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Annual report filed by small businesses

10KSB



                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                   FORM 10-KSB

[X]  Annual Report Under Section 13 or 15(d) of the Securities Exchange Act
     of 1934.

                   For the fiscal year ended December 31, 2003

                                       OR

[ ]  Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
     of 1934.

             For the transition period from _________ to ___________

                        Commission File Number 001-15673

                            PROVO INTERNATIONAL, INC.
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

           Delaware                                              13-3950283
  ----------------------------                                ----------------
  (State or Other Jurisdiction                                (I.R.S. Employer
of Incorporation or Organization)                            Identification No.)

One Blue Hill Plaza, P.O. Box 1548, Pearl River, New York           10965
---------------------------------------------------------           -----
        (Address of principal executive offices)                  (Zip Code)

                                 (845) 623-8553
                -----------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

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




    Title of each class              Name of each exchange on which registered
                                  
Common Stock, $.01 par value                American Stock Exchange



Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

The issuer's revenues for the year ended December 31, 2003 were 58,287,790.



 




The aggregate market value of the voting and non-voting common equity held by
non-affiliates as of April 2, 2004 was $7,038,080. As of April 2, 2004, there
were 39,082,779 shares of the issuer's Common Stock outstanding.

                      Documents Incorporated by Reference:

                                      None.



 





                                     PART I


Item 1. Description of Business.

The Company

     We are a Delaware corporation. Our principal executive offices are located
at One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965. Our telephone
number is (845) 623-8553. The address of our website is
http://www.provointernational.com.

     We were formed during February 1997 as a Delaware corporation under the
name "Easy Street Online, Inc." We changed our name to "Frontline Communications
Corporation" in July 1997. On April 3, 2003, we acquired Proyecciones y Ventas
Organizadas, S.A. de C.V. ("Provo Mexico") and in December 2003 we changed our
name to "Provo International Inc."

     Prior to acquiring Provo Mexico, during 2003 and during 2002 our revenues
were primarily derived from providing Internet access services in the form of
dial-up access, dedicated leased lines and digital subscriber line (DSL) access
to individuals and businesses. The balance of our revenues during those periods
were derived from website design, development and hosting services.

     We are now organized into three distinct divisions. Provo International is
responsible for overseeing mergers, acquisitions, financing transactions and
regulatory compliance activities. Provo US, a division of Provo International,
is responsible for the continued management of the Internet service business,
which was our core business prior to our acquisition of Provo Mexico. Provo
Mexico, a wholly-owned subsidiary of Provo International, continues to
distribute prepaid calling cards and cellular phone airtime in Mexico.

Recent Developments

     On April 3, 2003, we acquired Provo Mexico for consideration consisting of
the following:

          220,000 shares of our Series C convertible preferred stock, which was
          to be convertible into shares of our common stock subject to the
          approval of our stockholders; and

          a $20,000,000 secured note, which was to be payable only if our
          stockholders failed to timely approve the proposed issuance of common
          stock upon conversion of the Series C convertible preferred stock.

     In connection with our acquisition of Provo Mexico, we also issued 35,500
shares of our Series D convertible preferred stock to certain of our executive
officers and directors, certain Provo employees and other third parties, which
also was to be convertible into shares of our common stock subject to the
approval of our stockholders.

     On November 5, 2003, we issued 220,000 shares of our Series E convertible
preferred stock in exchange for all 220,000 outstanding shares of our Series C
convertible preferred stock. The terms of the Series E convertible preferred
stock were


                                       2



 




substantially the same as those of the Series C convertible preferred stock
except that, in order to satisfy certain requirements of the American Stock
Exchange pertaining to the continued listing of our securities, no share of
Series E convertible preferred stock will be issuable to the two former Provo
stockholders and any entity controlled by them if as a result of such conversion
the shares of common stock held by them and their affiliates would exceed 49.5%
of the outstanding common stock after giving effect to such conversion.

     On December 12, 2003 we held a meeting of our stockholders to consider and
vote upon the issuance of shares of our common stock upon conversion of our
Series E convertible preferred stock and our Series D convertible preferred
stock, and certain other matters including the following:

          a two-for-three reverse split of our common stock;

          an increase in the number of our authorized shares of common stock
          from 25,000,000 shares to 100,000,000 shares; and

          the mandatory conversion of all of our Series B convertible redeemable
          preferred stock into shares of our common stock upon the election of
          the holders of a majority thereof.

     As a result of the vote of our stockholders on December 12, 2003:

          133,445 of the 220,000 outstanding shares of Series E convertible
          preferred stock were converted into 13,344,500 shares of common stock
          (and the remaining 86,555 shares of Series E convertible preferred
          stock remain outstanding);

          all 35,500 outstanding shares of Series D convertible preferred stock
          were converted into 3,550,000 shares of common stock;

          the two-for-three reverse stock split was approved, and became
          effective as of January 30, 2004;

          our authorized shares of common stock were increased from 25,000,000
          shares to 100,000,000 shares;

          all 496,445 outstanding shares of Series B convertible redeemable
          preferred stock were converted into 1,985,780 shares of common stock
          (after giving effect to the reverse stock split); and

          the $20,000,000 secured note issued to the former stockholders of
          Provo Mexico was canceled.

     All data relating to the number of shares and per share amounts presented
     in this report have been retroactively adjusted in order to reflect the
     reverse split.

     On April 7, 2004, Provo Mexico entered into a settlement agreement with its
major supplier, Telmex, whereby Provo Mexico transferred eight non-revenue
generating real estate properties and certain vehicles carried at book at
$1,985,512 to Telmex in full satisfaction and release of the $6,940,363 credit
balance to Telmex. The Telmex settlement agreement also provides that Provo
Mexico will have a term of 45 days to close its distribution of Telmex prepaid
calling cards. During this 45-day term, Provo Mexico may not purchase Telmex
issued cards in excess of $750,000 per week. All purchases of Telmex cards must
be paid in cash. At the end of the 45-day term, each of Telmex and Provo Mexico
granted each other and their respective officers, directors, shareholders and
affiliates a full release for any prior obligations and or transactions between
the parties.

     The settlement agreement also provides that for a period of fifteen years
from the date of the agreement, each of Provo Mexico, certain of its
subsidiaries, our Chairman, Ventura Martinez del Rio, Sr. and our director,
Ventura Martinez del Rio, Jr. may not participate as officers or directors of
any companies whose prime objective is the wholesale distribution of Telmex
issued prepaid calling cards.

Description of the Provo US Division

     General

     Our Provo US division is a regional Internet service provider (ISP)
providing Internet access, web hosting, website design, and related services to
residential and small business customers throughout the Northeast United States
and, through a network partnership agreement, Internet access to customers
nationwide.

     Primarily through 18 acquisitions, the Provo US division grew its monthly
revenue from $30,000 as of October 1998 to approximately $325,000 as of December
31, 2003.


                                       3



 




During that same period, the division expanded its owned Internet access
geographic footprint from the New York/New Jersey metropolitan area, to a region
that now includes Delaware, Eastern Pennsylvania and Northern Virginia. At
December 31, 2003, the Provo US division owned and operated 12
points-of-presence (POPs) which, when combined with 1,100 POPs licensed from
third parties, provide us with the capability to serve over 75% of the U.S.
population.

     During 2002 and 2003, the Provo US division concentrated its efforts and
resources primarily on restructuring its operations to reduce costs, increase
operating efficiency and improve customer service. As a result of the
restructuring, the US division reduced its staff from approximately 70 employees
at March 2001 to 28 as of December 1, 2003, and closed two regional offices,
consolidating those functions into its Pearl River, New York headquarters.

     The Provo US division also streamlined its product offerings, eliminating
certain low margin products and services. We also standardized our product
pricing, and raised the monthly rates to most of our dial-up access customers to
between $17.95 and $19.95 per month, depending on the term of service purchased.

     Internet Products and Services

     The products and services of our Provo US division are focused around three
key Internet business areas - access, presence, and development.

Internet Access Products

     o    Dial-Up Accounts: Provo US offers residential and business dial-up and
          ISDN Internet access on a national basis. Customers may order these
          products on our websites or by calling our 800 number. Utilizing our
          branded software, available via CD or downloadable from our website,
          customers can quickly order and activate a new account, billable to
          the client's credit card. The standard dial-up product provides
          clients two Internet e-mail addresses, a customizable homepage,access
          to our Customer Service telephone support center, and the latest
          access tools including browsers from Netscape and Microsoft.

     o    DSL: Provo US is a reseller of Digital Subscriber Line high-speed
          Internet access services for DSL.net, Inc., and Covad Communications
          Company. We offer Digital Subscriber Line, ISDN Digital Subscriber
          Line, Asymmetric Digital Subscriber Line and Symmetric Digital
          Subscriber Line services in the Mid-Atlantic and Northeast United
          States. These products provide our residential and business customers
          with high-speed dedicated Internet connectivity at an affordable cost.

     o    Dedicated Access: Provo US offers high-speed, high-bandwidth dedicated
          leased lines to customers, principally for business users who require
          high-speed internet connectivity 24 hours a day, seven days a week.

Internet Presence Products

     o    Virtual Website hosting: Provo US offers virtual website hosting
          services to residential and small business customers who require 24
          hour presence on the Internet. By renting space on our Internet
          servers, customers avoid costly hardware investment, maintenance, and
          other costs associated with operating their own servers. Marketed
          partly under our brand name FrontHost'sm', the Company's


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          hosting services include domain name registration, e-mail addresses,
          file upload and download capability and statistical logs.

     o    Dedicated Hosting: Provo US offers website hosting and maintenance
          services to clients wishing to rent secure web-servers. In addition,
          Provo US offers co-location services to those customers preferring to
          install their own equipment at our facilities and connect their
          systems directly to the Internet.

     o    FrontHost'sm': Provo US's do-it-yourself web hosting service, which
          includes the "Website Wizard" products, assists customers in
          developing and hosting their own Websites and e-commerce 'stores' by
          using our FrontHost'sm' user-friendly tools. The product line is
          simple, self service, and economical.

Internet Development Services

     o    Website design services: PlanetMedia'sm', our website design,
          consulting, and development division, assists business customers with
          Internet marketing strategy, graphic design and layout, writing and
          editing and Website information architecture (including Website
          navigation and searching systems). Our in-house professionals provide
          full life-cycle support to customers: from the design phase through
          website installation and maintenance.

     Payroll Card Products

     Provo US recently announced the launch of its Provo Paycard'TM' product.
The Provo Paycard is a payroll debit card that offers a simple and inexpensive
way for unbanked employees to receive their pay via Direct Deposit, rather than
incurring the expense and inconvenience of check cashing. With Provo's Paycard,
cardholders can access their pay at practically any ATM machine and purchase
goods and services at millions of store locations.

     Provo US plans to market the product to payroll companies and employers of
Spanish speaking workers in the U.S. who do not have established relationships
with banks, currently estimated at approximately 12 million U.S. households.
We did not realize any revenue from the sale of this product in 2003.


     Marketing and Sales

     Provo US currently handles sales and marketing utilizing in-house staff,
including its customer service and technical groups. Provo US markets and sells
its products through direct sales efforts, and a network of external,
commissioned resellers we refer to as "Value Added Resellers" (VARs).

     Marketing activities focus primarily on regional efforts such as radio,
trade and local business print media, as well as local event marketing in each
of the different areas in which we have a physical presence, which includes the
East coast from Virginia through the New York metropolitan area.

     POPS and Network infrastructure

     Provo US's Internet access network is comprised primarily of a
Company-managed network and third-party POPs provided primarily through an
agreement with Megapop, Inc. The Company believes that this combination of owned
and leased access enables Provo US to most economically provide Internet access
services to its customers on a national level while leveraging the competitive
advantages associated with the Company's own, uniquely-located, POPs.


                                       5



 




     Broadband access to the Internet for Provo US-managed POPs is provided
through high speed T1, T3, or Ethernet connections supplied under contracts with
national broadband suppliers such as Verio, Inc. and by certain regional
broadband suppliers such as Focal, Inc., and Global NAPS, Inc. DSL access is
similarly provided through direct connections or reseller agreements with Covad
Communications Company and DSL.net, Inc.

     Network and service delivery stability is provided through the use of
redundant computing and server facilities located at our larger owned POPs. We
have duplicate bandwidth access at each of our major locations. We have
installed backup power supply, remote alarm, computer virus protection, and
monitoring software throughout our network, which is monitored 24 hours a day, 7
days-a-week.

     Customer and Product Support Services

     We believe that reliable customer and product support is critical to
retaining existing subscribers and in attracting new customers. Provo US
provides the following Customer and Product support services:

     o    Toll-free, live telephone assistance available seven days a week,
          during peak load hours (10 hours per day; 8 hours on weekends);

     o    Email-based assistance available seven days a week;

     o    Internet help at our www.fcc.net Web site;

     o    Fax support for higher-end business hosting customers.

     Product and Service Development

     Our Product Service Division develops proprietary applications, and reviews
new technologies and third-party software products that are incorporated into
our network and service products.

     Competition

     Our competitors for Internet access services in the United States include
international and national telecommunications providers, such as America Online,
Time Warner Cable, Verizon, Earthlink, United Online (NetZero and Juno brands)
and Covad Communications, as well as regional Internet service providers, such
as Best Web Corporation, Fastnet Inc. and LogicalNet Corporation. Our national
competitors have significantly greater financial, technical, marketing and other
resources than we do, and our share of the market compared to theirs is too
small to quantify. We believe that our market share in the region in which we
operate is less than 1%. Many of our current and future competitors possess a
wide range of products and collective new product development capabilities that
exceed ours. For example, some of our competitors, such as Time Warner Cable,
offer access to the Internet via cable modem. We do not possess the technical
capability to offer such a service.

     Increased competition could result in significant price competition, which
in turn could result in significant price reductions in some of our product
offerings, most notably Internet access and web hosting. In addition, increased
competition for new customers could result in increased sales and marketing
expenses and related customer acquisition costs, which could materially
adversely affect our operating results. We


                                       6



 




may not have the financial resources, technical expertise or marketing and
support capabilities to compete successfully, and the software, services or
technologies developed by others may render our products, services or
technologies obsolete or less marketable.

     Industry Regulation

     The following summary of regulatory developments and legislation does not
describe all present and proposed federal, state and local regulations and
legislation affecting us and our industry. Other proposed and existing federal,
state and local legislation and regulations are currently the subject of
judicial proceedings, legislative hearings and administrative proposals which
could change the manner in which our industry operates. Neither the outcome of
these proceedings, nor their impact upon us or our industry, can be predicted at
this time.

     Internet Service Provider Regulation

     We believe that under United States law, the Internet-related services that
we provide constitute information services, rather than telecommunications
services. As such, our services are generally not regulated by the U.S. Federal
Communications Commission or state agencies responsible for regulating
telecommunications carriers.

     However, changes in the regulatory environment relating to the Internet
connectivity market, including regulatory changes which directly or indirectly
affect telecommunications costs or increase the likelihood or scope of
competition from the regional Bell operating companies or other
telecommunications carriers, could affect the prices at which we may sell our
services and impact competition in our industry. Congress and the Federal
Communications Commission will likely continue to explore the potential
regulation of the Internet. For instance, the Federal Communications Commission
may subject certain services offered by ISPs to regulation as
"telecommunications service", which could result in us being subject to
universal service fees, access charge fees, regulatory fees and other fees
imposed on regulated telecommunications providers, which could cause our costs
of doing business to increase substantially.

     Future laws and regulations could be adopted or modified to address matters
such as user privacy, copyright and trademark protection, pricing, consumer
protection, child protection, characteristics and quality of Internet services,
libel and defamation, and sales and other taxes. Internet-related legislation
and regulatory policies are continuing to develop, and we could be subject to
increased regulation in the future. Laws or regulations could be adopted in the
future that may decrease the growth and expansion of the Internet's use,
increase our costs, or otherwise adversely affect our business.

     In 1998, Congress passed the Digital Millennium Copyright Act. That act
provides numerous protections from certain types of copyright liability to
Internet service providers that comply with its requirements. We have adopted
policies and procedures in accordance with the act, however, to the extent that
we have not met those requirements, third parties could seek recovery from us
for copyright infringements caused by our Internet customers.



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     Employees

     We currently employ 28 full-time individuals in our Provo US division, 24
of whom are located at our Pearl River, New York headquarters. The remaining
employees are located at the Babylon, New York facility.

     Trademarks and Service Marks

     We have been granted Federal Trademark Registrations for the following
trademarks: Frontline Communications Corp., Frontline.net and Frontline.net
Effortless E-Commerce and Internet Access (name and two logos). All other
trademarks and service marks used in this report are the property of their
respective owners.

Description of Provo Mexico

     General

     Provo Mexico was formed in October 1995 by Ventura Martinez Del Rio, Sr.,
as a private company headquartered in Mexico City. Provo Mexico was formed to
distribute prepaid (Ladatel) public telephone cards for Telefonos de Mexico,
S.A. ("Telmex"), which were introduced in 1995. Telmex is the dominant
telecommunications provider in Mexico. Provo Mexico also distributes Multifon
prepaid landline telephone time provided by Telmex and prepaid Digital PCS
cellular airtime provided by Radiomovil Dipsa, S.A. de C.V. ("Telcel"). Telcel
is the dominant provider of cellular airtime in Mexico.

     Provo Mexico's sales of prepaid calling time were approximately $74,000,000
in 2003. In the fourth quarter of 2003, sales of Telcel exceeded sales of
Ladatel, as Ladatel sales declined. Currently, Telcel airtime sales represent
about 60% of Provo Mexico's total annual sales, up significantly from 10% in
2000. As part of Provo Mexico's settlement agreement with Telmex, it has agreed
to cease wholesale distribution of Telmex's prepaid calling cards by the end of
May, 2004. (See Item 3. Legal Proceedings - Telmex Settlement). The settlement
agreement does not prevent Provo Mexico from continuing to sell Telcel airtime,
which is expected to represent a majority of Provo Mexico's sales in 2004.

     Provo Mexico's principal office is located at Alvaro Obregon No. 121,
Penthouse, Mexico City, Mexico, and its telephone number is 011 52 55 5525-2025.

     Products

     The purpose of the services that Provo Mexico currently resells in Mexico
is to allow individuals who either do not own a land line phone or cell phone or
are not able to enter into continuous service contracts for these services, to
make calls on an as-needed basis, in a convenient and affordable manner.

     Telmex calling time is offered via Ladatel cards in increments of 30, 50
and 100 pesos. Calling time is stored in a simple, single-purpose smart chip and
"burns off" as it is used. Mechanisms housed within public telephones charge
used calling time against the electronic balance stored in the card until no
calling time remains. At this point, a new card must be purchased. Prior to the
advent of these calling cards in 1995 in Mexico, public phones were coin-based.
Such coin-based phones often broke down or were the subject of significant theft
problems. The prepaid card program implemented by Telmex largely has remedied
these problems.


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     Prepaid Multifon calling time is offered via personal identification number
(PIN)-based access. Multifon time is sold to groups of residents who share a
common phone in a building such as an apartment building.

     Telcel calling time is also offered via PIN-based access. Telcel calling
time is sold in increments of 100, 200 or 500 pesos. Users must own or share a
cellular phone to use this service. A PIN must be entered prior to making the
first call. A central switch maintained by Telcel tracks remaining calling time.
Users must repurchase a new block of time with a new PIN every time they exhaust
their prepaid cellular calling time.

     The Telcel product is gaining increasing popularity in Mexico as cellular
phones are becoming an increasingly preferred method of communication. A
significant portion of the Mexican population has opted to use their cell phone
as their primary device for voice communication. By utilizing pre-paid cellular
calling cards such as the product offered by Telcel, cell phone users can pay
for their calling time, in advance, with cash, without the need for a monthly
service contract.

     As part of Provo Mexico's settlement agreement with Telmex, it has agreed
to cease wholesale distribution of Ladatel and Multifon time by the end of May
2004. (See Item 3. Legal Proceedings - Telmex Settlement). Provo Mexico plans to
focus its sales and marketing efforts on the Telcel product, and plans to
introduce new products into its distribution network in an attempt to compensate
for the loss of the Ladatel and Multifon products.

     Description of Commissions

     Provo Mexico has relied on Telmex to finance much of its sales growth over
the past eight years through its provision of a credit line to Provo. Telmex
requires all of its distributors to pay for all resold calling time using cash
or their credit line with Telmex when it is ordered. Various surplus real estate
properties owned by Provo Mexico, its affiliates and its business partners have
been pledged to guarantee Provo Mexico's credit lines with Telmex.

     The average discount Provo Mexico receives related to purchases of minutes
from Telmex using credit is approximately 10.8% (credit-based discounts for 30-,
50- and 100-peso cards range from 10.0% to 12.0%). This compares to an average
discount rate of approximately 13.8% related to purchases of minutes paid for
entirely with cash (cash-based discounts for 30-, 50- and 100-pesos cards range
from 13.0% to 15.2%). Starting on March 10, 2003, Provo Mexico stopped
purchasing calling cards using its credit lines with Telmex. All of Provo
Mexico's calling card purchases from Telmex are currently made in cash.

     Provo Mexico allows its external agent, distributor and point of sale
partners to retain combined commissions or discounts that typically range from
8% to 9%. Provo Mexico pays its internal sales team members commissions of 3% to
5%. Its distributor network is responsible for collecting approximately 50% of
card sale proceeds and remitting the proper net proceed amounts to Provo Mexico
within 21 days of taking delivery of new cards. The other half of Provo Mexico's
sales are collected directly by Provo Mexico or remitted to Provo Mexico via
daily deposits by Provo Mexico's agents to company-owned bank accounts. Provo
Mexico has established strict remittance rules to ensure that the distributors
to whom it extends credit will pay all amounts owed to Provo Mexico on a timely
basis.

     Provo Mexico's distribution network currently includes several large retail
chains,


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including Wal-Mart, Carrefour and Office Max. In addition, Provo Mexico
distributes its cards in convenience stores, drug stores, restaurants, lottery
stands, newspaper and magazine stands and other general stores.

     Competition

     Approximately 140 distributors sell prepaid calling time purchased from
Telmex and Telcel in Mexico. The two largest competitors that sell prepaid
calling time in Mexico are Tarjetas Del Noreste and DiCasa, each with a market
share position of approximately 5% to 6%. Provo Mexico estimates that it now
occupies less than 5% of the market for prepaid calling time in Mexico. Telmex
has attempted to curb the size of Provo Mexico in the past, by converting
sub-distributors of Provo Mexico to direct distributors for Telmex.

     Subsidiaries

     Provo Mexico currently operates as a group of seven affiliated companies.
Telmex required Provo Mexico to form some of the entities because of its
dominant presence in certain markets. On March 31, 2003, Provo Mexico acquired
from members of the Martinez del Rio family, the controlling majority of the
capital stock of the following subsidiaries: FS Provo, S.A. de C.V.;
Proyecciones y Ventas Organizadas del D.F., S.A. de C.V.; Proyecciones y Ventas
Organizadas de Occidente, S.A. de C.V.; Tilgo, S.A. de C.V.; Tarnor, S.A. de
C.V. and PTL Administradora, S.A. de C.V.

     In October 2002, Provo Mexico formed Provo US, Inc., a Delaware corporation
wholly-owned by Provo Mexico. Provo US is currently a shell company with no
operations. It is expected that Provo US will be used for any new projects that
Provo Mexico may initiate in the United States.

     Employees

     At December 31,2003 Provo Mexico had approximately 93 full-time employees
and a network of 52 independently-owned distributorships that collectively
employ more than 400 sales people.


I
tem 2. Description of Property-

     Our corporate offices are located in Pearl River, New York, where we lease
approximately 12,000 square feet of space through a lease that expires in August
of 2004. Provo US also leases approximately 2,700 square feet of space in
Babylon, New York that was assumed in connection with our purchase of PNM group,
Inc. (d/b/a) Planet Media. The lease expires in August of 2006. The aggregate
annual rent of the two offices is approximately $308,000.

     Provo US also leases space (typically, less than 100 square feet) in
various geographic locations to house the telecommunications equipment for each
of our POPs. Leases for the POPs have various expiration dates through June
2004. Aggregate annual rentals for POPs are approximately $6,000.

     Provo Mexico's executive offices are located in Mexico City, Mexico where
Provo Mexico uses approximately 6,000 square feet of office space. The lease is
for a three year term which expires in December 2006 and the monthly rent is
44,000 pesos, approximately $4,000 at the current exchange rate.

     In addition, Provo Mexico leases small offices in 7 cities throughout
Mexico where


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it maintains regional sales and distribution offices. Provo Mexico's regional
offices are located in the following Mexican cities: Monterrey, Nuevo Leon;
Torreon, Coahuila; Chihuahua, Chihuahua; Los Mochis, Sinaloa; Jalapa, Veracruz;
Cordoba, Veracruz; Veracruz, Veracruz. The aggregate annual rent for these
leases is less than $7,500.

     Provo Mexico's subsidiary, FS Provo, S.A. owns approximately 946 acres of
forest land in El Chamal, Tamaulipas, Mexico. In addition, Provo Mexico and its
subsidiaries Proyecciones y Ventas Organizadas del D.F., S.A. de C.V., F.S.
Provo, S.A. de C.V. and Tilgo, S.A. de C.V., own seven pieces of forest land
totaling approximately 605 acres in San Gabriel, San Luis Potosi, Mexico. These
lands will also be transferred to Telmex as part of Provo Mexico's settlement
agreement with Telmex. (See Item 3. Legal Proceedings - Telmex Settlement).


Item 3. Legal Proceedings

     From time to time, our Provo US division has been a party to routine
pending or threatened legal proceedings and arbitrations that are routine and
incidental to our business. Based upon information presently available, and in
light of legal and other defenses available to us, management does not consider
the liability from any threatened or pending litigation against Provo US to be
material to us.

     Provo Mexico is not a party to any pending legal proceedings other than
ordinary course routine litigation incidental to its business. Management does
not consider that any of these proceedings will have a material adverse effect
on our financial condition or results of operations.

     Telmex Settlement

     Historically, Provo Mexico relied on Telmex to finance its inventory
purchases with a line of credit. Provo Mexico was in default with respect to the
repayment of its $6,940,363 credit line with Telmex. On April 7, 2004, Provo
Mexico entered into a settlement agreement with its major supplier, Telmex,
whereby Provo Mexico transferred eight non-revenue generating real estate
properties and certain vehicles with a net book value of $1,985,512 to
Telmex in full satisfaction and release of the $6,940,363 credit balance to
Telmex. The Telmex settlement agreement also provides that Provo Mexico will
have a term of 45 days to close its distribution of Telmex prepaid calling
cards. During this 45-day term, Provo Mexico may not purchase Telmex issued
cards in excess of $750,000 per week. All purchases of Telmex cards must be paid
in cash. At the end of the 45-day term, each of Telmex and Provo Mexico granted
each other and their respective officers, directors, shareholders and affiliates
a full release for any prior obligations and or transactions between the
parties.

     The settlement agreement also provides that for a period of fifteen years
from the date of the agreement, each of Provo Mexico, certain of its
subsidiaries, our Chairman, Ventura Martinez del Rio, Sr. and our director,
Ventura Martinez del Rio, Jr. may not participate as officers or directors of
any companies whose prime objective is the wholesale distribution of Telmex
issued prepaid calling cards.


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


                                       11



 




     The Company held an annual meeting of stockholders on December 12, 2003 at
which the following matters were voted upon:




--------------------------------------------------------------------------------
Proposal                              Votes For      Votes Against     Abstained
--------------------------------------------------------------------------------
                                                               
To issue up to 25,550,000 shares      8,242,319    53,421               27,326
of common stock upon conversion
of our Series D and E
convertible preferred stock
--------------------------------------------------------------------------------
To amend the certificate of           8,243,705    53,413               25,948
designation of our Series B
convertible preferred stock to
provide for the mandatory
conversion of the Series B
convertible preferred stock at a
ratio of 6 shares of common
stock per preferred share
--------------------------------------------------------------------------------
To amend the Company's                8,130,711   176,070               16,285
certificate of incorporation to
effectuate a two for three
reverse stock split and to
increase its authorized shares
of common stock to 100,000,000
--------------------------------------------------------------------------------
To amend the Company's                8,225,713    61,411               35,942
certificate of incorporation to
change its name to "Provo
International, Inc."
--------------------------------------------------------------------------------
Election of Nine Directors:
--------------------------------------------------------------------------------
William A. Barron                    12,735,147   122,790 (withheld)
--------------------------------------------------------------------------------
Stephen J. Cole-Hatchard             12,742,647   115,290 (withheld)
--------------------------------------------------------------------------------
Nicko Feinberg                       12,742,647   115,290 (withheld)
--------------------------------------------------------------------------------
Miguel Madero                        12,760,947    96,990 (withheld)
--------------------------------------------------------------------------------
Jaime Marti                          12,760,947    96,990 (withheld)
--------------------------------------------------------------------------------
Ventura Martinez del Rio, Sr.        12,760,947    96,990 (withheld)
--------------------------------------------------------------------------------
Ventura Martinez del Rio, Jr.        12,760,947    96,990 (withheld)
--------------------------------------------------------------------------------
Jesus Rodriquez                      12,813,632    44,305 (withheld)
--------------------------------------------------------------------------------
Ronald Signore                       12,742,647   150,290 (withheld)
--------------------------------------------------------------------------------




                                       12



 






                                                              
--------------------------------------------------------------------------------
To issue shares of common stock       7,602,865   693,256               26,945
pursuant to the Company's
agreement with Fusion Capital
Fund II, LLC
--------------------------------------------------------------------------------
To ratify the Company's              11,788,972   950,173              118,792
selection of BDO Hernandez and
Marron, y Cia as the Company's
independent auditors
--------------------------------------------------------------------------------




                                     PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

     Market Information. Commencing on February 7, 2000 our Common Stock has
been listed on the American Stock Exchange ("AMEX") under the symbol "FNT". From
May 14, 1998 until February 7, 2000, our Common Stock was traded on the NASDAQ
SmallCap Market under the symbol "FCCN". The following table sets forth, for the
periods indicated, the range of the high and low closing prices for the Common
Stock as reported by AMEX, and have been adjusted retroactively to reflect the
reverse split.




Fiscal Year Ended December 31, 2003                                  High   Low
-----------------------------------                                  ----   ---
                                                                      
First Quarter                                                         .42   .23

Second Quarter                                                        .78   .30

Third Quarter                                                        1.08   .39

Fourth Quarter                                                        .89   .41






Fiscal Year Ended December 31, 2002                                  High   Low
-----------------------------------                                  ----   ---
                                                                      
First Quarter                                                         .44   .21

Second Quarter                                                        .47   .23

Third Quarter                                                         .65   .21

Fourth Quarter                                                        .54   .20



     The number of record holders of our Common Stock was 243 as of April 2,
2004. We believe that there are in excess of 2,700 beneficial owners of our
Common Stock.

     Dividend Policy. To date, we have not declared or paid any cash dividends
on our common stock. The payment of dividends on our common stock, if any, in
the future is within the discretion of the Board of Directors and will depend
upon the Company's earnings, its capital requirements and financial condition
and other relevant factors


                                       13



 




such as the rights of holders of capital stock that rank senior with respect to
dividends. We presently intend to retain any earnings to finance our business
and do not expect to declare or pay any cash dividends on our common stock in
the foreseeable future.

Changes in Securities and Use of Proceeds

     Recent Sales of Unregistered Securities

     During the three months ended December 31, 2003, we issued 1,111,111 shares
of common stock, and warrants to acquire 3,150,000 shares of common stock, to
Scarborough Ltd for an aggregate consideration of $500,000. We also issued
16,667 shares of common stock to GFM, Inc. in exchange for services to be
rendered pursuant to a consulting agreement. We issued 83,333 shares of common
stock to James Nicholson upon the exercise of warrants. We issued 307,104 shares
of common stock to Fusion Capital II, LLC upon conversion of a convertible
promissory note. We issued to Barbara Mittman, Asher Brand and Deborah Gold an
aggregate of 53,333 shares of common stock for services to be rendered pursuant
to a placement agreement. We also issued 1,985,780 shares of common stock upon
conversion of 496,445 shares of Series B convertible preferred stock, and
3,550,000 shares of common stock upon conversion of 35,500 shares of Series D
convertible preferred stock and 13,344,500 shares of common stock upon
conversion of 133,445 shares of Series E convertible preferred stock. The
foregoing shares were issued pursuant to exemptions from registration under
Sections 3(a)(9) and 4(2) of the Securities Act of 1933.

Equity Plan Compensation Information

The following table sets forth information as of December 31, 2003 regarding
compensation plans under which our equity securities are authorized for
issuance.




                                                                                 Number of
                                       Number of                           securities remaining
                                    Securities to be       Weighted-       available for future
                                      issued upon           average            issuance under
                                      exercise of        exercise price     equity compensation
                                      outstanding        of outstanding       plans (excluding
                                   options, warrants   options, warrants   securities reflected
                                      and rights           and rights         in column (a))
Plan Category                             (a)                (b)                   (c)
--------------------------------   -----------------   -----------------   --------------------
                                                                        
Equity compensation plans
approved by security holders (1)         678,533             $4.22               1,218,467

Equity compensation plans not
approved by security holders (2)       4,423,333             $ .77
                                       ---------             -----              ----------
Total                                  5,101,867             $1.23               1,218,467
                                                                                ==========



     (1)  Pursuant to our 1997 Stock Option Plan.

     (2)  Outstanding warrants to acquire shares of common stock. The warrants
          expire at various times through 2008 and the warrant holders have
          certain anti-dilution rights.


                                       14



 





Item 6. Management's Discussion and Analysis of Financial Condition and Results
     of Operations.

     Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: The statements contained in this Item 6 and elsewhere in this Form 10-KSB
that are not historical facts are "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended. These "forward looking
statements" are subject to a number of known and unknown risks, uncertainties
and other factors that may cause our actual results, performance or achievements
to be materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. Such risk factors
include, but are not limited to, the following: risks associated with our
ability to attract and retain new subscribers to integrate newly acquired
subscribers and business entities into our operations, and to manage any future
growth; uncertainties regarding our future operating results; risks relating to
changes in the market for Internet services, regulatory and technological
changes, our possible inability to protect proprietary rights, changes in
consumer preferences and demographics, competition and our reliance on
telecommunication carriers; risks relating to our ability to expand our network
structure and to obtain any necessary future financing; risks relating to
unfavorable general economic conditions, uncertainty of customer and supplier
plans and commitments; risks related to our acquisition of Provo Mexico; risks
related to our ability to successfully negotiate payment conditions with Telmex;
risks related to foreign markets and our operations in Mexico; risks related to
our new product service offerings; and our ability to maintain the American
Stock Exchange listing of our securities; and other risks detailed in this
report and in our other Securities and Exchange Commission filings. The words
"believe", "expect", "anticipate", "intend" and "plan" and similar expressions
identify forward-looking statements, which speak only as of the date they were
made. We undertake no obligation to update any forward-looking statements
contained in this report.

Provo Mexico Acquisition

     On April 3, 2003, we completed the acquisition of all of the issued and
outstanding stock of Proyecciones y Ventas Organizadas, S.A. de C.V., a
corporation organized under the laws of the Republic of Mexico ("Provo Mexico").
Provo Mexico and its subsidiaries are engaged in the distribution of prepaid
calling cards and cellular phone airtime in Mexico. The acquisition was
accounted for using the purchase method of accounting with the results of the
acquisition included in the consolidated financial statements from the
acquisition date.

Overview

     Prior to acquiring Provo Mexico in 2003 and during 2002, a significant part
of our revenues were derived from providing Internet access services to
individuals and businesses. These revenues were comprised principally of
recurring revenues from our customer base, leased line connections and various
ancillary services. We charge subscription fees, which are billed monthly,
quarterly, semi-annually or annually in advance, typically pursuant to
pre-authorized credit card accounts. The balance of our revenues during those
periods were derived from website design, development and hosting services.

     Monthly subscription service revenue for Internet access is recognized over
the period in which services are provided. Fee revenues for website design,
development


                                       15



 




and hosting services are recognized as services are performed. Deferred revenue
represents prepaid access fees by customers.

     Provo Mexico's primary business is the sale and distribution of prepaid
phone cards in Mexico. Provo sells and distributes Ladatel payphone calling
cards, Multifon prepaid telephone time for Telmex and prepaid PCS cellular
airtime for Telcel, all of which are collectively referred to as prepaid phone
cards. Telmex is the dominant telecommunications provider in Mexico and Telcel
is the dominant provider of cellular airtime in Mexico. Management believes that
they account for nearly 5% of all sales of prepaid phone cards in Mexico.

     Prepaid phone cards are distributed through a vast network of retail
outlets, including convenience stores, drug stores, restaurants, lottery stands,
newspaper and magazine stands and other general stores. Provo Mexico purchases
large volumes of prepaid cards from Telmex or Telcel and sells the cards in
smaller quantities to retailers either directly or through agents or
distributors.

     Provo Mexico purchases prepaid cards at a discount from the face value of
the card, and resells them to retailers or distributors at a slightly lower
discount. The difference between the two discount rates, typically from 1% to
7%, represents the gross margin Provo retains. Cash (C.O.D) purchases result in
a higher discount to Provo compared to purchases on credit terms from Telmex or
Telcel. In addition, the discount obtained by Provo varies by the type of card,
face value of the card and volume levels met. Similarly, the discount offered by
Provo to retailers or distributors varies by the type of card, face value of the
card and volume levels of the retailer or distributor. Accordingly, the gross
margin attained by Provo Mexico in any period is impacted by several factors. In
addition, Telmex and Telcel provide Provo Mexico additional discount and rebates
based on certain special programs. Provo Mexico's management tries to optimize
the gross margins earned by balancing volume levels with its working capital
availability, and from time to time has scaled back volume levels due to working
capital constraints.

     For the year ended December 31, 2003, including the period prior to our
acquisition of Provo Mexico, Ladatel sales were approximately $38 million and
Telcel sales were approximately $36 million. During the three months ended
December 31, 2003, Ladatel sales were approximately $8.4 million and Telcel
sales were approximately $10 million.

Restructuring Program

     In October 2000, we initiated a restructuring program designed, among other
things, to reduce our operating losses. The program consisted of reductions of
personnel and marketing and promotional expenses, consolidation of certain
operations, exit from certain marginal product lines not related to our core
business and closure of regional offices. The restructuring program was
substantially completed by December 31, 2002.

     We believe that the restructuring program and related cost reductions, will
permit us to maintain service quality to our customers while our more focused
product offering portfolio will enhance our ability to grow our revenue base. To
date we have realized significant cost reductions. However, there can be no
assurance that the restructuring program will achieve the desired results, that
it will not give rise to any disruption of any services offered by us, or
resulting loss of revenues from reduced product lines and marketing
expenditures.


                                       16



 




Results of Operations

Comparison of Years ended December 31, 2003 and 2002:

Revenues. Our revenues increased for the year ended December 31, 2003 by
$53,240,692 or 1,054.9% over the prior year. The increase in revenues was due to
the Provo Mexico acquisition. Excluding the acquisition, revenues decreased for
the year by $1,063,781 or 21%. The decrease in revenues was in part due to
customer attrition and due to the reduced amount of website development work we
performed in 2003. As part of Provo Mexico's settlement agreement with Telmex,
it has agreed to cease wholesale distribution of Ladatel and Multifon time by
the end of May 2004. (See Item 3. Legal Proceedings - Telmex Settlement).
Therefore, we anticipate that our revenues for 2004 will decrease.

Cost of Revenues. For the year ended December 31, 2003, our cost of revenues
increased by $51,674,195 to $54,167,532. The increase in cost of revenues was
due to the Provo Mexico acquisition. Cost of revenues as a percentage of
revenues for the year ended December 31, 2003 was 92.9% compared to 49.4% in
2002. In percentage terms of revenues, cost of Provo Mexico's products are
generally higher than ours and with a greater mix of Provo Mexico's share in our
consolidated revenues, cost of revenue as a percentage of revenues is expected
to increase. Excluding Provo Mexico's operations, our cost of revenues as a
percentage of revenues for the year ended was 46% compared to 49.2% in 2002. The
decrease in cost of revenues as a percentage of revenues, excluding Provo
Mexico's operations, was due to cost reductions realized through our continued
focus on network cost reductions. We anticipate that our cost of revenues in
absolute dollars for 2004 to decrease in line with anticipated decrease in
revenues.

Selling, General and Administrative. For the year ended December 31, 2003,
selling, general and administrative expenses increased by $4,462,295. As a
percentage of revenues, selling, general and administrative expenses decreased
from 48.5% in 2002 to 11.9% in 2003. The absolute dollar increase in selling,
general and administrative expenses was principally due to the Provo Mexico
acquisition. In terms of percentage of revenues, Provo Mexico has a lower
selling, general and administrative expense structure than ours, and with a
greater mix of Provo Mexico's share in our consolidated revenues, selling,
general and administrative expenses as a percentage of revenues are expected to
decrease.

Depreciation and Amortization. For the year ended December 31, 2003,
depreciation and amortization decreased by $188,478 to $556,657. Depreciation
and amortization decreased as many of our long-lived assets are fully
depreciated or amortized over their estimated useful lives.

Noncash Compensation charges. In 2003, in connection with Provo Mexico
acquisition, we issued 27,500 shares of Series D Preferred to certain of our
officers and employees. Each share of Series D Preferred was automatically
convertible into 100 shares of our common stock after our shareholders approve
the conversion. In December 2003, our shareholders approved the conversion of
all of the Series D Preferred shares. The fair value of the common shares issued
upon conversion of the Series D Preferred, at the time of our shareholders
approval, was $1,856,250 and noncash compensation charge for the fair value of
the shares issued was charged to operations. In addition, we recognized a
noncash compensation charge of $149,559 for shares and warrants issued in
exchange for services from consultants. During 2002, we recognized a noncash
compensation charge of $58,500 for shares issued in exchange for services from
consultants.

Interest Expense. Interest expense for 2003 was $660,238 compared to an interest
expense of $95,417 for 2002. Interest expense for the nine months ended
September 30,


                                       17



 




2003 was $391,369 compared to an interest expense of $70,159 during the
comparable period in 2002. Interest expense for the year ended December 31, 2003
increased compared to the prior year principally due to the increased debt level
that resulted from the Provo Mexico acquisition. Interest rates on major part of
our debt are based upon the prevailing Mexican Interbank Equilibrium Rate
("TIIE"). Accordingly, interest expense will vary in line with TIIE. At December
31, 2003, TIIE was 6.3%.

Income Taxes. Represent Provo Mexico's tax benefit, as determined in accordance
with Mexico's income tax laws. The effective tax rate was lower than the
statutory rate of 34% due to certain non-deductible expenses and due to certain
revised estimates on deferred taxes. In addition, presently Provo Mexico is
unable to file its Mexican tax returns on a consolidated basis and avail the tax
benefit of offsetting losses of some of its subsidiaries. For both 2003 and
2002, our U.S. operations did not incur any income tax expense due to losses.
The tax benefit of these losses has been completely offset by a valuation
allowance due to uncertainty of its realization.

Net loss. As a result of the foregoing and after recognizing $116,020 gain on
assets transferred in settlement of supplier payables and $449,850 gain on debt
settlement for the year ended December 31, 2003, net loss increased by
$4,178,527 to $4,966,052 compared to a net loss of $787,525 in 2002.

Liquidity and Capital Resources

     Our working capital deficiency at December 31, 2003 was $4,058,244 compared
with a working capital deficiency of $2,655,722 at December 31, 2002. The
increase in working capital deficiency was due to the effect of classifying
approximately $2.4 million due under the Telmex credit facility as current and
due to operating losses.

     Our primary capital requirements are to fund Provo Mexico's working
capital. To date, we have financed our capital requirements primarily through
issuance of debt and equity securities. The availability of capital resources is
dependent upon many factors, including, but not limited to, prevailing market
conditions, interest rates, and our financial condition.

     In April 2003, we borrowed as a bridge loan $550,000 from an unaffiliated
entity and issued a secured promissory note to the lender. The note bore
interest at the rate of 14% per annum and was secured by substantially all of
our assets. Two officers pledged shares of our common stock owned by them to the
lender as additional collateral. We repaid $221,539 of the balance prior to
December 31, 2003 and the balance was repaid in full in January 2004. We used
$200,000 of the proceeds to settle a promissory note, issued as part of a
business acquisition in the principal amount of $728,600. The balance of the
promissory note was settled through the issuance of 250,000 shares of our common
stock. Upon settlement, we recognized a gain on debt settlement of $449,850.

     In 2003, we sold through private placements 1,666,666 shares of common
stock and received net proceeds of $707,400. In addition, we sold to an
unaffiliated entity a convertible promissory note in the principal amount of
$110,000.

     In January 2004, we borrowed an aggregate principal amount of $1,000,000
pursuant to the terms of four convertible promissory notes and issued 4,400,000
shares of common stock upon exercise of warrants and received net proceeds of
approximately $620,000.

     At December 31, 2003, Provo Mexico had aggregate borrowings of $1,625,029
under four lines of credit with two Mexican banks. The lines are secured by real
estate


                                       18



 




owned by family members of Provo Mexico's former majority stockholders. At
December 31, 2003, the current interest rates on the lines range between 9.8%
and 10.3%. The lines expire at various dates between July 2004 and September of
2005 and one line requires a monthly payment of approximately $17,858 in 2004.

     Historically, Provo Mexico relied on Telmex to finance its inventory
purchases with a line of credit. Provo Mexico was in default with respect to the
repayment of its $6,940,363 credit line with Telmex. On April 7, 2004, Provo
Mexico entered into a settlement agreement with Telmex, whereby Provo Mexico
transferred eight non-revenue generating real estate properties and certain
vehicles with a net book value of $1,985,512 to Telmex in full satisfaction and
release of the $6,940,363 credit balance to Telmex. The Telmex settlement
agreement also provides that Provo Mexico will have a term of 45 days to close
its distribution of Telmex prepaid calling cards. During this 45-day term, Provo
Mexico may not purchase Telmex issued cards in excess of $67,000 per week. All
purchases of Telmex cards must be paid in cash. At the end of the 45-day term,
each of Telmex and Provo Mexico granted each other and their respective
officers, directors, shareholders and affiliates a full release for any prior
obligations and or transactions between the parties.

     The settlement agreement also provides that for a period of fifteen years
from the date of the agreement, each of Provo Mexico, certain of its
subsidiaries, our Chairman, Ventura Martinez del Rio, Sr. and our director,
Ventura Martinez del Rio, Jr. may not participate as officers or directors of
any companies whose prime objective is the wholesale distribution of Telmex
issued prepaid calling cards.

     Management believes that the settlement agreement with Telmex gives us
significant opportunities as we were successful in significantly reducing our
level of indebtedness out of court and we obtained a release of any potential
liabilities from Telmex. However, the settlement agreement effectively restricts
us and Provo Mexico from continuing to distribute Telmex issued prepaid cards in
the future and could have a material impact on Provo Mexico's future revenues
and profitability. As a result of the settlement agreement, Provo Mexico is
scaling back its operations in Mexico to reduce costs.

     Nothing in the settlement agreement restricts us or Provo Mexico from
continuing to distribute cellular cards issued by Telcel or prepaid
telecommunications cards issued by other telecommunications carriers in Mexico,
other than Telmex. In the fourth quarter of 2003, sales of Telcel exceeded sales
of Telmex issued cards, as Ladatel and Multifon sales declined. Currently,
Telcel airtime sales represent about 60% of Provo Mexico's total annual sales,
up significantly from 10% in 2000. All purchases of Telcel cards are made in
cash and Provo Mexico has no lines of credit with Telcel. Management believes
that the distribution of prepaid cellular airtime is more dynamic line of
business than the distribution of prepaid cards for traditional telephony
services. As a result of the settlement agreement, Provo Mexico will concentrate
its efforts on increasing its distribution of Telcel cards and developing new
lines of business in Mexico.

     We plan to raise additional financing. As noted above, the availability of
capital resources is dependent upon prevailing market conditions, interest rates
and our financial condition. In July 2003, we entered into a common stock
purchase agreement with Fusion Capital Fund II, LLC, whereby, Fusion Capital has
agreed to purchase up to $13 million of our common stock over a 40-month period.
The transaction is subject to satisfaction of several conditions and there can
be no assurance that we will in fact complete the transaction.


                                       19



 




     As a result of the settlement agreement with Telmex, Provo Mexico is
scaling back its operations in Mexico to reduce costs. Management believes that
its can successfully restructure its Mexican operations and reduce costs to
mitigate the loss of margin due to discontinuation of Ladatel sales. However
there is no assurance that we will be successful to complete our restructuring
on a timely basis.

     A significant amount of our working capital in Mexico may not be required
once we discontinue Ladatel card sales. We anticipate that the collection of
existing receivables will provide us substantial liquidity. However there is no
assurance that we will be successful in collecting the receivables in a timely
manner.

     In order to continue our operations and satisfy our debt obligations, we
need to secure additional financing. We currently lack the funds to pay these
obligations when they become due. Therefore, in order to satisfy our debt
obligations, we are currently pursuing additional sources of financing,
including potential sources for debt and equity financing (or a combination of
the two), and are exploring the possibility of selling some of our assets so
that we will have sufficient funds to pay our debts as they become due. There
can be no assurance, however, that such financing will be available on terms
that are acceptable to us, or on any terms.

     If we cannot obtain the additional funding we require, or collect
receivables or raise money by selling some our assets, we will have to negotiate
with our lenders to extend the repayment dates of our indebtedness. There can be
no assurance, however, that we will be able to successfully restructure our debt
obligations in the event we fail to obtain additional financing.

Critical Accounting Policies and Estimates

     Our discussion and analysis of our financial conditions and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"). The preparation of these financial statement requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to revenue recognition, accounts receivable, long-lived assets and
income taxes. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the current
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

     We believe the following critical accounting policies affect our
significant judgment and estimates used in preparation of our consolidated
financial statements.

Revenue Recognition. A part of our revenues are derived from providing Internet
access to individuals and businesses. These revenues consist principally of
recurring revenues from our customer base, leased line connections and various
ancillary services. We charge subscription fees, which are billed monthly,
quarterly, and semi-annually or annually in advance, typically pursuant to
pre-authorized credit card accounts. Monthly subscription revenue for Internet
access is recognized over the period in which services are provided. Fee revenue
for website design, development and hosting services are recognized as services
are performed. Deferred revenue represents prepaid access fees paid by
customers.


                                       20



 




We recognize prepaid phone card revenues in accordance with generally accepted
accounting principles as outlined in SAB No. 101, which requires that four basic
criteria be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) product delivery, including customer acceptance, has
occurred; (3) the price is fixed or determinable; and (4) collectibility is
reasonably assured. We believe that our revenue recognition policy is critical
because revenue is a very significant component of our results of operations.
Decisions relative to criteria (4) regarding collectibility are based upon
management's judgments and should conditions change in the future and cause
management to determine these criteria are not met; our recognized results may
be affected.

Accounts Receivable. Accounts receivable are reported at their outstanding
unpaid principal balances reduced by an allowance for doubtful accounts. We
estimate doubtful accounts based on historical bad debts, factors related to
specific customers' ability to pay, and current economic trends. We write off
accounts receivable against the allowance when a balance is determined to be
uncollectible.

With respect to the prepaid phone cards business, we perform ongoing credit
evaluations of our customers and adjust credit limits based upon our customers'
payment history and current credit worthiness, as determined by a review of
their current credit information. We continuously monitor collections and an
allowance for estimated credit losses is maintained based upon our historical
experience and any specific customer issues that have been identified. While
such credit losses have historically been within management's expectation and
the allowances that have been established, there cannot be any guarantee that
the credit loss rates will not change in the future. In prepaid phone card
business, we have a limited number of customers with individually large amounts
due at any balance sheet date. Any unanticipated change in one of those
customer's credit positions could have a material effect on our results of
operations in the period in which such changes or events occur.

Long-Lived Assets. We assess the impairment of long-lived assets, which include
property and equipment, intangibles and customer bases when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
those assets. When any such impairment exists, the related assets will be
written down to fair value.

Inventory. Inventory consists of prepaid phone cards, purchased for resale.
Inventory is valued at the lower of cost ("first-in, first-out") or market. On a
periodic basis, management compares the amount of inventory on hand and under
commitment with our latest forecasted requirements to determine whether
write-downs for excess inventory are required. Although management considers the
amounts on hand to be realizable, there can be no assurance that these amounts
will prove to be realizable over time.

Income Taxes. Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income during the period in which those temporary differences are
expected to be recovered or settled. Deferred tax assets are periodically
evaluated to determine their recoverability, and where the recovery is not
likely, a valuation allowance is established. In the event that actual results
differ from management's estimates or assumptions change, the provision for
income taxes could be materially impacted.


                                       21



 




Investment nonproductive properties. Our real estate held for sale and
investment nonproductive properties represents non-operating assets, purchased
or acquired in settlement of trade accounts receivable and are valued at the
lower of cost or market. Although management considers the amounts to be
realizable, there can be no assurance that these amounts will prove to be
realizable over time.


I
tem 7. Financial Statements.

     The financial statements appear in a separate section of this report
following Part III.


Item 8. Changes in and Disagreements with Accountants on Accounting and
     Financial Disclosure.

     Information regarding the Company's change in accountants may be found in
the Company's Form 8-K for the event dated May 16, 2003.


Item 8A. Controls and Procedures

    At December 31, 2003, under the supervision and with the participation of
our management, including our Chief Executive Officer (our principal executive
officer) and our Chief Financial Officer (our principal financial officer), we
evaluated the effectiveness of our disclosure controls and procedures (as 
defined under Rule 13a-15(e) of the Securities Exchange Act of 1934, as 
amended--the "Exchange Act") as of the end of the period covered by this report.

    Based on this evaluation, our Chief Executive Officer and our Chief 
Financial Officer concluded that as of December 31, 2003, our disclosure
controls and procedures were effective.

    There were no changes in our internal control over financial reporting that
occurred during the period covered by this report that materially affected, or
are reasonably likely to materially affect, such internal control over our
financial reporting.



                                    PART III


Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
     with Section 16(a) of the Exchange Act.

     The directors and executive officers of the Company are as follows:




Name                             Age   Position
----                             ---   --------
                                 
Ventura Martinez Del Rio, Sr.    53    Chairman of the Board and
                                       Chief Executive Officer

Nicko Feinberg                   32    President, Provo US and Director

Vasan Thatham                    46    Vice President and
                                       Chief Financial Officer

Ventura Martinez Del Rio, Jr.    30    President, Provo Mexico and Director

Ronald C. Signore                42    Director

Miguel Madero                    54    Director




                                       22



 






                                 
Jaime Marti                      58    Director

Jesus Rodriguez                  81    Director

Carlos Bello                    [55]   Director



     Ventura Martinez Del Rio, Sr. has been our Chairman since April of 2003
and became Chief Executive Officer of the Company in April 2004. Mr. Martinez
Del Rio, Sr. earned an undergraduate degree in Economics from the Universidad
Anahuac in Mexico in 1972 and an MBA from the University of Texas in 1974. He is
currently the president of the Texas EX's in Mexico, a widely popular alumni
organization. From 1983 to 1994, Mr. Martinez Del Rio, Sr. served in many
executive leadership roles for the Mexican National Lottery, developing a vast
business contact network that includes numerous senior Mexican government
officials and the leaders of numerous senior Mexican government officials and
the leaders of numerous prominent retail organizations throughout Mexico. He
founded Provo Mexico in October of 1995. Mr. Martinez Del Rio, Sr. has served as
chairman of the board of Provo Mexico since its inception.

     Nicko Feinberg founded our Company in 1995, has been a director since
November 1996, and was appointed as President, Provo US in April 2003. He was
our Executive Vice President of Technology from November 1996 to July 2001,
Chief Information Officer from August 1997 to July 2001 and President and Chief
Operating Officer from July 2001 to April 2003. Mr. Feinberg was a Sales Manager
and, from April 1991 to April 1994, a Sales Account Executive for Microage
Computer Outlet, Inc., a company engaged in computer sales.

     Vasan Thatham has been our Vice President and Chief Financial Officer since
February 1999. From 1994 through 1998, Mr. Thatham was Vice President and Chief
Financial Officer of Esquire Communications Ltd., a company engaged in providing
legal support services.

     Ventura Martinez Del Rio, Jr. has been our director since April 2003 and
was appointed as President, Provo Mexico in April 2003. Mr. Ventura Martinez Del
Rio, Jr. earned a BBA degree from the Universidad Anahuac in Mexico in 1994 and
a graduate degree in business from Ipade Business School ("IBS"). IBS is a
highly-regarded business management school based in Mexico City. He joined Provo
Mexico in 1996 as its Chief Operating Officer, co-led the company through its
rapid growth from 1996 to 2001, and was named its Chief Executive Officer in
2001.

     Ronald C. Signore has been one of our directors since December 1997. Mr.
Signore has been a partner in the accounting firm of Gray, Signore & Co., LLP
for more than the past five years.

     Miguel Madero has been our director since April 2003. Mr. Miguel Madero
earned a BA in Industrial Engineering from the Universidad Iberoamericana in
Mexico City in 1971, and obtained an MBA from the University of Texas at Austin
in 1975. In September 1985, he co-founded Fomento y Direccion Economica, S.A. de
C.V., a financial advisory and investment banking firm in Mexico City where he
currently serves as a Managing Director. Mr. Madero sits on the Board of
Directors of Credito Inmobiliario S.A. de C.V., a real estate financing company
in Mexico.

     Jaime Marti earned a BA degree in Engineering from Philadelphia University
in 1969 and obtained an MBA from Ipade Business School of Mexico City in 1972.
In 2000 he co-founded JPJ Comunicacion, S.A. a pre-paid calling card
distributing company in Mexico where he currently serves as its Chairman and
Chief Executive Officer. From 1990 to 2000 he was the general manager of
Imprenta Madero S.A., a printing and editorial


                                       23



 




company in Mexico. In 1997 Imprenta Madero was merged with Refosa, S.A. and
subsequently in 1998, the company was acquired by G.T.C. Transcontinental of
Canada.

     Jesus Rodriguez has been an external advisor to the Minister of Finance of
Mexico since 1998. Mr. Rodriguez has had a distinguished political and financial
career in Mexico. From 1994 to 1997 he was a member of the Mexican Congress and
a Senator from 1988 to 1994. Previously, Mr. Rodriguez held numerous high level
positions within Mexico's financial sector, including President of the Mexican
National Lottery, President of the Mexican Federal Securities Depository,
Mexico's representative and a director of the Inter-American Development Bank in
Washington, D.C. and undersecretary of the treasury in Mexico. Mr. Rodriguez
obtained a law degree from the National Autonomous University of Mexico in
Mexico City.

     Carlos Bello has been a director since March 2004, and is presently in
charge of the Foreign Investment Unit in BANCOMEXT headquarters. Mr. Bello held
a position in the Banks and Currency Department of the Secretariat of Finance
and Public Credit, and also served as Chief of the Assets Department and
Collaborator and Advisor of Economics Studies for the same Secretariat. Mr.
Bello also served as BANCOMEXT'S Trade Commissioner of Mexico in Atlanta,
Georgia, and was Director of the Metropolitan and Government's Funds Division of
the Worker's Bank (BANCO OBRERO.) Mr. Bello held the position of Trade Advisor
for the Western Region of the United States at the BANCOMEXT headquarters in
Mexico City. From 1995 to 2002, Mr. Bello was Trade Commissioner of Mexico in
the Dallas Office, responsible for overseeing the trade and investment issues
for Texas, New Mexico, Arkansas, Colorado, Kansas, Missouri, Oklahoma, Montana,
and Wyoming, as well as the Houston and San Antonio offices.

     All directors hold office until the next annual meeting of stockholders for
the ensuing year or until their successors have been duly elected and qualified.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.


Item 10. Executive Compensation.

     The following table sets forth compensation paid to our Chief Executive
Officer and our two other most highly compensated executive officers (each of
whom was serving at the end of our fiscal year ended December 31, 2003) during
the years ended December 31, 2003, 2002 and 2001. No other executive officer of
the Company received aggregate compensation which exceeded $100,000 during the
year ended December 31, 2003. We refer to these three executive officers as our
"Named Executives".

                           Summary Compensation Table




                                                                                      Long-term
                                                                                     Compensation
                                                                                        Awards
                                                                                      Securities
                                                                                      Underlying
Name and Principal                      Year      Salary             Bonus         Options/SAR (#)
-------------------------------------   ----   ------------   ------------------   ---------------
                                                                           




                                       24



 







Position
-------------------------------------
                                                                           
Ventura Martinez Del Rio, Sr.           2003   $100,000 (1)
   Chairman of the Board

Stephen J.Cole-Hatchard                 2003   $123,714       $100,000 (2) & (6)
   Chief Executive Officer (2), (4)     2002    112,482
                                        2001    114,423       $ 67,725 (3)             52,000

Nicko Feinberg                          2003   $115,987       $100,000 (2) & (6)
   President U.S. Operations (2), (5)   2002    107,761
                                        2001    109,518       $ 49,175 (4)             52,000

Vasan Thatham
   Chief Financial Officer (2), (6)     2003   $112,291       $ 35,000 (2) & (6)
                                        2002    105,261
                                        2001    109,518       $ 15,051 (5)             27,000



(1) Salary for the period from April 4, 2003 to December 1, 2003.

(2) Bonus for 2003 includes amounts accrued but unpaid.

(3) $43,725 representing the market price of 194,333 shares of common stock
issued under the Company's Incentive Plan.

(4) $35,175 representing the market price of 156,333 shares of common stock
issued under the Company's Incentive Plan.

(5) $13,425 representing the market price of 59,666 shares of common stock
issued under the Company's Incentive Plan.

(6) In 2003, in connection with the Provo Mexico acquisition, we issued to 18
individuals an aggregate of 35,500 shares of our Series D Convertible Preferred
Stock including 10,000 shares to Stephen J. Cole Hatchard, 10,000 shares to
Nicko Feinberg and 1,000 shares to Vasan Thatham.

Each share of Series D Preferred Stock was converted into 100 shares of our
common stock. For financial reporting purposes, the value of the shares issued
to Mr. Cole-Hatchard, Mr. Feinberg and Mr. Thatham approximated $450,000,
$450,000 and $45,000, respectively.

     The following table sets forth information regarding options granted during
the year ended December 31, 2003 to our Named Executives:




                                  Options/SAR Grants in Year Ending
                                           December 31, 2003
                          -----------------------------------------------
                          Number of Shares   % of Total
                             Underlying      Options/SAR
                                       




                                       25



 







                            Options/ SARs      Granted     Exercise Price   Expiration
                               Granted         in Year        $/share)         Date
                          ----------------   -----------   --------------   ----------
                                                                    
Stephen J.Cole-Hatchard          --               --             --             --

Nicko Feinberg                   --               --             --             --

Vasan Thatham                    --               --             --             --



     The following table sets forth information concerning the number of options
owned by our Named Executives, the value of any in-the-money unexercised options
as of December 31, 2003 and information concerning options exercised by our
Named Executives during the year ended December 31, 2003:




                                        Aggregated Option Exercises and Year-End Option/SAR Values
                          --------------------------------------------------------------------------------------
                            Shares                         Number of Securities          Value of Unexercised
                           Acquired        Value          Underlying Unexercised             In-The-Money
                          On Exercise   Realized ($)    Options/SARs at 12/31/2002    Options/SARs at 12/31/2002
                          -----------   ------------   ---------------------------   ---------------------------
                                                       Exercisable   Unexercisable   Exercisable   Unexercisable
                                                       -----------   -------------   -----------   -------------
                                                                                 
Stephen J.Cole-Hatchard        0             $0          148,667                       $4,160

Nicko Feinberg                 0             $0          150,000                       $4,160

Vasan Thatham                  0             $0           66,667                       $2,160



     The year-end values for unexercised in-the-money options represent the
positive difference between the exercise price of the options and the year-end
market value of our common stock. An option is "in-the-money" if the year-end
fair market value of our common stock exceeds the option exercise price. The
closing sale price of our common stock on December 31, 2003 was $.45.

Employment Agreements

     The Board of Directors has approved the adoption of employment agreements
between the Company and/or its affiliates and Messrs. Thatham, Feinberg,
Martinez del Rio Jr., and Martinez del Rio Sr. that provide for an annual base
compensation of not less than $115,000, $120,000, $120,000, and $150,000,
respectively. The agreements provide for certain base salary increases in the
event the Company completes an equity financing in excess of $7,000,000, and for
certain bonuses in the event the Company achieves certain revenue objectives.
The agreements also allow for such bonuses as the Board of Directors may, in its
sole discretion, from time to time determine. The employment


                                       26



 




agreements with Messrs. Thatham, Feinberg, Martinez Del Rio Jr. and Martinez Del
Rio Sr. will expire in April 2008 subject to automatic successive one year
renewals unless either we or the employee gives notice of intention not to renew
the agreement. With the exception of Mr. Martinez del Rio Sr., the employment
agreements will provide for employment on a full-time basis, and each of the
agreements will contain a provision that the employee will not compete or engage
in a business competitive with our current or anticipated business during the
term of the employment agreement and for a period of two years thereafter.

     All of the employment agreements will provide that the employees shall be
paid additional compensation equal to 295% of their annual base salary in the
event of a change of ownership or effective control of our company (as defined
in the agreements). The anticipated change in control as a result of the
acquisition of Provo will not trigger the additional compensation clauses of the
employment agreements.

     In April 2004, the Company amended its agreement with Mr. Cole-Hatchard.
Mr. Cole-Hatchard's agreement originally provided for employment as Chief
Executive Officer at an annual salary of $150,000, with a salary increase in the
event the Company completes an equity financing in excess of $7,000,000. The
amended agreement provides that Mr. Cole-Hatchard will serve as a consultant to
the Company. His duties include assisting the Company in obtaining financing and
liaising with the American Stock Exchange. The amended agreement provides for
employment on a part time basis for an annual compensation of $75,000, with
salary increases and/or bonuses in the event of significant equity financings.

Director Compensation

          Each of our non-employee directors were entitled to receive $12,000 in
2003 for attending Board Meetings, however, we paid them only $6,000, including
$3,000 related to fees earned in 2002.

1997 Stock Option Plan

     In February 1997, our Board of Directors and stockholders adopted our 1997
Stock Option Plan, pursuant to which 500,000 shares of common stock were
reserved for issuance upon exercise of options. In June 2000, the Board of
Directors and our stockholders approved an amendment to increase to 2,000,000
the number of shares of common stock available for issuance upon exercise of
options under the stock option plan. Our stock option plan is designed to serve
as an incentive for retaining qualified and competent employees, directors and
consultants.

     Our Board of Directors or a committee of our Board administers our stock
option plan and is authorized, in its discretion, to grant options under our
stock option plan to all eligible employees, including our officers, directors
(whether or not employees) and consultants. Our stock option plan provides for
the granting of both "incentive stock options" (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended) and non-qualified stock options.
Options can be granted under our stock option plan on such terms and at such
prices as determined by the Board of Directors or its committee, except that the
per share exercise price of options will not be less than the fair market value
of the common stock on the date of grant. In the case of an incentive stock
option granted to a stockholder who owns stock possessing more than 10% of the
total combined voting power of all of our classes of stock, the per share
exercise price will not be less than 110% of the fair market value on the date
of grant. The aggregate fair market value (determined on the date of grant) of
the shares


                                       27



 




covered by incentive stock options granted under our stock option plan that
become exercisable by a grantee for the first time in any calendar year is
subject to a $100,000 limit.

     Options granted under our stock option plan will be exercisable during the
period or periods specified in each option agreement. Options granted under our
stock option plan are not exercisable after the expiration of 10 years from the
date of grant (five years in the case of incentive stock options granted to a
stockholder owning stock possessing more than 10% of the total combined voting
power of all of our classes of stock) and are not transferable other than by
will or by the laws of descent and distribution.

2001 Stock Incentive Plan

     In June and July 2001, our Board of Directors and stockholders,
respectively, adopted our 2001 Stock Incentive Plan ("Incentive Plan") pursuant
to which the grant of any or all of the following types of awards may be made
under the Incentive Plan (collectively, "Awards"): (1) stock options, (ii)
restricted stock, (iii) deferred stock and (iv) other stock-based awards. Awards
may be granted singly, in combination, or in tandem, as determined by the
administrators of the Incentive Plan. A total of 1,800,000 shares of our common
stock, subject to anti-dilution adjustment as provided in the Incentive Plan,
have been reserved for distribution pursuant to the Incentive Plan. The maximum
number of shares of common stock that may be issued upon the grant of an Award
to any individual participant cannot exceed 500,000 shares during the term of
the Incentive Plan.

     The Incentive Plan can be administered by our Board of Directors or a
committee consisting of two or more non-employee members of the Board of
Directors appointed by the Board. The Board or the committee will determine,
among other things, the persons to whom Awards will be granted, the type of
Awards to be granted, the number of shares subject to each Award and the share
price. The Board or the committee will also determine the term of each Award,
the restrictions or limitations thereon, and the manner in which each such Award
may be exercised or, if applicable, the extent and circumstances under which
common stock and other amounts payable with respect to an Award will be
deferred. Unless sooner terminated, the Incentive Plan will expire at the close
of business on June 20, 2011.

     The Incentive Plan provides for the grant of both incentive stock options
and non-qualified stock options. The exercise price of an incentive stock option
or a non-qualified stock option will not be less than the fair market value of
the shares underlying the option on the date the option is granted, provided,
however, that the exercise price of an incentive stock Option granted to a
stockholder who possesses more than 10% of the combined voting power of all
classes of our stock may not be less than 110% of such fair market value. The
aggregate fair market value (determined at the time the option is granted) of
the shares of common stock covered by an incentive stock option granted under
the Incentive Plan that become exercisable by a grantee for the first time in
any calendar year cannot exceed $100,000.

     The Incentive Plan contains anti-dilution provisions authorizing
appropriate adjustments in certain circumstances. Shares of Common Stock subject
to Awards which expire without being exercised or which are cancelled as a
result of the cessation of employment are available for further grants. Options
become exercisable in such amounts, at such intervals and upon such terms and
conditions as the Board of Directors or the Committee provides.


                                       28



 




     Under the Incentive Plan, the Board or the Committee may grant shares of
restricted Common Stock either alone or in tandem with other Awards. Restricted
and Deferred Stock awards give the recipient the right to receive a specified
number of shares of common stock, subject to such terms, conditions and
restrictions as the Board or the Committee deems appropriate.

     Other Stock-Based Awards, which may include performance shares and shares
valued by reference to the performance of the Company or any parent or
subsidiary of the Company, may be granted under the Incentive Plan either alone
or in tandem with other Awards.


Item 11. Security Ownership of Certain Beneficial Owners and Management.

     The following table sets forth certain information, as of April 2, 2003
relating to the beneficial ownership of shares of Common Stock by: (i) each
person or entity who is known by the Company to own beneficially five percent or
more of the outstanding Common Stock; (ii) each of the Named Executives; (iii)
each of the Company's directors; and (iv) all directors and executive officers
of the Company as a group.




                                          Number of Shares
Name of Beneficial Owner               Beneficially Owned (1)         Percentage
                                                                    
Nicko Feinberg                               1,551,000(2)                  3.9%
Stephen J. Cole-Hatchard                     1,745,258(3)                  4.5%
Ronald Signore                                 216,021(4)                   **
Ventura Martinez Del Rio, Sr.               14,208,400(5)                 36.4%
Ventura Martinez Del Rio, Jr.                4,736,100(6)                 12.1%
Miguel Madero                                       --                      --
Vasan Thatham                                  217,000(7)                   **
Jaime Marti                                         --                      --
Jesus Rodriguez                                     --                      --
Carlos Bello                                        --                      --

All Directors and Executive
Officers as a group (nine persons)          22,335,446(8)                 57.8%



(1)  Unless otherwise indicated, we believe that all persons named in the table
     have sole voting and investment power with respect to all shares of Common
     Stock beneficially owned by them.

(2)  Includes warrants to purchase 83,333 shares of Common Stock and options to
     purchase 136,667 shares of Common Stock. The address of Mr. Feinberg is c/o
     the Company at One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965

(3)  Includes 96,000 shares held by the Cole-Hatchard Family Limited
     Partnership, of which Mr. Cole-Hatchard is a general partner, options to
     purchase 135,333 shares of Common Stock. The address of Mr. Cole-Hatchard
     is c/o the Company.

(4)  Includes warrants to purchase 83,333 shares of Common Stock and options to
     purchase 50,000 shares of Common Stock.

(5)  Excludes 22,916 shares of Series E Preferred Convertible Stock convertible
     into 2,291,600 shares of Common Stock.

(6)  Excludes 7,693 shares of Series E Preferred Convertible Stock convertible
     into 763,900 shares of common stock.

(7)  Includes options to purchase 53,333 shares of Common Stock.

(8)  Includes options and warrants to purchase 601,939 shares of Common Stock.


                                       29



 




**   Less than 1%.


Item 12. Certain Relationships and Related Transactions.

     In June 2002, Mr. Nicko Feinberg and Mr. Ronald Signore, our current
directors, purchased $50,000 in aggregate principal amount of promissory notes
pursuant to our June 2002 private placement, and received warrants to purchase
250,000 shares, in aggregate, of our common stock at an exercise price $.08 per
share. These purchases were all on terms and conditions identical to those of
the other investors in the private placement.

     In connection with the acquisition of Provo Mexico, we issued to 18
individuals an aggregate of 35,500 shares of our Series D Convertible Preferred
Stock including 10,000 shares to Stephen J. Cole-Hatchard, our then Chairman of
the Board and Chief Executive Officer, 10,000 shares to Nicko Feinberg, our
President Provo US, and a director, 5,000 shares of Series D to Joseph Donohue,
a then director, 1,000 shares to Vasan Thatham, our Vice President and Chief
Financial Officer and 1,000 shares to Amy Wagner-Mele, our then Executive Vice
President and General Counsel.

     In December 2003 each share of Series D Convertible Preferred Stock was
converted into 100 shares of common stock Accordingly, 1,000,000 shares were
issued to Mr. Cole-Hatchard, 1,000,000 shares were issued to Mr. Feinberg,
500,000 shares were issued to Mr. Donahue, 100,000 shares to Mr. Thatham and
100,000 shares to Ms. Mele.

     On June 29, 2001, Provo Mexico entered into a $6,000,000 peso ($535,724 at
the year end exchange rate) revolving line of credit with BBVA Bancomer, S.A. in
Mexico. The loan, which is due and payable in full on June 28, 2004, bears
interest at the Mexican Interbank Equilibrium Rate plus 4%; the current interest
rate is 10.3% per annum. The loan has been personally guaranteed by our
chairman, Ventura Martinez del Rio, Sr. In addition, Gloria Requejo-Martinez del
Rio, the wife of our chairman, mortgaged a house owned by her as collateral for
the loan.

     On September 25, 2002, Provo Mexico entered into a 4,000,000 peso ($357,149
at the year end exchange rate) revolving line of credit arrangement with BBVA
Bancomer, S.A. in Mexico. The loan, which is due and payable in full on
September 24, 2005, bears interest at the Mexican Interbank Equilibrium Rate
plus 4%; the current interest rate is 10.3% per annum. The loan has been
guaranteed by Inmobiliaria Turin, S.A. de C.V. ("Turin"), a company that is
owned by Gloria Requejo-Martinez del Rio, the wife of our chairman, and by her
brother, Alberto Requejo. As collateral for the loan, Turin mortgaged an
apartment building owned by it. Turin's guaranty obligation is without recourse
to any of its assets other than this mortgaged collateral.

     On September 25, 2002, Provo Mexico also entered into a 6,000,000 peso
($535,724 at the year end exchange rate) line of credit arrangement with BBVA
Bancomer, S.A. in Mexico. The loan bears interest at the Mexican Interbank
Equilibrium Rate plus 4%; the current interest rate is 10.3% per annum. The
governing credit agreement obligates Provo Mexico to make monthly payments of
100,000 pesos during the first 12 months that the loan remains outstanding, and
to make monthly payments of 200,000 pesos during the subsequent 24 months that
the loan remains outstanding. The balance of the loan is due and payable in full
on September 24, 2005. As of December 31, 2003, the balance due under this
facility was $ 375,007. The loan has been guaranteed by Turin. As collateral for
the loan, Turin mortgaged an apartment building owned by it. Turin's guaranty
obligation is without recourse to any of its assets other than this mortgaged
collateral.


                                       30



 




     On June 30, 2001, Provo Mexico into a 5,000,000 peso ($446,437 at the
current exchange rate) revolving line of credit with Scotiabank Inverlat, S.A.
in Mexico. The loan, which is due and payable in full on July 29, 2004, bears
interest at the Mexican Interbank Equilibrium Rate plus 3.5%; the current
interest rate is 9.8% per annum. The loan has been personally guaranteed by our
chairman, Ventura Martinez del Rio, Sr. In addition, Gloria Requejo-Martinez del
Rio, the wife of our chairman, mortgaged a ranch owned by her and pledged
certain funds on deposit with Scotiabank Inverlat, S.A. as collateral for
repayment of the loan.

     As security for Turin's guaranties of Provo Mexico's credits, Provo granted
Turin a lien on certain of its accounts receivable from selected customers
(Wal-Mart, S.A. de C.V., Operadora VIPS, S.A. de C.V., El Palacio de Hierro,
S.A. de C.V., Cafeterias Toks, S.A. de C.V., CENCA Comercializadora, S.A. de
C.V. and Carrefour de Mexico, S.A. de C.V.).

     As security for Mrs. Martinez del Rio's guaranties of Provo Mexico's
credits, Provo Mexico granted Mrs. Martinez del Rio a lien on certain of its
accounts receivable from selected customers (Mayorista Otaduy, Distribuidora
Igob, Productos y Ventas Organizadas, FS Torreon, FS Tepic, Tilgo and Tarnor).

     It is our intention, as soon as practicable, to eliminate the personal
guaranties described above and to substitute collateral owned by us for the
existing collateral granted to BBVA Bancomer, S.A. and Scotiabank Inverlat, S.A.
by Mrs. Requejo-Martinez Del Rio and Turin.

     Settlement with Customer and Transfer of Real Estate to Telmex. During
2002, Provo Mexico held discussions with Jose L. Alfaro, an unrelated customer,
wherein Mr. Alfaro proposed to satisfy certain amounts he owed to Provo Mexico
and certain of its affiliates by transferring to them certain real property. At
the same time, Provo Mexico held discussions with Telmex, whereby Provo Mexico
proposed to satisfy certain amounts owed by it to Telmex by transferring to
Telmex certain real property, including the real property proposed to be
transferred to Provo Mexico by Mr. Alfaro.

     On December 12, 2002, Provo Mexico entered into a settlement agreement with
Mr. Alfaro, whereby he transferred to Provo Mexico certain real property known
as "Rancho La Providencia" located in Coatepec, State of Mexico, Mexico, and
valued by Telmex at approximately 30 million pesos, in satisfaction of debts
totaling 30,402,105 pesos ($2,714,716 at the year end exchange rate) owed by Mr.
Alfaro to Provo and certain of Provo Mexico's affiliates and related companies,
as follows:




                                                                        Amount
                       Party to Which Debt Owed                       (In pesos)
                       ------------------------                       ----------
                                                                   
Provo Mexico                                                           1,793,177
Proyecciones y Ventas Organizadas del D.F., S.A. de C.V. ("Provo
   DF")(1)                                                            11,423,321
Ventura Martinez del Rio, Sr.                                         11,200,000
PRODIES                                                                4,164,473
Provoloto                                                              1,821,134
                                                                      ----------
   Total                                                              30,402,105




                                       31



 




----------
(1)  A wholly-owned subsidiary of Provo Mexico.

     On March 10, 2003, as part of a settlement agreement entered into with
Telmex, Provo Mexico transferred the "Rancho La Providencia" property to Telmex
in satisfaction of 30,763,182 ($2,907,673 at the then prevailing exchange rate)
of indebtedness owed by Provo Mexico to Telmex. For additional information
regarding the Telmex settlement see- Telmex Settlement."

     To enable Provo Mexico to enter into the settlement agreement with Mr.
Alfaro, on December 12, 2002 Ventura Martinez del Rio, Sr., PRODIES and
Provoloto each assigned to Provo Mexico their respective rights to the sums owed
to them by Mr. Alfaro as set forth in the preceding table. As consideration for
the assignment of their rights against Mr. Alfaro, PRODIES and Provoloto each
received a promissory note in the amount of 1,821,134 pesos and 4,164,473 pesos,
respectively. As consideration for the assignment of his rights against Mr.
Alfaro, Provo Mexico transferred the following property to Ventura Martinez del
Rio, Sr.:

     o    accounts payable to Provo Mexico in the face amount of 7,068,150
          pesos, payable by Desarrollo Arboledas, S.A. de C.V. (an unaffiliated
          Mexican real estate company that in 1999 had received a loan from
          Provo);

     o    accounts payable to Provo Mexico in the face amount of 846,000 pesos,
          payable by Pablo Marti (an unrelated customer of Provo);

     o    12 parcels of real estate located in Los Cabos, State of Baja
          California, Mexico, valued by an independent appraiser at 1,200,060
          pesos and owned by Provo Mexico;

     o    the discharge of indebtedness in the amount of 978,487 pesos owed to
          Provo Mexico by Ventura Martinez del Rio Sr.; and

     o    a promissory note for 1,107,303 pesos.

The promissory notes issued by Provo Mexico to PRODIES, Provoloto and Ventura
Martinez del Rio Sr. as described above each bear interest at the Mexican
Interbank Equilibrium Rate plus 3.5% (currently 8.8% per annum). The notes are
payable in 24 monthly payments commencing on December 31, 2002 and continuing
until December 31, 2004. As of December 31, 2003, Provo Mexico had made no
payments under such notes to any of the related parties except for the amounts
due to Ventura Martinez del Rio, Sr. The related parties have not taken any
action regarding these notes. In addition, the notes must be prepaid in full in
the event that we complete an equity financing in excess of $3,000,000.

     In March 2003, Ventura Martinez del Rio, Sr. forgave $94,669 in debt that
Provo Mexico owed him.

     Provo Mexico subcontracted personnel services from SAPROV, S. C., a
partnership created by Ventura Martinez del Rio, Sr., Rocio Pasquel and Jorge
Dehesa, who are officers of Provo


Item 13. Exhibits, Lists and Reports on Form 8-K.

          (a)  Exhibits


                                       32



 




               2.1 Amended and Restated Stock Purchase Agreement between
Frontline Communications Corporation, Proyecciones y Ventas Organizadas, S.A.,
Ventura Martinez del Rio Requejo and Ventura Martinez del Rio Arrangoz dated
April 3, 2003. ****

          3.1   Certificate of Incorporation of the Company.+

          3.2   Certificate of Amendment of the Certificate of Incorporation of
                the Company.+++

          3.3   Certificate of Amendment of the Certificate of Incorporation of
                the Company.*

          3.4   By-Laws of the Company.+

          4.1   Certificate of Designation of Series A preferred stock.++

          4.2   Certificate of Designation of Series B cumulative convertible
                preferred stock. *

          4.3   Certificate of Designation of Series C convertible preferred
                stock.****

          4.4   Certificate of Designation of Series D convertible preferred
                stock. ****

          10.1  Employment Agreements with Messrs. Stephen Cole-Hatchard and
                Nicko Feinberg.+#

          10.2  Employment Agreement with Vasan Thatham.*#

          10.3  2001 Stock Incentive Plan.***#

          10.4  1997 Stock Option Plan of the Company.+ #

          10.5  Office Lease between the Company and Glorious Sun Robert Martin
                LLC.+

          10.6  Amendment No. 1 to Office Lease.*

          10.7  Amendment No. 2 to Office Lease.*

          10.8  Asset Purchase Agreement dated June 20, 2000 among Frontline
                Communications Corp., Delanet, Inc., Michael Brown and Donald
                McIntire.**

          10.9  Asset Purchase Agreement dated June 20, 2000 among Frontline
                Communications Corp., Delanet, Inc., Michael Brown and Donald
                McIntire.**

          10.10 Addendum to Amended and Restated Stock Purchase Agreement
                between Frontline Communications Corporation, Proyecciones y
                Ventas Organizadas, S.A., Ventura Martinez Del Rio, Sr. and
                Ventura Martinez Del Rio, Jr. dated April 3, 2003. ****

          10.11 Registration Rights Agreement dated April 3, 2003 between
                Frontline Communications, Ventura Martinez Del Rio, Sr. and
                Ventura Martinez Del Rio, Jr..****


                                       33



 




          10.12 Security Agreement dated April 3, 2003 between Frontline
                Communications, Ventura Martinez Del Rio, Sr. and Ventura
                Martinez Del Rio Jr.. ****

          10.13 Secured Promissory Note dated April 3, 2003 between Frontline
                Communications, Ventura Martinez Del Rio, Sr. and Ventura
                Martinez Del Rio, Jr.. ****

          10.14 Term Loan and Security Agreement among Frontline Communications,
                Proyecciones y Ventas Organizadas, S.A., and IIG Equity
                Opportunities Fund Ltd. ****

          10.15 Pledge Agreement between Stephen J. Cole-Hatchard, Nicko
                Feinberg, Elizabeth Feinberg and IIG Equity Opportunities Fund
                Ltd Dated April 3, 2003. ****

          10.16 Registration Rights Agreement between Frontline Communications
                Corporation and IIG Equity Opportunities Fund Ltd dated April 3,
                2003. ****

          10.17 Limited guarantee agreement dated April 3, 2003 between Stephen
                J. Cole-Hatchard and IIG Equity Opportunities Fund Ltd dated
                April 3, 2003. ****

          10.18 Mortgage by Stephen J. Cole-Hatchard in favor of IIG Equity
                Opportunities Fund Ltd dated April 3, 2003. ****

          10.19 Mortgage and Security Agreement by Stephen J. Cole-Hatchard in
                favor of IIG Equity Opportunities Fund Ltd dated April 3, 2003.
                ****

          10.20 Subordination Agreement between 8% Promissory Note Holders and
                IIG Equity Opportunities Fund Ltd dated April 3, 2003. ****

          10.21 Common Stock Purchase Agreement dated as of July 1, 2003 between
                the Registrant and Fusion Capital, LLC *****

          10.22 Stock Purchase Agreement dated as of August 1, 2003 between the
                Registrant and William Ritger *****

          10.23 Registration Rights Agreement dated as of August 1, 2003 between
                the Registrant and William Ritger *****

          10.24 Warrant issued by the Registrant to William Ritger dated August
                1, 2003 *****

          10.25 General Release dated as of March 27, 2003 between the
                Registrant and Delanet, Inc. *****

          10.26 Stock Purchase Agreement dated As of September 16, 2003 between
                the Registrant And Platinum Partners Value Arbitrage Fund, LP
                *****

          10.27 Registration Rights Agreement dated as of September 16, 2003
                between the Registrant and Platinum Partners Value


                                       34



 




                Arbitrage Fund, LP *****

          10.28 Warrant agreement dated as of September 16, 2003 between the
                Registrant to Platinum Partners Value Arbitrage Fund, LP. *****

          10.29 Subscription Agreement dated as of June 2, 2002 between the
                Registrant and James Nicholson *****

          10.30 Warrant agreement dated as of June 2, 2002 between the
                Registrant and James Nicholson *****

          10.31 Subscription Agreement dated as of November 24, 2003 between the
                Registrant and Scarborough, Ltd. *****

          10.32 Warrant Agreement dated as of November 24, 2003 between the
                Registrant and Scarborough, Ltd. *****

          10.33 Warrant Agreement dated as of November 24, 2003 between the
                Registrant and Scarborough, Ltd. *****

          10.34 Subscription Agreement dated January 27, 2004 between the
                Registrant and Alpha Capital Aktiengesellschaft, Stonestreet
                Limited Partnership, Congregation Mishkan Sholom and Lucrative
                Investments *****

          10.35 Convertible Note dated January 27, 2004 issued to Alpha Capital
                Aktiengesellschaft *****

          10.36 Warrant agreement dated January 27,2004 issued to Alpha Capital
                Aktiengesellschaft *****

          10.37 Convertible Note dated January 27, 2004 issued to Stonestreet
                Limited Partnership *****

          10.38 Warrant agreement dated January 27,2004 issued to Stonestreet
                Limited Partnership *****

          10.39 Convertible Note dated January 27, 2004 issued to Congregation
                Mishkan Sholom *****

          10.40 Warrant agreement dated January 27, 2004 issued to Congregation
                Mishkan Sholom *****

          10.41 Convertible Note dated January 27, 2004 issued to Lucrative
                Investments *****

          10.42 Warrant Agreement dated January 27, 2004 issued to Lucrative
                Investments *****

          10.43 Warrant Agreement dated January 27, 2004 issued to Berry-Shino
                Securities, Inc. *****

          10.44 Collateral Agreement dated January 27, 2004 between Provo
                International Inc., Alpha Capital Aktiengesellschaft,


                                       35



 




                Stonestreet Limited Partnership,
                Congregation Mishkan Sholom and Lucrative Investments *****

          10.45 Security Agreement dated January 27, 2004 between Provo
                International Inc., Alpha Capital Aktiengesellschaft,
                Stonestreet Limited Partnership, Congregation Mishkan Sholom and
                Lucrative Investments *****

          10.46 Side Letter dated January 27, 2004 between the Registrant and
                Scarborough Ltd. *****

          10.47 Amended B2-1 Warrant issued to Scarborough Ltd. *****

          10.48 Amended Common Stock Purchase Warrant issued to Scarborough Ltd.
                *****

          10.49 Amended A-1 Warrant issued to Scarborough Ltd. *****

          10.50 Registration Rights Agreement between the Registrant and IIG
                Equity Opportunities Fund, Ltd. *****

          21.1  Subsidiaries of the Company.

          23.1  Consent of Goldstein Golub and Kessler LLP.

          23.2  Consent of BDO Hernandez Marron y Cia., S.C.

          31.1  Certification by Ventura Martinez del Rio, Sr. pursuant to Rule
                13a-14(a) of the Securities Act of 1934.

          31.2  Certification by Vasan Thatham pursuant to Rule 13a-14(a)of the
                Securities Act of 1934.

          32.1  Certification of Ventura Martinez del Rio, Sr. pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002.

          32.2  Certification of Vasan Thatham pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.

(Footnotes from previous page)

----------
*    Incorporated by reference to the applicable exhibit contained in the
     Company's Registration Statement on Form SB-2 (file no.333-92969).

+    Incorporated by reference to the applicable exhibit contained in the
     Company's Registration Statement on Form SB-2 (file no. 333-34115).

++   Incorporated by reference to the applicable exhibit contained in the
     Company's Current Report on Form 8-K dated October 9, 1998.


                                       36



 




+++  Incorporated by reference to applicable exhibit contained in the Company's
     Quarterly Report on Form 10-QSB for the quarterly period ended June 30,
     1999.

**   Incorporated by reference to the applicable exhibit contained in the
     Company's Current Report on Form 8-K dated June 20, 2000.

***  Incorporated by reference to Appendix B to the Registrant's definitive
     proxy statement on Schedule 14A filed with the SEC on July 3, 2001.

**** Incorporated by reference to applicable exhibit contained in the Company's
     Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002.

***** Incorporated by reference to applicable exhibit contained in the Company's
     Registration Statement on Form S-3 filed February 18, 2004 (File Number
     333-112926)

#    Denotes a management compensation plan or arrangement.

          (b) Reports on Form 8-K filed during the quarter ended December 31,
2003:

          See Form 8K-A filed October 3, 2003, revising certain pro forma
financial data previously filed relating to event occurring on April 3, 2003.


Item 14. Principal Accountants Fees and Services

On May 16, 2003 we removed Goldstein Golub Kessler LLP ("GGK") as our principal
accountant and retained BDO Hernandez Marron y Cia., S.C, ("BDO"). This change,
which was recommended by the audit committee, was solely related to the fact
that GGK did not have the ability to audit the financial statements of non-U.S
entities. GGK has a continuing relationship with American Express Tax and
Business Service Inc. ("TBS") from which it leases its auditing staff who are
full-time, permanent employees of TBS and through which its partners provide
non-audit services. As a result of the arrangement, GGK LLP has no full-time
employees and therefore, none of the audit services performed until May 16, 2003
were provided by permanent full-time employees of GGK. GGK manages and
supervises the audit staff, and is exclusively responsible for the opinions
rendered in connection with its examination.

The following table sets forth the aggregate fees billed for the years ended
December 31, 2003 and 2002 by BDO and GGK




                       2003       2002
                          
Audit fees(1)        $128,251   $183,024
Audit Related Fees(2)       0          0
Tax Fees(3)          $  7,500   $  8,900
All other fees(4)           0          0



     (1)  Audit fees billed by BDO and GGK for audit of our financial statements
          and review of financial statements included in our Form 10-QSB and for
          services provided in connection with statutory and regulatory filings.


                                       37



 




     (2)  Audit related services. No audit-related fees were paid in the last
          two fiscal years.

     (3)  Tax Fees. The aggregate fees billed by TBS for tax compliance work.

     (4)  All other Fees. No other fees were paid in the last two fiscal years.

Our Audit Committee has the authority and responsibility to pre-approve all
audit and permissible non-audit services provided to us by our principal
accountant. All pre-approvals of audit and permissible services granted by the
Audit Committee must be reasonably detailed as to the particular services to be
provided and do not result in the delegation of Audit Committee's pre-approval
responsibility to management. Pre-approval policies and practices adopted by the
Audit Committee are designed to ensure that the Audit Committee knows what
particular services it is being asked to pre-approve so that it can make a
well-reasoned assessment of the impact of the services on the principal
accountant's independence.

The Audit Committee may delegate to one or more designated members of the Audit
Committee the authority to grant pre-approvals of permissible non-audit
services. The decision of any Audit Committee member to whom authority is
delegated to pre-approve permissible non-audit services are reported to the full
audit Committee.


                                       38



 





                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly signed this report on its behalf
by the undersigned, thereunto duly authorized on the 14th day of April 2004.

                                        FRONTLINE COMMUNICATIONS CORPORATION


                                        By: /s/ Ventura Martinez Del Rio, Sr.
                                        ----------------------------------------
                                        Ventura Martinez Del Rio, Sr., Chairman
                                        of the Board and Chief Executive Officer

In accordance with the requirements of the Securities Exchange Act of 1934, this
report was signed by the following persons in the capacities and on the dates
stated.




Signature                           Title                               Date
---------                           -----                               ----
                                                                  
/s/ Ventura Martinez Del Rio, Sr.   Chairman of the Board               April 29, 2004
---------------------------------   and Chief Executive Officer               
  Ventura Martinez Del Rio, Sr.     (Principal Executive Officer)


/s/ Nicko Feinberg                  President U.S. Operations           April 29, 2004
---------------------------------   and Director                              
         Nicko Feinberg


/s/ Vasan Thatham                   Chief Financial Officer             April 29, 2004
---------------------------------   and Vice President (Principal             
         Vasan Thatham              Financial and Accounting Officer)


/s/ Ventura Martinez Del Rio, Jr.                                       April 29, 2004
---------------------------------   President Mexico Operations               
  Ventura Martinez Del Rio, Jr.     and Director


/s/ Ronald C. Signore               Director                            April 29, 2004
---------------------------------                                             
       Ronald C. Signore


/s/ Miguel Madero                   Director                            April 29, 2004
---------------------------------                                             
         Miguel Madero


/s/ Jaime Marti                     Director                            April 29, 2004
---------------------------------                                             
          Jaime Marti




                                       39




 




                            Provo International, Inc.
                            and Subsidiary Companies

                                               Consolidated Financial Statements
                                          Years Ended December 31, 2003 and 2002






 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                                        Contents

================================================================================



                                                                          
Report of Independent Auditors                                                 3-5

Consolidated Financial Statements:

   Balance Sheet as of December 31, 2003                                       6-7

   Statements of Operations for the years ended December 31, 2003 and 2002       8

   Statements of Stockholders' Equity and Comprehensive Income
      for the years ended December 31, 2003 and 2002                          9-11

   Statements of Cash Flows for the years ended December 31, 2003 and 2002   12-13

   Notes to Financial Statements                                             14-43






                                                                               2



 





Report of Independent Certified Public Accountant

To the Board of Directors and Shareholders of
Provo International, Inc.
   and Subsidiary Companies


We have audited the accompanying consolidated balance sheet of Provo
International, Inc. and subsidiary companies as of December 31, 2003 and the
related consolidated statements of operations, stockholders' equity and
comprehensive loss and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Provo
International, Inc. and subsidiary companies, at December 31, 2003, and the
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.


Hernandez Marron y Cia S. C.



Bernardo Soto Penafiel, CPA
Partner


Mexico City, Mexico
April 2, 2004.



                                                                               3



 





                                                    INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Frontline Communications Corporation

We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficiency), and cash flows of Frontline Communications
Corporation and Subsidiaries (the "Company") for the year ended December 31,
2002. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Frontline Communications Corporation and Subsidiaries for the year ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America.

In April 2003, as discussed in the notes to consolidated financial statements,
the Company entered into an agreement with the shareholders of Proyecciones y
Ventas Organizadas, S.A. de C.V. ("Provo"), a corporation organized under the
laws of the Republic of Mexico to acquire Provo. Upon completion of the
transaction and the approval of the proposed stock conversion by the Company's
shareholders, it is expected that the shareholders of Provo will control the
Company.


                                                                               4



 




The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has suffered
recurring losses from operations, has a working capital deficiency and a
stockholders' deficiency, which raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

GOLDSTEIN GOLUB KESSLER LLP
New York, New York

February 20, 2003, except for Note 10,

as to which the date is April 3, 2003


                                                                               5



 




                            Provo International, Inc.
                            and Subsidiary Companies

                                                      Consolidated Balance Sheet

================================================================================




December 31,                                                             2003
--------------------------------------------------------------------------------
                                                                  
ASSETS

Current assets:

Cash                                                                 $   106,025

Accounts receivable:
   Trade, net of allowance for doubtful accounts of $ 1,213,005        5,775,010
   Related parties (Note 12)                                             564,397
   Other                                                                 521,766
--------------------------------------------------------------------------------
Total accounts receivable                                              6,861,173

Value-added tax recoverable                                              531,711

Inventory                                                                811,934

Prepaid expenses                                                         348,172

Deferred income taxes (Note 10)                                          125,941
--------------------------------------------------------------------------------
Total current assets                                                   8,784,956

Property and equipment, net (Note 4)                                     406,387

Investment in nonproductive properties (Notes 3 and 5)                 1,955,012

Deferred income taxes (Note 10)                                           28,299

Goodwill (Note 2)                                                      5,343,741

Other assets                                                             388,473
--------------------------------------------------------------------------------

                                                                     $16,906,868
================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Current maturities of long-term debt (Note 6)                     $ 1,548,837
   Payable under supplier credit facility (Note 5)                     6,940,363
   Related parties (Note 12)                                             901,267
   Accounts payable                                                    1,833,794
   Accrued expenses                                                      961,734
   Income taxes payable                                                  193,835
   Deferred revenue                                                      463,370
--------------------------------------------------------------------------------
Total current liabilities                                             12,843,200




                                                                               6



 




                            Provo International, Inc.
                            and Subsidiary Companies

                                                      Consolidated Balance Sheet

================================================================================




December 31,                                                             2003
--------------------------------------------------------------------------------
                                                                 
Long-term debt, less current maturities (Note 6)                         685,772
--------------------------------------------------------------------------------
Total liabilities                                                     13,528,972

Minority interest                                                             49
--------------------------------------------------------------------------------

Commitments and contingencies (Note 7)

Stockholders' equity (Note 9)
   Preferred stock, $0.01 par value, 2,000,000 shares authorized.              -
   Series E Preferred stock, $0.01 par value, 86,555 shares
      issued and outstanding. Liquidation preference $866.                   866
   Common Stock, $0.01 par value, 100,000,000 shares authorized,
      28,960,449 issued, 28,530,148 outstanding                          289,604
   Additional paid-in capital                                         46,904,232
   Accumulated deficit                                               (42,715,222)
   Unamortized deferred consulting costs                                (145,191)
   Accumulated other comprehensive loss                                  (85,026)
   Treasury stock, at cost, 430,301 shares                              (871,416)
--------------------------------------------------------------------------------
Total stockholders' equity                                             3,377,847
--------------------------------------------------------------------------------

                                                                    $ 16,906,868
================================================================================


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


                                                                               7



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                           Consolidated Statements of Operations

================================================================================





Years ended December 31,                                                 2003         2002
----------------------------------------------------------------------------------------------
                                                                             
Revenue                                                              $58,287,790   $ 5,047,098

Operating costs and expenses:
   Cost of revenue (excludes cost of $165,572 and $175,238
      included in depreciation and amortization)                      54,167,532     2,493,337
   Selling, general and administrative (excludes equity related
      noncash compensation of $2,005,808 and $58,500)                  6,909,111     2,446,816
   Non-cash compensation                                               2,005,808        58,500
   Depreciation and amortization                                         556,657       745,135
----------------------------------------------------------------------------------------------
Total operating costs and expenses                                    63,639,108     5,743,788
----------------------------------------------------------------------------------------------

Operating (loss)                                                      (5,351,318)     (696,690)

Other income (expense):
   Interest income                                                        21,116         7,796
   Interest expense                                                     (660,238)      (95,417)
   Amortization of deferred financing costs and conversion benefit      (249,279)           --
   Other income (expenses), net                                          120,090        (3,214)
   Gain on assets transferred in settlement of supplier payables         116,020            --
   Gain on debt settlement                                               449,850            --
----------------------------------------------------------------------------------------------
Total other income (expenses), net                                      (202,441)      (90,835)
----------------------------------------------------------------------------------------------
Loss before income tax expense (benefit), and minority interest       (5,553,759)     (787,525)

Income tax expense (benefit) (Note 10)                                  (560,872)           --
----------------------------------------------------------------------------------------------
Loss before minority interest                                         (4,992,887)     (787,525)

Minority interest                                                         26,835            --
----------------------------------------------------------------------------------------------
Net (loss)                                                            (4,966,052)     (787,525)
Preferred dividends                                                      223,401       297,867
Deemed dividends                                                          59,573            --
----------------------------------------------------------------------------------------------
Net loss available to common shareholders                            $(5,249,026)  $(1,085,392)
----------------------------------------------------------------------------------------------
Weighted average common shares outstanding - basic and diluted         7,927,092     6,079,689
----------------------------------------------------------------------------------------------
Loss per common shares - basic and diluted                           $     (0.66)  $     (0.18)
==============================================================================================



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


                                                                               8



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                 Consolidated Statements of Stockholders' Equity

================================================================================




                                                      Preferred Stock         Common Stock
                                                    ------------------   ---------------------
                                                     Shares     Amount     Shares      Amount
----------------------------------------------------------------------------------------------
                                                                          
Balance at December 31, 2001                         527,100   $ 5,271    6,374,131   $ 63,741
Purchase of treasury stock, at
   cost (19,204 shares)
Common shares issued for services                                           183,333      1,833
Conversion of Series B preferred stock               (30,655)     (307)      69,485        695
Dividends on Series B preferred stock
Warrants issued with promissory notes payable
Net loss
----------------------------------------------------------------------------------------------
Balance at December 31, 2002                         496,445     4,964    6,626,949     66,269
Shares issued with bridge loan payable                                      333,333      3,333
Shares issued with debt settlement                                          250,000      2,500
Series C Preferred stock issued for Provo Mexico
   acquisition net of related cost $100,000          220,000     2,200
Series D Preferred stock issued to brokers in
   connection with Provo Mexico acquisition            8,000        80
Series D Preferred stock issued to officers and
   employees in connection with Provo Mexico
   Acquisition                                        27,500       275
Common shares and warrants issued for services                              426,117      4,261
Private sales of common shares                                            1,666,666     16,666
Warrants and discount on convertible promissory
   Note
Conversion of convertible promissory note to
   common shares                                                            307,104      3,071
Common shares issued upon exercise of warrants                               83,333        833
Conversion of Series C Preferred to Series E
   Preferred stock
Conversion Series B Preferred to common shares
   and related adjustment for dividends             (496,445)   (4,964)   1,985,780     19,858
Conversion Series D Preferred to common shares
   and related noncash compensation charge           (35,500)     (355)   3,550,000     35,500
Conversion of Series E Preferred to common shares   (133,445)   (1,334)  13,344,500    133,445
Payment of commitment fees in common shares                                 386,667      3,868
Amortization of deferred consulting costs
Dividends on Series B preferred stock
Deemed dividends on Series B preferred stock
Translation loss, net of tax
Net loss
----------------------------------------------------------------------------------------------
Balances as of December 31, 2003                      86,555   $   866   28,960,449   $289,604
==============================================================================================





                                                                               9



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                 Consolidated Statements of Stockholders' Equity

================================================================================




                                                                       Total
Additional                    Treasury    Deferred                 Stockholders'
  Paid-in      Accumulated     Stock     Consulting   Translation      Equity
  Capital        Deficit      at Cost      Costs       Adjustment   (Deficiency)
--------------------------------------------------------------------------------
                                                      
$36,106,148   $(36,380,804)  $(864,652)   $      --    $     --      $(1,070,296)

                                (6,764)                                   (6,764)
     56,667                                                               58,500
       (388)                                                                  --
                  (297,867)                                             (297,867)
     75,000                                                               75,000
                  (787,525)                                             (787,525)
--------------------------------------------------------------------------------
 36,237,427    (37,466,196)   (871,416)          --          --       (2,028,952)
    101,667                                                              105,000
     76,250                                                               78,750
  6,629,800                                                            6,632,000
    218,283                                                              218,363
       (275)                                                                  --
    290,489                                (294,750)                          --
    690,733                                                              707,399
     57,200                                                               57,200
    112,417                                                              115,488
      9,167                                                               10,000
                                                                              --
    565,947                                                              580,841
  1,821,105                                                            1,856,250
   (132,111)                                                                  --
    226,133                                                              230,001
                                            149,559                      149,559
                  (223,401)                                             (223,401)
                   (59,573)                                              (59,573)
                                                        (85,026)         (85,026)
                (4,966,052)                                           (4,966,052)
--------------------------------------------------------------------------------
$46,904,232   $(42,715,222)  $(871,416)   $(145,191)   $(85,026)     $ 3,377,847
================================================================================



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



                                                                              10



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                   Consolidated Statements of Comprehensive Loss

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



Years ended December 31,                                                    2003
--------------------------------------------------------------------------------
                                                                        



================================================================================



--------------------------------------------------------------------------------
                                                                 
Net loss                                                            $(4,966,052)
Comprehensive income (loss):

   Translation gain (loss), net of taxes                                (85,026)
--------------------------------------------------------------------------------
Total comprehensive loss                                            $(5,051,078)
================================================================================



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


                                                                              11



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                           Consolidated Statements of Cash Flows

================================================================================

                           Increase (Decrease) in Cash




Years Ended December 31,                                                 2003         2002
---------------------------------------------------------------------------------------------
                                                                              
Cash flows from operating activities:
Net loss                                                              $(4,966,052)  $(787,525)
   Adjustments to reconcile net loss  to cash provided by (used in)
      operating activities:
         Minority interest                                                (26,835)         --
         Depreciation and amortization                                    556,657     745,135
         Debt discount amortization                                        39,488      16,667
         Amortization of deferred financing cost                          249,279          --
         Gain on debt settlement                                         (449,850)         --
         Non-cash compensation charge                                   2,005,808      58,500
         Deferred income taxes                                           (573,621)         --
         Loss on disposal of property and equipment                            --       3,214
Changes in operating assets and liabilities:
   Accounts receivable                                                  1,112,678      51,860
   Value-added tax recoverable                                             18,753          --
   Inventory                                                              908,359          --
   Prepaid expenses and other                                             197,169     (24,755)
   Other assets                                                           201,467      (4,488)
   Accounts payable and accrued expenses                                  965,363    (390,355)
   Deferred revenue                                                       (61,368)    (90,612)
   Income taxes payable                                                    10,685          --
---------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities                       187,980    (422,359)
---------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
   Acquisition of property and equipment                                  (11,691)    (14,895)
   Proceeds from disposal of property and equipment                            --       5,000
   Acquisition of Provo, including $100,000 expenses related to
      issuance of common stock, net of cash acquired $345,137            (254,863)         --
---------------------------------------------------------------------------------------------
Net cash used in investing activities                                    (266,554)     (9,895)
---------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
   Principal payment on long-term debt                                   (378,234)   (155,014)
   Proceeds of private sale of notes payable                              100,000     200,000
   Proceeds from private sale of common stock                             717,400          --
   Payments to acquire treasury stock                                          --      (6,764)
   Supplier credit facility                                              (422,091)         --
   Net proceeds from bridge loan                                          465,587          --
   Sellers settlement and repayment of bridge loan                       (421,539)         --
---------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities                        61,123      38,222




                                                                              12



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                           Consolidated Statements of Cash Flows

================================================================================

                           Increase (Decrease) in Cash




Years Ended December 31,                                                 2003         2002
---------------------------------------------------------------------------------------------
                                                                              
Effects on cash of changes in foreign currency exchange rate              (85,026)         --
---------------------------------------------------------------------------------------------
Net (decrease) in cash                                                   (102,477)   (394,032)
Cash, beginning of year                                                   208,502     602,534
---------------------------------------------------------------------------------------------
Cash, end of year                                                     $   106,025   $ 208,502
---------------------------------------------------------------------------------------------
Supplemental cash flow data:
   Interest paid                                                      $   410,000   $  83,000
   Income tax paid                                                         73,000          --
---------------------------------------------------------------------------------------------
      Warrants issued with promissory notes payable                                    75,000
      Dividends on Series B preferred stock accrued                       223,401     297,867
      Common stock issued for services                                  2,005,808      58,500
      Dividends on Series B preferred stock paid in common shares         580,841
      Gain on assets transferred in settlement of supplier payables       116,020
      Payment of debt in common stock                                      78,750
      Payment of commitment fees in common stock                          230,001
      Fair value of preferred shares issued for acquisition             6,950,363
      Value of shares issued in connection with bridge loan payable       102,000

=============================================================================================



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


                                                                              13



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

1.   Summary of Significant      Nature of Operations & Basis of Presentation
     Accounting Policies
                                 Provo International, Inc. ("Provo" or the
                                 "Company") operates in two segments: Internet
                                 business in the United States and sale and
                                 distribution of prepaid phone cards in Mexico.
                                 In December 2003, the Company changed its name
                                 from Frontline Communications Corporation to
                                 Provo International, Inc.

                                 On April 3, 2003 the Company completed the
                                 acquisition (see Note 2) of all of the issued
                                 and outstanding stock of Proyecciones y Ventas
                                 Organizadas S.A de C.V., a corporation
                                 organized under the laws of the Republic of
                                 Mexico ("Provo Mexico"). Provo Mexico and its
                                 subsidiaries are engaged in selling and
                                 distribution of prepaid calling cards and
                                 cellular airtime in Mexico for Telefonos de
                                 Mexico, S.A. ("Telmex") and Radiomovil Dipsa,
                                 S.A. de C.V. ("Telcel"), telephone
                                 communications companies operating in Mexico.

                                 The consolidated financial statements include
                                 the accounts of the Company and its
                                 subsidiaries. Intercompany balances and
                                 transactions have been eliminated.

                                 Management's estimates and assumptions

                                 In preparing the consolidated financial
                                 statements in conformity with accounting
                                 principles generally accepted in the United
                                 States of America, management is required to
                                 make estimates and assumptions that affect the
                                 reported amounts of assets and liabilities and
                                 the disclosure of contingent assets and
                                 liabilities at the date of the consolidated
                                 financial statements, and the reported amount
                                 of revenue and expenses during the reporting
                                 period. Actual results could differ if the
                                 estimates are not accurate. Many of the
                                 Company's estimates and assumptions used in the
                                 financial statements are related to the
                                 Company's industry, which is subject to rapid
                                 technological change. It is reasonably possible
                                 that changes may occur in the near term that
                                 would affect management's estimates with
                                 respect to the carrying values of property and
                                 equipment and intangibles.

                                 Allowance for Doubtful Accounts

                                 Accounts receivable are reported at their
                                 outstanding unpaid principal balances reduced
                                 by an allowance for doubtful accounts. The
                                 Company estimates doubtful accounts based on
                                 historical bad debts, factors related to
                                 specific customers' ability to pay, and current
                                 economic trends. The Company writes off
                                 accounts receivable against the allowance when
                                 a balance is determined to be uncollectible.


                                                                              14



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 The Company has a limited number of customers
                                 with individually large amounts due at any
                                 given balance sheet date. Any unanticipated
                                 change in one of those customer's credit could
                                 have a material effect on the Company's results
                                 of operations in the period in which such
                                 changes or events occur. After all attempts to
                                 collect a receivable have failed, the
                                 receivable is written off against the
                                 allowance.

                                 Inventory

                                 Inventory consists of prepaid phone cards
                                 purchased for resale. Inventory is valued at
                                 the lower of cost ("first-in, first-out") or
                                 market.

                                 Investment in Nonproductive Properties

                                 Consist of real estate properties purchased or
                                 acquired in settlement of trade accounts
                                 receivable, and are valued at the lower of cost
                                 or market. (See Notes 3 and 12).

                                 Property and equipment

                                 Property and equipment is stated at cost, less
                                 accumulated depreciation and amortization.
                                 Depreciation is computed over the estimated
                                 useful lives of the assets by the straight-line
                                 method.

                                 Intangible Assets

                                 Intangible assets include goodwill, the excess
                                 of the cost of purchased businesses over the
                                 fair value of the net assets acquired, and
                                 purchased customer bases. On January 1, 2002,
                                 the Company adopted SFAS No. 142, "Goodwill and
                                 Other Intangible Assets," which requires that
                                 goodwill no longer be amortized through the
                                 statement of operations, but instead tested for
                                 impairment at least annually. For purchased
                                 customer bases, amortization was computed using
                                 the straight-line basis over three years.
                                 Purchased customer bases were fully amortized
                                 at December 31, 2002 and the amortization
                                 expense for the year ended December 31, 2002
                                 amounted to $140,738.

                                 Long-lived Assets

                                 Long-lived assets, such as property and
                                 equipment, intangibles and customer bases, are
                                 evaluated for impairment when events or changes
                                 in circumstances indicate that the carrying
                                 amount of the assets may not be recoverable
                                 through the estimated undiscounted future cash
                                 flows from the use of these assets. When any
                                 such impairment exists, the related assets are
                                 written down to fair value.


                                                                              15



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 Foreign currency translation

                                 The Company has determined that the Mexican
                                 Peso is the functional currency for its
                                 subsidiaries' operations in Mexico. Assets and
                                 liabilities denominated in the Mexican Peso are
                                 translated into U.S. dollars at the rates in
                                 effect at the balance sheet date. Revenues and
                                 expenses are translated at average rates for
                                 the year. The net exchange differences
                                 resulting from these translations are recorded
                                 as a separate component of shareholders' equity
                                 accumulated other comprehensive income (loss),
                                 which is excluded from net income (loss).

                                 Fair Market Value of Financial Instruments

                                 The Company's financial instruments consist of
                                 accounts receivable, creditor facility payable,
                                 notes payable and long-term debt. The carrying
                                 value of accounts receivable approximates
                                 market value because of their short-term
                                 maturity and because the carrying value
                                 reflects a reasonable estimate of losses for
                                 uncollectible accounts. The carrying value of
                                 notes payable, creditor facility payable, and
                                 long-term debt approximates market value as the
                                 interest rates on substantially all of the
                                 Company's borrowings are adjusted regularly to
                                 reflect current market rates.

                                 Revenue recognition

                                 Revenues from the sale of prepaid phone cards
                                 are recorded when the phone cards are delivered
                                 to the purchaser.

                                 Monthly subscription service revenue for
                                 Internet access is recognized over the period
                                 in which services are provided. Fee revenue for
                                 Web site development and Internet Web site
                                 presence services are recognized as services
                                 are performed. Deferred revenue represents
                                 prepaid access fees by subscribers.


                                                                              16



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 Income taxes

                                 Income taxes are accounted for under the asset
                                 and liability method. Deferred tax assets and
                                 liabilities are recognized for the future tax
                                 consequences attributable to differences
                                 between the financial statement carrying
                                 amounts of existing assets and liabilities and
                                 their respective tax bases and operating loss
                                 and tax credit carryforwards. Deferred tax
                                 assets and liabilities are measured using
                                 enacted tax rates expected to apply to taxable
                                 income in the years in which those temporary
                                 differences are expected to be recovered or
                                 settled. The effect on deferred tax assets and
                                 liabilities of a change in tax rates is
                                 recognized in income in the period that
                                 includes the enactment date. A valuation
                                 allowance is provided for deferred tax assets
                                 to the extent realization is not judged to be
                                 more likely than not.

                                 Stock-Based Compensation

                                 Statement of Financial Accounting Standards
                                 ("SFAS") No. 123, "Accounting for Stock-Based
                                 Compensation", set forth accounting and
                                 reporting standards for stock-based employee
                                 compensation plans. As permitted by SFAS 123,
                                 the Company accounts for stock option grants in
                                 accordance with Accounting Principles Board
                                 Opinion No. 25, "Accounting for Stock Issued to
                                 Employees" and related interpretations by
                                 recording compensation expense for the excess
                                 of fair market value over the exercisable price
                                 per share, as of the date of the grant, in
                                 accounting for its stock options.

                                 Advertising

                                 All costs associated with advertising services
                                 are expensed in the period incurred.
                                 Advertising expense was approximately $18,000
                                 and $43,000 for the years ended December 31,
                                 2003 and 2002, respectively.


                                                                              17



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 Loss per Share

                                 The Company follows the guidelines of SFAS No.
                                 128, "Earnings per Share", which provides for
                                 the calculation of "basic" and "diluted"
                                 earnings per share ("EPS"). Basic EPS includes
                                 no dilution and is computed by dividing income
                                 or loss available to common stockholders by the
                                 weighted-average number of common shares
                                 outstanding for the period. Diluted earnings
                                 per share reflect the potential dilution that
                                 could occur through the effect of common shares
                                 issuable upon exercise of stock options and
                                 warrants and convertible securities. Potential
                                 common shares have not been included in the
                                 computation of diluted EPS for the years ended
                                 December 31, 2003 and 2002 since the effect
                                 would be antidilutive. At December 31, 2003,
                                 there were 5,107,467 options and warrants
                                 outstanding and preferred stock convertible
                                 into 8,655,500 shares of common stock that
                                 could potentially dilute basic EPS in the
                                 future.

                                 SFAS No. 123 requires the Company to provide
                                 pro forma information regarding net loss and
                                 net loss per share as if compensation cost for
                                 the Company's stock options had been determined
                                 in accordance with the fair-value-based method
                                 prescribed in SFAS No. 123. The Company
                                 estimates the fair value of each stock option
                                 at the date of the grant using the Black
                                 Scholes option-pricing model. No stock options
                                 were issued to employees during 2002 and 2003.
                                 Accordingly, no Black Scholes assumptions were
                                 used in 2002 and 2003.

                                 Under the accounting provisions of SFAS No.
                                 123, the Company's net loss and loss per share
                                 would have been increased to the pro forma
                                 amounts indicated below:




                                 -----------------------------------------------------------
                                               Year ended December, 31               2002
                                 -----------------------------------------------------------
                                                                              
                                 Net loss available to common stockholders:
                                 As reported                                     $(1,085,392)
                                 Stock-based compensation using the fair value       (55,991)
                                 method
                                 -----------------------------------------------------------
                                 Pro forma                                       $(1,141,383)
                                 Net loss per share (basic and diluted):
                                 As reported                                           (0.18)
                                 Pro forma                                             (0.19)
                                 ===========================================================




                                 New accounting pronouncements

                                 In April 2002, the FASB issued SFAS No. 145,
                                 Rescission of FASB Statements No. 4, 44 and 64,
                                 Amendment of FASB Statement No.13, and
                                 Technical Corrections. SFAS No. 145 amends
                                 existing guidance on reporting gains and losses
                                 on the extinguishment of debt to prohibit the
                                 classification of the gain or loss as
                                 extraordinary, as the use of such
                                 extinguishments have become part of the risk
                                 management strategy of many companies. SFAS No.
                                 145 also amends SFAS No. 13 to require
                                 sale-leaseback accounting for certain lease
                                 modifications that have economic effects
                                 similar to sale-leaseback transactions. The
                                 provisions of the Statement related to the
                                 rescission of Statement No. 4 are applied in
                                 fiscal years beginning after May 15, 2002.
                                 Earlier application of these provisions is
                                 encouraged. The provisions of the Statement
                                 related to Statement No. 13 were effective for
                                 transactions occurring after May 15, 2002, with
                                 early application encouraged. We adopted No.
                                 145 on January 1, 2003. The adoption of this
                                 statement did not have a material effect on our
                                 consolidated financial statements.


                                                                              18



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 In December 2002, the FASB issued SFAS No. 148,
                                 Accounting for Stock-Based Compensation -
                                 Transition and Disclosure, an amendment of FASB
                                 Statement No. 123. This Statement amends FASB
                                 Statement No. 123, Accounting for Stock-Based
                                 Compensation, to provide alternative methods of
                                 transition for a voluntary change to the fair
                                 value method of accounting for stock-based
                                 employee compensation. In addition, this
                                 Statement amends the disclosure requirements of
                                 Statement No. 123 to require prominent
                                 disclosures in both annual and interim
                                 financial statements. Certain of the disclosure
                                 modifications are required for fiscal years
                                 ending after December 15, 2002 and are included
                                 in the notes to these consolidated financial
                                 statements. We have not elected to adopt the
                                 transition to fair value method provisions of
                                 this Statement.

                                 In May 2003, the FASB issued SFAS No. 149,
                                 "Amendment of Statement 133 on Derivative
                                 Instruments and Hedging Activities. "SFAS No.
                                 149 amends and clarifies financial accounting
                                 and reporting for derivative instruments,
                                 including certain derivative instruments
                                 embedded in other contracts and for hedging
                                 activities under FASB Statement No. 133,
                                 "Accounting for Derivative Instruments and
                                 Hedging Activities". SFAS No. 149 is
                                 generally effective for contracts entered into
                                 or modified after June 30, 2003, and for
                                 hedging relationships designated after June 30,
                                 2003. We do not engage in hedging activities
                                 and, accordingly, the adoption of this
                                 Statement did not have an impact on our
                                 financial statements.

                                 In May 2003, the FASB issued SFAS No. 150
                                 "Accounting for Certain Financial Instruments
                                 with Characteristics of both Liabilities and
                                 Equity". SFAS No. 150 establishes standards for
                                 how an issuer measures certain financial
                                 instruments with characteristics of both
                                 liabilities and equity and requires that an
                                 issuer classify a financial instrument within
                                 its scope as a liability (or Asset in some
                                 circumstances). SFAS No. 150 was effective for
                                 financial instruments entered into or modified
                                 after May 31, 2003 and otherwise was effective
                                 and adopted by the Company on July 1, 2003. As
                                 we have no such instruments, the adoption of
                                 the Statement did not have an impact on our
                                 financial condition or results of operations.


                                                                              19



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 In January 2003, the FASB issued Interpretation
                                 No. 46, Consolidation of Variable Interest
                                 Entities, an interpretation of ARB No. 51. This
                                 Interpretation addresses the consolidation by
                                 business enterprises of variable interest
                                 entities as defined in the Interpretation. The
                                 Interpretation applies immediately to a
                                 variable interests in variable interest
                                 entities created after January 31, 2003, and to
                                 variable interests in variable interest
                                 entities obtained after January 31, 2003. The
                                 adoption of this Interpretation did not have a
                                 material impact on our financial condition or
                                 results of operations.

2.   Acquisition                 In April 2003, the Company entered into an
                                 amended and restated stock purchase agreement
                                 with the two stockholders of Proyecciones y
                                 Ventas Organizadas, S.A de C.V., a corporation
                                 organized under the laws of the Republic of
                                 Mexico to acquire from them all the issued and
                                 outstanding shares of Provo Mexico. As
                                 consideration, the Company issued 220,000
                                 shares of its Series C Convertible Preferred
                                 Stock ("Series C Preferred") to the two
                                 stockholders of Provo Mexico ("Sellers").

                                 Each share of Series C Preferred was to
                                 automatically convert into 100 shares of the
                                 Company's common stock after the transaction
                                 was approved by the Company's shareholders. In
                                 connection with the transaction, the Company
                                 required shareholder approval for (i) issuance
                                 of common stock upon conversion of Series C
                                 Preferred, (ii) an increase in authorized
                                 common stock to 75,000,000 shares, and (iii) a
                                 reverse split of all of the issued and
                                 outstanding shares of common stock.

                                 In November 2003, the Company issued 220,000
                                 shares of its Series E Convertible Preferred
                                 Stock ("Series E Preferred") to the former
                                 stockholders of Provo Mexico in exchange for
                                 their shares of Series C Preferred. The Series
                                 E Preferred is similar to the Series C
                                 Preferred except for the provision in Series E
                                 Preferred that precludes the holders from any
                                 conversion into the Company's common stock that
                                 will result in their ownership of greater than
                                 49.5% of the Company's outstanding common
                                 stock.


                                                                              20



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 In connection with the acquisition, the Company
                                 issued 35,500 Series D Convertible Preferred
                                 Stock ("Series D Preferred"), including 27,500
                                 shares to officers and employees and 8,000
                                 shares to brokers and finders. Each share of
                                 Series D Preferred can be converted into 100
                                 shares of the Company's common stock after
                                 shareholder approval is obtained for (i) the
                                 issuance of the shares of common stock upon
                                 conversion of the Series D Preferred, (ii) an
                                 increase in the Company's authorized common
                                 stock to 75,000,000 and (iii) a reverse split
                                 of the common stock.

                                 In December 2003, the Company's shareholders
                                 approved the issuance of shares of the
                                 Company's common stock upon conversion of
                                 Series E Preferred and Series D Preferred and a
                                 two-for -three reverse split of the Company's
                                 common stock. In accordance therewith, 133,445
                                 of the outstanding shares of Series E Preferred
                                 were converted into 13,344,500 shares of common
                                 stock ( and the remaining 86,555 shares of
                                 Series E Preferred remain outstanding) and all
                                 the 35,500 outstanding shares of Series D
                                 Preferred were converted into 3,550,000 shares
                                 of common stock. (See Note 9)

                                 The purchase price for accounting purposes is
                                 established using the fair market value of
                                 22,000,000 shares of the Company's common stock
                                 (issued upon conversion of 220,000 shares
                                 of Series E Preferred issued to the Sellers)
                                 valued at $0.306. This represented an eleven
                                 trading day average quoted market price of the
                                 Company's stock, which included the day the
                                 acquisition was signed and announced, five days
                                 prior to the announcement and five days
                                 following the announcement.

                                 Fair value of common stock issued upon
                                 conversion of:




                                 Year ended December 31,                                  2003
                                 ----------------------------------------------------------------
                                                                                    
                                 Series C Preferred                                    $6,732,000
                                 Acquisition related costs
                                    Fair value of 800,000 shares of common stock
                                    issued upon conversion of 8,000 shares of
                                    Series D Preferred issued to brokers and finders      218,363
                                    Other transaction costs                               500,000
                                 ----------------------------------------------------------------
                                 Total purchase price                                  $7,450,363
                                 ----------------------------------------------------------------




                                                                              21



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 A summary of assets acquired, liabilities
                                 assumed and resulting goodwill is as follows:




                                 Year ended December 31,                                             2003
                                 ---------------------------------------------------------------------------
                                                                                        
                                 Fair value of Provo Mexico's assets                            $ 13,315,129
                                 Fair value of Provo Mexico's liabilities and minority interest  (11,208,507)
                                 Goodwill                                                          5,343,741
                                 ---------------------------------------------------------------------------
                                 Total purchase price                                           $  7,450,363
                                 ---------------------------------------------------------------------------



                                 The Company has adopted Statement of Financial
                                 Accounting Standard No. 142," Goodwill and
                                 Other Intangible Assets" ("SFAS NO. 142"). In
                                 accordance with the statement, goodwill
                                 associated with this transaction will not be
                                 amortized, but will be periodically assessed
                                 for impairment. Such an assessment will be made
                                 at least on an annual basis.

                                 The accompanying pro forma operating statements
                                 are presented as if the Provo Mexico
                                 acquisition occurred on January 1, 2002. The
                                 pro forma information is unaudited and is not
                                 necessarily indicative of what the actual
                                 results of operations of the Company would have
                                 been assuming the acquisition had been
                                 completed as of January 1, 2002 and neither is
                                 it necessarily indicative of the results of
                                 operations for future periods.




                                 Year ended December 31,                          2003          2002
                                 -----------------------------------------------------------------------
                                                                                      
                                 Revenues                                     $77,837,080   $106,597,756
                                 Net loss available to common shareholders     (3,345,483)    (2,482,738)
                                 Net loss per share - basic and diluted       $     (0.10)  $      (0.08)
                                 -------------------------------------------------------------------


                                 The weighted average number used to calculate
                                 the net loss per share includes 22,000,000
                                 shares of common stock to be issued upon
                                 conversion of 220,000 shares of Series C
                                 Preferred issued in connection with the Provo
                                 Mexico acquisition and 3,550,000 shares of
                                 common stock to be issued upon conversion of
                                 35,500 shares of Series D Preferred issued to
                                 officers, employees, brokers and finders in
                                 connection with the Provo Mexico acquisition.


                                                                              22



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 In June 2003, the Company's Mexican subsidiary
                                 purchased the minority owners' shares in two of
                                 its subsidiaries for a nominal amount.

3.   Investment in               The Company has purchased or obtained real
     Nonproductive Properties    estate as part of accounts receivable
                                 settlements reached with some of its customers.
                                 As of December 31, 2003, these real estate
                                 properties are as follows:




                                 December 31,                            2003
                                 -----------------------------------------------
                                                                   
                                 San Gabriel Ranch in Mexico          $  422,566

                                 Undeveloped property in Ocampo
                                    County in Tamaulipas, Mexico       1,532,446
                                 -----------------------------------------------
                                 Total                                $1,955,012
                                 -----------------------------------------------



                                 On September 28, 2000, the Company purchased
                                 from a non-related party the San Gabriel
                                 undeveloped property located in Ciudad del Maiz
                                 county State of San Luis Potosi, Mexico, for
                                 $422,566 (4,000,000 Mexican Pesos).
 
                                 In March 2003, the Company acquired (see 
                                 Note 12) an undeveloped property located in
                                 Ocampo County in Tamaulipas State in Mexico,
                                 from a related party. This property is
                                 currently securing a line of credit with Telmex
                                 (see Notes 5 and 13). 
 
4.   Property and Equipment      Major classes of property and equipment at
                                 December 31, 2003 together with their estimated
                                 useful lives, consisted of the following:




                                                                                Estimated
                                                                               useful life
                                 December 31,                        2003        (years)
                                 ---------------------------------------------------------
                                                                          
                                 Computer and office equipment   $ 2,738,052        3 to 5
                                 Furniture and fixtures              246,121       5 to 10
                                 Transportation equipment            180,896             4
                                 Leasehold improvements              149,365    Lease term
                                 ---------------------------------------------------------
                                                                   3,314,434
                                 Less accumulated depreciation    (2,908,238)
                                 ---------------------------------------------------------
                                 Net property and equipment      $   406,387
                                 =========================================================




                                                                              23



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

5.   Payable Under Supplier      Provo Mexico has relied on Telmex to finance
     Credit Facility             its inventory purchases, with a line of credit
                                 of approximately $12,315,000 (127,000,000
                                 Mexican Pesos). Various non-operating
                                 properties owned by Provo Mexico, properties
                                 owned by the majority shareholder's family
                                 and properties of related parties, have been
                                 pledged to guarantee Provo Mexico's credit
                                 line with Telmex. As of December 31, 2003,
                                 the outstanding balance with Telmex is as
                                 follows:




                                 December 31,                            2003
                                 -----------------------------------------------
                                                                   
                                 Short-term financing                 $6,940,363
                                 -----------------------------------------------
                                 Total short-term                     $6,940,363
                                 ===============================================



                                 Prior to the Company's acquisition of Provo
                                 Mexico, Provo Mexico had entered into a
                                 settlement and restructuring agreement with
                                 Telmex. In connection therewith, Telmex
                                 acquired Provo Mexico's corporate office in
                                 Mexico City and certain investments in
                                 non-producing real estate in consideration for
                                 amounts due under the supplier credit facility.
                                 In addition, Telmex renegotiated the terms of
                                 the remaining balance due by Provo Mexico (see
                                 Notes 5 and 13).


                                                                              24



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                      At the time of its acquisition by the
                                      Company in April 2003, Provo Mexico had an
                                      agreement with Telmex to pay a balance
                                      due of $7,787,870 (80,312,406 Mexican
                                      Pesos) as follows:

                                      a.   $3,878,788 (40,000,000 Mexican
                                           Pesos), due and payable on or before
                                           September 9, 2003; bearing interest
                                           at TIIE times 1.3.

                                      b.   $3,909,082 (40,312,406 Mexican
                                           Pesos), is payable in 54 equal
                                           monthly payments, due and payable by
                                           Provo to Telmex commencing on July
                                           10, 2003 with a final due date on
                                           January 10, 2008, bearing interest at
                                           TIIE times 1.3.

                                 Should Provo default on payment, the
                                 outstanding balance would bear default interest
                                 at TIIE multiplied by 1.8. In the case of
                                 default by Provo, Telmex could demand
                                 acceleration of the outstanding balance.

                                 As of December 31, 2003, Provo Mexico has not
                                 made any payments due under the settlement
                                 agreement and the balance due at December 31,
                                 2003 includes $154,382 of accrued and unpaid
                                 interest.

                                 At December 31, 2003, the applicable TIIE
                                 interest rate, payable by Provo, was 6.3% per
                                 annum.

                                 In September 2003, Provo Mexico and
                                 Telmex entered into an amendment to the
                                 settlement agreement, whereby Telmex agreed
                                 to increase the value assigned to certain of
                                 the properties previously transferred by
                                 Provo Mexico to reduce Provo Mexico's
                                 indebtedness by $721,000. The gain resulting
                                 from the reduction of the indebtedness was
                                 recognized during the three months ended
                                 September 30, 2003.

                                 On April 7, 2004, Provo Mexico reached
                                 an agreement with Telmex to liquidate
                                 its entire payable due of $6,940,363
                                 to Telmex under the credit facility
                                 (See Note 13). In connection  with the
                                 negotiations, Telmex informed Provo Mexico that
                                 it was not recognizing the previous credit of
                                 $721,000 agreed to in September 2003 because
                                 Provo Mexico had not met certain conditions
                                 under which that credit was to be honored.
                                 Accordingly, Provo Mexico agreed to forego the
                                 $721,000 credit previously applied against its
                                 liability to Telmex and reversed, in the
                                 quarter ended December 31, 2003, the gain
                                 recognized in the quarter ended September 30,
                                 2003.


                                                                              25



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

6.   Long-term Debt

                                 Long-term debt consisted of the following at
                                 December 31, 2003




                                 December 31,                            2003
                                 -----------------------------------------------
                                                                   
                                 Bridge loan payable (1)              $  328,460
                                 Capital lease obligations (2)           114,453
                                 Promissory notes payable (3)            166,667
                                 Due to banks  (4)                     1,625,029
                                 -----------------------------------------------
                                                                       2,234,609
                                 Less current portion                  1,548,837
                                 ===============================================
                                 Long term                            $  685,772



                                 (1)  In April 2003, the Company borrowed
                                      $550,000 from an unaffiliated entity and
                                      issued a secured promissory note to the
                                      lender. The note bears interest at the
                                      rate of 14% per annum and is secured by
                                      substantially all of the Company's assets.
                                      Two officers of the Company have pledged
                                      shares of the Company's common stock owned
                                      by them to the lender as additional
                                      collateral for the loan. The note was
                                      payable in July of 2003 and by mutual
                                      agreement, the repayment date was extended
                                      to January of 2004. The Company repaid
                                      $221,540 of the balance prior to December
                                      31, 2003 and the balance was repaid in
                                      January of 2004. In connection with the
                                      financing, the Company issued 333,333
                                      shares of common stock (fair market value
                                      of $105,000) to the lender as additional
                                      consideration. In addition, the Company
                                      incurred approximately $84,413 in related
                                      expenses. The aggregate amount of $189,413
                                      was deferred as financing costs and was
                                      amortized over the initial term of the
                                      note.

                                 (2)  The Company leases computer and other
                                      equipment under capital leases. The assets
                                      acquired under the capital leases have a
                                      cost of approximately $1,155,000 and
                                      accumulated depreciation of approximately
                                      $1,079,000. The interest rates on the
                                      capital leases range from 14% to 18% per
                                      annum.

                                 (3)  In June 2002, the Company completed a
                                      private placement of 8% promissory notes
                                      and received proceeds of $200,000
                                      (including $50,000 from officers and
                                      directors). The promissory notes bear
                                      interest at 8% and mature in three years
                                      from the date of issuance.

                                      The Company issued to the note holders
                                      warrants to purchase an aggregate of
                                      666,667 shares of its common stock at an
                                      exercise price of $.12 per share. From the
                                      proceeds, $75,000 was allocated as the
                                      value of the warrants and is recorded as a
                                      discount on the notes payable in the
                                      accompanying consolidated balance sheet.
                                      The discount is being amortized as
                                      additional interest over


                                                                              26



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                      the terms of the promissory notes. At
                                      December 31, 2003, the promissory notes
                                      payable included on the accompanying
                                      consolidated balance sheet amounting to
                                      $166,667 are net of unamortized discounts
                                      of $33,333. The fair value of the notes
                                      approximates the carrying amount based on
                                      rates available to the Company.

                                 (4)  Due to Banks consisted of the following at
                                      December 31, 2003




                                            December 31,                  2003
                                 -----------------------------------------------
                                                                   
                                 Provo
                                    BBVA Bancomer, S.A. (a)           $  357,149
                                    BBVA Bancomer, S.A. (b)              375,007
                                    BBVA Bancomer, S.A. (c)              535,724
                                 ProvoDF
                                    SCOTIABANK Inverlat, S.A. (d)        357,149
                                 -----------------------------------------------
                                                                      $1,625,029
                                 ===============================================



                                      (a)  In September 2002, Provo Mexico
                                           entered into a $ 357,149 (4,000,000
                                           Mexican Pesos) revolving credit
                                           arrangement with BBVA Bancomer, S.A.
                                           secured by real estate of the former
                                           Provo Mexico's shareholder's family.
                                           The interest on the line of credit
                                           is TTIE plus 4% (10.3% at December
                                           31, 2003). The line is due and
                                           payable in full in September 2005.

                                      (b) In September 2002, Provo Mexico
                                          entered into a $ 535,724 (6,000,000
                                          Mexican Pesos) revolving credit
                                          arrangement with BBVA Bancomer, S.A.
                                          secured by real estate of the former
                                          Provo Mexico's shareholder's family.
                                          The interest on the line of credit is
                                          TTIE plus 4% (10.3% at December 31,
                                          2003). The credit agreement requires
                                          Provo Mexico to make a monthly payment
                                          of $8,928 (100,000 Mexican Pesos)
                                          during the first 12 months that the
                                          loan remains outstanding, and to make
                                          monthly payment of $17,856 (200,000
                                          Mexican Pesos) during the subsequent
                                          24 months that the loan remains
                                          outstanding. The balance of the loan
                                          is due and payable in


                                                                              27



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                          full in September 2005.

                                      (c) In June 2001, Provo Mexico entered
                                          into a $ 535,724 (6,000,000 Mexican
                                          Pesos) revolving credit arrangement
                                          with BBVA Bancomer, S.A. secured by
                                          real estate of the former Provo
                                          Mexico's shareholder's family. The
                                          interest on the line of credit is TTIE
                                          plus 4% (10.3% at December 31, 2003).
                                          The line is due and payable in full
                                          in June 2004.

                                      (d) In June 2001, Provo Mexico entered
                                          into a $446,437 (5,000,000 Mexican
                                          Pesos) revolving line of credit with
                                          Scotiabank Inverlat, S.A. The loan is
                                          payable in full in July 2004. The
                                          interest on the line of credit is TIIE
                                          plus 3.5% (9.8 % at December 31,
                                          2003). The loan is personally
                                          guaranteed by the former shareholder
                                          of Provo Mexico and secured by real
                                          estate of the former Provo Mexico's
                                          shareholder's family.

                                 The principal payments of long-term debt are as
                                 follows:




                                 Year ended December 31,                Amount
                                 -----------------------------------------------
                                                                  
                                 2004                                $1,548,837
                                 2005                                   685,772
                                 -----------------------------------------------
                                                                     $2,234,609
                                 ===============================================



                                 In April 2003, the Company paid $200,000 to
                                 settle a promissory note, issued as part of a
                                 business acquisition, in the principal amount
                                 of $728,600. The balance of the promissory note
                                 was settled through issuance of 250,000 shares
                                 of the Company's common stock (fair market
                                 value of approximately $78,750) to the
                                 promissory note holders. Upon settlement, the
                                 Company recognized a gain on debt settlement of
                                 approximately $449,850.

                                 In July 2003, the Company sold to an
                                 unaffiliated entity a convertible promissory
                                 note in the principal amount of $110,000. The
                                 note holder had the option to convert the
                                 principal amount of the note into shares of the
                                 Company's common stock at a conversion price of
                                 $.38 per share. In


                                                                              28



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements
 
================================================================================
 
                                 connection with the sale, the Company issued to
                                 the note holder warrants to acquire 146,667
                                 shares of its common stock at an exercise price
                                 of $0.63. Based on the fair value of the
                                 Company's common stock and warrants at the date
                                 of issuance, approximately $57,200 was
                                 allocated as the value of the conversion
                                 feature. In November of 2003, the note holder
                                 converted the note into 307,104 shares of
                                 Company's common stock and upon conversion the
                                 unamortized discount on the note was charged to
                                 operations.

7.   COMMITMENTS AND             The Company rents office space and equipment
     CONTINGENCIES:              under operating lease agreements expiring at
                                 various dates through 2006

                                 Future minimum rental payments required under
                                 operating leases are approximately as follows:




                                 Year ending December 31,
                                 -----------------------------------------------
                                                                     
                                 2004                                   $112,711
                                 2005                                    102,125
                                 2006                                     72,750
                                 2007
                                 2008
                                 2009 and thereafter
                                 -----------------------------------------------
                                                                        $287,586
                                 ===============================================



                                 Rental expense was approximately $335,000 and
                                 $341,000 for the years ended December 31, 2003
                                 and 2002, respectively.


                                                                              29



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

8.   STOCK OPTIONS               The Company has a stock option plan (the
                                 "Plan") which authorizes the issuance of
                                 incentive options and nonqualified options to
                                 purchase up to 2,000,000 shares of common
                                 stock. The Plan has a 10-year term. The board
                                 retained the authority to determine the
                                 individuals to whom, and the times at which,
                                 stock options would be granted, along with the
                                 number of shares, vesting schedule and other
                                 provisions related to the stock options.

                                 A summary of the status of the Company's stock
                                 option plan as of December 31, 2003 and 2002,
                                 and changes during the years ended on those
                                 dates, is presented below:




              December 31,                          2003                          2002
--------------------------------------------------------------------------------------------------
                                                    Weighted-average              Weighted-average
                 Concept                  Shares      Exercise Price    Shares     Exercise Price
--------------------------------------------------------------------------------------------------
                                                                            
Outstanding at beginning of year          859,333        $4.22          972,600         $4.01
   Granted
   Forfeited                             (180,800)        4.32         (113,267)         2.52
--------------------------------------------------------------------------------------------------
   Outstanding at end of year             678,533        $4.19          859,333         $4.22
--------------------------------------------------------------------------------------------------
   Options exercisable at year-end        678,533        $4.19          859,333         $4.22
--------------------------------------------------------------------------------------------------
Weighted-average fair value of options
   granted during the year                     --        $  --               --         $  --
==================================================================================================




                                                                              30



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 The following table summarizes information
                                 about stock options outstanding and
                                 exercisable at December 31, 2003:




                                                     Options Outstanding and Exercisable
                                                   ---------------------------------------
                                                       Number                    Weighted-
                                                   Outstanding at   Remaining     average
                                    Range of        December 31,   Contractual    Exercise
                                 Exercise Prices        2003          Life         Price
                                 ---------------------------------------------------------
                                                                          
                                 $0.23 to $1.00        330,000      2.1 years      $0.47
                                 $2.00 to $6.00        166,667            1.4       2.93
                                 $6.01 to $9.00        283,200             .9       7.74
                                 $9.01 to $10.13        48,667             .1       9.15
                                 ---------------------------------------------------------
                                                       678,533                     $4.19
                                 =========================================================




                                                                              31



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

9.   Stockholders'               In December 2003, the Company's stockholders
     Equity                      approved a two-for-three reverse split of the
                                 Company's common stock. All data relating to
                                 the number of shares and per share amounts
                                 presented in these financial statements have
                                 been retroactively adjusted in order to reflect
                                 the reverse split.


                                                                              32



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 In connection with the Provo acquisition, the
                                 Company issued 220,000 shares of Series C
                                 Preferred to the Sellers and issued 35,500
                                 Series D Preferred, including 27,500 shares to
                                 officers and employees and 8,000 shares to
                                 brokers and finders. Each share of both the
                                 classes of preferred shares automatically
                                 converts into 100 shares of the Company's
                                 common stock after the Company's shareholders
                                 approve the conversion. In November 2003, the
                                 Company issued 220,000 shares of its Series E
                                 Convertible Preferred Stock ("Series E
                                 Preferred") to the former stockholders of
                                 Provo in exchange for their shares of Series C
                                 Preferred. The Series E Preferred is similar
                                 to the Series C Preferred except for the
                                 provision in Series E Preferred that precludes
                                 the holders from any conversion into the
                                 Company's common stock that will result in
                                 their ownership of greater than 49.5% of the
                                 Company's outstanding common stock. The par
                                 value and the liquidation preference of each
                                 share of Series C Preferred, Series D
                                 Preferred and Series E Preferred are $.01.

                                 In December 2003, the Company's shareholders
                                 approved the conversion of 35,500 outstanding
                                 shares of Series D Preferred into 3,550,000
                                 shares of common stock and 133,445 of the
                                 220,000 outstanding shares of Series E
                                 Preferred were converted into 13,344,500
                                 shares of common stock (and the remaining
                                 86,555 shares of Series E Preferred stock
                                 remains outstanding art December 31, 2003).

                                 In the accompanying consolidated financial
                                 statements the value of the outstanding Series
                                 C Preferred and Series D Preferred issued to
                                 brokers and finders is determined based on the
                                 Company's common share price of $0.306 per
                                 share (see Note 2) and by applying the ratio
                                 in which Series E Preferred and Series D
                                 Preferred can be converted into shares of
                                 common stock. Accordingly, 220,000 outstanding
                                 shares of Series C are valued at $6,732,000
                                 and the 8,000 shares of Series D Preferred are
                                 valued at $218,363.


                                                                              33



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 The fair value of the common shares to be
                                 issued upon conversion of 27,500 shares of
                                 Series D shares issued to officers and
                                 employees at the time of the Company's
                                 shareholders approval of the conversion was
                                 $1,856,250. Accordingly, non cash compensation
                                 expense for the fair value of the shares
                                 issued was charged to operations

                                 In December 2003, the Company's shareholders
                                 approved the conversion of all 496,445
                                 outstanding shares of Series B Convertible
                                 Redeemable preferred stock into 1,985,780
                                 shares of common stock. The fair value of the
                                 common stock transferred to Series B
                                 convertible preferred stockholders exceeds the
                                 aggregate fair value of the common stock
                                 issuable pursuant to the original conversion
                                 and dividend terms by $59,573. The excess
                                 consideration is treated as expense ("Deemed
                                 dividends") and charged to retained earnings.
                                 Upon payment of dividends in shares of common
                                 stock, $521,268 of accrued unpaid dividends
                                 was adjusted as additional paid in capital.

                                 In December 2003, the Company's shareholders
                                 approved an amendment to the Certificate of
                                 Incorporation of the Company increasing the
                                 number of authorized shares of common stock to
                                 100,000,000 shares.

                                 In 2003, the Company sold through private
                                 placements 1,666,666 shares of its common
                                 stock and received net proceeds of $707,400.
                                 In addition, the Company issued warrants to
                                 acquire 3,350,000 shares of its common stock
                                 at an exercise price ranging from $.01 to
                                 $.60. The warrants expire at various dates
                                 through September 2008.


                                                                              34



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 In 2003, the Company entered into consulting
                                 agreements with five consultants and issued
                                 them an aggregate of 426,117 shares of common
                                 stock and warrants to 100,000 shares of its
                                 common stock. Based on the fair value of the
                                 common shares and warrants (using the Black
                                 Scholes option-pricing model), the aggregate
                                 consulting costs approximated $294,750 and is
                                 being charged to operations over the term of
                                 the respective consulting agreements. The
                                 unamortized balance of the consulting costs at
                                 December 31, 2003 was $145,191.

                                 In 2003, the Company issued 333,333 shares of
                                 its common stock in connection with a
                                 borrowing, issued 250,000 shares of common
                                 stock for a settlement of a debt and issued
                                 307,104 shares of common stock upon conversion
                                 of a convertible promissory note. (see Note
                                 6). In addition, the Company issued 83,333
                                 shares of common stock upon exercise of
                                 warrants.

                                 In 2003, the Company entered into agreements
                                 with two placements agents for additional
                                 financing. Pursuant to the terms of the
                                 agreement, the Company issued 386,667 shares
                                 of its common to the agents as a commitment
                                 fee. The commitment fee costs, based on the
                                 fair value of the shares issued, approximating
                                 $230,000 are deferred and included as other
                                 assets at December 31, 2003.

                                 In April 2000, the Company's board of
                                 directors authorized the Company to purchase
                                 up to $1,000,000 worth of its common stock
                                 from time to time, as the Company deems
                                 appropriate, through open market purchases or
                                 in privately negotiated transactions. As of
                                 December 31, 2003, the Company had acquired
                                 275,955 shares of common stock for an
                                 aggregate consideration of approximately
                                 $607,000.

                                 In 2002, the Company entered into two
                                 consulting agreements and issued to the
                                 consultants an aggregate of 183,333 shares of
                                 common stock as consideration for the services
                                 rendered by the consultants. Accordingly,
                                 $58,500, representing the fair value of the
                                 shares issued, was charged to operations.

                                 In June 2002, the Company issued, in a private
                                 sale of 8% promissory notes, warrants to
                                 purchase an aggregate of 666,667 shares of its
                                 common stock at an exercise price of $.12 per
                                 share.

                                 During 2002, the Company issued 69,485 shares
                                 of common stock upon conversion of 30,655
                                 shares of Series B Convertible Redeemable
                                 preferred stock.


                                                                              35



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 At December 31, 2003, warrants to purchase
                                 4,423,334 shares of common stock were
                                 outstanding and exercisable at prices ranging
                                 between $.01 to $12.75 per share, expiring at
                                 various times through 2008.


10.  INCOME TAXES:

                                 The components of (loss) before the provision 
                                 for (benefits of) income taxes are as follows:




                                           Year ended December 31
                                           2003                  2002
                                                       
United States                          ($2,597,783)            ($787,525)
Mexico                                  (2,955,976)                    -
                                       =============           ----------
                                       ($5,553,759)            ($787,525)
                                       =============           ==========




                                 The provision (benefit) for income tax for the
                                 years ended December 31 are as follows:




                                             2003                                2002
                                          US      Mexico       Total          US       Mexico   Total
                                                                              
Current                                    -       $12,748      $12,748        -         -       -
Deferred                                   -      (573,620)    (573,620)       -         -       -
                                         --------------------------------    ------------------------
Total                                      -      (560,872)    (560,872)       -         -       -
                                         ================================    ========================





                                                                              36



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 A reconciliation of the statutory rate to
                                 effective income tax rate for the years ended
                                 December 31, are as follows:




                                              2003                    2002
                                                               
Statutory rate                               (34.0)%                 (34.0%)
Recognition of effects of inflation            2.7%
Non deductible expenses                        1.1%
Utilization of tax loss carryforwards          4.3%
Increase in valuation allowance               15.8%                   34.0%


                                             -------                 ------
                                             (10.1)%                   0.0%
                                             =======                 ======




                                 The deferred taxes resulting from timing
                                 differences at December 31, 2003 are as
                                 follows:




                                             US      Mexico          Total
                                                          
Deferred income taxes current:
    Inventories                              $0     ($267,938)     ($267,938)
    Restructuring expenses                    0           766            766
    Allowance for bad debts                   0       393,113        393,113
                                            ----------------------------------
Net deferred income tax assets
 current                                     $0      $125,941       $125,941
                                            ----------------------------------






                                                         
Long-term deferred income taxes
   Property and equipment                               28,299         28,299
   Tax loss carryforward                7,990,000      330,018      8,320,018
  Allowance for tax loss
   carryforward                        (7,990,000)    (330,018)    (8,320,018)


                                      ----------------------------------------
Total long-term deferred tax
 assets                                    $0          $28,299        $28,299
                                      ========================================




                                                                              37



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

United States

                                 The Company had net operating loss
                                 carryforwards of approximately $23,500,000 at
                                 December 31, 2003, which expire through 2023.
                                 The tax benefit of these losses has been
                                 completely offset by a valuation allowance due
                                 to the uncertainty of its realization.

                                 Internal Revenue Code Section 382 provides for
                                 limitations on the use of net operating loss
                                 carryforwards in years subsequent to a more
                                 than 50% change in ownership (as defined by
                                 Section 382), which limitations can
                                 significantly impact the Company's ability to
                                 utilize its net operating loss carryforwards.
                                 As a result of the sale of the preferred
                                 shares in the public offering in February and
                                 March 2000, changes in ownership may have
                                 occurred which might result in limitations on
                                 the utilization of the net operating loss
                                 carryforwards. The extent of any limitations
                                 as a result of changes in ownership has not
                                 been determined by the Company.


          Mexico                 Taxable income differs from accounting income
                                 due to permanent differences, principally on
                                 items reflecting the effects of inflation, and
                                 on non-deductible expenses and to timing
                                 differences affecting accounting and taxable
                                 income in different periods.

                                 In accordance with Mexico's current Income Tax
                                 Law, the income tax rate is 34% for 2003, 33%
                                 for 2004 and 32% for 2005 and subsequent years.


                                                                              38



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 In accordance with Mexico's Income Tax Law,
                                 tax losses are subject to restatement by
                                 inflation and may be carried forward against
                                 future taxable income over the 10 years
                                 following their generation. As of December 31,
                                 2003, the Company's restated cumulative tax
                                 loss carryforwards were as follows:




--------------------------------------------------------------------------------
Fiscal year                                   Amount         Expiration Year
--------------------------------------------------------------------------------
                                                       
2001                                        $  140,079              2011
2003                                           891,229              2013
--------------------------------------------------------------------------------
                                            $1,031,308
================================================================================



                                 The determination of deferred income taxes
                                 was made through the assets and liabilities
                                 method, which recognizes the income tax
                                 effects of the differences in bases of assets
                                 and liabilities between financial accounting
                                 and accounting for tax reporting purposes. The
                                 tax rates used to compute deferred taxes on
                                 those temporary differences are the rates
                                 expected to apply when such differences are
                                 recovered or settled.

                                 In accordance with Mexico's Income Tax Law, if,
                                 in any given year, the Company is subject to
                                 tax on assets in excess of the amount of income
                                 tax payable, this excess may be used to offset
                                 income taxes payable in excess of tax on assets
                                 payable in any of the ten years following such
                                 year. As of December 31, 2003, the Company did
                                 not have any excess of tax on assets.

                                 Provo Mexico and its subsidiaries do not file
                                 consolidated returns for Mexican tax purposes.

11.  Segment Information         The Company reports its operations in two
                                 segments: Internet business in the U.S.A and
                                 sale and distribution of prepaid phone cards in
                                 Mexico

                                 The Company's Internet business provides
                                 Internet access, web hosting, website design
                                 and related services to residential and
                                 business customers.


                                                                              39



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 The Company's Mexican subsidiary sells and
                                 distributes prepaid phone cards in Mexico for
                                 Telmex and Telcel. Telmex is the dominant
                                 telecommunications provider in Mexico and
                                 Telcel is the dominant provider of cellular
                                 airtime in Mexico. Prepaid phone cards are
                                 distributed through a vast network of retail
                                 outlets, including convenience stores, drug
                                 stores, restaurants, lottery stands, newspaper
                                 and magazine stands and other general stores.

                                 In evaluating financial performance, management
                                 focuses on operating profit as a segment's
                                 measure of profit or loss. Operating profit is
                                 before interest expense, interest income, other
                                 non-operating gains and losses and income
                                 taxes. The accounting policies of the
                                 reportable segments are the same as those
                                 described in the summary of accounting policies
                                 (Note 1), with certain expenses allocated
                                 between the segments based on estimated usage.

                                 Segment information as of, and for the years
                                 ended December 31, is as follows:




                                                            Internet     Phone cards
                                          2003              business     distribution   Consolidated
                                 -------------------------------------------------------------------
                                                                                
                                 Revenues                  $ 3,983,317    $54,304,473    $58,287,290
                                 Operating profit (loss)    (2,669,297)    (2,682,021)    (5,351,318)
                                 Interest expense              142,724        517,514        660,238
                                 -------------------------------------------------------------------

                                 Total assets              $   746,014    $16,426,054    $17,172,068
                                 -------------------------------------------------------------------






                                                            Internet     Phone cards
                                           2002             business    distribution   Consolidated
                                 ------------------------------------------------------------------
                                                                               
                                 Revenues                  $5,047,098        $--        $5,047,098
                                 Operating profit (loss)     (696,690)        --          (696,690)
                                 Interest expense              95,417         --            95,417
                                 -----------------------------------------------------------------

                                 Total assets              $1,258,567        $--        $1,258,567
                                 -----------------------------------------------------------------




                                                                              40



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

12.  TRANSACTION WITH RELATED PARTIES

Balances with related parties at December 31, 2003 are as follows:



                                      
Accounts receivable:

SAPROV, S.C. (2)                         $151,690
Other minority shareholders (3)            83,084
Inter MR (4)                              126,962
Tarpa, S.A de C.V (1)                     202,661
                                         --------
Total related party receivables          $564,397
                                         ========





                                      
Accounts payable:

Mr. Ventura Martinez del Rio Sr. (5)      ($53,572)
ProvoLoto (1)                             (190,385)
PRODIES (1)                               (452,517)
Commercializadora VGI, S.S. de C.V (6)     (58,345)
Relatives of officers (7)                 (146,448)
                                         ---------
Total related party payables             ($901,267)
                                         =========



     (1)  In December 2002, Provo Mexico negotiated a series of transaction in
          which it obtained real estates from a customer to settle certain
          accounts receivable and used that real estate to settle amounts owed
          under its supplier credit facility. Provo reached an agreement with a
          customer, whereby that customer's debts to Provo Mexico ($0.2
          million), its majority shareholder (Mr. Ventura Martinez Del Rio, Sr.)
          and his other related companies totaling approximately $3 million
          would be settled with real estate transferred to Provo Mexico. To
          facilitate this settlement, these related parties assigned their
          respective receivable from the customer to Provo Mexico. The payables
          were reflected by increasing the payable or reducing the receivable
          with the related party. The balances with Tarpa, ProvoLoto and PRODIES
          were not settled but adjusted for additional transactions of 2003, if
          any.

     (2)  Provo Mexico subcontracted personnel services from SAPROV, S.C, an
          entity affiliated with one of the directors of the Company. During the
          year ended December 31, 2003, Provo Mexico incurred approximately $1.2
          million for such services.


                                                                              41



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

     (3)  Amount due from other minority shareholders are amounts advanced by
          Provo Mexico prior to its acquisition by the Company.

     (4)  Balance due from Inter MR, an entity affiliated with two of the
          directors of the Company, represent expenses incurred by the Company
          on behalf of Inter MR.

     (5)  Amounts due to Mr. Ventura Martinez del Rio Sr., principally represent
          unpaid salaries.

     (6)  Amounts due to Commercializadora VGI, S.S. de C.V. are from
          transactions completed by Provo Mexico prior to its acquisition by the
          Company.

     (7)  Amounts borrowed on a short-term basis for working capital purposes.

13.  Subsequent Events           In January 2004, the Company borrowed an
                                 aggregate principal amount of $1,000,000
                                 pursuant to the terms of four convertible
                                 promissory notes. The notes are due in January
                                 of 2006 and bear an interest rate of 8% per
                                 annum. The note holders have the option to
                                 convert the balance due under the notes into
                                 shares of the Company's common stock at a
                                 conversion price of $0.38 per share. In
                                 connection with borrowing, the Company issued
                                 the note holders and the placement agent
                                 warrants to acquire an aggregate of 1,600,000
                                 shares at an exercise price of $0.51.

                                 In January and February of 2004, the Company
                                 issued 4,400,000 shares of common stock upon
                                 exercise of warrants and received gross
                                 proceeds of approximately $620,000.

                                 On April 7, 2004, Provo Mexico entered into a
                                 settlement agreement with Telmex, whereby Provo
                                 Mexico transferred eight non-revenue generating
                                 real estate properties and certain vehicles
                                 carried at book at approximately $1,985,512
                                 to Telmex in full satisfaction and release of
                                 the $6,940,363 credit balance to Telmex. The
                                 Telmex settlement agreement also provides that
                                 Provo Mexico will have a term of 45 days to
                                 close its distribution of Telmex prepaid
                                 calling cards. During this 45-day term, Provo
                                 Mexico may not purchase Telmex issued cards in
                                 excess of $67,000 per week. All purchases of
                                 Telmex cards must be paid in cash. At the end
                                 of the 45-day term, each of Telmex and Provo
                                 Mexico granted each other and their


                                                                              42



 




                                                       Provo International, Inc.
                                                        and Subsidiary Companies

                                                   Notes to Financial Statements

================================================================================

                                 respective officers, directors, shareholders
                                 and affiliates a full release for any prior
                                 obligations and or transactions between the
                                 parties.

                                 The settlement agreement also provides that for
                                 a period of fifteen years from the date of the
                                 agreement, each of Provo Mexico, our Chairman.
                                 Ventura Martinez del Rio, Sr. and our director,
                                 Ventura Martinez del Rio, Jr. may not
                                 participate in any companies or transactions
                                 involving the wholesale distribution of Telmex
                                 issued prepaid calling cards.

                                 The settlement agreement effectively restricts
                                 Provo Mexico from continuing to distribute
                                 Telmex issued prepaid cards in the future and
                                 could have a material impact on Provo Mexico's
                                 future revenues and profitability. As a result
                                 of the settlement agreement, Provo Mexico is
                                 scaling back its operations in Mexico to reduce
                                 costs.

                                 Nothing in the settlement agreement restricts
                                 us or Provo Mexico from continuing to
                                 distribute cellular cards issued by Telcel or
                                 prepaid telecommunications cards issued by
                                 other telecommunications carriers in Mexico,
                                 other than Telmex. In the fourth quarter of
                                 2003, sales of Telcel exceeded sales of Telmex
                                 issued cards, as Ladatel and Multifon sales
                                 declined. For the year ended December 31, 2003,
                                 Telcel airtime sales represented about 48.3% of
                                 Provo Mexico's total annual sales, up
                                 significantly from 10% in 2000. All purchases
                                 of Telcel cards are made in cash and Provo
                                 Mexico has no lines of credit with Telcel.
                                 Management believes that the distribution of
                                 prepaid cellular airtime is a more dynamic line
                                 of business than the distribution of prepaid
                                 cards for traditional telephony services. As a
                                 result of the settlement agreement, Provo
                                 Mexico will concentrate its efforts to continue
                                 distributing Telcel cards and develop new lines
                                 of business in Mexico.

                                 As a result of the settlement agreement, a
                                 $721,000 reduction in the Telmex liability that
                                 had been recognized in the quarter ending
                                 September 30, 2003 was reversed in the quarter
                                 ending December 31, 2003.

14. Management Plans

    Pursuant to the settlement agreement entered into with Telmex on April 7,
    2004, the Company will discontinue sales of Ladatel cards. However, it
    will continue to sell Telcel cards. The Company is scaling back its
    operations in Mexico to reduce costs. Management believes that it can
    successfully restructure its Mexican operations and reduce costs to mitigate
    the loss of margin due to discontinuation of Ladatel sales. A significant
    amount of working capital in Mexico will not be required once the Company
    discontinues Ladatel sales. Management anticipates that collection from
    existing receivables will provide the Company with adequate liquidity for
    paying its Company's obligations. However, there is no assurance that the
    Company will be successful in restructuring its Mexican operations and/ or
    that the Company will be successful in collecting its receivables on a
    timely basis.


     In order to continue our operations and satisfy our debt obligations, we
need to secure additional financing. We currently lack the funds to pay these
obligations when they become due. Therefore, in order to satisfy our debt
obligations, we are currently pursuing additional sources of financing,
including potential sources for debt and equity financing (or a combination of
the two), and are exploring the possibility of selling some of our assets so
that we will have sufficient funds to pay our debts as they become due. There
can be no assurance, however, that such financing will be available on terms
that are acceptable to us, or on any terms.

     If we cannot obtain the additional funding we require, or collect
receivables or raise money by selling some our assets, we will have to negotiate
with our lenders to extend the repayment dates of our indebtedness. There can be
no assurance, however, that we will be able to successfully restructure our debt
obligations in the event we fail to obtain additional financing.

15. Fourth Quarter Adjustments

    During the three months ended December 31, 2003, the Company increased the
    allowance for doubtful debts by approximately $1 million and reversed a
    previously recognized gain of $721,000 recorded in the three months ended
    September 30, 2003.

    The effect of the reversal on the reported results for the three months
    ended September 30, 2003 is as follows:



                                                                    
    Net loss available to common shareholders- Reported         $(216,485)
    Reversal                                                     (721,000)
    Net loss available to common shareholders- Restated         $(937,485)

    Net loss per common share-basic and diluted-Reported        $   (0.03)
    Net loss per common share- basic and diluted- Restated      $   (0.13)



Note: Net loss per common share was calculated after adjusting for the 2 for 3 
reverse split.





                                                                              43

                          STATEMENT OF DIFFERENCES

The trademark symbol shall be expressed as................................ 'TM'
The service mark symbol shall be expressed as............................. 'sm'









Exhibit 21.1

Subsidiaries of Provo International, Inc.




                           Name                                     Jurisdiction
                           ----                                     ------------
                                                                  
WOW Factor, Inc.                                                     New Jersey

CLEC Communications Corporation.                                     Delaware

FNT Communications Corporation                                       New York

Provo US Inc.                                                        Delaware

Proyecciones y Ventas Organizadas S.A. de C.V                        Mexico

FS Provo, S.A. de C.V.                                               Mexico

Proyecciones y Ventas Organizadas del D.F., S.A. de C.V.             Mexico

Proyecciones y Ventas Organizadas de Occidente, S.A. de C.V.         Mexico

Tilgo, S.A. de C.V.                                                  Mexico

Tarnor, S.A. de C.V.                                                 Mexico

PTL Administradora, S.A. de C.V.                                     Mexico










                                                                    EXHIBIT 23.1

INDEPENDENT AUDITOR'S CONSENT


To the Board of Directors
Frontline Communications Corporation

We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement of Frontline Communications
Corporation on Forms S-3 (#333-89811, 333-35058, 333-110764 and 333-112926) and 
Form S-8 (#333-86792) of our report dated February 20, 2003, except for Note 10 
as to which the date is April 3, 2003, on the consolidated financial statements 
of Frontline Communications Corporation for the year ended December 31, 2002 
appearing in the annual report on Form 10-KSB of Provo International, Inc. for 
the year ended December 31, 2003. We also consent to the reference of our firm 
under the caption "Experts" contained in such Registration Statements.


/s/ GOLDSTEIN GOLUB KESSLER LLP
-------------------------------
GOLDSTEIN GOLUB KESSLER LLP
New York, New York

April 29, 2004











                                                                    EXHIBIT 23.2

INDEPENDENT AUDITOR'S CONSENT


To the Board of Directors
Provo International, Inc.

We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement of Provo International, Inc., on
Forms S-3 (#333-89811, 333-35058, 333-110764 and 333-112926) and Form S-8 
(#333-86792) of our report dated April 2, 2004, on the consolidated financial 
statements of Provo International, Inc. as December 31, 2003 and for the year 
ended December 31, 2003 appearing in the annual report on Form 10-KSB of Provo 
International, Inc. for the year ended December 31, 2003


/s/ Bernardo Soto, CPA
------------------------------
Hernandez Marron y Cia., S. C.


Mexico City, Mexico

April 29, 2004











                                                                    Exhibit 31.1

                                  CERTIFICATION

I, Ventura Martinez del Rio, Sr., certify that:

     1.   I have reviewed this annual report on Form 10-KSB of Provo
          International, Inc.

     2.   Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this report, fairly present in all material
          respects the financial condition, results of operations and cash flows
          of the registrant as of, and for, the periods presented in this
          report;

     4.   The registrant's other certifying officer(s) and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
          registrant and have:

          a)   designed such disclosure controls and procedures, or caused such
               disclosure controls and procedures to be designed under our
               supervision, to ensure that material information relating to the
               registrant, including its consolidated subsidiaries, is made

               known to us by others within those entities, particularly during
               the period in which this report is being prepared;

          b)   evaluated the effectiveness of the registrant's disclosure
               controls and procedures and presented in this report our
               conclusions about the effectiveness of the disclosure controls
               and procedures, as of the end of the period covered by this
               report based on such evaluation; and

          c)   disclosed in this report any change in the registrant's internal
               control over financial reporting that occurred during the
               registrant's most recent fiscal quarter (the registrant's fourth
               fiscal quarter in the case of an annual report) that has
               materially affected, or is reasonably likely to materially
               affect, the registrant's internal control over financial
               reporting;

     5.   The registrant's other certifying officer(s) and I have disclosed,
          based on our most recent evaluation of internal control over financial
          reporting, to the registrant's auditors and the audit committee of
          registrant's board of directors (or persons performing the equivalent
          functions):

          a)   all significant deficiencies and material weaknesses in the
               design or operation of internal control over financial reporting
               which are reasonably



 




               likely to adversely affect the registrant's ability to record,
               process, summarize and report financial information; and

          b)   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal control over financial reporting


                                        /s/ Ventura Martinez del Rio, Sr.
                                        ----------------------------------------
Date: April 29, 2004                    Ventura Martinez del Rio, Sr.
                                        Chairman and Chief Executive
                                        Officer







                                                                    Exhibit 31.2

                                  CERTIFICATION

I, Vasan Thatham, certify that:

     1.   I have reviewed this annual report on Form 10-KSB of Provo
          International, Inc.

     6.   Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this report;

     7.   Based on my knowledge, the financial statements, and other financial
          information included in this report, fairly present in all material
          respects the financial condition, results of operations and cash flows
          of the registrant as of, and for, the periods presented in this
          report;

     8.   The registrant's other certifying officer(s) and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
          registrant and have:

          a)   designed such disclosure controls and procedures, or caused such
               disclosure controls and procedures to be designed under our
               supervision, to ensure that material information relating to the
               registrant, including its consolidated subsidiaries, is made
               known to us
 by others within those entities, particularly during
               the period in which this report is being prepared;

          b)   evaluated the effectiveness of the registrant's disclosure
               controls and procedures and presented in this report our
               conclusions about the effectiveness of the disclosure controls
               and procedures, as of the end of the period covered by this
               report based on such evaluation; and

          c)   disclosed in this report any change in the registrant's internal
               control over financial reporting that occurred during the
               registrant's most recent fiscal quarter (the registrant's fourth
               fiscal quarter in the case of an annual report) that has
               materially affected, or is reasonably likely to materially
               affect, the registrant's internal control over financial
               reporting;

     9.   The registrant's other certifying officer(s) and I have disclosed,
          based on our most recent evaluation of internal control over financial
          reporting, to the registrant's auditors and the audit committee of
          registrant's board of directors (or persons performing the equivalent
          functions):

          a)   all significant deficiencies and material weaknesses in the
               design or operation of internal control over financial reporting
               which are reasonably



 




               likely to adversely affect the registrant's ability to record,
               process, summarize and report financial information; and

          b)   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal control over financial reporting


                                        /s/ Vasan Thatham
                                        ----------------------------------------
Date: April 29, 2004                    Vasan Thatham
                                        Chief Financial Officer







                                                                    Exhibit 32.1


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

     I, Ventura Martinez del Rio, Sr., Chairman and Chief Executive Officer of
Provo International, Inc. (the "Company"), hereby certify pursuant to Rule
15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350
of Chapter 63 of title 18 of the United States Code that:

     1. The Company's Annual Report on Form 10-KSB for the year ended December
31, 2003, to which this statement is filed as an exhibit (the "Report"), fully
complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and

     2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.


                                        /s/ Ventura Martinez del Rio, Sr.
April 29, 2004                          ---------------------------------------
                                        Ventura Martinez del Rio, Sr.
                                        Chairman and Chief
                                        Executive Officer









                                                                    Exhibit 32.2


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

     I, Vasan Thatham, Chief Financial Officer of Provo International, Inc. (the
"Company"), hereby certify pursuant to Rule 15d-14(b) of the Securities Exchange
Act of 1934, as amended, and Section 1350 of Chapter 63 of title 18 of the
United States Code that:

     1. The Company's Annual Report on Form 10-KSB for the year ended December
31, 2003, to which this statement is filed as an exhibit (the "Report"), fully
complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and

     2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.


                                        /s/ Vasan Thatham
April 29, 2004                          ---------------------------------------
                                        Vasan Thatham
                                        Chief Financial Officer