000 filed on February 14, 2001).                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.9    |  | Employment Agreement between the Company and Michael
D. Pruitt dated as of November 8, 2000 (represents a
compensatory plan arrangement) (incorporated by
reference to Exhibit 10.2 to the Companys Quarterly
Report on Form 10-QSB for the quarter ended December
31, 2000 filed on February 14, 2001).                              
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.10   |  | Employment Agreement between the Company and Ms.
Melinda Morris Zanoni dated as of November 8, 2000
(represents a compensatory plan or arrangement)
(incorporated by reference to Exhibit 10.3 to the
Companys Quarterly Report on Form 10-QSB for the
quarter ended December 31, 2000 filed on February 14,
2001).                   
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.11   |  | General Release and Settlement Agreement between the
Company and Four Corners Capital, LLC and DC
Investment Partners Exchange Fund, L.P. dated as of
January 23, 2001 (incorporated by reference to
Exhibit 10.4 to the Companys Quarterly Report on
Form 10-QSB for the quarter ended December 31, 2000
filed on February 14, 2001).
|        |  |                                                                                                                                                                                                                                                                                                                                        
|10.12   |  | General Release and Settlement Agreement between the
Company and Acqua Wellington Value Fund, Ltd. Dated
as of January 23, 2001 (incorporated by reference to
Exhibit 10.5 to the Companys Quarterly Report on
Form 10-QSB for the quarter ended December 31, 2000 filed on
February 14, 2001).                                       

57



---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                     
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                     
|Number  |  | Exhibit Description                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                     
|10.13   |  | Employment Agreement between the Company and Michael
D. Pruitt dated as of November 7, 2002 (represents a
Compensatory plan arrangement) (incorporated by
reference to Exhibit 10.2 to the Companys Quarterly
Report on Form 10-QSB for the quarter ended December
31, 2002 filed on February 14, 2003).           
|        |  |                                                                                                                                                                                                                                                                                                                     
|10.14   |  | Employment Agreement between the Company and Ms.
Melinda Morris Zanoni dated as of November 7, 2002
(represents a compensatory plan or arrangement)
(incorporated by reference to Exhibit 10.3 to the
Companys Quarterly Report on Form 10-QSB for the
quarter ended December 31, 2002 filed on February 14,
2003).
|        |  |                                                                                                                                                                                                                                                                                                                     
|10.15   |  | Employment Agreement between the Company and Jeffery F. Willmott dated as of
April 15, 2003 (represents a
Compensatory plan arrangement) (incorporated by
reference to Exhibit 10.2 to the Companys Quarterly
Report on Form 10-QSB for the quarter ended March
31, 2003 filed on May 15, 2003).                   

58



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##### 



|        |  |                                                                                                                                                                                                       
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                       
|Number  |  | Exhibit Description                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                       
|16.1    |  | Change in Accountants  Letter from Ernst & Young
dated February 22, 2002 (incorporated herein by
reference to Exhibit 16.1 to the Companys Current
Report on Form 8-K/A filed on February 22, 2002).
|        |  |                                                                                                                                                                                                       
|21.1    |  | Subsidiaries of the Company                                                                                                                                                                           
|        |  |                                                                                                                                                                                                       
|23.1    |  | Consent of Independent Auditors  Crisp Hughes Evans                                                                                                                                                  
|        |  |                                                                                                                                                                                                       
|31.1    |  | Rule
13a-14(a)/15d-4a Certification of Principal Executive Officer                                                                                                                                    
|        |  |                                                                                                                                                                                                       
|31.2    |  | Rule
13a-14(a)/15d-4a Certification of
Principal Financial Officer                                                                                                                                    
|        |  |                                                                                                                                                                                                       
|32.1    |  | Section 1350
Certification of Principal Executive Officer                                                                                                                                             
|        |  |                                                                                                                                                                                                       
|32.2    |  | Section 1350
Certification of Principal Financial Officer                                                                                                                                             
|        |  |                                                                                                                                                                                                       
|99.1    |  | Amendment to Employment Agreement between the Company and Michael
D. Pruitt dated as of April 2, 2003                                                                                                 
|        |  |                                                                                                                                                                                                       
|99.2    |  | Amendment to Employment Agreement between the Company and Melinda
Morris Zanonidated as of April 2, 2003                                                                                              



|(b) |  | Reports on Form 8-K                                                                                                                                                                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(i) |  | The Company filed the following reports on Form 8-K and 8-K/A with the
Securities and Exchange Commission (SEC) during the quarter ended June
30, 2003 and to the date of the Annual Report:

(a) On May 15, 2003, reporting under item 5 of such report that that the
Company sent a letter to shareholders notifying them that the Companys Annual
Report on Form 10-KSB for the fiscal year ended June 30, 2002 can be obtained
at www.eresourcecapital.com.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Our independent auditors, Crisp Hughes Evan, LLP, billed the following fees to
the Company for audit and other services for the fiscal year 2003:

Audit Fees

The aggregate fees billed for professional services rendered by CHE for
the audit of the Companys annual financial statements for the fiscal year
ended June 30, 2003 and the reviews of the financial statements included in the
Companys Quarterly Reports on Form 10-Q for the fiscal year ended June 30,
2003 were $120,000.

All Other Fees

The aggregate fees billed for all other services rendered by CHE to the
Company for the fiscal year ended June 30, 2003 was $64,650. These fees
included fees billed for professional services rendered for the reviews of the
Companys other SEC filings and for tax return preparation and related
services.

The Audit Committee has considered whether the provision of services under
the heading All Other Fees is compatible with maintaining the accountants
independence and has determined that it is consistent with such independence.

59



---



##### 



SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                       |  |     |  |                                                                                                                    
|---------------------- |  | --- |  | -------------------------------------------------------------------------------------------------------------------
|                       |  |     |  | eResource Capital Group, Inc.                                                                                      
|                       |  |     |  |                                                                                                                    
|Date: October 14, 2003 |  | By: |  | /s/ Michael D. Pruitt                                                                                              
|                       |  |     |  |                                                                                                                    
|                       |  |     |  | Michael D. Pruitt
President and Chief Executive Officer
principal executive officer and principal financial officer
|                       |  |     |  |                                                                                                                    
|Date: October 14, 2003 |  | By: |  | /s/ Jeffrey F. Willmott                                                                                            
|                       |  |     |  |                                                                                                                    
|                       |  |     |  | Jeffrey F. Willmott
Chairman of the Board                                                                          
|                       |  |     |  |                                                                                                                    
|Date: October 14, 2003 |  | By: |  | /s/ Dr. James A. Verbrugge                                                                                         
|                       |  |     |  |                                                                                                                    
|                       |  |     |  | Dr. James A. Verbrugge
Director                                                                                    
|                       |  |     |  |                                                                                                                    
|Date: October 14, 2003 |  | By: |  | /s/ P. Roger Byer                                                                                                  
|                       |  |     |  |                                                                                                                    
|                       |  |     |  | P. Roger Byer
Director                                                                                             

60