<PAGE16>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Kanakaris Communications, Inc.
We have audited the accompanying consolidated balance sheets of Kanakaris
Communications, Inc. and Subsidiary (formerly Kanakaris Internetworks, Inc.
and Subsidiary) as of September 30, 1998 and 1997 and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for the year ended September 30, 1998 and for the period from
February 25, 1997 (inception) to September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as 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 financial position of Kanakaris
Communications, Inc. and Subsidiary (formerly Kanakaris Internetworks, Inc.
and Subsidiary) as of September 30, 1998 and 1997 and the results of their
operations and their cash flows for the year ended September 30, 1998 and for
the period from February 25, 1997 (inception) to September 30, 1997 in
conformity with generally accepted accounting principles.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
March 10, 1999
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash $ 5,415 $ 53,804
Accounts receivable 118,473
Inventory 10,122 -
Advances to suppliers 7,839 -
Current maturities of notes
receivable-shareholders and
related parties 36,280 39,160
Interest receivable 16,683 5,135
--------- ---------
Total Current Assets 194,812 98,099
--------- ---------
PROPERTY AND EQUIPMENT
Furniture and equipment 22,631 8,044
Less: Accumulated depreciation (6,184) (1,584)
--------- ---------
Total Property and Equipment 16,447 6,460
--------- ---------
OTHER ASSETS
Notes receivable - shareholders and
related parties - non-current 247,033 202,554
Organization costs - net 2,050 2,650
Security deposits 700 -
Goodwill - net of amortization 326,928 -
--------- ---------
Total Other Assets 576,711 205,204
--------- ---------
TOTAL ASSETS $ 787,970 $ 309,763
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 521,432 $ 18,773
Notes payable 25,000 -
Due to former shareholder of subsidiary 30,937 -
Customer deposits 29,427 -
--------- ---------
Total Current Liabilities 606,796 18,773
--------- ---------
LONG-TERM LIABILITIES
Royalties payable 20,753 -
--------- ---------
Total Liabilities 627,549 18,773
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value
in 1998 and 1997; 5,000,000 and
1,697,280 shares authorized in
1998 and 1997; 1,000,000 and
1,697,280 issued and outstanding
in 1998 and 1997 10,000 16,973
Common stock, $0.001 and $0.01 par
value in 1998 and 1997; 100,000,000
and 3,302,720 shares authorized in
1998 and 1997; 19,179,636 issued and
19,080,612 outstanding in 1998; 2,802,154,
shares issued and outstanding in 1997 19,179 28,022
Common shares to be issued,
1,340,140 1,340 -
Additional paid-in capital 1,250,019 515,203
Accumulated deficit (916,937) (269,208)
Less subscriptions receivable
(1,260,000 shares, common) (1,260) -
----------- ----------
Total paid-in capital and
retained earnings 362,341 290,990
Less cost of treasury stock
(99,024 shares, common) (201,920) -
------------ ---------
TOTAL STOCKHOLDERS' EQUITY 160,421 290,990
------------ ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 787,970 $ 309,763
------------ ---------
------------ ---------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM FEBRUARY 25, 1997 (INCEPTION) TO SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK
COMMON STOCK TO BE ISSUED PREFERRED STOCK ADDITIONAL
PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- -------- -------- ------ --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Stock Issued For:
Cash 427,174 $ 4,272 - - 1,697,280 $ 16,973 $ 515,203
Consulting fees 2,294,980 22,950 - - - - -
Advertising services 80,000 800 - - - - -
Net loss 1997 - - - - - - -
---------- -------- -------- ------ ---------- -------- --------
Balance, September 30, 1997 2,802,154 28,022 - - 1,697,280 16,973 515,203
Stock Issued For:
Cash 22,680 227 - - - - 43,073
Consulting fees 1,500,843 15,008 - - - - -
Advertising services 5,000 50 - - - - -
RECAPITALIZATION TRANSACTIONS:
------------------------------
Cancellation of KIW, Inc.
stock resulting from
recapitalization (4,330,677) (43,307) - - (1,697,280) (16,973) 60,280
Pre merger Big Tex
Common stock outstanding 6,000,000 6,000 (6,000)
Surrender of Common Stock by
50% Shareholder of Big Tex (3,000,000) (3,000) - - - - 3,000
Issuance of Common Stock
to Shareholders of Kanakaris
Internetworks, Inc. 6,000,000 6,000 - - - - (6,000)
Issuance of Preferred Stock
to Shareholders of Kanakaris
Internetworks, Inc. - - - 1,000,000 10,000 (10,000)
---------- ------- -------- ------ ---------- ------- ----------
Balance after recapitalization 9,000,000 9,000 - - 1,000,000 10,000 599,556
Stock Issued For:
Cash 155,250 155 96,000 96 - - 184,624
Consulting fees 1,703,200 1,703 100,000 100 - - -
Executive compensation 3,000,000 3,000 - - - - -
Advertising services 20,000 20 - - - - -
504 offering 3,981,800 3,982 537,500 537 - - 466,505
Subscriptions 1,260,000 1,260 - - - - -
Stock exchange program 59,386 59 606,640 607 - - (666)
Treasury stock redemption
Net loss 1998 - - - - - - -
---------- ------- --------- ------ ---------- ------- ----------
BALANCE, SEPTEMBER 30, 1998 19,179,636 $19,179 1,340,140 $1,340 1,000,000 $10,000 $1,250,019
---------- ------- --------- ------ --------- ------- ----------
---------- ------- --------- ------ --------- ------- ----------
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK
ACCUMULATED STOCK SUBSCRIPTIONS
DEFICIT AMOUNT RECEIVABLE TOTAL
----------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Stock Issued For:
Cash - - - $ 536,448
Consulting fees - - - 22,950
Advertising services - - - 800
Net loss 1997 (269,208) - - (269,208)
----------- ---------- ------------- ----------
Balance, September 30, 1997 (269,208) - - 290,990
Stock Issued For:
Cash - - - 43,300
Consulting fees - - - 15,008
Advertising services - - - 50
RECAPITALIZATION TRANSACTIONS:
-----------------------------
Cancellation of KIW, Inc.
stock resulting from
recapitalization - - - -
Pre merger Big Tex
Common stock outstanding
Surrender of Common Stock by
50% Shareholder of Big Tex - - - -
Issuance of Common Stock
to Shareholders of Kanakaris
Internetworks, Inc. - - - -
Issuance of Preferred Stock
to Shareholders of Kanakaris
Internetworks, Inc. - - - -
----------- ---------- ------------- ----------
Balance after recapitalization (269,208) - - 349,348
Stock Issued For:
Cash - - - 184,875
Consulting fees - - - 1,803
Executive compensation - - - 3,000
Advertising services - - - 20
504 offering - - - 471,024
Subscriptions - - (1,260) -
Stock exchange program - - - -
Treasury stock redemption - (201,920) - (201,920)
Net loss 1998 (647,729) - - (647,729)
----------- ---------- ------------- ---------
BALANCE, SEPTEMBER 30, 1998 $ (916,937) $ (201,920)$ (1,260) $ 160,421
----------- ---------- ------------- ---------
----------- ---------- ------------- ---------
</TABLE>
See accompanying notes to financial statements.
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