<PAGE>





                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q

                                   (Mark One)

           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001

                                       OR

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

         For the transition period from _____________ to ______________


                         COMMISSION FILE NUMBER 0-28579


                               NOVO NETWORKS, INC.
             (Exact name of registrant as specified in its charter)


          DELAWARE                                      75-2233445
(State or other jurisdiction                (I.R.S. Employer Identification No.)
      of incorporation)

                         300 CRESCENT COURT, SUITE 1760
                               DALLAS, TEXAS 75201
                    (Address of principal executive offices)

                                 (214) 777-4100
              (Registrant's telephone number, including area code)


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

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:

On February 14, 2002, 52,323,701 shares of the registrant's common stock,
$.00002 par value per share, were outstanding.


<PAGE>


                               NOVO NETWORKS, INC.

                           QUARTERLY REPORT FORM 10-Q
                                      INDEX


<Table>
<Caption>

                                                                                               PAGE NO.
<S>           <C>                                                                              <C>
PART I:       FINANCIAL INFORMATION

Item 1.       Financial Statements

              Consolidated Balance Sheets as of December 31, 2001
              and June 30, 2001.....................................................................3

              Consolidated Statements of Operations for the three and six months ended
              December 31, 2001 and 2000 ...........................................................4

              Consolidated Statements of Cash Flows for the six months ended
              December 31, 2001 and 2000 ...........................................................5

              Notes to Consolidated Financial Statements............................................6

Item 2.       Management's Discussion and Analysis of Financial Condition
              and Results of Operations............................................................12

Item 3.       Quantitative and Qualitative Disclosures About Market Risk...........................24


PART II:      OTHER INFORMATION

Item 1.       Legal Proceedings....................................................................25

Item 2.       Changes in Securities and Use of Proceeds............................................25

Item 3.       Defaults Upon Senior Securities......................................................25

Item 4.       Submission of Matters to a Vote of Securities Holders................................25

Item 5.       Other Information....................................................................25

Item 6.       Exhibits and Reports on Form 8-K.....................................................25

Signatures.........................................................................................26
</Table>




                                       2

<PAGE>


                               NOVO NETWORKS, INC.
                           CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>

                                                                                                     December 31,         June 30,
                                           ASSETS                                                        2001              2001
                                                                                                     -------------    -------------
                                                                                                      (unaudited)

<S>                                                                                                  <C>              <C>
CURRENT ASSETS
     Cash and cash equivalents ...................................................................   $  14,363,088    $  16,696,537
     Accounts receivable, less allowances for
       doubtful accounts ($4,589,647 at June 30, 2001) ............................                           --        2,521,408
     Other accounts receivable ...................................................................          83,575               --
     Prepaid expenses and other receivables ......................................................         738,672        1,066,518
     Deposits ....................................................................................         102,054          420,379
     VAT receivable ..............................................................................              --        1,405,929
     Assets to be liquidated .....................................................................       1,069,445               --
                                                                                                     -------------    -------------
                                                                                                        16,356,834       22,110,771
                                                                                                     -------------    -------------

LONG-TERM ASSETS
     Restricted cash .............................................................................         101,525           94,180
     Deposits ....................................................................................           8,979          811,482
     Network equipment under capital leases, net .................................................              --        4,404,587
     Property and equipment, net .................................................................         693,745        5,699,577
     Equity investments ..........................................................................       3,327,125        4,776,772
                                                                                                     -------------    -------------
                                                                                                         4,131,374       15,786,598
                                                                                                     -------------    -------------
                                                                                                     $  20,488,208    $  37,897,369
                                                                                                     =============    =============


                                LIABILITIES & STOCKHOLDERS' EQUITY

LIABILITIES
     Capital leases ..............................................................................   $          --    $   8,865,698
     Accounts payable ............................................................................          24,579        3,601,650
     Accrued other ...............................................................................       1,357,391        7,480,259
     Restructuring accrual .......................................................................              --          426,297
     Accrued interest payable ....................................................................              --          134,683
     Customer deposits and deferred revenues .....................................................              --          742,486
     Liabilities to be liquidated ................................................................       1,069,445               --
                                                                                                     -------------    -------------
                                                                                                         2,451,415       21,251,073
                                                                                                     -------------    -------------


COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
     Preferred stock, $0.00002 par value, $1,000 liquidation preference, authorized
          25,000,000 shares, issued and outstanding, 26,545 and 26,395 shares, respectively ......              --               --
     Common stock, $0.00002 par value, authorized 200,000,000 shares,
          issued and outstanding, 52,323,701 shares...............................................           1,050            1,050
     Additional paid-in capital ..................................................................     256,211,016      255,908,448
     Accumulated deficit .........................................................................    (238,065,925)    (238,823,764)
     Deferred compensation .......................................................................        (109,348)        (439,438)
                                                                                                     -------------    -------------
                                                                                                        18,036,793       16,646,296
                                                                                                     -------------    -------------
                                                                                                     $  20,488,208    $  37,897,369
                                                                                                     =============    =============
</Table>


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



                                       3
<PAGE>


                               NOVO NETWORKS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<Table>
<Caption>

                                                                             For the Three Months         For the Six Months
                                                                              Ended December 31,           Ended December 31,
                                                                         ---------------------------   ---------------------------
                                                                             2001           2000          2001           2000
                                                                         ------------   ------------   ------------   ------------
                                                                                 (unaudited)                    (unaudited)


<S>                                                                      <C>            <C>            <C>            <C>
Revenues .............................................................   $  1,799,305   $ 20,593,654   $ 10,486,982   $ 39,190,681
Direct costs (except for depreciation and amortization
  shown below) .......................................................      4,982,849     20,692,793     14,520,735     38,034,125
                                                                         ------------   ------------   ------------   ------------
Gross profit (loss) ..................................................     (3,183,544)       (99,139)    (4,033,753)     1,156,556

Selling, general and administrative expenses .........................      2,305,984      7,860,432      8,162,027     15,004,010
Stock-based compensation .............................................        195,521             --        330,090             --
Reorganization and restructuring charge ..............................             --      4,325,451             --      4,325,451
Depreciation and amortization ........................................        641,064      6,471,673      1,285,284     12,940,608
                                                                         ------------   ------------   ------------   ------------
Loss from operations, before
        other (income) expense .......................................     (6,326,113)   (18,756,695)   (13,811,154)   (31,113,513)

Other (income) expense
        Interest expense (income), net ...............................         81,840       (148,270)       122,245       (454,325)
        Equity in loss of investments ................................        643,357      1,341,585      1,062,649      5,412,574
        Foreign currency loss ........................................         88,695         25,026         95,128         22,181
        Gain on net assets to be liquidated ..........................    (15,701,336)            --    (15,701,336)            --
        Other ........................................................         (4,458)        19,989       (450,247)        95,020
                                                                         ------------   ------------   ------------   ------------
                                                                          (14,891,902)     1,238,330    (14,871,561)     5,075,450
                                                                         ------------   ------------   ------------   ------------
Net income (loss) ....................................................   $  8,565,789   $(19,995,025)  $  1,060,407   $(36,188,963)
                                                                         ------------   ------------   ------------   ------------
Imputed preferred dividend ...........................................             --     (2,299,750)            --     (2,299,750)

Net income (loss) available to common
        shareholders .................................................   $  8,565,789   $(22,294,775)  $  1,060,407   $(38,488,713)
                                                                         ============   ============   ============   ============

        Series D dividends for the period ............................   $    152,814   $         --   $    302,568   $         --
                                                                         ------------   ------------   ------------   ------------
        Net income (loss) available to common, net of dividends ......   $  8,412,975   $(22,294,775)  $    757,839   $(38,488,713)
                                                                         ============   ============   ============   ============
Basic
        Net income (loss) per share ..................................   $       0.16   $      (0.43)  $       0.01   $      (0.74)
                                                                         ============   ============   ============   ============
        Weighted average number of shares outstanding ................     52,323,701     52,121,108     52,323,701     52,055,335
                                                                         ============   ============   ============   ============
Diluted
        Net income (loss) per share ..................................   $       0.16   $      (0.43)  $       0.01   $      (0.74)
                                                                         ============   ============   ============   ============
        Weighted average number of shares outstanding ................     54,553,469     52,121,108     54,553,469     52,055,335
                                                                         ============   ============   ============   ============
</Table>



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


                                       4

<PAGE>


                               NOVO NETWORKS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>

                                                                                Six Months Ended December 31,
                                                                              --------------------------------
                                                                                   2001               2000
                                                                              --------------    --------------
                                                                                         (unaudited)

<S>                                                                           <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net income (loss) .................................................   $    1,060,407    $  (36,188,963)
        Adjustments to reconcile net income (loss) to net cash used in
                net operating activities:
                Depreciation and amortization .............................        1,285,284        12,940,608
                Other non-cash charges and credits:
                        Stock-based compensation ..........................          330,090           565,958
                        Bad debt expense ..................................        2,460,000         1,038,592
                        Equity in loss of investments .....................        1,062,649         5,412,574
                        Loss on sale of fixed assets ......................           (3,086)               --
                        Impairment loss ...................................          121,932         1,573,594
                        Gain on net assets to be liquidated ...............      (15,701,336)               --
                Change in operating assets and liabilities:
                        Accounts receivable ...............................         (668,024)       (4,813,002)
                        Prepaid expenses and other receivables ............           36,458          (179,503)
                        VAT receivable ....................................        1,405,929           827,568
                        Restricted cash ...................................           (7,345)         (272,727)
                        Accounts payable ..................................        7,883,553           339,246
                        Accrued other .....................................         (840,124)        5,670,409
                        Accrued interest payable ..........................          115,688            50,758
                        Customer deposits and deferred revenue ............         (259,693)          202,289
                                                                              --------------    --------------
Net cash used in operating activities .....................................       (1,717,618)      (12,832,599)
                                                                              --------------    --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Deposits (made) received ..........................................          (11,865)         (303,919)
        Purchase of property and equipment ................................               --        (2,062,649)
        Sale of property and equipment ....................................          170,642                --
        (Investments in) Distributions from investments ...................          386,998        (1,056,112)
                                                                              --------------    --------------
Net cash provided by (used in) investing activities .......................          545,775        (3,422,680)
                                                                              --------------    --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
        Shareholder repayment of note receivable ..........................               --            96,984
        Payments on capital leases ........................................       (1,119,486)       (1,380,211)
        Repayments on notes payable .......................................               --           350,000
        Issuance of notes receivable - affiliate, net .....................               --           (84,096)
        Issuance of common and preferred stock ............................               --         6,524,000
                                                                              --------------    --------------
Net cash provided by (used in) financing activities .......................       (1,119,486)        5,506,677
                                                                              --------------    --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS ...................................       (2,291,329)      (10,748,602)
CASH HELD BY SUBSIDIARIES IN BANKRUPTCY TO BE LIQUIDATED ..................          (42,120)               --
CASH AND CASH EQUIVALENTS, beginning of year ..............................       16,696,537        40,764,246
                                                                              --------------    --------------
CASH AND CASH EQUIVALENTS, end of period ..................................   $   14,363,088    $   30,015,644
                                                                              ==============    ==============


SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

        Cash paid for:
                Interest ..................................................   $      496,839    $      580,957
                                                                              ==============    ==============
                Taxes .....................................................   $           --    $           --
                                                                              ==============    ==============

SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING,
        INVESTING AND FINANCING ACTIVITIES:

        Purchases of equipment under capital leases .......................   $           --    $    2,003,904
                                                                              ==============    ==============
</Table>




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


                                       5

<PAGE>


                               NOVO NETWORKS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   BUSINESS

     (a) General

     Novo Networks, Inc. is a company that, through its operating subsidiaries,
     previously engaged in the business of providing international
     telecommunications services over a facilities-based network. References to
     "Novo Networks," "we," "us" or "our" refer to Novo Networks, Inc., the
     ultimate parent of these operating subsidiaries and the registrant under
     the Securities Exchange Act of 1934. We will refer to those subsidiaries in
     bankruptcy under Chapter 11 as our "debtor subsidiaries" throughout this
     Quarterly Report. Our debtor subsidiaries are debtors-in-possession under
     Chapter 11 of the Bankruptcy Code.

     Due to the planned liquidation of substantially all of our debtor
     subsidiaries' assets pursuant to Chapter 11 of the Bankruptcy Code, we
     currently have no operations. We are not providing any products or services
     of any kind (including telecommunications services) to any customers. As
     discussed further below, in the accompanying consolidated financial
     statements we have applied (i) liquidation accounting to our debtor
     subsidiaries and (ii) going concern accounting to Novo Networks.

     Our common stock is currently listed on the Over the Counter, or OTC,
     Bulletin Board. Previously, our shares were listed on the Nasdaq National
     Market System. However, on July 30, 2001, the Nasdaq Stock Market Inc.
     temporarily suspended the trading of our common stock pending satisfactory
     resolution of concerns related to the effects of our debtor subsidiaries'
     bankruptcy proceedings and our ability to satisfy certain of its minimum
     listing requirements. On October 24, 2001, Nasdaq notified us that our
     common stock would be delisted on November 1, 2001. On October 30, 2001, we
     filed an appeal with Nasdaq. This filing stayed the delisting until the
     Nasdaq Listing Qualifications Panel heard the appeal, which occurred on
     December 13, 2001. On December 31, 2001, the Nasdaq Panel denied our
     request for continued listing on the Nasdaq National Market System and
     delisted our stock on that same day.

     (b) Bankruptcy Proceedings

     On April 2, 2001, one of our subsidiaries, Internet Global Services, Inc.,
     or iGlobal, filed a voluntary petition under Chapter 7 of the Bankruptcy
     Code in the United States Bankruptcy Court for the Northern District of
     Texas, due to iGlobal's inability to service its debt obligations,
     contingent liabilities and Novo Network's inability to raise sufficient
     capital to continue to fund operating losses at iGlobal. As a result of the
     Chapter 7 filing, during the year ended June 30, 2001, we recorded an
     impairment loss of $62.4 million, the majority of which related to non-cash
     goodwill recorded in connection with the acquisition of iGlobal.

     On July 30, 2001, certain of our remaining subsidiaries filed voluntary
     petitions for protection under Chapter 11 of the Bankruptcy Code in the
     United States Bankruptcy Court for the District of Delaware, in order to
     stabilize their operations and protect their assets while attempting to
     reorganize their businesses.

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


                                       6

<PAGE>

<Table>
<Caption>

                                                                                                      SUBJECT TO
                                                                                                      BANKRUPTCY
              WHOLLY OWNED SUBSIDIARY                             DATE ACQUIRED       STATUS*        PROCEEDINGS?
   ---------------------------------------------                  -------------      ---------      ---------------

<S>                                                               <C>               <C>            <C>
     Novo Networks Operating Corp.                                    2/8/00**        Active       Yes, Chapter 11

     AxisTel Communications, Inc.                                    9/23/99         Inactive      Yes, Chapter 11

     Novo Networks International Services, Inc.                      9/23/99         Inactive      Yes, Chapter 11

     Novo Networks Global Services, Inc.                             9/23/99         Inactive      Yes, Chapter 11

     Web2Dial Communications, Inc.                                   9/23/99         Inactive             No

     Novo Networks Metro Services, Inc.                              9/23/99         Inactive      Yes, Chapter 11

     Novo Networks Metro Services (Virginia), Inc.                   9/23/99         Inactive             No

     Novo Networks Media Services, Inc.                              9/23/99         Inactive             No

     Novo Networks (UK) Ltd.                                         9/23/99         Inactive             No

     e.Volve Technology Group, Inc.                                 10/20/99         Inactive      Yes, Chapter 11

     e.Volve Technology Group de Mexico, S.A. de C.V.               10/20/99         Inactive             No

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

     eVentures Holdings, LLC                                          9/7/99**        Active              No

</Table>


     ----------

     *   "Active" status indicates current operations within the respective
         entity; "Inactive" status indicates no current operations.

     **  Indicates date of incorporation.

     As of September 28, 2001, the goal of the reorganization effort was to
     preserve the going concern value of our debtor subsidiaries' core assets
     and to provide distributions to creditors of our debtor subsidiaries.
     However, subsequent to that date, and based largely on the fact that our
     debtor subsidiaries ceased receiving traffic from their sole remaining
     customer, a determination was made that the continued viability of the
     debtor subsidiaries was not realistic and a decision was made to amend the
     plan. The amended plan and disclosure statement were filed with the
     Bankruptcy Court on December 31, 2001. This subsequent plan contemplates a
     liquidation of substantially all of the assets of our debtor subsidiaries
     under Chapter 11 of the Bankruptcy Code, instead of a reorganization as
     previously planned. It is not possible to predict the outcome of our debtor
     subsidiaries' bankruptcy proceedings in general or the effects of such
     proceedings on the business of Novo Networks or on the interests of our
     creditors or stockholders.

     As of December 31, 2001, and pursuant to the amended bankruptcy filings, we
     effectively have no operations, no sources of revenue and no profits unless
     and until we promulgate and implement a new business plan. We cannot
     predict when or if this new business plan will be put into place, what it
     may entail or whether we will be successful in such a new and untried
     business venture.

     A hearing was held on January 14, 2002, at which time the Bankruptcy Court
     approved the amended disclosure statement with certain minor modifications.
     No assurance can be given that our debtor subsidiaries will be successful
     in liquidating substantially all of their assets within the Chapter 11
     bankruptcy proceedings. A creditors committee has not yet been formed.
     However, the possibility exists that prior to the approval of the amended
     plan of liquidation such a committee could be formed and it or individual
     creditors could object to confirmation of the amended plan. In addition, it
     is possible that the amended plan will not meet the statutory requirements
     for confirmation, which could result in a conversion of the debtor
     subsidiaries' Chapter 11 proceedings to Chapter 7 proceedings.

     The consolidated financial statements as of and prior to June 30, 2001,
     contained in this Quarterly Report, were prepared in accordance with
     generally accepted accounting principles applicable to a going concern, and
     did not purport to reflect or to provide for all of the possible
     consequences of the Chapter 11 bankruptcy proceedings.



                                       7
<PAGE>


     Specifically, the consolidated financial statements did not present the
     amounts which would ultimately be paid to settle liabilities and
     contingencies that may be required in the Chapter 11 bankruptcy proceedings
     or the effect of any changes that may be made in connection with our debtor
     subsidiaries' capitalization or operations resulting from any plan.
     Moreover, any such plan is subject to acceptance by the compromised
     creditors of our debtor subsidiaries and approval by the Bankruptcy Court.

     The consolidated financial statements as of and for the period ended
     December 31, 2001, contained in this Quarterly Report, are reflective of
     two separate accounting methodologies. For Novo Networks and our
     subsidiaries, which are not involved in bankruptcy proceedings (such
     subsidiaries have nominal operations), the financial statements, consisting
     primarily of cash, investments and office equipment, have been prepared in
     accordance with generally accepted accounting principles applicable to a
     going concern. For our debtor subsidiaries, which are involved in Chapter
     11 bankruptcy proceedings, the financial statements have been prepared in
     accordance with generally accepted accounting principles applicable to a
     liquidating entity. All such assets have been stated at estimated
     realizable values. Similarly, liabilities have been reflected at estimated
     settlement amounts, subject to the approval of the Bankruptcy Court, with
     those secured by specific assets being offset against such assets. We have
     recorded an accrual estimate of $0.5 million in the accompanying financial
     statements for the costs of liquidating substantially all of the assets of
     these entities. The estimated realizable values and settlement amounts may
     be different from the proceeds ultimately received or payments made.

     (c) Ability to Continue as a Going Concern

     Our independent accountants have previously included an explanatory
     paragraph in their report on our financial statements for the year ended
     June 30, 2001, contained in our most recent Annual Report on Form 10-K, as
     amended, that states that our financial statements were prepared assuming
     that we will continue as a going concern, but that substantial doubt exists
     as to our ability to do so.

     (d) Accounting Under Bankruptcy

     As previously discussed, the December 31, 2001 financial statements have
     been prepared using the liquidation basis accounting for our debtor
     subsidiaries.

     The estimated realizable values of assets and settlement amounts of
     liabilities may be different from the proceeds ultimately received or
     payments made. As a result of reflecting the liquidation values of assets
     and liabilities, we have recorded a gain on net assets to be liquidated of
     $15.7 million in the accompanying consolidated statement of operations for
     the quarter ended December 31, 2001.

     The estimated realizable values of assets were based upon: (i) initial
     indications from a sealed bid auction process for a contract for an
     indefeasible right to use, or IRU, (ii) on-going discussions with potential
     buyers of our debtor subsidiaries' network assets and (iii) consultation
     with our debtor subsidiaries' retained auctioneer firm and outside
     financial consultants regarding the remaining assets.

2.   LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 2001, Novo Networks had consolidated current assets of
     $16.4 million, including cash and cash equivalents of $14.4 million. Net
     liabilities to be liquidated at December 31, 2001 were $1.1 million.
     Historically, we have funded our subsidiary operations primarily through
     the proceeds of private placements of our common and preferred stock and
     borrowings under loan and capital lease agreements. We do not currently
     believe that either of these funding sources will be available in the near
     term. Principal uses of cash have been to fund (i) operating losses; (ii)
     acquisitions and strategic investments; (iii) working capital requirements
     and (iv) capital expenditures, primarily related to network equipment and
     capacity. Due to our financial performance, the lack of stability in the
     capital markets and the economy's recent downturn, our only source of
     funding, in the near term, is expected to be cash on hand. Furthermore (as
     discussed in Note 1), our debtor subsidiaries are debtors-in-possession
     under the Bankruptcy Code. As the ultimate parent, we agreed to provide our
     debtor subsidiaries with up to $1.6 million in secured
     debtors-in-possession financing, of which $0.15 million had been advanced
     as of December 31, 2001, and $0.59 million as of February 14, 2002. The
     credit facility makes funds available to permit the debtor subsidiaries to
     pay employees, vendors, suppliers, customers and professionals





                                       8
<PAGE>


     consistent with the requirements of the Bankruptcy Code. This credit
     facility provides for interest at the rate of prime plus 3.0% per annum and
     has been provided "superpriority" lien status, meaning that we have a valid
     first lien pursuant to the Bankruptcy Code on substantially all of the
     debtor subsidiaries' assets. The facility maintains a default interest rate
     of prime plus 5.0% per annum. The following non-debtor subsidiaries of Novo
     Networks have unconditionally guaranteed the credit facility to us:

         o    e.Volve Technology Group de Mexico, S.A. de C.V.

         o    Novo Networks (UK) Ltd.

         o    Web2Dial Communications, Inc.

         o    Servicios Professionales J.R.J.S., S.A. de C.V.

         o    Novo Networks Media Services, Inc.

         o    Novo Networks Metro Services (Virginia), Inc.

     No assurances can be given that such a facility will prove to be adequate.
     The debtors-in-possession financing expires on February 28, 2002.

     Accordingly, our debtor subsidiaries may be required to obtain additional
     outside funding which could be difficult to obtain on acceptable terms, if
     at all.

     During the quarter ended December 31, 2001, our consolidated revenues were
     principally derived from the provision of voice services by e.Volve, which
     typically generated minimal, if any, gross margin. As of December 31, 2001,
     e.Volve was no longer terminating traffic for any customers. During the
     current fiscal year, e.Volve's only customer had been Qwest Communications
     Corporation. Qwest accounted for approximately 70% of consolidated revenues
     for the six months ended December 31, 2001. e.Volve is no longer providing
     services to Qwest, and as part of our debtor subsidiaries' plan of
     liquidation, certain causes of action are expected to be brought against
     Qwest.

     We currently anticipate that we will have no revenue in the near term based
     on (i) the termination of the operations of our debtor subsidiaries which
     have historically provided all or significant revenues for Novo Networks on
     a consolidated basis and (ii) uncertainties surrounding our plan to explore
     opportunities available in the financial services industry, including,
     specifically, the specialty property and casualty insurance markets, asset
     management services and other related businesses.

     Novo Networks and its non-debtor subsidiaries currently have $14.4 million
     of cash and $13.9 million of net working capital. Novo Networks and its
     non-debtor subsidiaries currently have a monthly cash requirement of $0.3
     million to fund recurring corporate general and administrative expenses,
     excluding costs associated with the debtor subsidiaries' bankruptcy
     proceedings. Accordingly, we may be required to obtain additional outside
     funding which could be difficult to obtain on acceptable terms, if at all.
     Failure to obtain adequate funding will jeopardize Novo Networks' ability
     to continue as a going concern. Due to the uncertainty surrounding Novo
     Networks, management is unable to determine whether current available
     financing will be sufficient to meet the funding requirements of (i) our
     debtor subsidiaries through the liquidation process, (ii) ongoing general
     and administrative expenses of Novo Networks and (iii) the undetermined
     capital requirements relating to our plan to explore opportunities
     available in the financial services industry, including, specifically, the
     specialty property and casualty insurance markets, asset management
     services and other related businesses.

3.   GENERAL

     The accompanying consolidated financial statements as of and for the three
     and six month periods ended December 31, 2001 and 2000, have been prepared
     by Novo Networks, without audit, pursuant to the interim



                                       9
<PAGE>

     financial statements rules and regulations of the United States Securities
     and Exchange Commission, or SEC. In the opinion of management, the
     accompanying consolidated financial statements include all adjustments
     necessary to present fairly the results of Novo Networks' operations and
     cash flows at the dates and for the periods indicated. The results of
     operations for the interim periods are not necessarily indicative of the
     results for the full fiscal year. The accompanying consolidated financial
     statements should be read in conjunction with our audited consolidated
     financial statements included in our Annual Report on Form 10-K, as
     amended, for the fiscal year ended June 30, 2001 as filed with the SEC.

     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States requires management to
     make estimates and assumptions that affect the reported amounts of assets
     and liabilities and disclosure of contingent assets and liabilities at the
     date of the financial statements and the reported amounts of revenues and
     expenses during the reporting period. Actual results could differ from
     those estimates. The consolidated financial statements include the accounts
     of Novo Networks and all of our wholly owned subsidiaries. The consolidated
     financial statements of Novo Networks presented as of December 31, 2001 do
     not include the accounts of iGlobal due to our management's decision to
     abandon iGlobal operations during the quarter ended March 31, 2001. On
     April 2, 2001, iGlobal filed a voluntary petition for bankruptcy under
     Chapter 7 of the Bankruptcy Code.

     We have not provided for an income tax provision in the accompanying
     consolidated statements of operations, as significant net operating losses
     have been created in prior periods. Such net operating losses would
     eliminate any current or deferred tax provisions in the three and six-month
     periods ended December 31, 2001.

     Certain fiscal 2001 balances have been reclassified for comparative
     purposes to be consistent with the fiscal 2002 presentation. Such
     reclassifications have no impact on reported net income (loss). All
     significant inter-company accounts have been eliminated.

4.   LONG-LIVED ASSETS

     Our long-lived assets consist of property and equipment. In accordance with
     the Financial Accounting Standards Board Statement of Financial Accounting
     Standards No. 121, "Accounting for the Impairment of Long-lived Assets and
     for Long-lived Assets to be Disposed of," we have assessed the
     recoverability of long-lived assets by determining whether the net book
     value of the assets can be recovered through projected undiscounted future
     cash flows. The amount of impairment, if any, is measured based on fair
     value and is charged to operations in the period in which impairment is
     determined by management.

     During the six months ended December 31, 2001, we recorded a write down of
     long-lived assets of $7.5 million. The amount of the write-down is included
     in gain on net assets to be liquidated. During fiscal 2001, we recorded an
     impairment loss related to goodwill and certain property and equipment
     totaling $120.5 million. As previously discussed, the December 31, 2001
     financial statements have been prepared on a liquidation basis for our
     debtor subsidiaries. As such, assets and liabilities of the debtor
     subsidiaries are recorded at the estimated realizable values of assets and
     estimated settlement amounts of liabilities.

5.   NET EARNINGS (LOSS) PER SHARE

     We calculated earnings (loss) per share in accordance with SFAS No. 128,
     "Earnings Per Share". SFAS No. 128 requires dual presentation of basic
     earnings per share and diluted earnings per share on the face of all income
     statements for entities with complex capital structures. Basic earnings per
     share is computed as net income (loss) less preferred dividends of
     $302,568, divided by the weighted average number of common shares
     outstanding for the period. Diluted earnings per share reflects the
     potential dilution that could occur from common shares issuable through
     stock options, warrants, convertible preferred stock and convertible
     debentures. Diluted earnings per share have been presented for the effects
     of convertible preferred stock. If the preferred stock had been converted,
     the amount of common stock outstanding would increase by 2.2 million
     shares. For the six months ended December 31, 2001, diluted earnings per
     share has not been calculated, as the assumed conversion would be
     antidilutive.



                                       10
<PAGE>


6.   PROPERTY AND EQUIPMENT

     Property and equipment at December 31, 2001 consists of leasehold
     improvements, computer equipment and furniture and fixtures. Network
     equipment under capital leases, IRU fiber optic circuits and network
     equipment at December 31, 2001 have been classified as assets to be
     liquidated. Each class of assets is depreciated over its estimated useful
     life using the straight-line method. For those network assets, including
     the IRU fiber contract, depreciation has been recorded through December 31,
     2001. On a going forward basis and as a result of the plan of liquidation
     of substantially all of the assets of our debtor subsidiaries, such assets
     will no longer be depreciated prior to liquidation.

7.   EQUITY INVESTMENTS

     We have minority equity investments in development stage Internet and
     communications companies. We account for the majority of our investments
     using the equity method. For the six months ended December 31, 2001, we
     continued to record our proportionate share of equity losses, which totaled
     $1.1 million. Due to declining market conditions, negative operating
     results of the investee companies, lack of investee liquidity and other
     uncertainties surrounding the recoverability of these investments, an
     impairment loss of $10.8 million was recorded during fiscal 2001. For those
     equity investments, which have been impaired completely, we ceased
     recording our share of losses incurred by the investee. During the six
     months ended December 31, 2001, we were notified by an investee of a
     distribution of its investment and received payment on October 29, 2001 of
     approximately $0.4 million. This distribution is recorded in other income.

8.   DISPOSAL OF IGLOBAL

     In March 2001, we made the decision to dispose of our investment in
     iGlobal. On April 2, 2001, iGlobal filed a voluntary petition for
     bankruptcy under Chapter 7 of the Bankruptcy Code. All of iGlobal's product
     offerings have been discontinued or abandoned. As a result of the
     disposition, we recorded an impairment loss of $62.4 million during fiscal
     2001, principally related to non-cash goodwill recorded in connection with
     the initial acquisition of iGlobal. A court appointed trustee controls the
     operations of iGlobal and, accordingly, we have not included the accounts
     of iGlobal in our consolidated balance sheet. The iGlobal results of
     operations have been included from March 10, 2000, the date of acquisition,
     through April 2, 2001. As a result of the disposition, we eliminated $3.7
     million in assets excluding goodwill and $9.1 million in liabilities from
     our consolidated balance sheet. We believe we have no further liabilities
     or contingencies resulting from the iGlobal disposition.

     The following unaudited pro forma financial information assumes the
     disposition of iGlobal took place at the beginning of the fiscal period
     presented:

<Table>
<Caption>

                                                           For the Six Months
                                                        Ended December 31, 2000
                                                        -----------------------

<S>                                                      <C>
Revenues ..............................................  $          38,205,238
Loss from operations, before other income .............  $         (19,650,563)
Net loss available to common shareholders .............  $         (26,730,575)
Net loss per share - (basic and diluted) ..............  $               (0.51)
                                                         =====================
</Table>

9.   RESTRUCTURING CHARGE

     In October 2000, we began the execution of a plan to consolidate the
     assets, network and management of our wholly owned operating subsidiaries
     into a single broadband network and communication services company. The
     plan had a focus on providing broadband and voice services to other service
     providers, which resulted in the discontinuation of retail Internet access
     services offered, principally, digital subscriber line access and dial-up
     access. We recorded reorganization and restructuring expense totaling
     approximately $4.3 million during the




                                       11
<PAGE>


     quarter ended December 31, 2000. Amounts not utilized for their intended
     purpose of $0.4 million were reversed to operating expense as of June 30,
     2001.

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

     A summary of the completed reorganization and restructuring activities
     follows:

<Table>
<Caption>

                                    BALANCE AT        FISCAL         BALANCE AT
                                      JUNE 30,        2002          DECEMBER 31,
                                       2001        UTILIZATION         2001
                                   ------------    ------------    ------------
<S>                                <C>             <C>             <C>
Abandonment of leased facilities        426,297        (426,297)             --

                                   ------------    ------------    ------------
                                   $    426,297    $   (426,297)   $         --
                                   ============    ============    ============
</Table>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS


The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These statements include, but are not limited to:

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

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

         o     statements regarding our ability to successfully liquidate
               substantially all of the assets of our debtor subsidiaries under
               Chapter 11 without causing a material adverse impact on Novo
               Networks;

         o     statements regarding our ability to collect amounts owed by Qwest
               and successfully pursue causes of action against Qwest;

         o     statements regarding our ability to successfully redeploy our
               remaining cash assets;

         o     statements regarding the ability of our subsidiary debtors to
               successfully liquidate substantially all of their assets in
               bankruptcy; and

         o     statements regarding the estimated liquidation value of assets
               and settlement amounts of liabilities.

Factors that could cause actual results to differ materially from those
reflected in the forward-looking statements include those discussed in this
section, elsewhere in this report and the risks discussed in the "Risk Factors
Related to Our Company" section included in our Annual Report on Form 10-K for
our fiscal year ended June 30, 2001, as amended, filed with the United States
Securities and Exchange Commission. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis, judgment, belief or expectation only as of the date of this Quarterly
Report. We undertake no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date of this
report.

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of Novo
Networks and our wholly owned subsidiaries for all periods presented. On April
2, 2001, iGlobal, one of our subsidiaries, filed a voluntary petition for
protection under Chapter 7 of the Bankruptcy Code. The financial results of
iGlobal are included in the financial statements from its acquisition on March
10, 2000 through commencement of Chapter 7 bankruptcy proceedings on April 2,
2001. The consolidated balance sheets of Novo Networks as of June 30, 2001 and
December 31, 2001 do not include the accounts of iGlobal due to the decision to
dispose of iGlobal during the quarter ended March 31,






                                       12
<PAGE>


2001. On July 30, 2001, our principal operating subsidiaries, including AxisTel
and e.Volve and certain of their subsidiaries, filed voluntary petitions for
protection under Chapter 11 of the Bankruptcy Code. During the six months ended
December 31, 2001, all of the revenues and direct costs reflected in the
consolidated financial statements of Novo Networks resulted from the operations
of e.Volve and AxisTel.

The consolidated financial statements as of and for the period ended December
31, 2001, contained in this Quarterly Report, are reflective of two separate
accounting methodologies. For Novo Networks and our subsidiaries which are not
involved in bankruptcy proceedings (such subsidiaries have nominal operations),
the financial statements, consisting primarily of cash, investments and office
equipment, have been prepared in accordance with generally accepted accounting
principles applicable to a going concern. For our debtor subsidiaries, which are
involved in Chapter 11 bankruptcy proceedings, the financial statements have
been prepared in accordance with generally accepted accounting principles
applicable to a liquidating entity. All such assets have been stated at
estimated realizable values. Similarly, liabilities have been reflected at
estimated settlement amounts, subject to the approval of the Bankruptcy Court,
with those secured by specific assets being offset against such assets. We have
recorded an accrual estimate of $0.5 million in the accompanying financial
statements for the costs of liquidating the assets of these entities. The
estimated realizable values and settlement amounts may be different from the
proceeds ultimately received or payments made.

OVERVIEW

Due to the lack of stability in the capital markets, and sharp downturns in both
the telecommunications industry and the United States economy as a whole, we did
not raise the additional capital required to complete the build-out of our
operating subsidiaries' global broadband network. As a result, during the third
quarter ended March 31, 2001, we:

         o     delayed capital expenditures relating to the expansion of the
               global broadband network;

         o     downsized the workforce by approximately 30%; and

         o     discontinued the operations of iGlobal.

These measures were taken in an attempt to reduce costs and streamline
operations.

Following the March 2001 restructuring, we undertook a strategic review of our
businesses. Our board of directors determined after such a review that it was
appropriate to examine the possible sale or merger of our voice business
subsidiaries in order to maximize the potential value therein to our
shareholders. We retained JP Morgan to assist in this regard. However, JP Morgan
was unable to locate a buyer.

Faced with a continuing deterioration of their businesses and a calamitous
downturn in the telecommunications markets generally, our operating subsidiaries
took the following actions during June of 2001:

         o     further reduced their workforce by 23, a 24% reduction; and

         o     evaluated their strategic options.

During this same period, our chief executive officer, chief operating officer
and certain directors tendered their resignations in order to pursue other
interests. None of these officers or directors resigned, to the knowledge of
current management, because of a disagreement with Novo Networks relating to our
operations, policies or practices.

On July 30, 2001, certain of our remaining subsidiaries filed voluntary
petitions for protection under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware in order to stabilize their
operations and protect their assets while attempting to reorganize their
businesses.




                                       13
<PAGE>


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

     <Table>
     <Caption>
                                                                                                      SUBJECT TO
                                                                                                      BANKRUPTCY
                   WHOLLY OWNED SUBSIDIARY                        DATE ACQUIRED       STATUS*        PROCEEDINGS?
     --------------------------------------------------          ---------------    ---------     -----------------

<S>                                                              <C>                <C>           <C>
     Novo Networks Operating Corp.                                    2/8/00**        Active       Yes, Chapter 11

     AxisTel Communications, Inc.                                    9/23/99         Inactive      Yes, Chapter 11

     Novo Networks International Services, Inc.                      9/23/99         Inactive      Yes, Chapter 11

     Novo Networks Global Services, Inc.                             9/23/99         Inactive      Yes, Chapter 11

     Web2Dial Communications, Inc.                                   9/23/99         Inactive             No

     Novo Networks Metro Services, Inc.                              9/23/99         Inactive      Yes, Chapter 11

     Novo Networks Metro Services (Virginia), Inc.                   9/23/99         Inactive             No

     Novo Networks Media Services, Inc.                              9/23/99         Inactive             No

     Novo Networks (UK) Ltd.                                         9/23/99         Inactive             No

     e.Volve Technology Group, Inc.                                 10/20/99         Inactive      Yes, Chapter 11

     e.Volve Technology Group de Mexico, S.A. de C.V.               10/20/99         Inactive             No

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

     eVentures Holdings, LLC                                          9/7/99**        Active              No

</Table>

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

     *   "Active" status indicates current operations within the respective
         entity; "Inactive" status indicates no current operations.

     ** Indicates date of incorporation.

As of September 28, 2001, the goal of the reorganization effort was to preserve
the going concern value of our debtor subsidiaries' core assets and to provide
distributions to creditors of our debtor subsidiaries. However, subsequent to
that date, and based largely on the fact that our debtor subsidiaries ceased
receiving traffic from their sole remaining customer, a determination was made
that the continued viability of the debtor subsidiaries was not realistic and a
decision was made to amend the plan. The amended plan and disclosure statement
were filed with the Bankruptcy Court on December 31, 2001. This subsequent plan
contemplates a liquidation of substantially all of the assets of our debtor
subsidiaries under Chapter 11 of the Bankruptcy Code, instead of a
reorganization as previously planned. It is not possible to predict the outcome
of our debtor subsidiaries' bankruptcy proceedings in general or the effects of
such proceedings on the business of Novo Networks or on the interests of our
creditors or stockholders.

As of December 31, 2001, and pursuant to the amended bankruptcy filings, we
effectively have no operations, no sources of revenue and no profits unless and
until we promulgate and implement a new business plan. We cannot predict when or
if this new business plan will be put into place, what it may entail or whether
we will be successful in such a new and untried business venture.

A hearing was held on January 14, 2002, at which time the Bankruptcy Court
approved the amended disclosure statement with certain minor modifications. No
assurance can be given that our debtor subsidiaries will be successful in
liquidating substantially all of their assets within the Chapter 11 bankruptcy
proceedings. A creditors committee has not yet been formed. However, the
possibility exists that prior to the approval of the amended plan of liquidation
such a committee could be formed and it or individual creditors could object to
confirmation of the amended plan. In




                                       14
<PAGE>

addition, it is possible that the amended plan will not meet the statutory
requirements for confirmation, which could result in a conversion of the debtor
subsidiaries' Chapter 11 proceedings to Chapter 7 proceedings.

During the quarter ended December 31, 2001, our consolidated revenues were
principally derived from the provision of voice services by e.Volve, which
typically generated minimal, if any, gross margin. As of December 31, 2001,
e.Volve was no longer terminating traffic for any customers. During the current
fiscal year, e.Volve's only customer had been Qwest Communications Corporation.
Qwest accounted for approximately 70% of consolidated revenues for the six
months ended December 31, 2001. e.Volve is no longer providing services to
Qwest, and as part of our debtor subsidiaries' plan of liquidation, certain
causes of action are expected to be brought against Qwest. In addition and in
connection with the debtor subsidiaries' bankruptcy proceedings, AxisTel ceased
all broadband services and substantially all of the assets associated with such
services are being liquidated consistent with the Bankruptcy Code.

We currently anticipate that we will not have any revenue from
telecommunications or any other services in the near term. In addition, and as
part of the plan of liquidation, substantially all of the telecommunications
network assets of the debtor subsidiaries are being sold, and Novo Networks will
be unable to provide such services in the future.

Revenues. For the quarter ended December 31, 2001, revenues were generated
through the sale of products and services, which can be divided into two product
groups: broadband services and voice services. Broadband services consisted of
transport services such as private line, Asynchronous Transfer Mode, frame relay
and co-location services. Voice services included the delivery of communications
services to end-users. Voice services consisted principally of packet-based
voice services and prepaid calling services. Product and service revenues were
generally measured and billed on a per minute basis.

Historically, we derived substantially all of our consolidated revenues from the
sale of voice and broadband services of e.Volve and AxisTel, subsidiaries of
Novo Networks. Agreements with wholesale customers for the provisions of these
services were typically short term in duration and rates were subject to change
from time to time. For the six months ended December 31, 2001, Qwest accounted
for 70% of the consolidated revenues. Since December of 2001, e.Volve has not
terminated voice traffic for Qwest or any other customers. We currently do not
anticipate that AxisTel, e.Volve or any of the debtor subsidiaries will have
revenue from telecommunications or any other services in the near term.

Direct Costs (excluding depreciation and amortization). Direct costs, excluding
depreciation and amortization, include per minute termination charges, lease
payments and fees for fiber optic cable. Historically, the call termination
expense component of these direct costs has declined as measured on a cost per
minute basis. Additionally, while direct costs incurred for leasing
communications network capacity have declined, existing lease agreements are
generally at fixed rates for periods of one year or longer.

As of December 31, 2001, we provided international telecommunication services
only from the United States to Mexico through e.Volve's operations. The majority
of e.Volve's termination fees and certain fiber optic lease payments were
payable in Mexican pesos. As a result, e.Volve was exposed to exchange rate risk
due to fluctuation in the Mexican peso compared to the United States dollar.
Management does not maintain financial hedges against the effects of
fluctuations in the peso to dollar exchange rate. Continued fluctuation in the
exchange rate may make it cheaper or more expensive to purchase pesos to meet
e.Volve's peso denominated expenses. Since December of 2001, e.Volve has not
terminated voice traffic for Qwest or any other customers and, as such, its
exposure to exchange rate risk due to fluctuation of the Mexican peso has
lessened.

Selling, General and Administrative Expenses. These expenses include general
corporate expenses, management and operations salaries and expenses,
professional fees, sales and marketing expenses, travel expenses, benefits,
facilities costs and administrative expenses. Currently we maintain our
corporate headquarters in Dallas, Texas. Our debtor subsidiaries have facilities
in Jersey City, New Jersey, Overland Park, Kansas, Dallas, Texas, Miami, Florida
and Mexico City, Mexico. On July 29, 2001, we entered into an Administrative
Services Agreement with our debtor subsidiaries pursuant to which we agreed to
provide our debtor subsidiaries with accounting, billing and collections, human
resources, payroll, information systems, operational and network support,
limited non-bankruptcy legal and regulatory services and various related
secretarial and administrative services. In return for these services, our
debtor subsidiaries pay a weekly fee of $30,000. As of December 31, 2001, our
debtor subsidiaries had an outstanding payable to Novo Networks relating to this
agreement of $0.12 million, which is eliminated in consolidation.


                                       15
<PAGE>

Depreciation and Amortization. Depreciation and amortization represents the
depreciation of property and equipment and the amortization of goodwill
resulting from the reorganization transactions and the acquisition of iGlobal.
Due to the significant impairment losses recorded during fiscal 2001, we expect
our depreciation and amortization costs to decrease significantly.

Equity in Loss of Investments. Equity in loss of investments results from our
minority ownership in certain investments that are accounted for under the
equity method of accounting. Under the equity method, our proportionate share of
each of our affiliate's operating losses and amortization of our net excess
investment over our equity in each of our investment's net assets is included in
equity in loss of affiliates. We anticipate that our strategic investments will
continue to incur operating losses and we expect to record future charges to
earnings as we record our proportionate share of such losses incurred by the
investee.

SUMMARY OF OPERATING RESULTS

The table below summarizes our operating results


<Table>
<Caption>

                                                                                      Three Months Ended December 31,
                                                                          --------------------------------------------------------
                                                                              2001          %              2000            %
                                                                          ------------  -----------    ------------   ------------
                                                                                                (unaudited)

<S>                                                                       <C>           <C>            <C>            <C>
Revenues ...............................................................  $  1,799,305        100.0%   $ 20,593,654          100.0%
Direct costs (except for depreciation and amortization shown below) ....     4,982,849        276.9%     20,692,793          100.5%
                                                                          ------------  -----------    ------------   ------------
     Gross profit (loss) ...............................................    (3,183,544)      (176.9%)       (99,139)          (0.5%)

Selling, general and administrative expenses ...........................     2,305,984        128.2%      7,860,432           38.2%
Stock-based compensation ...............................................       195,521         10.9%             --            0.0%
Reorganization and restructuring charge ................................            --          0.0%      4,325,451           21.0%
Depreciation and amortization ..........................................       641,064         35.6%      6,471,673           31.4%
                                                                          ------------  -----------    ------------   ------------
Loss from operations, before
     other (income) expense ............................................    (6,326,113)      (351.6%)   (18,756,695)         (91.1%)

Other (income) expenses:
     Interest expense (income), net ....................................        81,840          4.5%       (148,270)          (0.7%)
     Equity in loss of investments .....................................       643,357         35.8%      1,341,585            6.5%
     Foreign currency loss .............................................        88,695          4.9%         25,026            0.1%
     Gain on net assets to be liquidated ...............................   (15,701,336)      (872.6%)            --            0.0%
     Other .............................................................        (4,458)        (0.2%)        19,989            0.1%
                                                                          ------------  -----------    ------------   ------------
                                                                           (14,891,902)      (827.6%)     1,238,330            6.0%
                                                                          ------------  -----------    ------------   ------------
Net income (loss) ......................................................  $  8,565,789                 $(19,995,025)
                                                                          ------------                 ------------
Imputed preferred dividend .............................................  $         --                 $ (2,299,750)

Net income (loss) available to common
     shareholders ......................................................  $  8,565,789                 $(22,294,775)
                                                                          ============                 ============
     Series D dividends for the period .................................  $    152,814                 $         --
                                                                          ============                 ============
     Net income (loss) available to common, net of dividends ...........  $  8,412,975                 $(22,294,775)
                                                                          ============                 ============
Basic
     Net income (loss) per share .......................................  $       0.16                 $      (0.43)
                                                                          ============                 ============
     Weighted average number of shares outstanding .....................    52,323,701                   52,121,108
                                                                          ============                 ============
Diluted
     Net income (loss) per share .......................................  $       0.16                 $      (0.43)
                                                                          ============                 ============
     Weighted average number of shares outstanding .....................    54,553,469                   52,121,108
                                                                          ============                 ============
<Caption>

                                                                                      Six Months Ended December 31,
                                                                          --------------------------------------------------------
                                                                              2001            %             2000           %
                                                                          ------------   ------------   ------------  ------------
                                                                                                     (unaudited)

<S>                                                                       <C>            <C>            <C>            <C>
Revenues ...............................................................  $ 10,486,982          100.0%  $ 39,190,681         100.0%
Direct costs (except for depreciation and amortization shown below) ....    14,520,735          138.5%    38,034,125          97.0%
                                                                          ------------   ------------   ------------  ------------
     Gross profit (loss) ...............................................    (4,033,753)         (38.5%)    1,156,556           3.0%

Selling, general and administrative expenses ...........................     8,162,027           77.8%    15,004,010          38.3%
Stock-based compensation ...............................................       330,090            3.1%            --           0.0%
Reorganization and restructuring charge ................................            --            0.0%     4,325,451          11.0%
Depreciation and amortization ..........................................     1,285,284           12.3%    12,940,608          33.0%
                                                                          ------------   ------------   ------------  ------------
Loss from operations, before
     other (income) expense ............................................   (13,811,154)        (131.7%)  (31,113,513)        (79.4%)

Other (income) expenses:
     Interest expense (income), net ....................................       122,245            1.2%      (454,325)         (1.2%)
     Equity in loss of investments .....................................     1,062,649           10.1%     5,412,574          13.8%
     Foreign currency loss .............................................        95,128            0.9%        22,181           0.1%
     Gain on net assets to be liquidated ...............................   (15,701,336)        (149.7%)           --           0.0%
     Other .............................................................      (450,247)          (4.3%)       95,020           0.2%
                                                                          ------------   ------------   ------------  ------------
                                                                           (14,871,561)        (141.8%)    5,075,450          13.0%
                                                                          ------------   ------------   ------------  ------------
Net income (loss) ......................................................  $  1,060,407                  $(36,188,963)
                                                                          ------------                  ------------
Imputed preferred dividend .............................................  $         --                  $ (2,299,750)

Net income (loss) available to common
     shareholders ......................................................  $  1,060,407                  $(38,488,713)
                                                                          ============                  ============
     Series D dividends for the period .................................  $    302,568                  $         --
                                                                          ============                  ============
     Net income (loss) available to common, net of dividends ...........  $    757,839                  $(38,488,713)
                                                                          ============                  ============
Basic
     Net income (loss) per share .......................................  $       0.01                  $      (0.74)
                                                                          ============                  ============
     Weighted average number of shares outstanding .....................    52,323,701                    52,055,335
                                                                          ============                  ============
Diluted
     Net income (loss) per share .......................................  $       0.01                  $      (0.74)
                                                                          ============                  ============
     Weighted average number of shares outstanding .....................    54,553,469                    52,055,335
                                                                          ============                  ============
</Table>


THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2000

Revenues. Revenues decreased to $1.8 million during the three months ended
December 31, 2001 from $20.6 million during the three months ended December 31,
2000, a decrease of 91%. Revenues for the three months ended December 31, 2001
were generated through the sale of (i) 98% voice services and (ii) 2% broadband
services.




                                       16
<PAGE>

Revenues for the three months ended December 31, 2000 were generated
through the sale of (i) 95% voice services, (ii) 3% broadband services and (iii)
2% Internet services. We anticipate little or no revenue will be generated in
the near future based on (i) the termination of operations of our debtor
subsidiaries, which have historically provided all significant revenues for Novo
Networks and (ii) uncertainty surrounding our plans to explore opportunities
available in the financial services industry, including, specifically, the
specialty property and casualty insurance markets, asset management services and
other related businesses.

During the three months ended December 31, 2001, we transmitted 23.4 million
minutes versus 214.9 million minutes during the three months ended December 31,
2000, a decrease of 89%. The decrease in revenues during the three months ended
December 31, 2001 resulted from the significant decrease and eventual downturn
of the data, wholesale and prepaid card businesses for AxisTel, as well as
reduced minutes to Mexico for e.Volve. The decrease can also be attributed to
lower rates per minute earned on all voice traffic during the current quarter.
As a result of the iGlobal bankruptcy filing there was no Internet service
revenues during the current reporting period.

Direct Costs (excluding depreciation and amortization). Direct costs, excluding
depreciation and amortization, decreased to $5.0 million during the three months
ended December 31, 2001 from $20.7 million during the three months ended
December 31, 2000, a decrease of 76%. Direct costs decreased approximately $23.5
million during the current year period as a result of the decreased volume of
minutes transmitted over our network. Direct costs as a percentage of revenues
increased to 277% in the three months ended December 31, 2001 from 100.5% in the
three months ended December 31, 2000 as a result of significant increases in
termination rates.

Selling, General and Administrative. Selling, general and administrative
expenses decreased to $2.3 million during the three months ended December 31,
2001 from $7.9 million in the prior year period, a decrease of 71%. Selling,
general and administrative expenses during the three months ended December 31,
2001 decreased primarily due to (i) downsizing of the workforce, (ii) closing
facilities and (iii) reduction in operations as a result of the various
bankruptcy proceedings, offset by nonrecurring increases in bad debt expenses
and professional fees related to such proceedings. We anticipate that selling,
general and administrative expenses will continue to decrease significantly as a
result of the recent measures implemented to reduce costs and the conclusion of
the various bankruptcy proceedings.

Depreciation and Amortization. As a result of the reorganization transactions in
September 1999 and October 1999 and the acquisition of iGlobal in March 2000, we
recorded approximately $116.0 million in goodwill. During fiscal 2001 all of the
goodwill was written-off; therefore, no amortization of goodwill was recorded
during the three months ended December 31, 2001. Amortization of goodwill during
the three months ended December 31, 2000 totaled $5.1 million. To the extent
there are no future acquisitions, we do not anticipate incurring any additional
amortization expense due to the goodwill impairment charges recorded during the
March 2001 period. Depreciation recorded on fixed assets during the current
period totaled $0.6 million compared to $1.4 million for the prior period. The
decrease in depreciation expense during the current quarter is the result of
asset impairment charges taken during the fiscal year ended June 30, 2001 and
the three months ended December 31, 2001.

Interest Expense (Income), Net. We recorded interest expense, net of interest
income from cash investments, of $0.1 million for the three months ended
December 31, 2001 compared to interest income of $0.1 million for the three
months ended December 31, 2000. The decrease in interest income during the
December 31, 2001 quarter resulted from lower cash balances generating interest.

Equity in Loss of Investments. Equity in loss of investments resulted from our
minority ownership in certain investments that are accounted for under the
equity method of accounting. Under the equity method, our proportionate share of
each of our investment's operating losses and amortization of our net excess
investment over equity in each of our investment's net assets is included in
equity in loss of affiliates. Equity in loss of investments was $0.6 million
during the three months ended December 31, 2001 compared to $1.3 million in the
prior year period. This loss primarily resulted from our 22% equity interest in
Gemini Voice Solutions (formerly PhoneFree.com). We anticipate that our
strategic investments accounted for under the equity method will continue to
recognize operating losses, which will result in future charges to earnings as
we record our proportionate share of such losses. For those investments that
were impaired completely in fiscal 2001, we have ceased recording our share of
losses incurred by the investee.




                                       17
<PAGE>

Foreign Currency Loss. Foreign currency loss during the three months ended
December 31, 2001 was $88,700 compared to a loss of $25,000 during the prior
year period. This variance was the result of the unfavorable exchange rate
fluctuations in the Mexican peso compared to the United States dollar.

SIX MONTHS ENDED DECEMBER 31, 2001 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
2000

Revenues. Revenues decreased to $10.5 million during the six months ended
December 31, 2001 from $39.2 million during the six months ended December 31,
2000, a decrease of 73%. Revenues for the six months ended December 31, 2001
were generated through the sale of (i) 97% voice services and (ii) 3% broadband
services. Revenues for the six months ended December 31, 2000 were generated
through the sale of (i) 94% voice services, (ii) 4% broadband services and (iii)
2% Internet services. We anticipate little or no revenue will be generated in
the near future based on (i) the termination of operations of our debtor
subsidiaries, which have historically provided all significant revenues for Novo
Networks, and (ii) uncertainties surrounding our plans to explore opportunities
available in the financial services industry, including, specifically, the
specialty property and casualty insurance markets, asset management services and
other related businesses.

During the six months ended December 31, 2001, we transmitted 134.1 million
minutes versus 384.2 million minutes during the six months ended December 31,
2000, a decrease of 65%. The decrease in revenues during the six months ended
December 31, 2001 resulted from the significant decrease and eventual downturn
of the data, wholesale and prepaid card businesses for AxisTel, as well as
reduced minutes to Mexico for e.Volve. The decrease can also be attributed to
lower rates per minute earned on all voice traffic during the current period. As
a result of the iGlobal bankruptcy filing there were no Internet service
revenues during the current reporting period.

Direct Costs (excluding depreciation and amortization). Direct costs, excluding
depreciation and amortization, decreased to $14.5 million during the six months
ended December 31, 2001 from $38.0 million during the six months ended December
31, 2000, a decrease of 62%. Direct costs decreased approximately $23.5 million
during the current year period as a result of the decreased volume of minutes
transmitted over our network. Direct costs as a percentage of revenues increased
to 139% in the six months ended December 31, 2001 from 97% in the six months
ended December 31, 2000 as a result of significant increases in termination
rates.

Selling, General and Administrative. Selling, general and administrative
expenses decreased to $8.2 million during the six months ended December 31, 2001
from $15.0 million in the prior year period, a decrease of 46%. Selling, general
and administrative expenses during the six months ended December 31, 2001
decreased primarily due to (i) downsizing of the workforce, (ii) closing
facilities and (iii) reduction in operations as a result of the various
bankruptcy proceedings, offset by nonrecurring increases in bad debt expenses
and professional fees related to such proceedings. We anticipates that selling,
general and administrative expenses will continue to decrease significantly as a
result of the recent measures implemented to reduce costs and the conclusion of
the various bankruptcy proceedings.

Depreciation and Amortization. As a result of the reorganization transactions in
September 1999 and October 1999 and the acquisition of iGlobal in March 2000, we
recorded approximately $116.0 million in goodwill. During fiscal 2001 all of the
goodwill was written-off, therefore no amortization of goodwill was recorded
during the six months ended December 31, 2001. Amortization of goodwill during
the six months ended December 31, 2000 totaled $10.2 million. To the extent
there are no future acquisitions, we do not anticipate incurring any additional
amortization expense due to the goodwill impairment charges recorded during the
March 2001 period. Depreciation recorded on fixed assets during the current
period totaled $1.3 million compared to $2.7 million for the prior period. The
decrease in depreciation expense during the current quarter is the result of an
asset impairment charge taken during the fiscal year ended June 30, 2001.

Interest Expense (Income), Net. We recorded interest expense, net of interest
income from cash investments, of $0.1 million for the six months ended December
31, 2001 compared to interest income, net of interest expense, of $0.5 million
for the six months ended December 31, 2000. The decrease in interest income
during the December 31, 2001 quarter resulted from lower cash balances
generating interest.

Equity in Loss of Investments. Equity in loss of investments resulted from our
minority ownership in certain investments that are accounted for under the
equity method of accounting. Under the equity method, our



                                       18
<PAGE>

proportionate share of each of our investment's operating losses and
amortization of our net excess investment over equity in each of our
investment's net assets is included in equity in loss of investments. Equity in
loss of investments was $1.1 million during the six months ended December 31,
2001 compared to $5.4 million in the prior year period. This loss primarily
resulted from our 22% equity interest in Gemini Voice Solutions (formerly
PhoneFree.com). We anticipate that our strategic investments accounted for under
the equity method will continue to recognize operating losses, which will result
in future charges to earnings as we record its proportionate share of such
losses. For those investments that were impaired completely in fiscal 2001, we
have ceased recording our share of losses by the investee.

Foreign Currency Loss. Foreign currency loss during the six months ended
December 31, 2001 was $95,000 compared to a loss of $22,000 during the prior
year period. This variance was the result of the unfavorable exchange rate
fluctuations in the Mexican peso compared to the United States dollar.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2001, Novo Networks had consolidated current assets of $16.4
million, including cash and cash equivalents of $14.4 million. Net liabilities
to be liquidated at December 31, 2001 were $1.1 million. Historically, we have
funded our subsidiary operations primarily through the proceeds of private
placements of our common and preferred stock and borrowings under loan and
capital lease agreements. We do not currently believe that either of these
funding sources will be available to us in the near term. Principal uses of cash
have been to fund (i) operating losses; (ii) acquisitions and strategic
investments; (iii) working capital requirements and (iv) capital expenditures,
primarily related to network equipment and capacity. Due to our financial
performance, the lack of stability in the capital markets and the economy's
recent downturn, our only source of funding, in the near term, is expected to be
cash on hand. Furthermore (as discussed in Note 1), our debtor subsidiaries are
debtors-in-possession under the Bankruptcy Code. As the ultimate parent, we
agreed to provide our debtor subsidiaries with up to $1.6 million in secured
debtors-in-possession financing, of which $0.15 million had been advanced as of
December 31, 2001, and $0.59 million as of February 14, 2002. The credit
facility makes funds available to permit the debtor subsidiaries to pay
employees, vendors, suppliers, customers and professionals consistent with the
requirements of the Bankruptcy Code. This credit facility provides for interest
at the rate of prime plus 3.0% per annum and has been provided "superpriority"
lien status, meaning that we have a valid first lien pursuant to the Bankruptcy
Code on substantially all of the debtor subsidiaries' assets. The facility
maintains a default interest rate of prime plus 5.0% per annum. The following
non-debtor subsidiaries of Novo Networks have unconditionally guaranteed the
credit facility to us:

         o     e.Volve Technology Group de Mexico, S.A. de C.V.

         o     Novo Networks (UK) Ltd.

         o     Web2Dial Communications, Inc.

         o     Servicios Professionales J.R.J.S., S.A. de C.V.

         o     Novo Networks Media Services, Inc.

         o     Novo Networks Metro Services (Virginia), Inc.


No assurances can be given that such a facility will prove to be adequate. The
debtors-in-possession financing expires on February 28, 2002.

Accordingly, our debtor subsidiaries may be required to obtain additional
outside funding which could be difficult to obtain on acceptable terms, if at
all.

During the quarter ended December 31, 2001, our consolidated revenues were
principally derived from the provision of voice services by e.Volve, which
typically generated minimal, if any, gross margin. As of December 31, 2001,
e.Volve was no longer terminating traffic for any customers. During the current
fiscal year, e.Volve's only customer had been Qwest Communications Corporation.
Qwest accounted for approximately 70% of consolidated revenues




                                       19
<PAGE>


for the six months ended December 31, 2001. e.Volve is no longer providing
services to Qwest, and as part of our debtor subsidiaries' plan of liquidation,
certain causes of action are expected to be brought against Qwest.

We currently anticipate that we will have no revenue in the near term based on
(i) the termination of the operations of our debtor subsidiaries which have
historically provided all or significant revenues for Novo Networks on a
consolidated basis and (ii) uncertainties surrounding our plan to explore
opportunities available in the financial services industry, including,
specifically, the specialty property and casualty insurance markets, asset
management services and other related businesses.

Novo Networks and its non-debtor subsidiaries currently have $14.4 million of
cash and $13.9 million of net working capital. Novo Networks and its non-debtor
subsidiaries currently have a monthly cash requirement of $0.3 million to fund
recurring corporate general and administrative expenses, excluding costs
associated with the debtor subsidiaries' bankruptcy proceedings. Accordingly, we
may be required to obtain additional outside funding which could be difficult to
obtain on acceptable terms, if at all. Failure to obtain adequate funding will
jeopardize Novo Networks' ability to continue as a going concern. Due to the
uncertainty surrounding Novo Networks, management is unable to determine whether
current available financing will be sufficient to meet the funding requirements
of (i) our debtor subsidiaries through the liquidation process, (ii) ongoing
general and administrative expenses of Novo Networks and (iii) the undetermined
capital requirements relating to our plan to explore opportunities available in
the financial services industry, including, specifically, the specialty property
and casualty insurance markets, asset management services and other related
businesses.

Cash flows from operating activities. Cash used in operating activities for the
six months ended December 31, 2001 totaled $1.7 million compared to $12.8
million for the six months ended December 31, 2000. The decreased use of cash in
our operating activities is primarily attributable to the downturn of operations
resulting from the bankruptcy proceedings. During the six months ended December
31, 2001, cash flow used by operating activities primarily resulted from
operating losses, net of non-cash charges, totaling $9.4 million and an increase
in accounts receivable of $0.7 million, partially offset by a net increase in
accounts payable and accrued liabilities of $7.0 million. During the six months
ended December 31, 2000 cash flow used by operating activities primarily
resulted from operating losses, net of non-cash charges, totaling $14.7 million
and an increase in accounts receivable of $4.8 million, partially offset by a
net increase in accounts payable and accrued liabilities of $6.0 million.

Cash flows from investing activities. Net cash provided by investing activities
was $0.5 million for the six months ended December 31, 2001 compared to net cash
used of $3.4 million for the same period in the prior year. Net cash provided by
investing activities in the current period consisted primarily of cash received
from one of our investees of $0.4 million. Investing activities in the prior
year period consisted primarily of purchases of network equipment of $2.1
million and equity investments of $1.1 million.

Cash flows from financing activities. Cash flows provided by financing
activities during the six months ended December 31, 2001 totaled $1.1 million
for capital lease payments. Cash flows used in financing activities during the
prior year period totaled $5.5 million and consisted principally of (i) net
proceeds from the issuance of 7,000 shares of Series D Preferred Stock and
450,001 shares of our common stock totaling $6.5 million, and (ii) borrowings
under a credit agreement for equipment purchases of $0.4 million, offset
partially by capital lease payments of $1.4 million.

ABILITY TO CONTINUE AS A GOING CONCERN

Our independent accountants have previously included an explanatory paragraph in
their report on our financial statements for the year ended June 30, 2001
contained in our most recent Annual Report on Form 10-K, as amended, that states
that our financial statements have been prepared assuming that we will continue
as a going concern, but that substantial doubt exists as to our ability to do
so.

RECENT DEVELOPMENTS

Nasdaq Delisting. Our common stock is currently listed on the Over the Counter,
or OTC, Bulletin Board. Previously, our shares were listed on the Nasdaq
National Market System. However, on July 30, 2001, the Nasdaq Stock Market Inc.
temporarily suspended the trading of our common stock pending satisfactory
resolution of concerns related to the effects of our subsidiaries' bankruptcy
proceedings and our ability to satisfy certain of its



                                       20
<PAGE>

minimum listing requirements. On October 24, 2001, Nasdaq notified us that our
common stock would be delisted on November 1, 2001. On October 30, 2001, we
filed an appeal with Nasdaq. This filing stayed the delisting until the Nasdaq
Listing Qualifications Panel heard the appeal, which occurred on December 13,
2001. On December 31, 2001, the Nasdaq Panel denied our request for continued
listing on the Nasdaq National Market System and delisted our stock on that same
day.

Revised Bankruptcy Plan. As of September 28, 2001, the goal of the
reorganization effort was to preserve the going concern value of our debtor
subsidiaries' core assets and to provide distributions to creditors of our
debtor subsidiaries. However, subsequent to that date, and based largely on the
fact that our debtor subsidiaries ceased receiving traffic from their sole
remaining customer, a determination was made that the continued viability of the
debtor subsidiaries was not realistic and a decision was made to amend the plan.
The amended plan and disclosure statement were filed with the Bankruptcy Court
on December 31, 2001. This subsequent plan contemplates a liquidation of
substantially all of the assets of our debtor subsidiaries under Chapter 11 of
the Bankruptcy Code, instead of a reorganization as previously planned. It is
not possible to predict the outcome of our debtor subsidiaries' bankruptcy
proceedings in general or the effects of such proceedings on the business of
Novo Networks or on the interests of our creditors or stockholders.

Upon the liquidation of substantially all of our debtor subsidiaries' assets, we
will effectively have no operations, no sources of revenue and no profits unless
and until we promulgate and implement a new business plan. We cannot predict
when or if this new business plan will be put into place, what it may entail or
whether we will be successful in such a new and untried business venture.

A hearing was held on January 14, 2002, at which time the Bankruptcy Court
approved the amended disclosure statement with certain minor modifications. No
assurance can be given that our debtor subsidiaries will be successful in
liquidating substantially all of their assets within the Chapter 11 bankruptcy
proceedings. A creditors committee has not yet been formed. However, the
possibility exists that prior to the approval of the amended plan of liquidation
such a committee could be formed and it or individual creditors could object to
confirmation of the amended plan. In addition, it is possible that the amended
plan will not meet the statutory requirements for confirmation, which could
result in a conversion of the debtor subsidiaries' Chapter 11 proceedings to
Chapter 7 proceedings.

Qwest Relationship. As described in a Press Release dated December 21, 2001, the
debtor subsidiaries are no longer terminating traffic for Qwest over their
network. Qwest had been the debtor subsidiaries' only customer. Since the time
of that press release, the debtor subsidiaries have been unable to reach a
satisfactory arrangement with Qwest pursuant to which Qwest would continue using
their services. We do not expect that Qwest will resume the use of the debtor
subsidiaries services in the future.

As part of our debtor subsidiaries' plan of liquidation, we expect that certain
causes of action will be brought against Qwest. No assurances can be given that
claims brought against Qwest will be successful or that Qwest will not file one
or more counterclaims.

PLAN OF OPERATION

On August 21, 2001, we announced that we were attempting to diversify our
business into financial services. We are continuing to explore the opportunities
available in the financial services industry, including, specifically, the
specialty property and casualty insurance markets, asset management services and
other related businesses.

Management of Novo Networks is also examining the investment opportunities
available to it in other industries, outside of the financial services industry.
Accordingly, our directors and executive officers have, in essence, unlimited
flexibility in the investments they are permitted to examine. As such, we expect
that management will consider, among others, the following factors when deciding
upon an appropriate investment for Novo Networks' remaining cash assets:

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

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



                                       21
<PAGE>


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

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

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

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

         o     the market performance of equity securities of similarly situated
               companies in the business' industry or opportunity.

The foregoing is not an exhaustive list of the factors we may consider in our
evaluation of a potential investment opportunity. We will also consider other
factors that our officers and directors deem relevant under the circumstances.
In evaluating a potential opportunity, we intend to conduct a due diligence
review that will include, among other things:

         o     meetings with industry participants;

         o     meetings with management and/or "promoters;"

         o     inspection of properties, facilities, material contracts, etc.,
               if any;

         o     analysis of historical financial statements and projections; and

         o     any other matters or things we believe are relevant under the
               circumstances.

The time, effort and expense associated with electing a revised business model
and, therefore, an appropriate investment strategy for our remaining cash
assets, cannot be predicted with any degree of accuracy. Further, our management
has expended, and is expected to continue to expend, a significant amount of
time dealing with the bankruptcy of our debtor subsidiaries. If our officers and
directors do not devote adequate time to the investigation, due diligence and
negotiation of appropriate investment opportunities, we may be unable to
successfully redeploy our remaining cash assets. We cannot assure you that we
will be successful in protecting, segregating or redeploying our remaining cash
assets. Further, to the extent we are able to redeploy our remaining cash
assets, we cannot assure you that our investment(s) will ultimately prove
successful.

As of December 31, 2001, we maintained cash and cash equivalents of $14.4
million. We currently anticipate that as of March 31, 2002, we will have
approximately $10.0 million of remaining cash available to redeploy into one or
more investment opportunities and to support the monthly cash requirements of
Novo Networks. We do not currently believe that additional funding sources will
be available to us in the near term. Accordingly, the cash assets potentially
available for redeployment will be limited. Consequently, we will probably not
be in a position to make a large number of investments and broad diversification
is unlikely. Our probable lack of diversification may subject us to a variety of
economic, competitive and regulatory risks, any or all of which may have a
substantial adverse impact on our continued viability.

We do not intend to provide information to our stockholders regarding potential
business opportunities being considered by management. Our officers and
directors will have the executive and voting power to unilaterally approve all
corporate actions related to the redeployment of our cash assets. As a result,
stockholders in Novo Networks will have no effective voice in decisions made by
management and will be entirely dependent on management's judgment in the
selection of an appropriate investment opportunity and the negotiation of the
specific terms thereof.

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



                                       22
<PAGE>

         o     continuing the liquidation of substantially all of the assets of
               our debtor subsidiaries in accordance with the Bankruptcy Code;

         o     minimizing, to the extent possible, the expenses incurred by Novo
               Networks as the ultimate parent of the debtor subsidiaries;

         o     determining, as quickly as reasonably possible, the viability of
               our plan to redeploy the assets of Novo Networks; and

         o     identifying, negotiating and consummating one or more appropriate
               investment opportunities.

As previously indicated, we no longer expect to compete in the
telecommunications industry (although we reserve the right to invest in any
suitable opportunity). Consequently, we do not have any history on which to base
an evaluation of our business and prospects going forward. Our prospects must be
considered in light of the many risks, uncertainties, expenses, delays and
difficulties encountered by companies adopting a new or dramatically changed
business model after the failure (for whatever reason) of a prior business
model. Some of the risks and difficulties we expect to encounter include our
ability to:

         o     create and successfully execute a revised business plan;

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

         o     manage and adapt to changing operations;

         o     respond effectively to competitive developments;

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

         o     overcome the reputational issues associated with the failure of
               our previous business model.

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

COMPETITION FOR SUITABLE INVESTMENT OPPORTUNITIES

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

Novo Networks does not have any current agreements or understandings with
respect to any investment opportunity. We can provide no assurance that any
future investment will be completed or that, if completed, any such investment
will prove profitable or otherwise successful. Investments of the type proposed
involve a number of risks, including, among others, the potential distraction of
company management; the need for additional working capital; management's
ability to manage potentially distinct business opportunities, particularly in
light of current management's possible lack of industry experience; the issues
relevant to Novo Networks in the subsidiaries' bankruptcies; the potential
impairment of the company's reputation and relationships; the ability to locate,
consummate, fund and integrate suitable investment opportunities while the
company maintains cash assets available for redeployment and numerous other
risks and uncertainties.


                                       23
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Novo Networks is exposed to the impact of interest rate and other risks. We have
investments in money market funds of approximately $14.4 million at December 31,
2001. Due to the short-term nature of our investments, we believe that the
effects of changes in interest rates are limited and would not materially affect
profitability.




                                       24
<PAGE>


PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

It is not possible to predict the outcome of either iGlobal's bankruptcy
proceedings or the debtor subsidiaries' jointly administered bankruptcy
proceedings or the effects of such proceedings on the business of Novo Networks
or its non-debtor subsidiaries or the interests of creditors or stockholders. No
assurances can be given that our debtor subsidiaries amended plan will be
confirmed.

Consistent with the terms of the settlement agreement between RSL COM USA, Inc.,
Novo Networks, Inc. and our debtor subsidiaries, as previously described in the
Quarterly Report for the quarter ended September 30, 2001, we have paid $50,000
and our debtor subsidiaries have paid $158,000 to RSL upon the requisite
approvals of our debtor subsidiaries' Bankruptcy Court and RSL's Bankruptcy
Court on December 20, 2001 and December 21, 2001, respectively.

We have previously disclosed in other reports filed with the United States
Securities and Exchange Commission certain other legal proceedings pending
against our subsidiaries and us. Consistent with the rules promulgated by the
SEC, descriptions of these matters have not been included because they have not
been terminated and there have not been any material developments during the
quarter ended December 31, 2001. Readers are encouraged to refer to our prior
reports filed with the SEC for further information concerning other legal
proceedings affecting our subsidiaries and us.

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

All actions and proceedings commenced against our debtor subsidiaries prior to
their respective filing dates have been stayed in accordance with the applicable
provisions of the Bankruptcy Code.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)    Exhibits

       2.1          Proposed Disclosure Statement with respect to the Joint Plan
                    by AxisTel Communications, Inc., its Affiliated Debtors and
                    Novo Networks, Inc. dated December 31, 2001

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

(b)    Reports on Form 8-K

       On October 16, 2001, we filed a Report on Form 8-K announcing that our
       debtor subsidiaries had filed a reorganization plan and disclosure
       statement with the U.S. Bankruptcy Court for the District of Delaware.





                                       25
<PAGE>




SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



NOVO NETWORKS, INC.


Date:  February 14, 2002            By:     /s/ Barrett N. Wissman

                                    Barrett N. Wissman
                                    (Principal Executive Officer)



Date:  February 14, 2002            By:     /s/ Daniel J. Wilson

                                    Daniel J. Wilson
                                    (Principal Financial and Accounting Officer)



                                       26
<PAGE>


                               INDEX TO EXHIBITS

<Table>
<Caption>

       EXHIBIT
       NUMBER       DESCRIPTION
       --------     -----------

<S>                 <C>
       2.1          Proposed Disclosure Statement with respect to the Joint Plan
                    by AxisTel Communications, Inc., its Affiliated Debtors and
                    Novo Networks, Inc. dated December 31, 2001

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

</Table>