<PAGE17>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM FEBRUARY 25, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
NET SALES $ 919,905 $ 8,475
COST OF SALES 481,349 -
--------- ---------
GROSS PROFIT 438,556 8,475
--------- ---------
OPERATING EXPENSES
Executive compensation 55,052 -
Salaries 279,462 -
Employee benefits 6,479 -
Payroll taxes 20,184 -
Consulting fees 84,272 96,368
Royalties 20,753 -
Development costs - 85,253
Travel and entertainment 40,872 20,333
Telephone and utilities 46,172 18,656
Marketing 27,384 14,717
Professional fees 75,494 12,027
Rent 52,302 11,450
Office supplies and expense 10,703 9,185
Equipment rental and expense 7,953 4,279
Insurance 10,979 4,251
Auto expense 1,500 2,000
Depreciation and amortization 30,214 1,934
Provision for bad debt 300,000 -
Taxes - other 1,370 -
Repairs and maintenance 2,238 1,093
Other expenses 13,712 -
Moving expense 6,055 -
Advertising - 1,272
Bank charges 1,610 -
---------- ---------
TOTAL OPERATING EXPENSES 1,094,760 282,818
---------- ---------
LOSS BEFORE INTEREST INCOME (656,204) (274,343)
Interest income - net 8,475 5,135
---------- ---------
NET LOSS $ (647,729) $(269,208)
-------- ---------- ---------
---------- ---------
NET LOSS PER COMMON SHARE $ (.0449) $ (.0961)
---------- ---------
---------- ---------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 14,419,873 2,802,154
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM FEBRUARY 25, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(647,729) $(269,208)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Amortization of goodwill 23,352 -
Depreciation and amortization 6,862 1,934
Write-off of fixed assets 793 -
Provision for bad debts 300,000
Consulting and advertising fees
incurred in exchange for common stock 19,880 23,750
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable (61,699) -
Inventory (1,434) -
Prepaid expenses 11,846 -
Advances to suppliers (7,839) -
Interest receivable (11,548) (5,135)
Increase (decrease) in:
Accounts payable and accrued expenses 103,139 18,773
Royalties payable 20,753 -
Deferred revenue (68,598) -
Customer deposits 29,427 -
--------- ---------
Net cash used in operating activities (282,795) (229,886)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (7,204) (8,044)
(Increase) decrease in notes
receivable - shareholders and
related parties (41,599) (241,714)
(Increase)in notes receivable (300,000) -
Payment of organization costs - (3,000)
Cash provided by subsidiary
acquisition 60,930 -
--------- ---------
Net cash used in investing
activities (287,873) (252,758)
---------- ---------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM FEBRUARY 25, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 25,000 -
Proceeds from sale of common stock 4,498 4,272
Proceeds from sale of preferred stock - 16,973
Proceeds from additional paid in capital 694,701 515,203
Purchase of treasury stock (201,920) -
--------- ---------
Net cash provided by financing
activities 522,279 536,448
--------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (48,389) 53,804
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 53,804 -
--------- ---------
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 5,415 $ 53,804
--------- ---------
--------- ---------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
-----------------------------------------------------------------------
During the year ended September 30, 1998 the Company issued 1,260,000 shares of
common stock in exchange for unpaid subscriptions of $ 1,260, and 4,723,200
shares of common stock for executive compensation, consulting and other services
valued at $4,723.
The Company has incurred a liability in the amount of $ 30,937 which is due to
the former sole shareholder of the Company's subsidiary pursuant to the
acquisition agreement.
See accompanying notes to financial statements.
7
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS ORGANIZATION AND ACTIVITY
Kanakaris Internetworks, Inc. (the "Company") was
incorporated in the State of Delaware on February 25, 1997.
The Company develops and supplies internet products, on line
products and online commerce.
(B) BUSINESS COMBINATIONS
On October 10, 1997 (the "Acquisition Date"), the Company
consummated a Stock Purchase Agreement (the "Purchase
Agreement") with the shareholder (the "Seller") of Desience
Corporation ("Desience") to purchase 10,000 common shares
representing 100% of its issued and outstanding common stock
in exchange for a 4% royalty on the gross sales (after
collection) of Desience subsequent to the Acquisition Date,
to be paid monthly for as long as Desience remains in
business or its products are sold. In addition, the Seller
shall receive five percent of funds which are to be
allocated to Desience arising from the Company's next
securities offering as a non-refundable advance on the
royalty. The Company will hold harmless the Seller from any
claims, causes of action, costs, expenses, liabilities and
prior shareholder advances. Immediately following the
exchange, Desience became a wholly owned subsidiary of the
Company. Desience designs and installs specialized business
furniture for a variety of industries.
On November 25, 1997, the Company and its shareholders (the
("Shareholders") consummated an acquisition agreement with Big
Tex Enterprises, Inc. ("Big Tex"), a public shell, whereby the
shareholders sold all of their preferred and common stock,
which represented 100% of the Company's issued and outstanding
capital stock, to Big Tex in exchange for 7,000,000 shares
(6,000,000 common, 1,000,000 preferred) of Big Tex's
restricted stock, representing 66.67% of the issued and
outstanding common stock and 100% of the issued and
outstanding preferred stock of Big Tex, aggregating 75% of the
total voting rights (the "Exchange"). Big Tex was founded in
1991 for the purpose of lawful business or enterprise, but had
been inactive since 1991. Immediately following the exchange,
all shares of Kanakaris Internetworks, Inc. were canceled and
Kanakaris Internetworks, Inc. was merged into Big Tex.
Generally accepted accounting principles require that the
company whose stockholders retain the majority interest in a
combined business be treated as the acquirer for accounting
purposes. Accordingly, the Big Tex acquisition will be
accounted for as an acquisition of Big Tex by the Company and
a recapitalization of the Company. The financial statements
8
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
immediately following the acquisition are as follows: (1) the
balance sheet includes the Company's net assets at historical
costs and Big Tex's net assets at historical costs and (2) the
statement of operations includes the Company's operations for
the period presented and Big Tex's operations from November
25, 1997. As part of the agreement, Big Tex changed its name
to Kanakaris Communications, Inc.
The dollar, share and par value amounts that appear in the
1997 balance sheet's stockholders' equity section represent
the balances and denominations for such accounts prior to the
acquisition and recapitalization agreements. The dollar, share
and par value amounts that appear in the 1998 balance sheet's
stockholders' equity section represent the balances and
denominations for such accounts subsequent to the acquisition
and recapitalization agreements.
(C) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and Desience, a wholly owned
subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
(D) USE OF ESTIMATES
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles. The
preparation of financial statements in accordance with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
(E) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash
equivalents.
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