<PAGE>

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

                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(MARK ONE)
 [X]     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 For the quarterly period ended DECEMBER 31, 2002

 [ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934
         For the transition period from __________ to __________

                         Commission File Number 0-28213

                               KANAKARIS WIRELESS
                 (Name of small business issuer in its charter)

            NEVADA                                               86-0888532
-------------------------------                               ----------------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                           1280 BISON, SUITE B9-597
                        NEWPORT BEACH, CALIFORNIA 92660
                    (Address of principal executive offices)

         Issuer's telephone number (including area code): (949) 760-5470

         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 registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X]  No [ ]

         The number of shares outstanding of the issuer's only class of common
stock, $.001 par value per share, was 52,119,687 on February 12, 2003.

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



<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

                          INDEX TO FINANCIAL STATEMENTS
                       KANAKARIS WIRELESS AND SUBSIDIARIES

Condensed Consolidated Balance Sheet at December 31, 2002.................  F-1

Condensed Consolidated Statements of Operations for the Three Months
     Ended December 31, 2002 and 2001.....................................  F-3

Condensed Consolidated Statements of Comprehensive Loss for the
     Three Months Ended December 31, 2002 and 2001........................  F-4

Condensed Consolidated Statement of Changes in Stockholders' Equity
     (Deficiency) for the Three Months Ended December 31, 2002............  F-5

Condensed Consolidated Statements of Cash Flows for the Three Months
     Ended December 31, 2002 and 2001.....................................  F-6

Notes to Condensed Consolidated Financial Statements......................  F-8



<PAGE>

                       KANAKARIS WIRELESS AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheet
                                December 31, 2002
                                   (Unaudited)


ASSETS
------

Current assets:
   Cash                                                            $        726
   Accounts receivable, net                                              42,619
   Inventories, net                                                      27,496
   Interest receivable                                                   49,103
   Investments in marketable securities (at market value)                 8,571
   Prepaid expenses                                                      11,893
                                                                   -------------

           TOTAL CURRENT ASSETS                                         140,408

Property and equipment, net                                              75,874

   Vendor deposits                                                          700
   Other                                                                  1,750
                                                                   -------------

           TOTAL ASSETS                                            $    218,732
                                                                   =============

     See accompanying notes to condensed consolidated financial statements.

                                      F-1


<PAGE>

                       KANAKARIS WIRELESS AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheet
                                December 31, 2002
                                   (Unaudited)


LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------

Current liabilities:
   Accounts payable and accrued expenses                           $  2,823,896
   Convertible debentures                                             3,904,395
   Convertible promissory notes                                         372,550
   Due to former shareholder of former subsidiary                       113,183
                                                                   -------------

           TOTAL CURRENT LIABILITIES                                  7,214,024
                                                                   -------------

Stockholders' deficiency:
   Preferred stock, Class A Convertible shares
       $0.01 par value; 5,000,000 shares
       authorized; 1,000,000 issued
       and outstanding                                                   10,000
   Preferred stock, Class B Convertible shares
       $1,000 par value; 900 shares
       authorized; 900 issued
       and outstanding                                                  900,000
   Common stock, $0.001 par value; 250,000,000
       shares authorized; 32,401,972 issued and
       outstanding                                                       32,402
   Additional paid-in capital                                        31,815,064
   Accumulated deficit                                              (39,562,914)
   Deferred expense                                                    (189,844)
                                                                   -------------

           TOTAL STOCKHOLDERS' DEFICIENCY                            (6,995,292)
                                                                   -------------

           TOTAL LIABILITIES AND
           STOCKHOLDERS' DEFICIENCY                                $    218,732
                                                                   =============

     See accompanying notes to condensed consolidated financial statements.

                                      F-2


<PAGE>

<TABLE>
                         KANAKARIS WIRELESS AND SUBSIDIARIES
                   Condensed Consolidated Statements of Operations
                                     (Unaudited)
<CAPTION>

                                                     Three Months       Three Months
                                                        Ended              Ended
                                                       Dec 31,            Dec 31,
                                                         2002               2001
                                                     -------------     -------------
<S>                                                  <C>               <C>
Net sales                                            $     32,039      $     15,095

Cost of sales                                               4,942            23,150
                                                     -------------     -------------

           Gross profit (loss)                             27,097            (8,055)
                                                     -------------     -------------

Operating expenses:
   Executive compensation                                 198,177           286,335
   Salaries                                                61,858            13,679
   Payroll taxes and employee benefits                      3,671             1,822
   Consulting services                                     88,451           372,255
   Travel and entertainment                                13,075            23,073
   Telephone and utilities                                  6,515             3,695
   Marketing, advertising and investor relations           26,566            21,769
   Professional fees                                      155,327           135,952
   Rent                                                     8,921                --
   Office and other expenses                               61,529            45,967
   Equipment rental and expense                                --             1,018
   Insurance                                               18,997            19,799
   Depreciation and amortization                           12,176            37,393
   Bad debt expense                                         4,024                --
   Bank charges                                             1,194               204
   Website development                                         --               323
                                                     -------------     -------------

           Total operating expenses                       660,481           963,284
                                                     -------------     -------------

   Loss from continuing operations                       (633,384)         (971,339)

   Financing and other income (expense), net             (204,205)         (101,692)
                                                     -------------     -------------

   Loss before discontinued operations                   (837,589)       (1,073,031)

   Income from discontinued operations                         --            63,016
                                                     -------------     -------------

   Net loss                                          $   (837,589)     $ (1,010,015)
                                                     =============     =============

   Net income (loss) per common share:
       Basic and diluted-continuing operations       $       (.03)     $       (.17)
       Basic and diluted-discontinued operations               --               .01
                                                     -------------     -------------

       Net loss per share                            $       (.03)     $       (.16)
                                                     =============     =============

   Weighted average common shares
     outstanding - basic and diluted                   29,721,867         6,445,633
                                                     =============     =============

       See accompanying notes to condensed consolidated financial statements.

                                        F-3
</TABLE>


<PAGE>

                       KANAKARIS WIRELESS AND SUBSIDIARIES
             Condensed Consolidated Statements of Comprehensive Loss
                                   (Unaudited)


                                                 Three Months       Three Months
                                                    Ended              Ended
                                                   Dec 31,            Dec 31,
                                                     2002               2001
                                                 ------------       ------------

Net Loss                                         $  (837,589)       $(1,010,015)

Other comprehensive loss:
   Unrealized loss on securities                          --            (49,600)
                                                 ------------       ------------

Comprehensive loss                               $  (837,589)       $(1,059,615)
                                                 ============       ============

     See accompanying notes to condensed consolidated financial statements.

                                      F-4


<PAGE>

<TABLE>
                                                 KANAKARIS WIRELESS AND SUBSIDIARIES
                               Condensed Consolidated Statement of Changes in Stockholders' Deficiency
                                            For the Three Months Ended December 31, 2002
                                                             (Unaudited)
<CAPTION>

                               Common Stock Issued       Preferred Stock
                              ----------------------  ---------------------                 Accumulated     Deferred
                                 Shares      Amount     Shares     Amount        APIC         Deficit       Expenses       Total
                              ------------  --------  ----------  ---------  ------------  -------------   ----------   ------------
<S>                            <C>          <C>       <C>         <C>        <C>           <C>             <C>          <C>
Balances
September 30, 2002             24,450,065   $24,450   1,000,900   $910,000   $31,707,539   $(38,725,325)   $(353,656)   $(6,436,992)

  Stock issued for cash           500,000       500          --         --        24,500             --           --         25,000

  Stock issued for:
  Compensation                         --        --          --         --            --             --      126,562        126,562
  Consulting services                  --        --          --         --            --             --       37,250         37,250
  Marketing services              400,000       400          --         --         3,600             --           --          4,000

  Convertible debentures        7,051,907     7,052          --         --        26,925             --           --         33,977

  Value of beneficial
   conversion feature of
   convertible debt                    --        --          --         --        52,500             --           --         52,500

  Net (loss)                           --        --          --         --            --       (837,589)          --       (837,589)
                              ------------  --------  ----------  ---------  ------------  -------------   ----------   ------------
BALANCES
DECEMBER 31, 2002              32,401,972   $32,402   1,000,900   $910,000   $31,815,064   $(39,562,914)   $(189,844)   $(6,995,292)
                              ------------  --------  ----------  ---------  ------------  -------------   ----------   ------------

                               See accompanying notes to condensed consolidated financial statements.

                                                                F-5
</TABLE>


<PAGE>

<TABLE>
                            KANAKARIS WIRELESS AND SUBSIDIARIES
                      Condensed Consolidated Statements of Cash Flows
                   For the Three Months Ended December 31, 2002 and 2001
                                        (Unaudited)
<CAPTION>

                                                                 2002             2001
                                                             ------------     ------------
<S>                                                          <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                  $  (837,589)     $(1,010,015)
   Adjustments to reconcile net loss
       to net cash used in operating activities:
           Amortization of goodwill                                   --            7,372
           Depreciation and amortization                          12,176           30,085
           Provision for bad debts                                 4,024               --
           Compensation, consulting, marketing and
             professional services incurred in exchange
             for common stock                                    167,812          521,396
           Consulting services incurred in exchange
             for stock options                                        --           46,841
           Convertible debt - marketing cost                      36,875               --
           Convertible debt - beneficial conversion cost          52,500               --
           Convertible debt - legal cost                          48,500               --
           Convertible debt-interest cost                          3,247           59,214
           Decrease in notes receivable -
             shareholders and related parties                     36,280           74,530
   Changes in assets and liabilities
       (Increase) decrease in:
              Accounts receivable                                 83,386          (41,203)
              Prepaid expenses                                     2,187             (978)
              Interest receivable                                    184           (8,702)
       Increase (decrease) in:
              Accounts payable and accrued expenses               89,858           68,838
                                                             ------------     ------------

           NET CASH USED IN OPERATING ACTIVITIES                (300,560)        (252,622)
                                                             ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from notes receivable - other                         25,000               --
                                                             ------------     ------------

           NET CASH PROVIDED BY
           INVESTING ACTIVITIES                                   25,000               --
                                                             ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from convertible debt, net                           229,625               --
   Proceeds from sale of common stock                             25,000          245,220
                                                             ------------     ------------

           NET CASH PROVIDED BY FINANCING ACTIVITIES             254,625          245,220
                                                             ------------     ------------

Net decrease in cash                                             (20,935)          (7,402)

Cash, beginning of period                                         21,661           51,473
                                                             ------------     ------------

Cash, end of period                                          $       726      $    44,071
                                                             ============     ============

                                           F-6
</TABLE>


<PAGE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

During the three months ended December 31, 2002, the Company issued 400,000
shares of common stock for marketing services having a fair value of $4,000. The
Company also expensed $126,562 of deferred compensation and $37,250 of deferred
consulting services.

During the three months ended December 31, 2002, the Company issued an aggregate
of 7,051,907 shares of common stock having a fair value of approximately $33,977
to various debenture investors representing the conversion of principal and
interest.

During the three months ended December 31, 2001, the Company issued 2,302,128
shares of common stock for consulting services, having a fair value of $636,907.
Of the 2,202,128 shares issued during the three months ended December 31, 2001,
15,000 shares were issued to two members of the Company's board of directors and
2,187,128 shares were issued to five other consultants.

During the three months ended December 31, 2001 the Company issued an aggregate
of 100,000 shares of common stock having a fair value of $37,500 to a former
officer in satisfaction of certain claims.

During the three months ended December 31, 2001, the Company issued 65,000
shares of common stock in lieu of compensation of $49,400. Of the 65,000 shares
issued during the three months ended December 31, 2001, 55,000 shares were
issued to two employees of the Company who were also members of the Company's
board of directors, and 10,000 shares were issued to two non-director employees
of the Company.

During the three months ended December 31, 2001, the Company issued an aggregate
of 897,991 shares of common stock having a fair value of approximately $173,214
to various debenture investors representing the conversion of principal and
interest.

     See accompanying notes to condensed consolidated financial statements.

                                      F-7


<PAGE>

                       KANAKARIS WIRELESS AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         ------------------------------------------

         (A) Basis of Presentation
         -------------------------

         The condensed consolidated financial statements included herein have
         been prepared by Kanakaris Wireless, without audit, pursuant to the
         rules and regulations of the Securities and Exchange Commission.
         Certain information and footnote disclosures normally included in
         financial statements prepared in accordance with generally accepted
         accounting principles have been condensed or omitted pursuant to such
         rules and regulations. Kanakaris Wireless believes that the disclosures
         are adequate to make the information presented not misleading when read
         in conjunction with its consolidated financial statements for the year
         ended September 30, 2002 included in its Form 10-KSB. The financial
         information presented reflects all adjustments, which are, in the
         opinion of management, necessary for a fair statement of the results
         for the interim periods presented. The results of operations for the
         three months ended December 31, 2002 are not necessarily indicative of
         the results to be expected for the full year ending September 30, 2003,
         or any other period.

         (B) Business Organization and Activity
         --------------------------------------

         Kanakaris Wireless, which on June 2, 2000 changed its name from
         Kanakaris Communications, Inc., was incorporated in the State of Nevada
         on November 1, 1991. Kanakaris Wireless and subsidiaries (the
         "Company") operates various websites including www.kanakaris.com, an
         interactive entertainment content delivery website. The Company's
         websites consolidate previous websites developed by the Company
         including www.CinemaPop.com, www.WordPop.com and www.AK.TV. The
         Company's websites offer consumers over 400 click-and-view online
         movies, a television-styled web channel which plays regularly scheduled
         movies and other features, and print-on-demand books with online
         preview chapters. The Company's websites offer for sale various
         products of the pop culture genre and VHS and DVD titles. The Company
         also develops and supplies software and products for electronic
         commerce and content delivery. The Company operated a subsidiary, which
         was sold in March 2002, which designed and installed modular data
         control consoles. In April 2002, the Company acquired the business of
         Fast Forward Marketing, Inc., a national distributor of VHS and DVD
         movies and features, and now operates a video distribution business
         through its Fast Forward Marketing, Inc. subsidiary. The Company
         purchases its products from major motion picture studios and/or
         independent video producers and sells directly to video retailers
         including children's educational stores, gift shops, museum stores,
         educational distributors and direct mail catalogs.

                                      F-8


<PAGE>

         (C) Business Combinations and Dispositions
         ------------------------------------------

         On March 4, 2002, the Company entered into an asset purchase agreement
         whereby substantially all of the assets and business of Desience were
         sold. Included in the sale were all contract rights. Accordingly, for
         accounting purposes, the financial activity of Desience was treated as
         a discontinued operation and is presented in the statements of
         operations separately from continuing operations for the three months
         ended December 31, 2001.

         On March 15, 2002, the Company formed a new corporation called FFM
         Acquisition Corp. This corporation was used to acquire certain assets
         and liabilities of Fast Forward Marketing, Inc. on April 8, 2002, and
         now operates under the name of Fast Forward Marketing, Inc.

         (D) Principles of Consolidation
         -------------------------------

         The accompanying condensed consolidated financial statements include
         the accounts of the Company, and its wholly owned subsidiaries
         Kanakaris Internetworks Inc., and Fast Forward Marketing, Inc.
         (formerly known as FFM Acquisition Corp.). All significant intercompany
         balances and transactions have been eliminated in consolidation.
         Desience, the Company's former subsidiary, has been classified as a
         discontinued operation, and the prior year's information has been
         restated to account for this classification.

         (E) Loss Per Share
         ------------------

         Loss per share is computed using the weighted average of common shares
         outstanding as defined by Financial Accounting Standards No. 128,
         "Earnings Per Share." The assumed exercise of outstanding common share
         equivalents was not utilized since the effect was anti-dilutive.

         (F) Use of Estimates
         --------------------

         The accompanying condensed consolidated financial statements have been
         prepared in accordance with generally accepted accounting principles in
         the United States of America. The preparation of condensed consolidated
         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.

         (G) Inventories, net
         --------------------

         Inventories, which consist of videos and video parts, are valued at the
         lower of cost or market. Cost is determined by the first-in, first-out
         (FIFO) method. Management performs periodic assessments to determine
         the existence of obsolete, slow-moving and non-salable inventories and
         records necessary provisions to reduce such inventories to net
         realizable value. As of December 31, 2002, the Company recorded a
         reserve of $27,497.

                                      F-9


<PAGE>

         (H) Accounts receivable and payable
         -----------------------------------

         Fast Forward Marketing, Inc. has an agreement with its customers and
         suppliers that allows for returns of merchandise. Accordingly, a
         reserve for accounts receivable and payable has been provided. The
         reserve accounts require the use of significant estimates, which could
         differ from actual results. The Company believes the techniques and
         assumptions used in establishing the reserve accounts are appropriate.
         As of December 31, 2002, the Company recorded a reserve for accounts
         receivable of approximately $14,000, and a reserve for accounts payable
         of approximately $7,000.

         (I) Investments in marketable securities
         ----------------------------------------

         The Company classifies marketable debt securities as "held to maturity"
         if it has the positive intent and ability to hold the securities to
         maturity. All other marketable securities are classified as "available
         for sale." Securities classified as "available for sale" are carried on
         the financial statements at fair market value. Unrealized gains and
         losses are reported as a separate component of comprehensive income.
         Unrealized losses are charged against net income when a decline in fair
         value is determined to be other than temporary. Securities classified
         as held to maturity are carried at amortized cost.

         (J) Property and Equipment
         --------------------------

         Property and equipment are stated at cost and depreciated using the
         straight line method over the estimated economic useful life of 5 to 7
         years. The Company periodically reviews such assets for possible
         impairments and any expected losses are recorded currently. Maintenance
         and repairs are charged to expense as incurred. Major improvements are
         capitalized. Depreciation expense for the three months ended December
         31, 2002 was approximately $12,000.

         (K) Deferred expenses
         ---------------------

         Deferred expenses as of December 31, 2002 represent the deferred
         portion of the fair value of stock issued to two consultants and one
         officer for services that are being expensed over the respective lives
         of the contracts. The current amortization charge to operations is
         related to the Company receiving services in connection with the
         underlying agreements. The Company will continue to evaluate the
         recoverability of the unamortized portion of the deferred consulting
         expense in subsequent periods.

         (L) Revenue Recognition
         -----------------------

         The Company offers monthly recurring subscriptions at $4.95 per month.
         Once a subscription is received from a new subscriber, the customer is
         automatically billed each month at the per month rate of $4.95 until
         the customer cancels the subscription. All CinemaPop films can be
         purchased on an individual pay-per-view basis for $2.95 per viewing.
         The customer can view pay-per-view films for a 24-hour period following
         initial purchase. The Company also sells videos, and movie and sports
         memorabilia and other products of the pop culture genre on a per-item
         basis.

                                      F-10


<PAGE>

         The Company offers books for sale on a print-on-demand basis, which are
         printed and shipped directly to the customer. Prices for the Company's
         print-on-demand books range from $1.95 to $25.00 per book.

         The Company accepts Visa and MasterCard for secure online payments. The
         Company accepts returns on all items purchased from its websites and
         offers full refunds on subscriptions and pay-per-view transactions to
         any unsatisfied customer.

         Any royalty due is accounted for by the Company as a cost of sale. Most
         on-demand, DVD or VHS movies do not require the payment of any royalty.
         Where a royalty payment is required, it is paid subsequent to the
         receipt of the order and is recorded as a cost of sale. All memorabilia
         sales are fulfilled by third parties, for which the Company pays a
         wholesale price. Most books currently offered do not require payment of
         a royalty. For books that do require payment of a royalty, these
         payments are made periodically and recorded as a cost of sale.

         Desience, a former wholly-owned subsidiary of the Company, produced
         revenues from product sales of business furniture and modular consoles
         and incidental revenues for installation and freight. Product sale
         revenues and freight revenues were recognized when the product was
         shipped. Installation revenues were recognized as work was completed.

         Fast Forward Marketing, Inc. recognizes revenues upon shipment of
         product, at which time title passes to the customer. The Company
         records a provision for estimated future returns, which has been offset
         against total sales. Sales returns and allowances totaled approximately
         $50,000 for the year ended September 30, 2002.

2.       PROPERTY AND EQUIPMENT
         ----------------------

         Property and equipment consist of the following as of December 31,
         2002:

                        Office equipment                       $      84,679
                        Software                                      71,795
                        Furniture and fixtures                        11,658
                                                               --------------
                                                                     168,132
                        Less accumulated depreciation                (92,258)
                                                               --------------
                                                               $      75,874
                                                               ==============

3.       COMMITMENTS AND CONTINGENCIES
         -----------------------------

         (A) Legal Actions
         -----------------

         On March 8, 2001, Loudeye Technologies, Inc., commenced an action
         against the Company. The complaint alleges breach of contract for
         $44,107 and also seeks attorneys' fees, court costs and late charges.
         On October 11, 2001, the Company filed an answer to the Loudeye
         complaint that includes a general denial of all allegations made by
         Loudeye and, as of December 31, 2002, no further action had been taken
         by either Loudeye or the Company. The Company will defend any further
         action, and no loss accrual has been made at December 31, 2002.

                                      F-11


<PAGE>

         Christel H. Uittenbogaart,the former shareholder of Desience, commenced
         an action against the Company, its subsidiary, Kanakaris InternetWorks,
         Inc., et al, in Los Angeles Superior Court on December 17, 2002. The
         complaint alleged that the Company and Kanakaris InternetWorks owed Ms.
         Uittenbogaart $113,183 under the royalty provisions of a Stock Purchase
         Agreement entered into between Kanakaris InternetWorks, Inc. and Ms.
         Uittenbogaart, and alleged other damages in unspecific amounts. Ms.
         Uittenbogaart's complaint included allegations of breach of contract,
         breach of the implied covenant of good faith, fraud, and negligent
         misrepresentation. In addition, Ms. Uittenbogaart alleged the existence
         of a constructive trust based on unjust enrichment and sought an
         equitable lien against property of the Company's subsidiary, Desience
         Corporation, held by the defendants. Lastly, Ms. Uittenbogaart demanded
         an accounting of the gross sales, profits and funds generated as a
         result of the purchase of Desience Corporation from Ms. Uittenbogaart
         in 1997. The Company has engaged counsel to defend it against all of
         Ms. Uittenbogaart's claims but has not yet filed a response to the
         complaint filed by Ms. Uittenbogaart. The Company has recorded the
         amount of this liability to the former shareholder of Desience as of
         December 31, 2002 in the accompanying condensed consolidated financial
         statements.

         The Company is subject to certain legal proceedings, claims and
         litigation arising in the ordinary course of business. While the
         amounts claimed may be substantial, the ultimate liability cannot
         presently be determined because of considerable uncertainties that
         exist. Therefore, it is possible that the outcome of such legal
         proceedings, claims and litigation could have a material effect on
         quarterly or annual operating results or cash flows when resolved in a
         future period. However, based on facts currently available, management
         believes such matters will not have a material adverse effect on the
         Company's financial position, results of operations or cash flows.

         (B) SERVICE AGREEMENTS
         ----------------------

         On October 9, 2001, the Company entered into a service agreement with
         Mind Pointe, Inc. Based upon the terms of the contract, Mind Pointe,
         Inc. will provide web hosting, development services, and programming
         and design assistance for the Company's websites. The Company has
         agreed to pay a maximum of approximately $17,000 each month for these
         services. For the three months ended December 31, 2002, $50,000 was
         charged to operations under this agreement. The agreement is now a
         month-to-month arrangement.

4.       CONVERTIBLE DEBENTURES
         ----------------------

         In order to provide working capital and financing for the Company's
         expansion, on various dates during 2000, the Company entered into
         several agreements with four accredited investors the ("Purchasers")
         whereby the Purchasers acquired aggregates of $1,000,000 and $4,500,000
         of the Company's 10% Convertible Debentures, due February 1, 2001 and
         May 1, 2001, respectively.

                                      F-12


<PAGE>

         The Purchasers converted portions of the 2000 debentures and accrued
         interest into shares of common stock of the Company at various times.
         The initial conversion price of these debentures was equal to the
         lesser of $.97 and 66.66% of the average closing bid price during the
         20 trading days immediately preceding the conversion dates.

         Relating to the $1,000,000 of debentures due February 1, 2001, the
         Company issued 15,000 common stock warrants on February 1, 2001, at an
         exercise price of $38 per share as consideration for debt financing.
         The fair market value of the warrants were deemed immaterial as
         estimated on the grant date using the Black-Scholes option pricing
         method as required under SFAS 123 with the following weighted average
         assumptions: expected dividend yield 0%, volatility 87%, risk-free
         interest rate 6.22%, expected option life 3 years. As of the date of
         this report no warrants have been exercised.

         Relating to the $4,500,000 of debentures due May 1, 2001, the Company
         issued 67,500 common stock warrants on April 1, 2001, at an exercise
         price of $38 per share as consideration for debt financing. The fair
         market value of the warrants were deemed immaterial as estimated on the
         grant date using the Black-Scholes option pricing method as required
         under SFAS 123 with the following weighted average assumptions:
         expected dividend yield 0%, volatility 87%, risk-free interest rate
         6.15%, expected option life 3 years. As of the date of this report no
         warrants have been exercised.

         Pursuant to the Rules and Regulations of the Securities and Exchange
         Commission regarding beneficial conversion features, the Company has
         expensed as financing costs any excess of the fair market value of the
         common stock at the debenture issuance date over the fixed conversion
         price which for fiscal year 2000 amounted to $925,000 for debentures
         due February 1, 2001 and $1,760,000 for debentures due May 1, 2001.

         Also, in order to provide working capital and financing for the
         Company's expansion during 2001, effective as of January 5, 2001, the
         Company entered into a securities purchase agreement and related
         agreements with four accredited investors (the "Purchasers") for the
         purchase of the Company's 12% Convertible Debentures due January 5,
         2002 and March 9, 2002.

         The debentures are immediately convertible into shares of the Company's
         common stock. The initial conversion price for the January and March
         2001 debentures was equal to the lesser of (i) $3.00 and (ii) the
         average of the lowest three intraday trading prices during the twenty
         trading days immediately prior to the conversion date, discounted by
         37.5%.

         Pursuant to the Rules and Regulations of the Securities and Exchange
         Commission regarding beneficial conversion features, the Company has
         expensed as financing costs any excess of the fair market value of the
         common stock at the debenture issuance date over the fixed conversion
         price which for fiscal year 2001 amounted to $533,500 for the
         debentures due January 5, 2002, and $412,500 for the debentures due
         March 9, 2002.

         The Purchasers made investments in tranches, the first in the aggregate
         amount of $650,000, which was received upon signing of the definitive
         investment agreements and the second, in the aggregate amount of
         $650,000, which was received in March 2001.

                                      F-13


<PAGE>

         Upon the issuance of the first $650,000 of convertible debentures, the
         Purchasers received five-year term warrants to purchase three shares of
         the Company's common stock for each $20.00 invested or which may have
         been invested in the two $650,000 tranches of convertible debentures.
         The initial exercise price of the warrants was equal to the lesser of
         (i) $2.50 and (ii) the average of the lowest three intraday trading
         prices during the twenty trading days immediately preceding the
         exercise date. For all debentures issued in January and March 2001,
         interest is 12% per annum, payable quarterly in common stock or cash at
         the option of the Purchasers.

         The debentures are immediately convertible into shares of the Company's
         common stock. The initial conversion price for the January and March
         2001 debentures was equal to the lesser of (i) $3.00 and (ii) the
         average of the lowest three intraday trading prices during the twenty
         trading days immediately prior to the conversion date, discounted by
         37.5%.

         In connection with the 2001 issuance of the convertible debentures due
         January 5, 2002, the Company has issued warrants to acquire additional
         shares of the Company's common stock as follows:

                 The Company issued 20,000 common stock warrants on January 5,
                 2001, at an exercise price of $50 per share as consideration
                 for debt financing. The fair market value of the warrants were
                 deemed immaterial as estimated on the grant date using the
                 Black-Scholes option pricing method as required under SFAS 123
                 with the following weighted average assumptions: expected
                 dividend yield 0%, volatility 101%, risk-free interest rate
                 4.81%, expected option life 3 years. As of the date of this
                 report no warrants have been exercised.

                 The Company issued 3,750 common stock warrants on February 15,
                 2001, at an exercise price of $50 per share as consideration
                 for debt financing. The fair market value of the warrants were
                 deemed immaterial as estimated on the grant date using the
                 Black-Scholes option pricing method as required under SFAS 123
                 with the following weighted average assumptions: expected
                 dividend yield 0%, volatility 101%, risk-free interest rate
                 4.68%, expected option life 3 years. As of the date of this
                 report no warrants have been exercised.

                 The Company issued 8,750 common stock warrants on March 9,
                 2001, at an exercise price of $50 per share as consideration
                 for debt financing. The fair market value of the warrants were
                 deemed immaterial as estimated on the grant date using the
                 Black-Scholes option pricing method as required under SFAS 123
                 with the following weighted average assumptions: expected
                 dividend yield 0%, volatility 101%, risk-free interest rate
                 4.30%, expected option life 3 years. As of the date of this
                 report no warrants have been exercised.

         In connection with the 2001 issuance of the convertible debentures due
         March 9, 2002, the Company issued 32,500 common stock warrants on March
         5, 2001, at an exercise price of $50 per share as consideration for
         debt financing. The fair market value of the warrants were deemed
         immaterial as estimated on the grant date using the Black-Scholes
         option pricing method as required under SFAS 123 with the following
         weighted average assumptions: expected dividend yield 0%, volatility
         101%, risk-free interest rate 4.30%, expected option life 3 years. As
         of the date of this report no warrants have been exercised.

                                      F-14


<PAGE>

         As of April 30, 2001, $1,848,500 of the original $4,500,000 principal
         balance of 10% Convertible Debentures due May 1, 2001 remained
         outstanding. As of April 30, 2001, the Company entered into an
         agreement with the holders of these debentures to extend the due date
         of these debentures to May 1, 2002. In consideration for the extension,
         the Company granted to the holders warrants to purchase up to an
         aggregate of 67,500 shares of common stock at an initial exercise price
         equal to the lesser of the average of the lowest three intraday trading
         prices during the 20 trading days immediately preceding the grant of
         the warrants, discounted by 37.5%, and the average of the lowest three
         intraday trading prices of a share of common stock during the 20
         trading days immediately preceding exercise of the warrants.

         The 67,500 warrants had an exercise price of $1.17 per share as
         consideration for extending the due date related to debt financing. The
         fair market value of the warrants, aggregating $97,108 was estimated on
         the grant date using the Black-Scholes option pricing method as
         required under SFAS 123 with the following weighted average
         assumptions: expected dividend yield 0%, volatility 132%, risk-free
         interest rate 4.25%, expected option life 3 years. The $97,108 was
         charged to interest and financial costs at the grant date. As of the
         date of this report no warrants have been exercised.

         In order to provide working capital and financing for the Company's
         expansion, as of June 29, 2001, the Company entered into a securities
         purchase agreement and related agreements with three accredited
         investors (the "Purchasers") for the purchase of $500,000 of the
         Company's 12% Convertible Debentures due June 29, 2002. The debentures
         bear interest at a rate of 12% per annum, payable quarterly in common
         stock or cash at the option of the Purchasers.

         The debentures initially were convertible into shares of common stock
         at the lesser of $2.00 per share and 50% of the average of the lowest
         three intraday trading prices of a share of common stock during the
         twenty trading days immediately preceding conversion.

         Pursuant to the Rules and Regulations of the Securities and Exchange
         Commission regarding beneficial conversion features, the Company has
         expensed as financing costs any excess of the fair market value of the
         common stock at the debenture issuance date over the fixed conversion
         price which for fiscal year 2001 amounted to $50,000 for debentures due
         June 29, 2002.

         On May 6, 2002, the Company restated one of its June 2001 convertible
         debentures to reflect an additional $125,000 investment, resulting in
         an aggregate of $625,000 of June 2001 convertible debentures
         outstanding.

         Upon the issuance of the June 2001 debentures, the Purchasers received
         five-year term warrants to purchase three shares of the Company's
         common stock for each $20.00 invested. The initial exercise price of
         the warrants was equal to the lesser of $1.168 and the average of the
         lowest three intraday trading prices of a share of common stock during
         the 20 trading days immediately preceding exercise.

         The Company issued 75,000 common stock warrants on June 29, 2001, at an
         exercise price of $1.17 per share as consideration for debt financing.
         The fair market value of the warrants were deemed immaterial as
         estimated on the grant date using the Black-Scholes option pricing

                                      F-15


<PAGE>

         method as required under SFAS 123 with the following weighted average
         assumptions: expected dividend yield 0%, volatility 101%, risk-free
         interest rate 3.58%, expected option life 3 years. As of the date of
         this report no warrants have been exercised.

         As of June 29, 2001, the Company entered into a letter agreement with
         certain of its debenture investors, which provided various
         anti-dilution adjustments to the debentures and warrants issued in the
         April 2000, January 2001 and March 2001 debenture offerings. These
         adjustments were made partly in lieu of other adjustments that would
         have been imposed under the terms of the April 2000, January 2001 and
         March 2001 debenture offering documents. As a result of these
         adjustments, the conversion prices for the debentures held by these
         entities and issued in the April 2000, January 2001 and March 2001
         offerings were reduced to the lesser of (i) $2.00 per share, and (ii)
         50% of the average of the three lowest intraday trading prices of a
         share of our common stock for the 20 trading days immediately preceding
         the conversion of the debentures. In addition, the exercise prices of
         the warrants issued in connection with the April 2000, January 2001 and
         March 2001 offerings were reduced to the lesser of (i) $1.168 per
         share, and (ii) the average of the three lowest intraday trading prices
         of a share of our common stock for the 20 trading days immediately
         preceding the exercise of the warrants.

         The debentures contain a contingency provision whereby, if the Company
         issues common stock at a price less than both the fixed conversion
         price and the then market price on the date of issuance the fixed
         conversion price shall be adjusted as stipulated in the agreement.

         In order to provide working capital and financing for the Company's
         expansion, as of January 9, 2002, the Company entered into a securities
         purchase agreement and related agreements with one accredited investor
         (the "Purchasers") for the purchase of $200,000 of the Company's 12%
         Convertible Debentures due January 9, 2003. The debentures bear
         interest at a rate of 12% per annum, payable quarterly in common stock
         or cash at the option of the Purchasers.

         The debentures initially were convertible into shares of common stock
         at the lesser of $0.055 per share and 50% of the average of the lowest
         three intraday trading prices of a share of common stock during the
         trading days immediately preceding conversion.

         Pursuant to the Rules and Regulations of the Securities and Exchange
         Commission regarding beneficial conversion features, the Company has
         expensed as financing costs any excess of the fair market value of the
         common stock at the debenture issuance date over the fixed conversion
         price which for fiscal year 2002 amounted to $200,000 for debentures
         due January 9, 2003.

         Upon the issuance of the January 2002 debentures, the Purchasers
         received five-year term warrants to purchase three shares of the
         Company's common stock for each $20.00 invested. The initial exercise
         price of the warrants was equal to the lesser of $0.055 and the average
         of the lowest three intraday trading prices of a share of common stock
         during the 20 trading days immediately preceding exercise.

                                      F-16


<PAGE>

         The Company issued 600,000 common stock warrants on January 9, 2002, at
         an exercise price of $0.055 per share as consideration for debt
         financing. The fair market value of the warrants were $49,049 as
         estimated on the grant date using the Black-Scholes option pricing
         method as required under SFAS 123 with the following weighted average
         assumptions: expected dividend yield 0%, volatility 123%, risk-free
         interest rate 2.16%, expected option life one year. As of the date of
         this report no warrants have been exercised. The value of the warrants
         was recorded by the Company as a current operating expense in the
         accompanying financial statements.

         As of January 9, 2002, the Company entered into a letter agreement with
         certain of its debenture investors, which letter agreement provided
         various anti-dilution adjustments to the debentures and warrants issued
         in the April 2000 debenture offering. These adjustments were made
         partly in lieu of other adjustments that would have been imposed under
         the terms of the April 2000 debenture offering documents. As a result
         of these adjustments, the conversion prices for the debentures held by
         these entities and issued in the April 2000 offering were reduced to
         the lesser of (i) $0.055 per share, and (ii) 50% of the average of the
         three lowest intraday trading prices of a share of our common stock for
         the 20 trading days immediately preceding the conversion of the
         debentures. In addition, the exercise price of the warrants issued to
         certain debenture investors in connection with the April 2000 and
         January 2001 offerings, respectively, and issued on April 30, 2001,
         were reduced to 50% of the average of the three lowest intraday trading
         prices of a share of our common stock for the 20 trading days
         immediately preceding the exercise of the warrants. In addition, the
         exercise period of the warrants issued in connection with the April
         2000, January 2001 and March 2001 offerings was extended from five to
         seven years.

         In order to provide working capital and financing for the Company's
         expansion and for the acquisition of the Company's Fast Forward
         Marketing, Inc. business, as of March 29, 2002, the Company entered
         into a securities purchase agreement and related agreements with four
         accredited investors (the "Purchasers") for the purchase of $500,000 of
         the Company's 12% Convertible Debentures due March 29, 2003. The
         debentures bear interest at a rate of 12% per annum, payable quarterly
         in common stock or cash at the option of the Purchasers. The net
         proceeds of the offering, after payment of some related expenses, were
         $380,000.

         The debentures initially were convertible into shares of common stock
         at the lesser of $0.035 per share and 50% of the average of the lowest
         three intraday trading prices of a share of common stock during the
         trading days immediately preceding conversion.

         Pursuant to the Rules and Regulations of the Securities and Exchange
         Commission regarding beneficial conversion features, the Company has
         expensed as financing costs any excess of the fair market value of the
         common stock at the debenture issuance date over the fixed conversion
         price which for fiscal year 2002 amounted to $500,000 for debentures
         due March 29, 2003.

         Upon the issuance of the March 2002 debentures, the Purchasers received
         five-year term warrants to purchase three shares of the Company's
         common stock for each $1.00 invested. The initial exercise price of the
         warrants was equal to the lesser of $0.035 and the average of the
         lowest three intraday trading prices of a share of common stock during
         the 20 trading days immediately preceding exercise.

                                      F-17


<PAGE>

         The Company issued 1,500,000 common stock warrants on March 29, 2002,
         at an exercise price of $0.035 per share as consideration for debt
         financing. The fair market value of the warrants were $109,039 as
         estimated on the grant date using the Black-Scholes option pricing
         method as required under SFAS 123 with the following weighted average
         assumptions: expected dividend yield 0%, volatility 123%, risk-free
         interest rate 2.57%, expected option life one year. As of the date of
         this report no warrants have been exercised. The value of the warrants
         was recorded by the Company as a current operating expense in the
         accompanying financial statements.

         In order to provide working capital and financing for the Company's
         operation and expansion, as of September 11, 2002, the Company entered
         into a securities purchase agreement and related agreements with three
         accredited investors (the "Purchasers") for the purchase of up to
         $600,000 of the Company's 12% Convertible Debentures. The debentures
         bear interest at a rate of 12% per annum, payable quarterly in common
         stock or cash at the option of the Purchasers. The debentures were to
         be sold in three separate tranches and the first tranche, in the amount
         of $250,000, was consummated in September 2002 and the convertible
         debentures relating to the first tranche are due September 11, 2003.
         The aggregate net proceeds of the September 2002 tranche, after payment
         of some related expenses, was approximately $165,000.

         The second tranche of the September 2002 financing transaction was
         consummated in October 2002 and the convertible debentures relating to
         the second tranche are due October 15, 2003. The aggregate net proceeds
         of the October 2002 tranche, after payment of some related expenses,
         was approximately $108,000.

         The third tranche of the September 2002 financing transaction was
         consummated in December 2002 and the convertible debentures relating to
         the third tranche are due December 9, 2003. The aggregate net proceeds
         of the December 2002 tranche, after payment of some related expenses,
         was approximately $122,000.

         The debentures initially were convertible into shares of common stock
         at the lesser of $0.01 per share and 50% of the average of the lowest
         three intraday trading prices of a share of common stock during the
         trading days immediately preceding conversion.

         Pursuant to the Rules and Regulations of the Securities and Exchange
         Commission regarding beneficial conversion features, the Company has
         expensed as financing costs any excess of the fair market value of the
         common stock at the debenture issuance date over the fixed conversion
         price which for fiscal year 2002 amounted to $200,000 for debentures
         due September 11, 2003.

         Upon the issuance of the September, October and December 2002
         debentures, the Purchasers received five-year term warrants to purchase
         three shares of the Company's common stock for each $1.00 invested. The
         initial exercise price of the warrants was equal to $0.005.

         The Company issued 750,000 common stock warrants on September 11, 2002,
         at an exercise price of $0.005 per share as consideration for debt
         financing. The fair market value of the warrants were deemed immaterial
         as estimated on the grant date using the Black-Scholes option pricing
         method as required under SFAS 123 with the following weighted average
         assumptions: expected dividend yield 0%, volatility 123%, risk-free
         interest rate 2.57%, expected option life 3 years. As of the date of
         this report no warrants have been exercised.

                                      F-18


<PAGE>

         The Company issued 525,000 common stock warrants on October 15, 2002,
         at an exercise price of $0.005 per share as consideration for debt
         financing. The fair market value of the warrants were deemed immaterial
         as estimated on the grant date using the Black-Scholes option pricing
         method as required under SFAS 123 with the following weighted average
         assumptions: expected dividend yield 0%, volatility 315.20%, risk-free
         interest rate 2.08%, expected option life 3 years. As of the date of
         this report, no warrants have been exercised.

         The Company issued 525,000 common stock warrants on December 9, 2002,
         at an exercise price of $0.005 per share as consideration for debt
         financing. The fair market value of the warrants were deemed immaterial
         as estimated on the grant date using the Black-Scholes option pricing
         method as required under SFAS 123 with the following weighted average
         assumptions: expected dividend yield 0%, volatility 317.88%, risk-free
         interest rate 2.52%, expected option life 3 years. As of the date of
         this report, no warrants have been exercised.

         Pursuant to the rules and regulations of the SEC regarding beneficial
         conversion features, the Company expensed as financing costs any excess
         of the fair market value of the common stock at the debenture issuance
         date over the fixed conversion price which amounts aggregated
         approximately $1,093,000 and $2,665,000 in 2002 and 2001, respectively.
         There was no amortization period for these financing costs since the
         debentures were convertible immediately upon issuance.

         As of September 23, 2002, in addition to the debentures issued in
         September 2002 described above:

         o        $1,443,625 of the original $4,500,000 principal balance of
                  Convertible Debentures due May 1, 2002 remained outstanding;

         o        $185,181 of the original $650,000 principal balance of 12%
                  Convertible Debentures due January 5, 2002 remained
                  outstanding;

         o        $438,819 of the original $650,000 principal balance of 12%
                  Convertible Debentures due March 9, 2002 remained outstanding;

         o        $625,000 of the original $625,000 principal balance of 12%
                  Convertible Debentures due June 29, 2002 remained outstanding;

         o        $200,000 of the original $200,000 principal balance of 12%
                  Convertible Debentures due January 9, 2003 remained
                  outstanding; and

         o        $500,000 of the original $500,000 principal balance of 12%
                  Convertible Debentures due March 29, 2003 remained
                  outstanding.

         As of September 23, 2002, the Company entered into an agreement with
         the holders of the debentures listed above to extend the due date of
         these debentures to September 23, 2003. In consideration for the
         extension, the Company granted to the holders of these debentures
         warrants to purchase up to an aggregate of 5,189,126 shares of common
         stock at an exercise price equal to the average of the lowest three

                                      F-19


<PAGE>

         intraday trading prices during the 20 trading days immediately
         preceding the exercise of the warrants. The warrants granted included
         warrants to Bank Insinger de Beaufort to purchase up to 1,285,028
         shares of common stock, warrants to AJW Partners, LLC to purchase up to
         808,010 shares of common stock, warrants to New Millennium Capital
         Partners II, LLC to purchase up to 808,010 shares of common stock,
         warrants to Equilibrium Equity, LLC to purchase up to 56,062 shares of
         common stock, warrants to Bristol Investment Fund, Ltd. to purchase up
         to 240,000 shares of common stock, warrants to Bristol Capital, LLC to
         purchase up to 132,016 shares of common stock, warrants to Alliance
         Equities, Inc. to purchase up to 60,000 shares of common stock,
         warrants to AJW Offshore, Ltd. (f/k/a AJW/New Millennium Offshore,
         Ltd.) to purchase up to 900,000 shares of common stock, and warrants to
         AJW Qualified Partners, LLC (f/k/a Pegasus Capital Partners, LLC) to
         purchase up to 900,000 shares of common stock.

         Since September 2001, the Company has failed to make all or part of its
         required interest payments under its various outstanding convertible
         debentures. As a result, the Company is in default under its
         outstanding convertible debentures.

         Pursuant to the rules and regulations of the SEC regarding beneficial
         conversion features, the Company expensed as financing costs any excess
         of the fair market value of the common stock at the debenture issuance
         date over the fixed conversion price, which amounted to approximately
         $52,500 for the three months ended December 31, 2002. There was no
         amortization period for these financing costs since the debentures were
         convertible immediately upon issuance.

         The Company's convertible debentures and related warrants contain
         anti-dilution provisions whereby, if the Company issues common stock or
         securities convertible into or exercisable for common stock at a price
         less than the conversion or exercise prices of the debentures or
         warrants, the conversion and exercise prices of the debentures or
         warrants shall be adjusted as stipulated in the agreements governing
         such debentures and warrants.

         During the three months ended December 31, 2002, the Company issued an
         aggregate of 7,051,907 shares of common stock to five accredited
         investors in connection with regular interest payments and upon
         conversion of an aggregate of $30,730 of principal plus accrued
         interest of $3,247 on the Company's convertible debentures. No gain or
         loss was recognized upon the conversion of debt to equity.

         As of December 31, 2002, the Company was indebted for an aggregate of
         $3,904,395 on these convertible debentures. To the extent debentures
         issued by the Company are converted into shares of common stock, the
         Company will not be obligated to repay the converted amounts.

         During September 2002, the Company signed a non-binding letter of
         intent for up to $3,000,000 of financing from an unrelated financing
         institution. As of December 15, 2002, the Company had borrowed $600,000
         under this arrangement.

                                      F-20


<PAGE>

5.       CONVERTIBLE PROMISSORY NOTES
         ----------------------------

         On February 28, 2002, the Company entered into agreements with its
         legal counsel and its accounting firm to replace an aggregate of
         $372,550 of existing accounts payable to those entities with 6%
         convertible promissory notes due November 30, 2002. The convertible
         promissory notes have a conversion price equal to the lesser of (i)
         $0.085 and (ii) the average of the three lowest intraday trading prices
         of a share of our common stock for the 20 trading days immediately
         preceding the conversion of the notes. As of December 31, 2002, the
         full amount of these promissory notes remained outstanding. These are
         unsecured and have accrued interest totaling approximately $18,700 at
         December 31, 2002.

6.       SERIES B PREFERRED STOCK
         ------------------------

         Effective April 10, 2002, the Company entered into an Exchange
         Agreement with Bristol Capital, LLC pursuant to which it issued 900
         shares of its Series B Convertible Preferred Stock and acquired from
         Bristol Capital its 50% interest in the Company's now wholly-owned Fast
         Forward Marketing subsidiary in consideration for providing the
         opportunity to acquire the Fast Forward Marketing business. Each share
         of the Company's Series B Convertible Preferred Stock has a stated
         value of $1,000 and is convertible into shares of its common stock at
         the lesser of (i) $0.086, and (ii) 82% of the average of the three
         lowest intraday trading prices of a share of its common stock during
         the twenty trading days preceding the conversion date. The Series B
         Convertible Preferred Stock accrues dividends at a rate of 8% per
         annum, which is payable on a quarterly basis in arrears, at the option
         of the holder, in cash or shares of our common stock based on the then
         applicable conversion price. As of December 31, 2002, all 900 shares,
         with a value of $900,000, of the Company's Series B Convertible
         Preferred Stock remained outstanding, and no accrued dividends have
         been recorded as of December 31, 2002.

7.       STOCKHOLDERS' EQUITY AND STOCK ISSUANCES
         ----------------------------------------

         A. Debenture Investors
         ----------------------

         (I)      During the three months ended December 31, 2002, the Company
                  issued an aggregate of 7,051,907 shares of common stock having
                  a fair value of approximately $33,977 to various debenture
                  investors representing the conversion of principal and
                  interest.

         B. Legal and Consulting
         -----------------------

         (II)     On October 16, 2002, the Company issued 400,000 shares of
                  common stock for marketing services having a fair value of
                  $4,000. The consideration given for the services was valued
                  based on the trading price of the Company's common stock on
                  the grant date.

         C. Cash
         -------

         (III)    On November 5, 2002, the Company issued 500,000 shares of
                  common stock for $25,000 at a value of $.05 per share.

                                      F-21


<PAGE>

8.       ADJUSTMENTS TO OUTSTANDING SECURITIES
         -------------------------------------

         On September 23, 2002, the Company entered into an agreement with the
         holders of all of its outstanding convertible debentures other than
         those debentures issued on September 11, 2002, to extend the due date
         of those outstanding debentures to September 23, 2003. In consideration
         for the extension, the Company granted to the holders of these
         debentures warrants to purchase up to an aggregate of 5,189,126 shares
         of common stock at an exercise price equal to the average of the lowest
         three intraday trading prices during the 20 trading days immediately
         preceding the exercise of the warrants. The warrants granted included
         warrants to Bank Insinger de Beaufort to purchase up to 1,285,028
         shares of common stock, warrants to AJW Partners, LLC to purchase up to
         808,010 shares of common stock, warrants to New Millennium Capital
         Partners II, LLC to purchase up to 808,010 shares of common stock,
         warrants to Equilibrium Equity, LLC to purchase up to 56,062 shares of
         common stock, warrants to Bristol Investment Fund, Ltd. to purchase up
         to 240,000 shares of common stock, warrants to Bristol Capital, LLC to
         purchase up to 132,016 shares of common stock, warrants to Alliance
         Equities, Inc. to purchase up to 60,000 shares of common stock,
         warrants to AJW Offshore, Ltd. (f/k/a AJW/New Millennium Offshore,
         Ltd.) to purchase up to 900,000 shares of common stock, and warrants to
         AJW Qualified Partners, LLC (f/k/a Pegasus Capital Partners, LLC) to
         purchase up to 900,000 shares of common stock.

9.       SEGMENT INFORMATION
         -------------------

         For the three months ended December 31:

<TABLE>
<CAPTION>
                                             Internet           Video
                     2001                    Commerce        Distribution         Total
         ------------------------------     ------------     ------------     ------------
<S>                                         <C>              <C>              <C>
         Revenues                           $    15,095      $        --      $    15,095
         Segment profit (loss)               (1,073,031)              --       (1,073,031)
         Total assets                         1,061,330               --        1,061,330
         Additions to long-lived assets              --               --               --
         Depreciation and amortization           37,393               --           37,393

                     2002
         ------------------------------
         Revenues                           $    14,537      $    17,502      $    32,039
         Segment profit (loss)                 (775,704)         (61,885)        (837,589)
         Total assets                           100,226          118,506          218,732
         Additions to long-lived assets              --               --               --
         Depreciation and amortization            2,781            9,395           12,176
</TABLE>

10.      DEBENTURE MATURITIES
         --------------------

         The Company is in the process of registering a portion of the shares of
         common stock underlying certain of its convertible debentures to
         satisfy its obligations upon conversion by the debenture holders of
         those debentures into shares of the Company's common stock. On May 9,
         2002, the Company filed a Registration Statement on Form SB-2 with the
         SEC to register shares of common stock in order to partially satisfy
         these obligations. This Registration Statement has not been declared
         effective by the SEC and the Company remains in default in the making

                                      F-22


<PAGE>

         of quarterly interest payments for the last five quarters, and for part
         of the quarter ended September 30, 2001, on the Company's outstanding
         convertible debentures.

11.      GOING CONCERN
         -------------

         The Company's financial statements for the three months ended December
         31, 2002 have been prepared on a going concern basis which contemplates
         the realization of assets and the settlement of liabilities and
         commitments in the normal course of business. The Company had a net
         loss from operations of $837,589, a negative cash flow from operating
         activities of $336,840, a working capital deficiency of $7,073,616 and
         a stockholders' deficiency of $6,995,292. Due to the Company's net
         losses, negative cash flows, working capital deficiency and
         stockholders' deficiency, the Company may not be able to meet such
         objectives as presently structured. The financial statements do not
         include any adjustments that might result from the outcome of this
         uncertainty.

12.      SUBSEQUENT EVENTS
         -----------------

         In January of 2003, the Company retained legal counsel for
         representation in a dispute over amounts stipulated at the time of
         closing by the previous owner of Fast Forward Marketing.

         On January 19, 2003, the Company acquired "Latin American Independent
         Network International", a 20 year-old leader in the providing of
         Spanish language entertainment content. The acquisition price was
         $500,000 consisting of cash of $25,000, $225,000 due July 15, 2003, and
         $250,000 of Company stock.

         In order to provide working capital and financing for the Company's
         operation and expansion and to fund the acquisition of Latin American
         Independent Network International, as of January 16, 2003, the Company
         entered into a securities purchase agreement and related agreements
         with two accredited investors (the "Purchasers") for the purchase of up
         to $350,000 of the Company's 12% Convertible Debentures. The debentures
         bear interest at a rate of 12% annum, payable quarterly in common stock
         or cash ast the option of the Company. The debentures were to be sold
         in two separate tranches and the first tranche, in the amount of
         $175,000, was consummated in January 2003 and the convertible
         debentures relating to the first tranche are due January 16, 2004. The
         aggregate net proceeds of the January 2003 tranche, after payment of
         some related expenses, was approximately $125,000.

         The debentures initially were convertible into shares of common stock
         at the lesser of $0.01 per share and 50% of the average of the lowest
         three intraday trading prices of a share of common stock during the
         trading days immediately preceding conversion.

         Upon the issuance of the January 2003 debentures, the Purchasers
         received five-year term warrants to purchase three shares of the
         Company's common stock for each $1.00 invested. The initial exercise
         price of the warrants was equal to $0.005.

                                      F-23


<PAGE>

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

         THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH OUR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES AND THE
INFORMATION INCLUDED UNDER THE CAPTION "RISK FACTORS" INCLUDED ELSEWHERE IN THIS
DOCUMENT. EXCEPT FOR HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS AND OUR CURRENT
BELIEFS REGARDING REVENUES WE MIGHT EARN IF WE ARE SUCCESSFUL IN IMPLEMENTING
OUR BUSINESS STRATEGIES. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS"
FOR FURTHER INFORMATION REGARDING FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, MANY OF WHICH ARE BEYOND OUR
CONTROL, INCLUDING THOSE FACTORS DISCUSSED UNDER "RISK FACTORS" AND OTHER
HEADINGS IN THIS DOCUMENT, WHICH COULD, AMONG OTHER THINGS, CAUSE THE PRICE OF
OUR COMMON STOCK TO FLUCTUATE SUBSTANTIALLY.

OVERVIEW

         We provide online delivery of films on a subscription- and
pay-per-view-basis and offer for sale on our websites films and features in VHS
and DVD formats, print-on-demand books and products of the pop culture genre. We
also operate a video distribution business through which we distribute films and
features in VHS and DVD formats to retailers through our FFM subsidiary. In
addition, we offer business services, including encoding of video for online
delivery. We also develop and offer software and products for encoding and
delivery of media-rich data, including video, audio and text over the Internet.

         Our revenues are principally derived from our video distribution
business. We expect to continue to place significant emphasis upon the further
development and expansion of our content delivery and e-commerce activities. As
funds become available, we intend to increase our marketing efforts
substantially in order to develop awareness, brand loyalty and sales for our
consolidated www.kanakaris.com online movie and book website. This website
includes CinemaPop, which offers online and on-demand films as well as VHS and
DVD titles, WordPop, which offers previews and print-on-demand books, and AK.TV,
an Internet television-style channel with regularly scheduled film programming.
We also intend to increase our marketing efforts in order to develop awareness
of and sales for our video distribution business. We intend to generate revenue
from subscriptions, pay-per-view sales, advertisers and sales of products on our
websites. We also intend to derive revenue from both product sales and service
fees pertaining to our CinemaWEAR(TM) encoding. As funds become available, we
intend to continue to invest in the development of new products and services
that enhance our websites and CinemaWEAR(TM) encoding, and to further develop
our existing products and services.

         In March 2002, we sold our Desience division to obtain additional
funding for, and to strengthen our focus on, our Internet and e-commerce
business activities. Prior to March 2002, our Desience division's business
involved the design, manufacture and installation of ergonomic data control
console systems for high-end computer command centers.

         Prior to the sale of our Desience division, that Division contributed
30% ($513,136) of our revenues for the year ended September 30, 2001 and
contributed 96% ($591,244) of our revenues for the year ended September 30,
2000. Our Desience division also generated $193,408 and $274,117 in gross profit
for the years ended September 30, 2001 and 2000, respectively. From January 1,
2002 to the date of the sale of its business, our Desience division generated

                                       1


<PAGE>

approximately $216,139 which amount would have been added to our revenues for
the fiscal year ended September 30, 2002 had it not been sold and reported in
our financial statements for the fiscal year ended September 30, 2002 as a
discontinued operation. From January 1, 2002 to the date of the sale of its
business, our Desience division also generated approximately $76,835 in gross
profit which amount would have been added to our gross profit for the fiscal
year ended September 30, 2002 had it not been sold and reported in our financial
statements for the fiscal year ended September 30, 2002 as a discontinued
operation.

         The sale of our Desience division provided us with additional capital
to continue the operations of our content delivery business. While the revenues
from our Desience division amounted to a substantial percentage of our overall
revenues, our Desience division has not been the principal focus of our growth
efforts. Our principal focus has been on the development and growth of our
content delivery and e-commerce activities. With the sale of our Desience
division, we are placing additional emphasis on the growth and development of
our content delivery and e-commerce activities, which activities we believe form
a strategic fit with the acquisition of the business of Fast Forward Marketing,
Inc. Because of the sale of our Desience division, we believe that we will be
able to use our limited resources to more effectively develop and grow our
content delivery and e-commerce activities. In addition, we believe that our
efforts to operate and expand our video distribution business, as discussed
below, will be enhanced as a result of not expending resources on the operation
of our Desience division.

         In April 2002, we purchased substantially all of the assets of Fast
Forward Marketing, Inc. from its sole shareholder, Intervisual Books, Inc. We
intend to further expand into the video distribution market and integrate this
new aspect of our business with our existing products and services.

         We believe that the acquisition of FFM will enable us to significantly
increase our revenues and provide funds to develop and grow our content delivery
and e-commerce activities. In addition, we believe that FFM is a viable
strategic fit for our existing business activities and we plan to integrate FFM
with our existing business activities to the extent practicable. We currently
offer for purchase directly over the internet to visitors to our various
websites videos that FFM distributes.

         Fast Forward Marketing, Inc., the company from which we purchased our
video distribution business, achieved net sales of $5,106,013 for the year ended
September 30, 2001 and $9,212,732 for the year ended September 30, 2000. That
company also generated $374,435 and $1,876,759 in gross profit for the years
ended September 30, 2001 and 2000, respectively. However, as more particularly
disclosed in our financial statements and notes to our financial statements for
the fiscal year ended September 30, 2002 included elsewhere in this document,
the annualized net sales and gross profit of our FFM video distribution
subsidiary are significantly lower than the net sales and gross profit recorded
for the years ended September 30, 2001 and 2000 of the predecessor FFM business,
and we do not expect to achieve in the foreseeable future results similar in
magnitude to historic results. We are presently experiencing severe difficulties
in operating our FFM video distribution business largely resulting from our lack
of available financial resources and debt assumed in connection with the
acquisition of that video distribution business.

         Although we believe that FFM provides a viable strategic fit with our
other business activities and represents an important business opportunity, our
successful operation of our video distribution business, especially over the
next twelve months, will likely require substantial financial resources. We
acquired the business of FFM along with a significant amount of liabilities,
including approximately $850,000 in accounts payable, a substantial portion of
which is owed to suppliers of the videos that FFM distributes. As of December
31, 2002, FFM had approximately $1,363,000 in accounts payable. We have been
unable to timely pay FFM's suppliers and we believe that, as a result, the
business of FFM has been significantly harmed. We believe that we are not
achieving the level of revenues we would be able to achieve if we were able to
timely pay our suppliers. If we continue to fail to timely pay FFM's suppliers,
the business of FFM may be further disrupted and important supplier
relationships may be jeopardized and irreparably harmed. The failure to timely
pay FFM's suppliers could therefore have a material adverse impact on our video
distribution business.

                                       2


<PAGE>

         In January 2002, we purchased all of the outstanding capital stock of
Latin American Independent Network International and its wholly-owned subsidiary
Tele Anuncio, Inc.

         The principal business of Latin American Independent Network
International, or LAIN, is the purchase and sale of rights to video media,
primarily television, cable, satellite, VHS and DVD movie titles for particular
geographic territories. LAIN has active business operations in the Untied
States, Venezuela, Peru, Bolivia, Columbia, Mexico, Argentina, Brazil, Spain and
other Spanish speaking countries. In addition, LAIN distributes, both
exclusively and non-exclusively, Spanish language and Spanish language dubbed
and sub-titled DVD and VHS movies to U.S. retail stores. LAIN also produces
original Spanish language television programming. In addition, LAIN operates a
web site which features Spanish language and Spanish language sub-titled movies
for click-and-watch online viewing at www.CineManiaNetwork.com. LAIN is a
co-producer of the annual Miami Latin Film Festival Film and TV Market. LAIN
also acquires and sells advertising time in the Spanish television markets in
the United States and other countries throughout Latin America through its
wholly owned subsidiary Tele Anuncio, Inc. LAIN's principal office is in Miami
Beach, Florida, which is widely considered a gateway to the Spanish speaking
marketplace.

         We believe that LAIN presents potential synergies with our existing
businesses including VHS and DVD online and retail sales, online movie
distribution and content acquisition and licensing. Our subscription services
allowing subscribers to access content on our websites now enable users to
access the content offered on the www.CineManiaNetwork.com website. Our Fast
Forward Marketing subsidiary now serves as a sub-distributor of VHS and DVD
titles for LAIN and distributes those titles online and to retail stores.

         Following the sale of our Desience division, we closed our office in
Costa Mesa, California and opened a new office in Santa Monica, California, out
of which we operated our FFM business and conducted other business activities.
We moved out of our Santa Monica, California offices in order to reduce expenses
and currently conduct our operations out of the homes of two of our employees in
Van Nuys, California and in Newport Beach, California.

         We have a significant accumulated deficit and negative working capital.
As a result of our financial condition, our independent auditors have issued an
opinion questioning our ability to continue as a going concern.

RESULTS OF OPERATIONS

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2002
AND 2001

         NET SALES. Net sales increased $16,994 (112%) from $15,095 for the
quarter ended December 31, 2001 to $32,039 for the quarter ended December 31,
2002. This increase was primarily due to an increase in revenue generated by our
Fast Forward Marketing video distribution business.

         GROSS PROFIT. Gross profit increased $35,152 (436%) from a gross loss
of $8,055 for the quarter ended December 31, 2001 to a gross profit of $27,097
for the quarter ended December 31, 2002. This increase in gross profit was due
to both an increase in sales and also due to the decrease in cost of sales
resulting from increased sales of higher margin products and services, and
excludes any gross profit otherwise reportable as a result of our data control
console business, which business is treated as a discontinued operation for the
quarter ended December 31, 2001.

         OPERATING EXPENSES. Total operating expenses decreased $302,803 (31%)
from $963,284 for the quarter ended December 31, 2001 to $660,481 for the
quarter ended December 31, 2002. This decrease in total operating expenses was

                                       3


<PAGE>

due primarily to a decrease in executive compensation and consulting fees, with
executive compensation expenses decreasing by $88,158 (31%) and consulting fees
expenses decreasing by $283,804 (76%).

         Executive compensation decreased $88,158 (31%) from $286,335 for the
quarter ended December 31, 2001 to $198,177 for the quarter ended December 31,
2002, primarily due to the decrease in the issuance of common stock to
executives as cash compensation. Salaries increased $48,179 (352%) from $13,679
for the quarter ended December 31, 2001 to $61,858 for the quarter ended
December 31, 2002 due to increases in staff. The operation of our FFM video
distribution business necessitated the increase in staff.

         Consulting services expenses decreased $283,804 (76%) from $372,255 for
the quarter ended December 31, 2001 to $88,451 for the quarter ended December
31, 2002. The decrease in consulting services expenses resulted from the decline
in our engagement of the services of outside consultants relating to
acquisitions and business strategies not already rendered by company employees.
Other than a decrease in expenses, there were no noticeable effects resulting
from the fewer consulting services. For the quarter ended December 31, 2002,
some of the services previously handled by outside consultants were rendered by
management and other employees as a result of the increase in their regular
duties and responsibilities.

         An aggregate of $220,312 of the total operating expenses for the
quarter ended December 31, 2002, as compared to $568,237 of the total operating
expenses for the quarter ended December 31, 2001, were paid through the issuance
of shares of our common stock to the service provider. For each of the issuances
of our common stock for services rendered, the per share value of the common
stock issued was the fair market value of the common stock on the grant date,
which equaled the closing price of a share of common stock on the NASD's OTC
Electronic Bulletin Board(R) on that date.

         INTEREST AND OTHER EXPENSE. Interest and other expense increased
$102,513 (101%) from $101,692 for the quarter ended December 31, 2001 to
$204,205 for the quarter ended December 31, 2002. This increase in interest and
other expense was primarily due to the increase in the issuance of stock as
payment of interest accrued and payable on, and upon conversion of portions of
the principal balances of, our convertible debentures.

         NET LOSS. Net loss decreased $172,426 (17%) from $1,010,015 for the
quarter ended December 31, 2001 to $837,589 for the quarter ended December 31,
2002. This decrease in net loss was primarily due to the decrease in interest
and other expense, as discussed above, and approximately $63,000 of the decrease
in net loss was due to a gain on discontinued operations.

COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
2002 AND 2001

         NET SALES. Net sales decreased by $773,000 (66%) to approximately
$414,000 for the year ended September 30, 2002 from approximately $1,187,000 for
the year ended September 30, 2001. Net sales derived from our e-commerce
business decreased by approximately $1,128,000 (96%) to approximately $59,000
for the year ended September 30, 2002 from approximately $1,187,000 for the year
ended September 30, 2000. This decrease was primarily due to a decrease in
advertising revenue generated from our web sites and from the discontinuance of
the operations of our Desience Division. Our advertising revenue decreased by
$1,000,000 (100%) from the prior period. The decline in our advertising revenue
was the result of our single source of advertising revenues not placing any
additional advertisements on our websites. We expect that the decline in
advertising revenues will continue for at least the next twelve months given our
present focus on generating revenues through our Internet commerce activities,
our video distribution business and subscription and pay-per-view fees in
connection with our content delivery websites. The decline in our advertising
revenues did not result in any significant reduction in available resources
because the advertising revenues we generated were paid for through the issuance
of restricted capital stock of our advertising client, which stock we were

                                       4


<PAGE>

unable to liquidate. Any revenue we may have received from this advertising
client likely also would have been paid for through the issuance of the client's
restricted capital stock.

         GROSS PROFIT (LOSS). Gross profit as a percentage of net sales
decreased to 23% for the year ended September 30, 2002 as compared to 70% for
the year ended September 30, 2001. In dollar terms, gross profit decreased
approximately $726,000 (87%) to a gross profit of approximately $99,000 for the
year ended September 30, 2002 from a gross profit of $825,000 for the year ended
September 30, 2001. This decrease was primarily due to the significant decrease
in our advertising revenue described above and, as described above, because we
believe that the decrease in advertising revenue will continue for at least the
next twelve months, we believe that our gross profit levels will remain
depressed.

         Net loss for our e-commerce business decreased in dollar terms by
approximately $2,992,000 (32%) to a net loss of approximately $6,259,000 for the
year ended September 30, 2002, from a net loss of approximately $9,251,000 for
the year ended September 30, 2001. This decrease in net loss for our e-commerce
business primarily was due to a decrease in various operating and financing
expenses, including a decrease in executive compensation of approximately
$409,000, a decrease in consulting services of $557,000, and a decrease in
financing costs of approximately $1,622,000.

         OPERATING EXPENSES. Total operating expenses increased by approximately
$510,000 (9%) to approximately $6,435,000 for the year ended September 30, 2002
from approximately $5,925,000 for the year ended September 30, 2001.

         Consulting fees decreased by approximately $557,000 (28%) to
approximately $1,236,000 for the year ended September 30, 2002 from
approximately $1,793,000 for the year ended September 30, 2001. The decrease in
consulting fees was the result of cost constraints dictated by management, and
other than the decrease in operating expenses, the decrease in consulting fees
had no noticeable effects.

         Marketing, advertising and investor relations costs decreased by
approximately $523,000 (87%) to approximately $78,000 for the year ended
September 30, 2002 from approximately $601,000 for the year ended September 30,
2001. The decrease in marketing, advertising and investor relations costs was
the result of decreased resources available for these expenditures as well as
cost constraints dictated by management. The decrease in marketing, advertising
and investor relations costs may have had a substantial negative effect on our
operating performance and the performance of our common stock. The decrease in
our advertising revenues described will likely be sustained, at least for the
next twelve months, and our common stock suffered substantial declines during
the year ended September 30, 2002.

         Professional fees decreased by approximately $128,000 (15%) to
approximately $690,000 for the year ended September 30, 2002 from approximately
$818,000 for the year ended September 30, 2001. The decrease in professional
fees was the result of cost constraints dictated by management and efforts to
utilize company executives and employees for non-critical matters formerly
handled by outside legal counsel and accounting professionals. The decrease in
professional fees had a positive impact on our available resources, however, it
is likely that our decreased reliance on professional legal and accounting
services may have increased risks associated with services rendered by company
employees and executives inexperienced in matters such as drafting contracts and
handling financial transactions.

         The decreases in operating expenses described above were partially
offset by an increase in officer expenses of approximately $96,000 (49%) to
approximately $290,000 for the year ended September 30, 2002 from approximately
$193,000 for the year ended September 30, 2001, and an increase of insurance
expenses of approximately $10,000 (14%) to approximately $83,000 for the year
ended September 30, 2002 from approximately $ 73,000 for the year ended
September 30, 2001.

                                       5


<PAGE>

         An aggregate of approximately $2,976,000 of the total operating and
financing expenses for the year ended September 30, 2002, as compared to
approximately $5,271,000 of the total operating expenses for the year ended
September 30, 2001, were paid through the issuance of shares of our common stock
to the service provider. In addition, during the year ended September 30, 2002,
900 shares of our Series B Convertible Preferred Stock having a face value of
$900,000 was issued to a service provider. For each of the issuances of our
common stock for services rendered, the per share value of the common stock
issued was the fair market value of the common stock on the grant date, which
equaled the closing price of a share of common stock on the OTC Bulletin
Board(R) on that date.

         INTEREST AND OTHER EXPENSE. Interest and other expense decreased by
approximately $2,410,000 (58%) to approximately $1,742,000 for the year ended
September 30, 2002 from approximately $4,152,000 for the year ended September
30, 2001. The decrease in interest and other expense was primarily due to a
decrease of approximately $1,621,000 (50%) in the financing cost of issuing
stock through convertible debentures to $1,619,000 for the year ended September
30, 2002 from $3,241,000 for the year ended September 30, 2001. The decrease in
interest and other expense was also primarily due to a $980,000 loss on
impairment of investment in marketable securities that were received for
services rendered and recorded as an expense for the year ended September 30,
2001, but that was recorded as a $103,000 loss on impairment of investment in
marketable securities for the year ended September 30, 2002, resulting in a
decrease of approximately $877,000.

         NET LOSS. Net loss decreased by approximately $1,064,000 (11%) to
approximately $8,160,000 for the year ended September 30, 2002 from
approximately $9,224,000 for the year ended September 30, 2001. This decrease in
net loss primarily was due to decreases in interest and other expenses, as
described above.

LIQUIDITY AND CAPITAL RESOURCES

         We currently finance our operations primarily through private
placements of securities and revenue generated from our operations. Our
consolidated financial statements as of and for the years ended September 30,
2002 and 2001 and our interim condensed consolidated financial statements as
of and for the three months ended December 31, 2002 have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business.

         We have participated in numerous financing transactions through which
we have issued convertible debentures to various investors. As of February 12,
2003, we had outstanding convertible debentures in the aggregate principal
amount of $4,109,528, $250,000 of which is due September 11, 2003, $3,334,528 of
which is due September 23, 2003, $175,000 of which is due October 15, 2003,
$175,000 of which is due December 9, 2003 and $175,000 o f which is due January
16, 2003. In connection with these financing transactions, as of February 12,
2003, we have issued warrants that are outstanding to purchase an aggregate of
5,131,250 shares of our common stock and we have issued warrants outstanding to
purchase an aggregate of 5,189,126 shares of our common stock in connection with
the extension of the maturity date of certain of our convertible debentures. To
the extent convertible debentures we have issued are converted into shares of
common stock, we will not be obligated to repay the converted amounts.

         Our outstanding convertible debentures have conversion prices
equivalent to the lesser of a fixed conversion price, that is as low as $.01 per
share depending on the particular debenture, and 50% of the average of the three
lowest intraday trading prices of a share of our common stock for the 20 trading
days immediately preceding the conversion of the debentures. In addition, the
exercise prices of the warrants issued to the holders of our convertible
debentures are equivalent to the lesser of a fixed conversion price, that is as
low as $.035 per share depending on the particular warrant, and the average of
the three lowest intraday trading prices of a share of our common stock for the
20 trading days immediately preceding the exercise of the warrants. In some
cases, however, warrants we issued to holders of our convertible debentures have

                                       6


<PAGE>

only a fixed conversion price, that is as low as $.005 per share depending on
the particular warrant, and in other cases warrants we issued to holders of our
convertible debentures have only the variable conversion price described above.
Please see the "Description of Securities" section of this document for
additional details regarding our convertible debentures.

         As of September 23, 2002, we were in default under our repayment
obligations of our outstanding convertible debentures in the aggregate principal
amount of $3,392,625, including our obligation to make quarterly interest
payments under those debentures. At that time, the holders of our convertible
debentures could have pursued their rights to foreclose upon their security
interest in all of our assets. As of September 23, 2002, we entered into an
agreement with the holders of our outstanding convertible debentures, including
Bank Insinger de Beaufort, to extend the due date of those debentures to
September 23, 2003 and to waive our existing defaults under those debentures.
The waiver of existing defaults would have been effective only if a registration
statement we have filed was declared effective by the Securities and Exchange
Commission by December 31, 2002; however, the waiver did not cover any
then-outstanding penalties and interest accrued as a result of our defaults
under our obligations under the convertible debentures. This registration
statement was not declared effective by the Securities and Exchange Commission
by December 31, 2002. In consideration for the extension, we granted to the
holders of these debentures warrants to purchase up to an aggregate of 5,189,126
shares of common stock, including warrants to Bank Insinger de Beaufort to
purchase up to 1,285,028 shares of common stock, at an exercise price equal to
the average of the lowest three intraday trading prices during the 20 trading
days immediately preceding the exercise of the warrants.

         As of December 31, 2002, we had a working capital deficiency of
approximately $7,070,000 and an accumulated deficit of approximately
$39,600,000. As of that date, we had approximately $700 in cash, $42,600 in
accounts receivable, $49,100 of interest receivable and $27,500 of inventories.
As of December 31, 2002, we had accounts payable and accrued expenses of
approximately $2,824,000 and outstanding convertible debentures and convertible
promissory notes of approximately $4,277,000 including convertible debentures
and notes issued prior to the beginning of fiscal year 2003. To the extent
convertible debentures we have issued are converted into shares of common stock,
we will not be obligated to repay the converted amounts.

         Cash used in our operating activities totaled approximately $301,000
for the three months ended December 31, 2002 as compared to approximately
$253,000 for the three months ended December 31, 2001. Cash provided by our
investing activities totaled approximately $25,000 for the three months ended
December 31, 2002 as compared to no cash provided by our investing activities
for the three months ended December 31, 2001.

         Cash provided by our financing activities totaled approximately
$255,000 for the three months ended December 31, 2002 as compared to
approximately $245,000 from the sale of common stock for the three months ended
December 31, 2001. We raised approximately $230,000 of the cash provided by our
financing activities during the three months ended December 31, 2002 and none of
the cash provided by our financing activities during the three months ended
December 31, 2001 from the issuance of convertible debentures.

         For the three months ended December 31, 2002, we had net sales of
approximately $32,000 and a net loss of approximately $838,000 of which loss
approximately $361,000 (43%) consisted of non-cash expenses. These non-cash
expenses primarily included approximately $209,000 of compensation, consulting,
marketing and professional services, approximately $53,000 of convertible debt
financing costs, and approximately $49,000 of legal services.

         As of December 31, 2002, our current assets amounted to approximately
$140,000 and our current liabilities amounted to approximately $7,200,000 We are
experiencing significant financial difficulties as a result of this imbalance
between our current assets and current liabilities and have been, and will

                                       7


<PAGE>

likely continue to be, unable to repay when due many of our current liabilities.
Our financial difficulties may limit our ability to invest sufficient funds in
the growth and development of our online content delivery initiative and may
result in our inability to fully fund our video distribution business. Since we
are unable to invest sufficiently in the growth and development of our content
delivery initiative, we may lose subscribers to our websites or lose
pay-per-view customers and may also fail to attract prospective subscribers and
pay-per-view customers, which may have a substantial negative impact on our
business, prospects, financial condition and results of operations.

         In January 2002, we acquired Latin American Independent Network
International and its wholly owned subsidiary Tele Anuncio, Inc. The purchase
price for this acquisition included a $25,000 cash payment in January 2002 with
$225,000 cash payable on or before July 15, 2003. The purchase price also
included $250,000 of our common stock issuable on July 15, 2003 based on a per
share price equal to the average bid price of a share of our common stock for
the twenty day period immediately preceding July 15, 2003. At a average bid
price of $.01 per share, 25,000,000 shares would be issuable on July 15, 2003 in
connection with our acquisition of Latin American Independent Network
International and its wholly-owned subsidiary, Tele Anuncio, Inc.

         Our successful operation of our video distribution business, especially
over the next twelve months, will likely require substantial financial
resources. We acquired the business of FFM along with a significant amount of
liabilities, including approximately $850,000 in accounts payable, a substantial
portion of which is owed to suppliers of the videos that FFM distributes. As of
December 31, 2002, FFM had approximately $1,363,000 in accounts payable. We have
been unable to timely pay FFM's suppliers and we believe that, as a result, the
business of FFM has been significantly harmed. We believe that we are not
achieving the level of revenues we would be able to achieve if we were able to
timely pay our suppliers. If we continue to fail to timely pay FFM's suppliers,
the business of FFM may be further disrupted and important supplier
relationships may be further jeopardized and irreparably harmed. The failure to
timely pay FFM's suppliers could therefore have a material negative impact on
our video distribution business.

         Our continued operations are dependent on securing additional sources
of liquidity through debt and/or equity financing.

         As indicated above, our consolidated financial statements as of and for
the years ended September 30, 2002 and 2001 have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As discussed in this document and
in Note 24 to our consolidated financial statements for the years ended
September 30, 2002 and 2001, we have suffered recurring losses from operations
and at September 30, 2002 had net capital and working capital deficiencies.
These factors, among others, raised substantial doubt about our ability to
continue as a going concern and led our independent certified public accountants
to modify their unqualified opinion to include an explanatory paragraph related
to our ability to continue as a going concern. The consolidated financial
statements included in this document do not include any adjustments that might
result from the outcome of this uncertainty.

         As a result of the threat of substantial dilution to our existing
stockholders due to the below-market conversion price of our convertible
debentures as well as the continued pressure on the market price of our common
stock resulting from the conversion of our convertible debentures and the
related sale of shares of our common stock in the open market by the holders of
our convertible debentures, it may be difficult or impossible for us to secure
additional sources of funding. The limited sources of funding that may be
available to us likely will be additional convertible debentures with conversion
prices at a discount to the market price of shares of our common stock which
would likely result in substantial additional dilution to our stockholders. The
existence of a substantial amount of convertible debentures outstanding, lack of
profitability and lack of available cash flow may cause our attempts at securing
additional sources of funding to be unsuccessful.

         Historically, we have relied upon cash from financing activities and,
to a much lesser extent, revenues generated from operations, to fund all of the
cash requirements of our activities. We have not been able to generate
significant cash from our operating activities in the past and cannot assure you
that we will be able to do so in the future. We require new financing and we
believe that we may be able to fund only six months of operations with currently
available capital resources. In addition, over the next twelve months, we
believe that we will require at least $1,500,000 to conduct our planned business
operations and to service certain debts.

                                       8


<PAGE>

         We have been, and currently are, working toward identifying and
obtaining new sources of funding. Deteriorating global economic conditions may
cause prolonged declines in investor confidence in and accessibility to capital
markets. Deteriorating global economic conditions may make it more difficult for
us to secure funding because, during times of deteriorating global economic
conditions, prospective lenders and investors generally have less funds to lend
or invest and are more hesitant to lend to or invest in small, financially
unhealthy companies such as us. Further, our current debenture financing
documents contain notice and right of first refusal provisions and the grant of
a security interest in substantially all of our assets in favor of a debenture
investor, all of which provisions will restrict our ability to obtain debt
and/or equity financing.

         Future financing may not be available on a timely basis, in sufficient
amounts or on terms acceptable to us. This financing may also dilute existing
stockholders' equity. Any future financing that we may obtain may cause
significant dilution to existing stockholders. Any debt financing or other
financing of securities senior to common stock that we are able to obtain will
likely include financial and other covenants that will restrict our flexibility.
At a minimum, we expect these covenants to include restrictions on our ability
to pay dividends on our common stock. Any failure to comply with these covenants
would have a material adverse effect on our business, prospects, financial
condition, results of operations and cash flows.

         If adequate funds are not available, we may be required to delay, scale
back or eliminate portions of our operations and product and service development
efforts or to obtain funds through arrangements with strategic partners or
others that may require us to relinquish rights to certain of our technologies
or potential products or other assets. Accordingly, the inability to obtain such
financing could result in a significant loss of ownership and/or control of our
proprietary technology and other important assets and could also adversely
affect our ability to fund our continued operations and our product and service
development efforts that historically have contributed significantly to our
competitiveness.

         In an effort to increase sales related to our content delivery
business, we have implemented new subscription- and pay-per-view-based services
for users to view the content available through our websites. We have also
launched an interactive personal meeting place within our websites that allows
users to send and receive video messages and to use online chat features. Also,
we are expanding our e-commerce product offerings to capture more sales of
products of the pop culture genre.

         In addition, we are devoting efforts to expand our customer base for
our video distribution business in order to increase sales related to this
business. We are examining the viability of distributing videos over the
Internet in order to increase sales of our video distribution business and to
reduce our distribution costs as a result of more efficient video distribution
procedures. Our websites also offer some of the videos we distribute for sale
directly over the Internet. We believe that if we are successful in implementing
the above business strategies, we will generate increased revenues from our
Internet, e-commerce and video distribution business activities.

DESCRIPTION OF SECURITIES

         In addition to our outstanding capital stock, we have numerous
additional securities outstanding which are convertible or exercisable into
shares of our common stock. Our outstanding convertible and exercisable
securities and the transactions resulting in their issuance are described in
detail below.

         On December 10, 1999, we entered into a Revolving Line of Credit
Agreement with Alliance Equities, Inc., or Alliance Equities. Under the terms of
the agreement, Alliance Equities made available a $7 million revolving line of
credit with interest on the unpaid principal at 10% per annum. Under the terms
of the agreement, we may draw up to $500,000 per month on the total line of
credit upon our written request. Additionally, we have agreed that any portion
of the indebtedness may be paid back either with cash or by the issuance of our

                                       9


<PAGE>

common stock. On September 3, 2002, we jointly agreed with Alliance Equities to
exercise a 30-day cancellation clause under the Revolving Line of Credit
Agreement and as of September 3, 2002, we owed Alliance Equities approximately
$15,000 plus applicable interest under this line of credit arrangement.

         In April 2000, we issued an aggregate of $3,000,000 of 10% convertible
debentures and accompanying warrants to purchase up to 45,000 shares of common
stock in a private offering to four accredited investors. Bank Insinger de
Beaufort purchased $1,500,000 of these debentures and received a proportionate
number of the accompanying warrants. As of December 31, 2002, an aggregate of
$147,895 of principal plus related interest was outstanding under these
debentures, including $57,295 of debentures held by Bank Insinger de Beaufort.

         In August 2000, we issued an aggregate of $1,500,000 of 10% convertible
debentures and accompanying warrants to purchase up to 22,500 shares of common
stock in a private offering to three accredited investors. As of December 31,
2002, an aggregate of $1,257,500 of principal plus related interest was
outstanding under these debentures.

         In January 2001, we issued $650,000 of 12% convertible debentures due
January 5, 2002 to four accredited investors, including $400,000 of debentures
to Bristol Investment Fund, Ltd., in the first stage of a two-stage offering.
The debentures were accompanied by warrants to purchase up to an aggregate of
195,001 shares of common stock. The net proceeds of that offering, after payment
of related expenses, were approximately $631,500. In March 2001, we issued
$650,000 of 12% convertible debentures due March 9, 2002 in the second stage of
the offering, including $400,000 of debentures to Bristol Investment Fund, Ltd.
The net proceeds of that offering, after payment of some related expenses, were
approximately $647,500. As of December 31, 2002, an aggregate of $624,000 of
principal plus related interest was outstanding under the January and March 2001
debentures, including $434,000 of debentures held by Bristol Investment Fund,
Ltd.

         As of April 30, 2001, $1,848,500 of the original $4,500,000 principal
balance of 10% Convertible Debentures due May 1, 2001 remained outstanding. As
of April 30, 2001, we entered into an agreement with the holders of these
debentures, including Bank Insinger de Beaufort, to extend the due date of these
debentures to May 1, 2002. In consideration for the extension, we granted to the
holders of these debentures warrants to purchase up to an aggregate of 67,500
shares of common stock, including warrants to Bank Insinger de Beaufort to
purchase up to 22,500 shares of common stock, at an exercise price equal to the
lesser of the average of the lowest three intraday trading prices during the 20
trading days immediately preceding the grant of the warrants, discounted by
37.5%, and the average of the lowest three intraday trading prices of a share of
common stock during the 20 trading days immediately preceding exercise of the
warrants.

         On June 29, 2001, we issued an aggregate of $500,000 of 12% convertible
debentures in a private offering to three accredited investors. The debentures
were accompanied by warrants to purchase up to an aggregate of 75,000 shares of
common stock. The debentures initially were convertible into shares of common
stock at the lesser of $2.00 per share and 50% of the average of the lowest
three intraday trading prices of a share of common stock during the 20 trading
days immediately preceding conversion. The net proceeds of that offering, after
payment of related expenses, were approximately $420,000. In May 2002, we
restated our June 2001 debenture issued to one accredited investor to reflect an
additional $125,000 investment, resulting in a June 2001 debenture held by that
investor in the principal amount of $225,000 and an aggregate of $625,000 in
June 2001 debentures outstanding plus related interest as of December 31, 2002.

         As of June 29, 2001, we entered into a letter agreement with some of
our debenture holders, including Bank Insinger de Beaufort and Bristol
Investment Fund, Ltd. The agreement provided various anti-dilution adjustments

                                       10


<PAGE>

to the debentures and warrants issued in April and August 2000 and in January
and March 2001. These adjustments were made partly in lieu of other adjustments
that would have been imposed under the terms of the debenture offering
documents. As a result of these adjustments, the conversion prices for the
debentures issued to these holders in April and August 2000 and in January and
March 2001 were reduced to the lesser of $2.00 per share and 50% of the average
of the three lowest intraday trading prices of a share of our common stock for
the 20 trading days immediately preceding the conversion of the debentures. In
addition, the exercise prices of the warrants issued to the holders in
connection with the offering of the debentures in April and August 2000 and in
January and March 2001 were reduced to the lesser of $1.168 per share and the
average of the three lowest intraday trading prices of a share of our common
stock for the 20 trading days immediately preceding the exercise of the
warrants. Various additional anti-dilution adjustments may be applicable to our
outstanding debentures and warrants based on our capital raising and stock
issuance activities, but except as described above, no other agreements relating
anti-dilution adjustments have been made.

         In January 2002, we issued a 12% convertible debenture due January 9,
2003 in a private offering to Bank Insinger de Beaufort, which was accompanied
by warrants to purchase up to an aggregate of 600,000 shares of common stock.
The net proceeds of that offering, after payment of some related expenses, were
$165,500. In connection with this debenture offering, we executed a security
agreement covering all of our assets and securing our obligations to Bank
Insinger. Bank Insinger may, at its option, purchase an additional $200,000 of
our 12% convertible debentures and warrants to purchase up to 600,000 shares of
common stock within 30 days after the effective date of a registration statement
covering the resale of shares of common stock underlying the convertible
debentures issued in January 2002. However, the investor is not committed to
purchase the additional debentures. As of December 31, 2002, an aggregate of
$200,000 of principal plus related interest was outstanding under these
debentures.

         In January 2002, and in connection with the issuance of our 12%
convertible debenture due January 9, 2003, we entered into an agreement with
Bank Insinger de Beaufort, Bristol Investment Fund, Ltd., Bristol Capital, LLC,
and Paul Kessler, who is a principal of Bristol Capital, LLC. Under the
agreement, the conversion price of the 10% Convertible Debenture due May 1, 2002
that Bank Insinger purchased in the April 2000 offering was amended to be the
lesser of $.055 and 50% of the average of the lowest three intraday trading
prices during the 20 trading days immediately preceding a conversion. In
addition, the exercise prices of the warrants issued to Bank Insinger in the
February 2000, April 2000 and May 2001 offerings, the warrants issued to Bristol
Investment Fund in the January 2001 offering, the warrants issued to Bank
Insinger in the April 2000 offering that were transferred to Bristol Capital,
and the option issued to Paul Kessler pursuant to a consulting agreement dated
as of September 26, 2000 were amended so that the exercise prices are equal to
50% of the lowest three intraday trading prices during the 20 trading days
immediately preceding an exercise. The expiration dates of each of the warrants
and options described in the preceding sentence were extended so that each is
exercisable until the seventh anniversary of its issuance.

         In February 2002, we issued a 6% Convertible Promissory Note due
November 30, 2002, or a February 2002 note, in the original principal amount of
$263,800 to Rutan & Tucker, LLP for services rendered which has a per share
conversion price equal to the lesser of $.085 and the average of the three
lowest intraday trading prices of our common stock during the 20 trading days
immediately preceding the conversion date. As of December 31, 2002, an aggregate
of $263,800 of principal plus related interest was outstanding under this note.
We are currently in default under this note as a result of our failure to repay
when due the principal and interest balances of this note.

         In February 2002, we issued a 6% Convertible Promissory Note due
November 30, 2002, or a February 2002 note, in the original principal amount of
$108,750 to Haynie & Company for services rendered which has a per share
conversion price equal to the lesser of $.085 and the average of the three
lowest intraday trading prices of our common stock during the 20 trading days

                                       11


<PAGE>

immediately preceding the conversion date. As of December 31, 2002, an aggregate
of $108,750 of principal plus related interest was outstanding under this note.
We are currently in default under this note as a result of our failure to repay
when due the principal and interest balances of this note.

         In March 2002, we issued an aggregate of $500,000 of our 12%
convertible debentures due March 29, 2003 in a private offering to three
accredited investors, which were accompanied by warrants to purchase up to an
aggregate of 1,500,000 shares of common stock. The net proceeds of that
offering, after payment of related expenses, were $380,000. As of December 31,
2002, an aggregate of $500,000 of principal plus related interest was
outstanding under these debentures.

         In connection with our March 2002 debenture offering, we executed two
security agreements covering all of our assets and securing our obligations to a
total of five of the debenture investors who participated in one or more of the
April 2000, August 2000, January 2001, March 2001, June 2001 and March 2002
debenture offerings.

         Effective April 10, 2002, we entered into an Exchange Agreement with
Bristol Capital, LLC pursuant to which we issued 900 shares of our Series B
Convertible Preferred Stock and acquired from Bristol Capital its 50% interest
in our now wholly-owned FFM subsidiary which was issued to Bristol Capital in
consideration for providing the opportunity to acquire the FFM business. Each
share of our Series B Convertible Preferred Stock has a stated value of $1,000
and is initially convertible into shares of our common stock at the lesser of
(i) $0.086, and (ii) 82% of the average of the three lowest intraday trading
prices of a share of our common stock during the twenty trading preceding the
conversion date. The Series B Convertible Preferred Stock accrues dividends at a
rate of 8% per annum, which is payable on a quarterly basis in arrears, at the
option of the holder, in cash or shares of our common stock based on the then
applicable conversion price.

         On September 11, 2002, we issued an aggregate of $250,000 of 12%
convertible debentures in the first stage of a three-stage private offering to
three accredited investors. The debentures were accompanied by warrants to
purchase up to an aggregate of 750,000 shares of common stock. The net proceeds
of that offering, after payment of related expenses, were approximately
$165,000. The full amount of these debentures remains outstanding.

         In connection with our September 2002 debenture offering, we executed a
security agreement covering all of our assets and securing our obligations to
the debenture investors who participated in that offering.

         As of September 23, 2002, in addition to the debentures issued in
September 2002 described above:

         o        $1,443,625 of the original $4,500,000 principal balance of 10%
                  Convertible Debentures due May 1, 2002 remained outstanding;

         o        $185,181 of the original $650,000 principal balance of 12%
                  Convertible Debentures due January 5, 2002 remained
                  outstanding;

         o        $438,819 of the original $650,000 principal balance of 12%
                  Convertible Debentures due March 9, 2002 remained outstanding;

         o        $625,000 of the original $625,000 principal balance of 12%
                  Convertible Debentures due June 29, 2002 remained outstanding;

                                       12


<PAGE>

         o        $200,000 of the original $200,000 principal balance of 12%
                  Convertible Debentures due January 9, 2003 remained
                  outstanding; and

         o        $500,000 of the original $500,000 principal balance of 12%
                  Convertible Debentures due March 29, 2003 remained
                  outstanding;

         As of September 23, 2002, we entered into an agreement with the holders
of the debentures listed above, including Bank Insinger de Beaufort, to extend
the due date of these debentures to September 23, 2003. In consideration for the
extension, we granted to the holders of these debentures warrants to purchase up
to an aggregate of 5,189,126 shares of common stock, including warrants to Bank
Insinger de Beaufort to purchase up to 1,285,028 shares of common stock, at an
exercise price equal to the average of the lowest three intraday trading prices
during the 20 trading days immediately preceding the exercise of the warrants.

         On October 15, 2002, we issued an aggregate of $175,000 of 12%
convertible debentures in the second stage of a three-stage private offering to
three accredited investors. The debentures were accompanied by warrants to
purchase up to an aggregate of 525,000 shares of common stock. The net proceeds
of that offering, after payment of related expenses, were approximately
$108,000. The full amount of these debentures remains outstanding.

         On December 9, 2002, we issued an aggregate of $175,000 of 12%
convertible debentures in the third stage of a three-stage private offering to
three accredited investors. The debentures were accompanied by warrants to
purchase up to an aggregate of 525,000 shares of common stock. The net proceeds
of that offering, after payment of related expenses, were approximately
$121,500. The full amount of these debentures remains outstanding.

         On January 16, 2003, we issued an aggregate of $175,000 of 12%
convertible debentures in the first stage of a two-stage private offering to two
accredited investors. The debentures were accompanied by warrants to purchase up
to an aggregate of 525,000 shares of common stock. The net proceeds of that
offering, after payment of related expenses, were approximately $125,000.

         Our obligations to the holders of our secured convertible debentures
include the obligations to make quarterly interest payments and to repay the
principal amounts of the debentures when due. In addition, our obligations under
our secured convertible debentures include the obligation to register for resale
shares of common stock underlying those debentures, the obligation to keep the
registration statement covering those shares effective and the obligation to
maintain the status of Kanakaris Wireless as a public company in compliance with
all of the reporting requirements under the Securities and Exchange Act of 1934.
Defaults under our obligations to the holders of our secured convertible
debentures may enable the holders of those debentures to foreclose on the
collateral securing our obligations to those holders which may cause us to cease
operations and liquidate all or part of our assets. Because the relative size of
our assets is so disproportionately small compared to the amount of debt
represented by our secured convertible debentures, we believe that a default,
especially a default resulting from our failure to pay accrued interest or
principal when due, under our obligations to the holders of our secured
convertible debentures could result in a foreclosure upon, and complete
liquidation of, all of our assets, resulting in a total cessation of our
operations with no assets or proceeds from liquidation left over for any holders
of our common stock.

         We are currently in default under numerous provisions of our
convertible debentures, including the obligation to make quarterly interest
payments and the obligation to register for resale, by certain deadlines, shares
of common stock underlying our secured convertible debentures. As a result, we
are subject to the rights and remedies of our debenture holders under our
security agreements, under the convertible debentures and under our other
agreements with our debenture holders.

                                       13


<PAGE>

         As of February 12, 2003, we had a total of 52,119,687 shares of common
stock outstanding, the closing sale price of a share of our common stock on the
OTC Bulletin Board(R) was $0.008, and the debentures, notes, warrants and shares
of preferred stock with variable conversion or exercise prices were convertible
or exercisable into approximately 1,285,000,000 shares of common stock. The
applicable conversion price of our debentures issued to certain security holders
is variable and does not have a lower-limit, therefore the dilutive effect to
our existing security holders is theoretically limitless. Conversely, because
the variable conversion price of these debentures has an upper limit, an
increase in the trading price of a share of our common stock will result in a
limited benefit to existing security holders with respect to the conversion of
these debentures.

         Based on the conversion price in effect on February 12, 2003, the
principal portions of our convertible debentures were convertible into an
aggregate of approximately 913,000,000 shares of common stock which, if issued
and assuming the consummation of an increase in our authorized capital or an
adequate reverse stock split, would result in approximately 95% dilution to
existing holders of our common stock leaving them holding only approximately 5%
of our shares of common stock outstanding. If the market price of a share of our
common stock on the OTC Bulletin Board(R) was to fall by 25%, the principal
portions of our convertible debentures would be convertible into an aggregate of
approximately 1,217,000,000 shares of common stock which, if issued and assuming
the consummation of an increase in our authorized capital or an adequate reverse
stock split, would result in approximately 96% dilution to existing holders of
our common stock leaving them holding only approximately 4% of our shares of
common stock outstanding. If the market price of a share of our common stock on
the OTC Bulletin Board(R) was to fall by 50%, the principal portion of our
convertible debentures would be convertible into an aggregate of approximately
1,826,000,000 shares of common stock which, if issued and assuming the
consummation of an increase in our authorized capital or an adequate reverse
stock split, would result in approximately 98% dilution to existing holders of
our common stock leaving them holding only approximately 2% of our shares of
common stock outstanding. If the market price of a share of our common stock on
the OTC Bulletin Board(R) was to fall by 75%, the principal portion of our
convertible debentures would be convertible into an aggregate of approximately
3,652,000,000 shares of common stock which, if issued and assuming the
consummation of an increase in our authorized capital or an adequate reverse
stock split, would result in approximately 99% dilution to existing holders of
our common stock leaving them holding only approximately 1% of our shares of
common stock outstanding. Our current authorized capital authorizes us to issue
a maximum of 250,000,000 shares of common stock.

         The conversion price of our debentures is the lower of (a) 50% of the
average of the three lowest intraday trading prices of a share of our common
stock on the OTC Bulletin Board(R) during the twenty trading days immediately
preceding the conversion date, and (b) as low as $0.01, depending on the
particular debenture. As of February 12, 2003, the applicable conversion price
was $0.0045.

         As a result of conversions of the principal or interest portion of our
convertible debentures and related sales of our common stock by the security
holders who hold our convertible debentures, the market price of our common
stock could be depressed, thereby resulting in a significant increase in the
number of shares issuable upon conversion of the principal and interest portions
of these debentures. You could, therefore, experience substantial dilution of
your investment as a result of the conversion of the principal or interest
portions of our convertible debentures and as a result of a decline in the price
of a share of our common stock on the OTC Bulletin Board(R).

         Each of the security holders who hold our convertible debentures may
not convert our debentures into more than 4.99% of our then-outstanding common
stock; however, those security holders may waive the 4.99% limitation, thus
allowing the conversion of their debentures into a number of shares of common
stock in excess of 4.99% of our then-outstanding common stock. In addition, each
of the security holders who hold our convertible debentures may not convert our
debentures into more than 9.99% of our then-outstanding common stock, which
limitation is not subject to waiver. As a result of the foregoing limitations,

                                       14


<PAGE>

as of February 12, 2003, each of the security holders who hold our convertible
debentures may not, at any one time and assuming they do not then hold other
shares of our common stock, convert such debentures into in excess of
approximately 2,743,000 shares of our common stock without waiving the 4.99%
limitation and they also may not, at any one time, convert such debentures into
in excess of approximately 5,790,000 shares of our common stock as a result of
the 9.99% limitation. Based on the foregoing figures and assuming a fixed
hypothetical conversion amount of $10,000 of convertible debentures, the 4.99%
limitation is applicable at an approximate market price of $0.0073 per share and
the 9.99% limitation is applicable at an approximate market price of $0.0035 per
share.

RISK FACTORS

         AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN
ADDITION TO THE OTHER INFORMATION IN THIS DOCUMENT, YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS BEFORE DECIDING TO INVEST IN SHARES OF OUR
COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, IT IS LIKELY THAT
OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS WOULD BE HARMED. AS A
RESULT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE
PART OR ALL OF YOUR INVESTMENT.

     WE HAVE INCURRED OPERATING LOSSES, EXPECT CONTINUED LOSSES AND MAY NOT
     ACHIEVE PROFITABILITY. IF WE CONTINUE TO LOSE MONEY, WE MAY HAVE TO CURTAIL
     OR SUSPEND OUR OPERATIONS.

         Our consolidated financial statements have been prepared assuming we
will continue as a viable business. We have not been profitable and we may
continue to lose money for the foreseeable future. Historically, we have
incurred losses and experienced negative cash flow. As of December 31, 2002, we
had an accumulated deficit of approximately $39,600,000. We may continue to
incur losses and may never achieve or sustain profitability. An extended period
of losses and negative cash flow may prevent us from operating and expanding our
business. As a result, we may have to curtail or suspend out operations. As a
result of our financial condition, our independent auditors have issued an
opinion questioning our ability to continue as a going concern.

     OUR INDEPENDENT AUDITORS HAVE ISSUED A REPORT QUESTIONING OUR ABILITY TO
     CONTINUE AS A GOING CONCERN. THIS REPORT MAY IMPAIR OUR ABILITY TO RAISE
     ADDITIONAL FINANCING AND ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.

         The report of our independent auditors contained in our financial
statements for the years ended September 30, 2002 and 2001 includes a paragraph
that explains that we have incurred substantial losses and have a working
capital deficit. This report raises substantial doubt about our ability to
continue as a going concern. Reports of independent auditors questioning a
company's ability to continue as a going concern are generally viewed
unfavorably by analysts and investors. This report may make it difficult for us
to raise additional debt or equity financing necessary to continue our
operations and to implement our planned business activities. We urge potential
investors to review this report before making a decision to invest in Kanakaris
Wireless.

     OUR CURRENT LIABILITIES EXCEED OUR CURRENT ASSETS BY A SUBSTANTIAL MARGIN.
     AS A RESULT, WE ARE EXPERIENCING SIGNIFICANT FINANCIAL DIFFICULTIES AND MAY
     BE UNABLE TO OBTAIN ADDITIONAL FUNDING.

         As of December 31, 2002, our current assets amounted to approximately
$140,000 and our current liabilities amounted to approximately $7,200,000. We
are experiencing significant financial difficulties as a result of this
imbalance between our current assets and current liabilities and have been, and
will likely continue to be, unable to repay when due many of our current
liabilities. Our financial difficulties may limit our ability to invest
sufficient funds in the growth and development of our online content delivery
initiative and may result in our inability to fully fund our video distribution
business. Because we are likely unable to invest sufficiently in the growth and
development of our content delivery initiative, we may lose subscribers to our

                                       15


<PAGE>

websites or lose pay-per-view customers and may also fail to attract prospective
subscribers and pay-per-view customers, which may have a substantial negative
impact on our business, prospects, financial condition and results of
operations. We require new financing and we believe that we may be able to fund
three months of operations with currently available capital resources. In
addition, over the next twelve months, we believe that we will require at least
$1,500,000 to conduct our planned business operations and to service certain
debts.

         Our successful operation of our FFM video distribution business,
especially over the next twelve months, will likely require substantial
financial resources. We acquired the business of FFM along with a significant
amount of liabilities, including approximately $850,000 in accounts payable, a
substantial portion of which is owed to suppliers of the videos that FFM
distributes. As of December 31, 2002, FFM had approximately $1,363,000 in
accounts payable. We have been unable to timely pay FFM's suppliers and we
believe that, as a result, the business of FFM has been significantly harmed. We
believe that we are not achieving the level of revenues we would be able to
achieve if we were able to timely pay our suppliers. If we continue to fail to
timely pay FFM's suppliers, the business of FFM may be further disrupted and
important supplier relationships may be jeopardized and irreparably harmed,
which may have a substantial adverse impact on our business, prospects,
financial condition and results of operations.

         Historically, we have relied upon cash from financing activities and,
to a much lesser extent, revenues generated from operations, to fund all of the
cash requirements of our activities. We have never generated revenues
substantial enough to allow us to fully finance our business or our growth. The
imbalance between our current assets and current liabilities may make obtaining
additional funding impossible. Our substantial indebtedness represented by our
convertible debentures is secured by all of our assets, which may prevent us
from raising additional funding because any prospective lenders or investors may
be unwilling to lend or invest funds due to their inability to obtain a
satisfactory security interest in our assets. In the past, our existing
investors have provided us funding despite our ongoing financial difficulties
but may refuse to do so in the future. We believe that our existing investors
may be our only source of available financing. Our failure to secure additional
funding may have a material adverse effect on our business, prospects, financial
condition and results of operations.

     WE RELY HEAVILY ON OUR KEY EMPLOYEES, AND THE LOSS OF THEIR SERVICES WOULD
     MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.

         Our success is highly dependent upon the continued services of key
members of our management, including our Chairman of the Board, President and
Chief Executive Officer, Alex Kanakaris. We have not entered into any employment
agreement with Mr. Kanakaris or any other officer of Kanakaris Wireless. The
loss of Mr. Kanakaris would have a material adverse effect on Kanakaris Wireless
because Mr. Kanakaris has experience, skills and vision upon which we draw
heavily in our day-to-day operations and strategic planning and financing
activities. We are the beneficiary of 80% of the proceeds of a term life
insurance policy in the amount of $10,000,000 covering Mr. Kanakaris, whose
heirs are the beneficiaries of the remaining 20% of the proceeds of that policy.
However, we cannot assure you that receipt of these proceeds would be sufficient
to enable us to continue our business without significant temporary or permanent
disruption following the loss of Mr. Kanakaris.

     BECAUSE WE BELIEVE THAT PROPRIETARY RIGHTS ARE MATERIAL TO OUR SUCCESS,
     MISAPPROPRIATION OF THESE RIGHTS OR CLAIMS OF INFRINGEMENT OR LEGAL ACTIONS
     RELATED TO INTELLECTUAL PROPERTY COULD ADVERSELY IMPACT OUR FINANCIAL
     CONDITION.

         We currently rely on a combination of contractual rights, copyrights,
trademarks and trade secrets to protect our proprietary technology and
intellectual property rights. We do not hold any patents. However, we believe
that some of our proprietary technologies, including our CinemaWEAR(TM) Encoding
technology, our CinemaWEAR(TM) Wireless Delivery technology and our Embedded

                                       16


<PAGE>

Electronic Commerce(TM) technology, may benefit from patent protection.
Accordingly, we may file patent applications for those technologies with the
United States Patent and Trademark Office. There can be no assurance that our
means of protecting our proprietary rights will be adequate or that our
competitors will not independently develop comparable or superior technologies
or obtain unauthorized access to our proprietary technologies.

         We own, license or have otherwise obtained the right to use
technologies incorporated into our web sites and products. We may receive
infringement claims from third parties relating to our technologies. In those
cases, we intend to investigate the validity of the claims and, if we believe
the claims have merit, to respond through licensing or other appropriate
actions. To the extent claims relate to technology that we have licensed from
third parties for incorporation into our web sites and products, we would
forward those claims to the appropriate third party. If we were unable to
license or otherwise provide any necessary technology on a cost-effective basis,
we could be prohibited from using that technology, incur substantial costs in
redesigning our web sites and products that incorporate that technology, or
incur substantial costs defending any legal action taken against us, all of
which could have a material adverse effect on our business, prospects, financial
condition, results of operations and cash flows.

         We hold the Internet domain names "Kanakaris.com," "AK.TV,"
"WordPop.com," "CinemaPop.com" and many others. Under current domain name
registration practices, no one else can obtain an identical domain name, but
someone might obtain a similar name, or the identical name with a different
suffix, such as ".org," or with a country designation. The regulation of domain
names in the United States and in foreign countries is subject to change, and we
could be unable to prevent third-parties from acquiring domain names that
infringe or otherwise decrease the value of our domain names.

     IF COMMUNICATIONS TO OUR PRIMARY SERVERS ARE INTERRUPTED, OUR OPERATIONS
     COULD BE NEGATIVELY IMPACTED.

         Our movies and websites are hosted on servers owned and operated by a
third party. Although offsite backup servers are maintained by our host, all of
our primary servers are vulnerable to interruption by damage from fire, flood,
power loss, telecommunications failure, break-ins and other events beyond our
control. We have, from time to time, experienced periodic systems interruptions
and anticipate that these interruptions will occur in the future. We do not
maintain business interruption insurance. If we experience significant system
disruptions, our business, results of operations and financial condition would
be materially adversely affected because we would be unable to deliver our
Internet-related products and services during the disruption and may therefore
lose sales and existing and potential customers.

     OUR COMPUTER INFRASTRUCTURE MAY SUFFER SECURITY BREACHES. ANY SUCH BREACHES
     COULD JEOPARDIZE CONFIDENTIAL INFORMATION TRANSMITTED OVER THE INTERNET,
     CAUSE INTERRUPTIONS IN OUR OPERATIONS OR CAUSE US TO HAVE LIABILITY TO
     THIRD PARTIES.

         We rely on technology that is designed to facilitate the secure
transmission of confidential information. Our computer infrastructure is
potentially vulnerable to physical or electronic computer break-ins, viruses and
similar disruptive problems. A party who is able to circumvent our security
measures could misappropriate proprietary information, jeopardize the
confidential nature of information transmitted over the Internet or cause
interruptions in our operations. Concerns over the security of Internet
transactions and the privacy of users could also inhibit the growth of the
Internet in general, particularly as a means of conducting commercial
transactions. To the extent that our activities involve the storage and
transmission of proprietary information, including personal financial
information, security breaches could expose us to a risk of financial loss,

                                       17


<PAGE>

litigation and other liabilities. Our insurance does not currently protect us
against these losses. Consequently, any security breach could have a material
adverse effect on our business, results of operations and financial condition.

     OUR FAILURE TO MANAGE OUR VIDEO DISTRIBUTION BUSINESS EFFECTIVELY COULD
     IMPAIR OUR BUSINESS.

         Our upper management does not have significant experience involving
video distribution. Because of this lack of significant experience, we may be
unable to effectively manage our video distribution business. Our video
distribution business presents unique challenges to our management because it is
likely that this business will represent our principal source of revenues for at
least the next twelve months and, of all of our business activities, our upper
management has the least experience in operating a video distribution business.
We anticipate that the revenues generated by our video distribution business
will represent a significant increase in our business activities. We may be
unable to handle the increase in our business activities as a result of many
factors, including the relative lack of experience of our upper management in
the video distribution business and our lack of resources, which in turn may
prevent us from growing or maintaining growth. If we are unable to successfully
manage our video distribution business, our business, prospects, financial
condition and results of operations could be adversely affected.

     ALTHOUGH INTERNET COMMERCE HAS YET TO ATTRACT SIGNIFICANT REGULATION,
     GOVERNMENT REGULATION MAY RESULT IN FINES, PENALTIES, TAXES OR OTHER COSTS
     OR CONSEQUENCES THAT MAY REDUCE OUR FUTURE EARNINGS.

         The United States Congress has passed or is considering passing
legislation regulating certain aspects of the Internet, including online
content, copyright infringement, user privacy, taxation, access charges, digital
signatures and liability for third-party activities. The European Union also has
enacted several directives relating to the Internet, including directives that
address the use of personal data, e-commerce activities, security, commercial
piracy, consumer protection and taxation of e-commerce transactions. Various
states have adopted and are considering Internet-related legislation and
regulations. Governmental authorities in the United States and abroad are
considering other legislative and regulatory proposals to further regulate the
Internet. Areas of potential regulation include libel, pricing, quality of
products and services and intellectual property ownership. We cannot predict
what new laws will be enacted, or how courts will interpret existing and new
laws, and therefore are uncertain as to how new laws or the application of
existing laws will affect our business. In addition, our business may be
indirectly affected by legislation that affects the ability of our customers to
engage in e-commerce activities. Increased regulation of the Internet may
decrease the growth in the use of the Internet, which could decrease the demand
for our products and services, increase our cost of doing business or otherwise
harm our business, results of operations and financial condition.

         We are dependent on our Internet operations and our ability to utilize
the efficiencies of the Internet plays a major role in our business strategy.
Our subscription- and pay-per-view-based websites are dependent on utilizing the
Internet for delivery of content to our subscribers and our pay-per-view
customers. In addition, our ability to sell products on our websites is
dependent on a regulatory environment that is conducive to Internet commerce.
Moreover, an important aspect of our business strategy relating to the
integration of our FFM video distribution business involves the sale over the
Internet of videos that we distribute through traditional distribution channels.
Additional regulation of the Internet, the enactment of new laws or the
interpretation of existing laws relating to the Internet could have a
significant impact on our ability to conduct our business activities and to
pursue our business strategy. As a company with a substantial amount of its
business activities and business strategy dependent on the Internet, regulation
of the Internet, the enactment of new laws or the interpretation of existing
laws relating to the Internet could therefore have a material adverse effect on
our business, prospects, financial condition, results of operations and cash
flows.

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<PAGE>

     COMPETITION AMONG VIDEO DISTRIBUTORS IS INTENSE, AND MANY OF OUR
     COMPETITORS ENJOY AN ADVANTAGE OVER US BECAUSE OF GREATER RESOURCES AND
     MORE SUBSTANTIAL OPERATIONS. INTENSE COMPETITION MAY HAVE A MATERIALLY
     NEGATIVE EFFECT ON OUR BUSINESS, PROSPECTS, FINANCIAL CONDITION, RESULTS OF
     OPERATIONS AND CASH FLOWS.

         Competition among video distributors is intense and many of our
competitors in the video distribution business have greater access to capital,
marketing and advertising resources which gives them a significant competitive
advantage over us. In addition, many of these competitors have a scale of
operations much larger than ours giving them the potential for greater
efficiencies due to economies of scale and a larger capacity for growth which in
turn may make them more attractive than us to prospective video suppliers and
customers. Intense competition may result in our inability to distribute videos
at a profit, especially in light of our relatively small scale of operations
when compared to the large scale of operations of many of our competitors who
enjoy cost-saving economies of scale and who have access to resources sufficient
to conduct intense competition. Much of our business strategy depends on our
ability to effectively compete in the video distribution marketplace and we
intend to commit a substantial amount of our resources to our video distribution
business. If we are unsuccessful, given our poor financial condition, we may be
unable to operate a viable video distribution business in the future and our
failure to garner the anticipated resources from a successful video distribution
business may further jeopardize our business strategy and other business
activities. Intense competition within the video distribution business may
therefore have a materially negative effect on our business, prospects,
financial condition, results of operations and cash flows.

     THE MOVEMENT OF SOME OF OUR PRINCIPLE SUPPLIERS INTO THE VIDEO DISTRIBUTION
     BUSINESS COULD SIGNIFICANTLY REDUCE OUR MARKET SHARE AND COULD HAVE A
     MATERIALLY NEGATIVE EFFECT ON OUR BUSINESS, PROSPECTS, FINANCIAL CONDITION,
     RESULTS OF OPERATIONS AND CASH FLOWS.

         The movement of some of the major motion picture studios, some of whom
are our principal suppliers in that industry, into the video distribution
business has intensified the competition in the video distribution market. The
movement of some of the major motion picture studios into the video distribution
business has threatened some of our larger accounts because those motion picture
studios circumvent our distribution services and contact large retailers
directly. If our smaller accounts grow into larger accounts, there is an
increasing probability that major motion picture studios may try to sell to
these larger accounts directly and circumvent our distribution services. If we
are unable to protect our customer base as it grows, we may be forced to change
our marketing efforts in the video distribution market to target smaller
accounts. This potential change in marketing strategy coupled with the potential
loss of larger accounts may result in a decrease in our revenues and may have a
materially negative effect on our business, prospects, financial condition,
results of operations and cash flows.

     CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS ALLOW
     CONCENTRATION OF VOTING POWER IN ONE INDIVIDUAL, WHICH MAY, AMONG OTHER
     THINGS, DELAY OR FRUSTRATE THE REMOVAL OF INCUMBENT DIRECTORS OR A TAKEOVER
     ATTEMPT, EVEN IF SUCH EVENTS MAY BE BENEFICIAL TO OUR STOCKHOLDERS.

         Provisions of our articles of incorporation and bylaws may delay or
frustrate the removal of incumbent directors and may prevent or delay a merger,
tender offer or proxy contest involving Kanakaris Wireless that is not approved
by our board of directors, even if those events may be beneficial to the
interest of our stockholders. For example, Alex Kanakaris, our Chairman of the
Board, President and Chief Executive Officer, is the holder of all of the
1,000,000 authorized, issued and outstanding shares of our Class A Convertible
Preferred Stock. Under our articles of incorporation, each share of Class A
Preferred Stock is entitled to 100 non-cumulative votes per share on all matters
presented to our stockholders for action. Consequently, Mr. Kanakaris has
sufficient voting power to control the outcome of all corporate matters
submitted to the vote of our common stockholders. Those matters could include

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<PAGE>

the election of directors, changes in the size and composition of the board of
directors, and mergers and other business combinations involving Kanakaris
Wireless. In addition, through his control of the board of directors and voting
power, he may be able to control certain decisions, including decisions
regarding the qualification and appointment of officers, dividend policy, access
to capital (including borrowing from third-party lenders and the issuance of
additional equity securities), and the acquisition or disposition of assets by
Kanakaris Wireless. In addition, the concentration of voting power in the hands
of Mr. Kanakaris could have the effect of delaying or preventing a change in
control of Kanakaris Wireless, even if the change in control would benefit our
stockholders, and may adversely affect the market price of our common stock.

     BECAUSE OUR STOCK IS NOT LISTED ON A NATIONAL SECURITIES EXCHANGE, YOU MAY
     FIND IT DIFFICULT TO DISPOSE OF OR OBTAIN QUOTATIONS FOR OUR COMMON STOCK.

         Our common stock trades under the symbol "KKRW" on the OTC Bulletin
Board(R). Because our stock trades on the OTC Bulletin Board(R) rather than on a
national securities exchange, you may find it difficult to either dispose of, or
to obtain quotations as to the price of, our common stock.

     CONVERSION OF OUR OUTSTANDING CONVERTIBLE SECURITIES COULD SUBSTANTIALLY
     DILUTE YOUR INVESTMENT AND CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE
     BECAUSE THE CONVERSION PRICE OF THOSE SECURITIES DEPENDS UPON THE MARKET
     PRICE OF OUR COMMON STOCK, AND THERE IS NO CEILING ON THE NUMBER OF SHARES
     OF OUR COMMON STOCK THAT ARE ISSUABLE UPON EXERCISE OF THOSE SECURITIES.

         We have issued to several security holders debentures, notes, warrants
and shares of preferred stock that are convertible or exercisable at prices that
are equal to the lesser of a fixed price and a variable price that is based upon
a discount on the market price of our common stock. As of February 12, 2003, we
had a total of 52,119,687 shares of common stock outstanding, the closing sale
price of a share of our common stock on the OTC Bulletin Board(R) was $0.008 and
the debentures, notes, warrants and shares of preferred stock with variable
conversion or exercise prices were convertible or exercisable into approximately
1,285,000,000 shares of common stock. The number of shares that those
debentures, notes and warrants ultimately may be converted into or exercised for
could prove to be greater than this estimate if the market price of our common
stock declines. You could, therefore, experience substantial dilution and a
decline in the value of your investment as a result of the conversion of the
debentures and exercise of the warrants.

         The applicable conversion price of our debentures issued to certain of
our security holders is variable and does not have a lower-limit, therefore the
dilutive effect to our existing security holders is theoretically limitless.
Conversely, because the variable conversion price of these debentures has an
upper limit, an increase in the trading price of a share of our common stock
will result in a limited benefit to existing security holders with respect to
the conversion of these debentures. As of February 12, 2003, an aggregate of
approximately 913,000,000 shares were issuable upon conversion of the principal
portion of our convertible debentures. Based on a hypothetical conversion price
equal to 25% of the conversion price in effect on February 12, 2003, an
aggregate of approximately 3,652,000,000 shares would be issuable to cover the
conversion of the principal portion of our convertible debentures, resulting in
approximately 99% dilution to existing holders of our common stock leaving them
holding only approximately 1% of our shares of common stock outstanding.

         As a result of conversions of the principal or interest portion of our
convertible debentures and related sales of our common stock by the security
holders who hold our convertible debentures, the market price of our common
stock could be depressed, thereby resulting in a significant increase in the
number of shares issuable upon conversion of the principal and interest portions
of these debentures. You could, therefore, experience substantial dilution of
your investment as a result of the conversion of the principal or interest
portions of our convertible debentures and as a result of a decline in the price

                                       20


<PAGE>

of a share of our common stock on the OTC Bulletin Board(R). Please see the
"Description of Securities" section of this document for additional details
regarding our convertible debentures.

     IF OUR SECURITY HOLDERS ENGAGE IN SHORT SALES OF OUR COMMON STOCK,
     INCLUDING SALES OF SHARES TO BE ISSUED UPON CONVERSION OR EXERCISE OF
     DERIVATIVE SECURITIES, THE PRICE OF OUR COMMON STOCK MAY DECLINE.

         Selling short is a technique used by a stockholder to take advantage of
an anticipated decline in the price of a security. A significant number of short
sales or a large number of other sales within a relatively short period of time
can create a downward pressure on the price of the security. The existence of
our outstanding convertible debentures and their variable below-market
conversion prices increases the risk of short sales of our common stock because
holders of our convertible debentures may effect short sales and subsequently
convert their debentures, effectively removing any risk associated with holding
shares of our common stock. In addition, because short sales may have the effect
of causing a decline in the market price of shares of our common stock which
would in turn cause a decline in the conversion prices of our outstanding
convertible debentures resulting in additional shares of common stock issuable
to the holders of our convertible debenture, those holders have an incentive to
engage in short sales of our common stock. These short sales as well as short
sales by persons who are not holders of our convertible debentures may cause a
significant decline in the market price of shares of our common stock. The
decrease in the market price of shares of our common stock would allow holders
of our debentures and warrants that have conversion or exercise prices based
upon a discount on the market price of our common stock to convert their
debentures and exercise their warrants into an increased number of shares of our
common stock which could cause substantial dilution to our existing
stockholders. Further sales of common stock issued upon conversion of debentures
or exercise of warrants could cause even greater declines in the price of our
common stock due to the number of additional shares available in the market,
which could encourage short sales that could further undermine the value of our
common stock and result in substantial additional dilution to our existing
stockholders. You could, therefore, experience a decline in the value of your
investment as a result of short sales of our common stock.

     OUR STOCK PRICE IS SUBJECT TO SIGNIFICANT VOLATILITY, WHICH COULD RESULT IN
     SUBSTANTIAL LOSSES FOR INVESTORS AND LITIGATION AGAINST US.

         The stock market as a whole and individual stocks historically have
experienced extreme price and volume fluctuations, which often have been
unrelated to the performance of the related corporations. Our common stock
trades on the OTC Bulletin Board(R) under the symbol "KKRW." For the three
months ended December 31, 2002, taking into account the 1-for-20 reverse common
stock split that occurred on December 7, 2001, the high and low closing sale
prices for a share of our common stock were $0.016 and $0.008, respectively. The
trading prices of our common stock could experience wide fluctuations in the
future in response to:

         o        quarter-to-quarter variations in our operating results;
         o        material announcements of technological innovations;
         o        establishment of strategic partnerships by us or our
                  competitors or providers of alternative products and services;
         o        general conditions in the Internet, e-commerce and video
                  distribution industries; or
         o        other events or factors, many of which are beyond our control.

         If our operating results in future quarters fall below the expectations
of market makers, securities analysts and investors, the price of our common
stock likely will decline, perhaps substantially. In the past, securities class
action litigation often has been brought against a company following periods of
volatility in the market price of its securities. We may in the future be the

                                       21


<PAGE>

target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management's attention and resources.
Consequently, the price at which you purchase shares of our common stock may not
be indicative of the price that will prevail in the trading market. You may be
unable to sell your shares of common stock at or above your purchase price,
which may result in substantial losses to you.

     DEFAULTS UNDER OUR OBLIGATIONS TO THE HOLDERS OF OUR SECURED CONVERTIBLE
     DEBENTURES MAY ENABLE THE HOLDERS OF THOSE DEBENTURES TO FORECLOSE ON THE
     COLLATERAL SECURING OUR OBLIGATIONS TO THOSE HOLDERS WHICH MAY CAUSE US TO
     CEASE OPERATIONS AND LIQUIDATE ALL OR PART OF OUR ASSETS.

         All of our obligations under our secured convertible debentures and
related agreements are secured by all of our assets. As of February 12, 2003, we
were indebted in the aggregate principal amount of $4,109,528 plus accrued
interest on our secured convertible debentures. Our obligations to the holders
of our secured convertible debentures include the obligations to make quarterly
interest payments and to repay the principal amounts of the debentures when due.
In addition, our obligations under our secured convertible debentures include
the obligation to register for resale shares of common stock underlying those
debentures, the obligation to keep the registration statement covering those
shares effective and the obligation to maintain the status of Kanakaris Wireless
as a public company in compliance with all of the reporting requirements under
the Securities and Exchange Act of 1934. Defaults under our obligations to the
holders of our secured convertible debentures may enable the holders of those
debentures to foreclose on the collateral securing our obligations to those
holders which may cause us to cease operations and liquidate all or part of our
assets. Because the relative size of our assets is so disproportionately small
compared to the amount of debt represented by our secured convertible
debentures, we believe that a default, especially a default resulting from our
failure to pay accrued interest or principal when due, under our obligations to
the holders of our secured convertible debentures could result in a foreclosure
upon, and complete liquidation of, all of our assets, resulting in a total
cessation of our operations with no assets or proceeds from liquidation left
over for any holders of our common stock.

     BECAUSE WE ARE SUBJECT TO THE "PENNY STOCK" RULES, THE LEVEL OF TRADING
     ACTIVITY IN OUR STOCK MAY BE REDUCED.

         Broker-dealer practices in connection with transactions in "penny
stocks" are regulated by penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks, like shares of our common stock, generally
are equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on Nasdaq). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and, if the broker-dealer is the sole market maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the market, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, broker-dealers who sell these securities to
persons other than established customers and "accredited investors" must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
Consequently, these requirements may have the effect of reducing the level of
trading activity, if any, in the secondary market for a security subject to the
penny stock rules, and investors in our common stock may find it difficult to
sell their shares.


                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         This report contains forward-looking statements, including among
others:

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<PAGE>

         o        the projected growth in the video distribution, Internet
                  and-commerce industries and the markets for our products and
                  within these industries;
         o        our business strategy for expanding our presence in the
                  existing and proposed markets in which our products and
                  services could be used;
         o        anticipated trends in our financial condition and results of
                  operations; and
         o        our ability to distinguish ourselves from our current and
                  future competitors.

         You can identify forward-looking statements generally by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"intends," "plans," "should," "could," "seeks," "pro forma," "anticipates,"
"estimates," "continues," or other variations thereof, including their use in
the negative, or by discussions of strategies, opportunities, plans or
intentions. You may find these forward-looking statements under the captions
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," as well as captions elsewhere in this document. A
number of factors could cause results to differ materially from those
anticipated by forward-looking statements, including those discussed under "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

         These forward-looking statements necessarily depend upon assumptions
and estimates that may prove to be incorrect. Although we believe that the
assumptions and estimates reflected in the forward-looking statements are
reasonable, we cannot guarantee that we will achieve our plans, intentions or
expectations. The forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to differ in
significant ways from any future results expressed or implied by the
forward-looking statements.

ITEM 3.  CONTROLS AND PROCEDURES.

     EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         Disclosure controls and procedures are designed to ensure that
information required to be disclosed in the reports filed or submitted under the
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in the reports filed under the Exchange Act of 1934 is accumulated and
communicated to management, including the Principal Executive Officer and
Principal Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.

         We did not, within the 90 days prior to the filing date of this report,
carry out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.
However, such an evaluation will occur prior to the filing of our next periodic
report for the quarterly period ending March 31, 2003 and will be done under the
supervision and with the participation of our Principal Executive Officer and
Principal Financial Officer. Based on that evaluation, we will provide a
conclusion as to whether our disclosure controls and procedures are effective in
gathering, analyzing and disclosing information necessary to satisfy our
disclosure obligations under the Exchange Act of 1934. In addition, we will
state whether there were any significant changes in our internal controls or in
other factors that could significantly affect those controls since our most
recent evaluation of such controls.

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         Loudeye Technologies, Inc., or Loudeye, filed a complaint for money due
and owing against us in the Superior Court for the State of Washington (King
County) (Case No. 01-2-07608-6SEA) on March 8, 2001. Loudeye claims we failed to
pay $44,107 owing for encoding services furnished by Loudeye under the parties'
purported contract. The complaint also seeks attorneys' fees, court costs and
late charges. We filed an answer to the Loudeye complaint on October 11, 2001
that includes a general denial of all allegations made by Loudeye. Since the
time that our answer was filed on October 11, 2001, Loudeye's claim against us
has not proceeded and Loudeye has made no additional filings with respect to its
claim. Because of the immaterial amount of the claim, we have not recorded any
loss contingencies as a result of the Loudeye lawsuit.

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<PAGE>

         In a letter dated November 26, 2002 to Kanakaris Wireless and to Fast
Forward Marketing, Inc., among others, counsel to Warner Home Video and
Warner/Elektra/Atlantic Corporation, or Warner, demanded payment within 10 days
of an aggregate of $566,764.67 allegedly representing the total outstanding
balances owed to Warner. In a letter dated December 4, 2002 to counsel to
Warner, counsel to Kanakaris Wireless and Fast Forward Marketing, Inc. responded
requesting back-up data relating to Warner's $566,764.67 in accounts receivable
allegedly due from the Company and Fast Forward Marketing, Inc. In addition, in
the letter dated December 4, 2002, counsel to Kanakaris Wireless and Fast
Forward Marketing, Inc. asserted that Kanakaris Wireless, as a separate and
distinct entity, is not liable to Warner for any debts of its subsidiary, Fast
Forward Marketing, Inc. In a letter dated December 6, 2002 to counsel to
Kanakaris Wireless and Fast Forward Marketing, Inc., counsel to Warner requested
that, while they prepare the back-up data supporting the alleged accounts
receivable amounts owed, counsel to Kanakaris Wireless and Fast Forward
Marketing, Inc. prepare and send various materials relating to the acquisition
of Fast Forward Marketing, Inc. and accounts payable reports, payment history
and any other documents reflecting the balance currently owed by Fast Forward
Marketing, Inc. to Warner. This matter is still pending and has not proceeded to
litigation.

         In connection with the Warner matter discussed above and our
acquisition of the business of Fast Forward Marketing, we have agreed with
Intervisual Books, the former parent company to and seller of Fast Forward
Marketing, to a mediation hearing regarding our claims against Intervisual Books
for, among other things, breaches of representations and warranties regarding
the business and financial condition of Fast Forward Marketing made at the time
of our acquisition of that business. The mediation hearing has not yet occurred
and this matter is pending and has not proceeded to litigation.

         Cristel H. Uittenbogaart, an individual, commenced an action against
Kanakaris Wireless, its subsidiary, Kanakaris InternetWorks, Inc., Alex
Kanakaris and David Shomaker, among others, in the Los Angeles Superior Court
(Case No. SC075090) on December 17, 2002. The complaint alleged that Kanakaris
Wireless and Kanakaris InternetWorks owed Ms. Uittenbogaart $113,183.43 as of
March 31, 2002 under the royalty provisions of a Stock Purchase Agreement
entered into between Kanakaris InternetWorks, Inc. and Ms. Uittenbogaart and
alleged other damages in unspecified amounts. Ms. Uittenbogaart's complaint
included allegations of breach of contract, breach of the implied covenant of
good faith, fraud, and negligent misrepresentation. In addition, Ms.
Uittenbogaart alleged the existence of a constructive trust based on unjust
enrichment and sought an equitable lien against property of Kanakaris Wireless
subsidiary Desience Corporation held by the defendants. Lastly, Ms.
Uittenbogaart demanded an accounting of the gross sales, profits and funds
generated as a result of the purchase of Desience Corporation from Ms.
Uittenbogaart in 1997. We have engaged counsel to defend us against all of Ms.
Uittenbogaart's claims but we have not yet filed a response to the complaint
filed by Ms. Uittenbogaart.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

         On October 15, 2002 we issued an aggregate of $175,000 of 12%
convertible debentures in a private offering to three accredited investors. The
investors, if certain conversion limitations are disregarded, are beneficial
owners of 5% or more of our outstanding shares of common stock. The debentures
initially were convertible into shares of common stock at the lesser of $.01 per
share and 50% of the average of the lowest three intraday trading prices of a
share of common stock during the 20 trading days immediately preceding
conversion. The debentures were accompanied by warrants to purchase up to an
aggregate of 525,000 shares of common stock at a per share exercise price equal
to $.005.

         In October 2002, we issued 500,000 shares valued at $6,500 to an
accredited investor in connection with a loan of $25,000 cash.

         In October 2002, we issued 400,000 shares valued at $4,000 to one
consultant as compensation for services rendered.

         In October 2002, we issued an aggregate of 4,066,977 shares of common
stock to four accredited investors upon conversion of an aggregate of
approximately $20,000 in principal plus related interest on our convertible
debentures.

         In November 2002, we issued an aggregate of 2,984,930 shares of common
stock to four accredited investors upon conversion of an aggregate of
approximately $10,730 in principal plus related interest on our convertible
debentures.

         On December 9, 2002 we issued an aggregate of $175,000 of 12%
convertible debentures in a private offering to three accredited investors. The
investors, if certain conversion limitations are disregarded, are beneficial
owners of 5% or more of our outstanding shares of common stock. The debentures

                                       24


<PAGE>

initially were convertible into shares of common stock at the lesser of $.01 per
share and 50% of the average of the lowest three intraday trading prices of a
share of common stock during the 20 trading days immediately preceding
conversion. The debentures were accompanied by warrants to purchase up to an
aggregate of 525,000 shares of common stock at a per share exercise price equal
to $.005.

         Exemption from the registration provisions of the Securities Act of
1933 for the transactions described above is claimed under Section 4(2) of the
Securities Act of 1933, among others, on the basis that such transactions did
not involve any public offering and the purchasers were sophisticated with
access to the kind of information registration would provide.

         For each of the unaccredited investors participating in the
transactions described above, we made available for consideration, prior to the
acquisition of our securities, our most recent Annual Report on Form 10-KSB and
our most recent Quarterly Report on Form 10-QSB.

         For each of the issuances described above and made for consulting or
other services rendered, the per share value of the common stock issued was the
fair market value of the common stock on the grant date, which equaled the
closing price of a share of common stock on the NASD's OTC Electronic Bulletin
Board(R) on that date.

         DIVIDEND POLICY

         We have never paid any dividends on our common stock and do not
anticipate declaring or paying cash dividends in the foreseeable future. We
intend to retain future earnings, if any, to reinvest in our business. We expect
that covenants in our future financing agreements will prohibit or limit our
ability to declare or pay cash dividends.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         As of February 12, 2003, we were in default under our obligations to
register for resale shares of our common stock underlying certain of our
outstanding convertible debentures. In addition, as of that date, we also were
in default under our obligations to make quarterly interest payments under all
of our outstanding convertible debentures. We are in the process of registering
for resale with the Securities and Exchange Commission a portion of the shares
of common stock underlying some of the convertible debentures under which we are
in default and expect that the convertible debentures ultimately will be
converted into shares of our common stock and that we therefore will not be
obligated to repay the outstanding principal and accrued and unpaid interest
amounts on those debentures.

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

         None.

ITEM 5.  OTHER INFORMATION.

         None.

                                       25


<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      Exhibits
                  --------
<TABLE>
<CAPTION>
                  Exhibit No.       Description
                  -----------       -----------
<S>               <C>               <C>
                  2.1               Plan of Reorganization and Acquisition dated January 19, 2003 between the
                                    Registrant, Latin America Independent Network International and Julio Neri (1)

                  10.1              Form of 12% Secured Convertible Debenture due October 15, 2003 (2)

                  10.2              Form of Common Stock Purchase Warrant dated October 15, 2002 (2)

                  10.3              Amendment No. 1 to Securities Purchase Agreement dated December 9, 2002
                                    between the Registrant and the investors named therein (2)

                  10.4              Form of 12% Secured Convertible Debenture due December 9, 2003 (2)

                  10.5              Form of Common Stock Purchase Warrant dated December 9, 2002 (2)

                  99.1              Certifications of Chief Executive Officer and Chief Financial Officer Pursuant
                                    to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                                    Sarbanes-Oxley Act Of 2002
</TABLE>
                  ___________
                  (1)      Filed as an exhibit to the Registrant's Form 8-K
                           filed with the Securities and Exchange Commission on
                           January 24, 2003 (File No. 0-28213) and incorporated
                           herein by reference.

                  (2)      Filed as an exhibit to the Registrant's Form 10-KSB
                           filed with the Securities and Exchange Commission on
                           January 14, 2003 (File No. 0-28213) and incorporated
                           herein by reference.

         (b)      Reports on Form 8-K
                  -------------------

                  We filed a report on Form 8-K on January 24, 2003 in
         connection with the acquisition of Latin America Independent Network
         International, effective January 19, 2003. A copy of our related press
         release was included in that report. The Form 8-K included "Item 2.
         Acquisition or Disposition of Assets," and "Item 7. Financial
         Statements and Exhibits."

                                       26


<PAGE>

                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

<TABLE>
<CAPTION>
<S>      <C>                                         <C>
                                                     KANAKARIS WIRELESS


         Dated: February 19, 2003                    By:  /S/ ALEX F. KANAKARIS
                                                          ----------------------------------------------
                                                          Alex F. Kanakaris
                                                          Chairman of the Board, Chief Executive Officer
                                                          (Principal Executive Officer) and President


         Dated: February 19, 2003                    By:  /S/ DAVID THOMAS SHOMAKER
                                                          ----------------------------------------------
                                                          David Thomas Shomaker
                                                          Acting Chief Financial Officer
                                                          (Principal Financial and Accounting Officer)
</TABLE>

                                       27


<PAGE>

                                    EXHIBITS

         Exhibit No.       Description
         -----------       -----------

           99.1            Certifications of Chief Executive Officer and Chief
                           Financial Officer Pursuant to 18 U.S.C. Section 1350,
                           as Adopted Pursuant to Section 906 of the
                           Sarbanes-Oxley Act Of 2002