DESCRIPTION OF SECURITIES

GENERAL

The following discussion summarizes our capital stock and describes certain provisions of our articles of incorporation and bylaws. The information in this section is a summary only and is qualified by reference to our articles of incorporation and our bylaws, which have been filed as exhibits to the registration statement of which this prospectus forms a part. Our authorized capital stock consists of 800,000,000 shares of common stock, par value $.001 per share, and 200,000 shares of preferred stock, par value $.001 per share. As of July 12, 2004, we had 296,391,134 shares of common stock issued and outstanding. No shares of our preferred stock are currently outstanding.

COMMON STOCK

The Board of Directors has approved a resolution to amend the Articles of Incorporation to increase the number of authorized shares of our common stock from 800,000,000 to 1,750,000,000. Pursuant to the Articles of Incorporation, this amendment must be approved by the affirmative vote of the holders of not less than a majority of the shares of common stock outstanding and entitled to vote thereon. The Board of Directors expects to submit this matter to the stockholders for approval within the next sixty days. In the event that the increase in the number of authorized shares is not approved by the stockholders, this offering will be limited to up to 503,608,866 shares. In the event that the increase in the number of authorized shares is approved by the stockholders, this offering will be for up to 1,228,822,222 shares. See "The Offering." In addition, if the increase in authorized shares is approved by the stockholders, the Board of Directors may determine to engage in future offerings of common stock of up to the number of unissued authorized shares of common stock available following the termination of this offering, and may, in the future, seek to increase the number of authorized shares, if it determines that such action is in the best interest of the Company.

Holders of our common stock are entitled to dividends, if any, as our board of directors may declare from time to time from legally available funds, subject to the preferential rights of the holders of any shares of our preferred stock that we may issue in the future. Except as otherwise required by law, the holders of our common stock are entitled to one vote per share on any matter to be voted upon by stockholders. Our bylaws require that a majority of our issued and outstanding shares need be represented, in person or by proxy, to constitute a quorum and to transact business at a stockholders' meeting.

Our articles of incorporation deny cumulative voting rights in connection with the election of directors. Accordingly, directors will be elected by a plurality of the shares voting once a quorum is present. Our restated articles of incorporation deny preemptive rights to all holders of common stock to subscribe for, purchase or acquire additional shares of capital stock issued in the future.

Upon our voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding up of our affairs, the holders of our common stock are entitled to share, on a pro rata basis, all assets remaining after payment to creditors and subject to prior distribution rights, if any, on shares of preferred stock that we may issue in the future. All of the outstanding shares of common stock are fully paid and non-assessable.

COMMON STOCK PURCHASE WARRANTS

There are currently outstanding warrants to purchase an aggregate of 1,100,000 shares of common stock at exercise prices of $0.03 per share. We issued these warrants in connection with the issuance of the 8% secured convertible debentures on May 28, 2004.

An additional 2,200,000 warrants will be issued, in the aggregate, to the Selling Stockholders upon their purchase of an additional $2,200,000 in Convertible Notes from the Company. See "Common Stock Options and Convertible Debentures".

COMMON STOCK OPTIONS AND CONVERTIBLE DEBENTURES

We may issue up to an additional 17,250,000 options under our 2004 Stock Option Plan.

There are currently outstanding $1,100,000 in 8% secured convertible notes. The Notes are convertible into shares of our common stock, at the option of the holder at any time and from time to time after the date when the Notes where issued, at a conversion price equal to the lower of (i) $0.10 per share and (ii) 60% of the average of the lowest three inter-day trading prices of our common stock during the twenty trading days immediately preceding the date of conversion.

Interest on the notes are payable, quarterly on March 31, June 30, September 30 and December 31 of each year beginning on June 30, 2004. The warrants and debentures contain customary anti-dilution protections.

In addition to the $1,100,000 Notes currently outstanding, we have agreed to sell additional Notes in the aggregate principal amount of Two Million Two Hundred Thousand Dollars ($2,200,000) (and additional Warrants to purchase an aggregate of 2,200,000 shares of our common stock) for an aggregate purchase price of Two Million Two Hundred Thousand Dollars ($2,200,000). Of these additional Notes and Warrants, One Million One Hundred Thousand Dollars
($1,100,000) of additional Notes (and Warrants) will be sold within five (5)
days upon the filing by us of the prospectus, of which this registration statement is a part, with the SEC and an additional One Million One Hundred Thousand Dollars ($1,100,000) of Notes (and Warrants) will be sold within five
(5) days of the this registration statement being declared effective by the SEC. The obligation to purchase the additional Notes (and the additional Warrants) is subject to the satisfaction of certain conditions and the absence of any material adverse effect as of the date this registration statement is declared effective by the SEC. The terms of these additional Notes (and the additional Warrants) shall be identical to the terms of the Notes (and Warrants) that are currently outstanding.

PREFERRED STOCK

Under our restated articles of incorporation, we may issue up to 200,000 shares of preferred stock. No shares of our preferred stock are currently outstanding. Under our restated articles of incorporation, our board of directors, without further action by our stockholders, is authorized to issue shares of preferred stock in one or more series. The board of directors may designate the preferred shares as to series, preferences, limitations and other provisions as the board of directors may designate from time to time. The preferred stock could have voting or conversion rights that could adversely affect the voting power or other rights of holders of our common stock.

ANTI-TAKEOVER PROVISIONS OF OUR RESTATED ARTICLES OF INCORPORATION, BYLAWS AND FLORIDA LAW

PROVISIONS WITH ANTI-TAKEOVER IMPLICATIONS

A number of provisions of our restated articles of incorporation and bylaws concern how we are governed and your rights as stockholders. Under our restated articles of incorporation, our board of directors may issue preferred stock and set the voting rights, conversion rights, preferences, and other terms of the preferred stock.
These provisions and certain provisions of Florida law could be deemed to discourage takeover attempts not first approved by our board of directors, including takeovers which may be considered by some stockholders to be in their best interests. Any discouraging effect upon takeover attempts could potentially depress the market price of our common stock or cause temporary fluctuations in the market price of the common stock that otherwise could result from actual or rumored takeover attempts. These provisions could also delay or frustrate the removal of incumbent directors or the assumption of control by stockholders, even if such removal or assumption would be beneficial to our stockholders. These provisions could also discourage or make more difficult a merger, tender offer, proxy contest or other takeover attempt, even if they could be favorable to the interests of our stockholders, and could potentially depress the market price of our common stock.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

Our restated articles of incorporation provide that our directors and officers will not be personally liable to our company or our stockholders for damages arising out of a breach of fiduciary duty as a director or officer, except for damages for breach of fiduciary duty resulting from acts or omissions involving intentional misconduct, fraud or a knowing violation of law, or the payment of dividends in violation of Florida law. As a result, neither we nor our stockholders, personally or through stockholder derivative suits on our behalf, have the right to recover damages against a director or officer for breach of fiduciary duty, except in the situations described above.

Our bylaws provide that we must indemnify any person who was, is or is threatened to be made a party to any action, suit or proceeding, including derivative suits on our behalf, by reason of the fact that the person acted as one of our directors, officers, employees or agents, against all expenses, judgments, fines and amounts paid in settlement by the person in connection with the

action if the person acted in good faith and in a matter the person reasonably believed to be in, or not opposed to, our best interests, or in any criminal action if the person had no reasonable cause to believe his or her conduct was unlawful. We are generally not required to indemnify our directors, officers, employees or agents if the person is found to be guilty of gross negligence or willful misconduct. Our bylaws provide that we may purchase and maintain insurance on any of our directors, officers, agents and employees or anyone serving at our request.

Insofar as indemnification for the liabilities arising under Securities Act of 1933 may be permitted to our directors, officers or persons controlling our company pursuant to the provisions described above, we have been informed that in the opinion of SEC, such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.

NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

Phoenix International Industries, Inc. (Company) was incorporated on July 22 1985, pursuant to the laws of the State of Florida under the name Hydrobac, Inc. On July 7, 1986, the Company's name was changed to ProBac, Inc. and on October 5, 1994, its name was changed to Trident Environmental Systems, Inc. During those periods the Company's primary business was in various types of products and systems for use in the environmental clean-up industry. On October 2, 1996, the Company's name was changed to Phoenix International Industries, Inc. From January 1996 through May 31, 1997, the Company sought acquisitions as it wound down and closed its original environmental clean-up business.

In May 2003, Phoenix International Industries Inc. changed the company's name to Epicus Communications Group, Inc. (Epicus Group). The name change was effected to better reflect the Company's business emphasis on the telecommunications sector and to better create consistent name branding with the Company's wholly-owned operating subsidiary, Epicus, Inc.

During Fiscal 2000, the Company acquired control of Telephone Company of Central Florida, Inc. (TCCF), an entity then operating under Chapter 11 of the United States Bankruptcy Court. As an integral component of TCCF's Plan of Reorganization, the Company recapitalized TCCF, effective on the effective date of TCCF's discharge from bankruptcy. On July 9, 1999, the U. S. Bankruptcy Court issued an Order of Confirmation related to TCCF's Plan of Reorganization and the Company recapitalized TCCF within ten days of the Confirmation Order. TCCF is a "competitive local exchange carrier ("CLEC") telephone company and a reseller of other telecommunications services. On January 17, 2001 the corporate name of TCCF was changed to Epicus, Inc. (Epicus).

On July 28, 2000, the Company acquired 100% of the stock of Moye & Associates, Inc. (Moye) of St. Simons Island Georgia. Moye's primary business was that of an Internet Service Provider (ISP) known as TheBest.Net. This move was seen by management as being synergetic with the operations of TCCF. On July 19, 2001, the Company sold all operating assets of Moye to an unrelated party and, effectively, discontinued all operations within this subsidiary.

On April 9, 1998, the Company acquired 100% of the outstanding stock of Mic Mac Investments, Inc. (Mic Mac), a South Carolina corporation. Mic Mac at the time of acquisition was a long distance telephone service "reseller" specializing in services to the hospitality industry. All operations related to Mic Mac were discontinued by February 1999.

NOTE B - PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company follows the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and has adopted a year-end of May 31.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE B - PREPARATION OF FINANCIAL STATEMENTS - CONTINUED

Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.

The preparation of financial statements in conformity 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

These financial statements reflect the books and records of Epicus Communications Group, Inc., Epicus, Inc., Mic Mac, Inc. and Moye & Associates, Inc. for the years ended May 31, 2003 and 2002, respectively. All significant intercompany transactions have been eliminated in consolidation. The consolidated entities are referred to as either Company or Epicus Group.

The Company conducted business activities in only one distinct business segment during Fiscal 2003 and 2002.

NOTE C - GOING CONCERN UNCERTAINTY

The Company has experienced cumulative operating losses for the previous three-year period of approximately $15,600,000 and has used cash in operating activities for the same period of approximately $4,636,000. In a effort to control costs and better manage the Company's key operating subsidiary, Epicus, Inc., the Company discontinued all operations within Mic Mac and Moye during the year ended May 31, 2002 and has sold or otherwise disposed of all operating assets of these subsidiaries.

The Company's liquidity has been sustained through the sale of equity securities, restricted and unrestricted, domestically and in international markets. Further, significant working capital advances have been made by members of management or by entities owned or controlled by members of management.

Management is of the opinion that Epicus became cash flow positive during the third quarter of Fiscal 2003 (year ending May 31, 2003). This event contributed significantly to the improvement of relations with the Company's vendors to relieve daily operational pressures and should continue to provide sufficient cash to support the Company's day-to-day liquidity requirements as well as retire outstanding debt and delinquent trade payables during future periods.

The Company's continued existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis.

Because of the Company's lack of positive cash flows, the Company's continuance is fully dependent either future sales of securities or upon its current management and/or advances or loans from significant stockholders or corporate officers to provide sufficient working capital to preserve the integrity of the corporate entity.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE C - GOING CONCERN UNCERTAINTY - CONTINUED

There is no assurance that the Company will be able to obtain additional funding through the sales of additional securities or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company.

It is the intent of management and significant stockholders to provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. However, there is no legal obligation for either management or significant stockholders to provide additional future funding.

NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. CASH AND CASH EQUIVALENTS

For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.

Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies.

2. ACCOUNTS RECEIVABLE

In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States and are principally concentrated in the southeastern quadrant of the country. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance.

3. PROPERTY AND EQUIPMENT

Property and equipment are recorded at historical cost. These costs are depreciated over the estimated useful lives, generally three to ten years, of the individual assets using the straight-line method. Gains and losses from the disposition of property and equipment are included in operations as incurred.

4. INTANGIBLE ASSETS

Monies paid for development of the trade name "Epicus", approximately $23,525, were capitalized as a component of Other Assets on the Company's consolidated balance sheet. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company follows the policy of evaluating all qualifying assets as of the end of each reporting quarter. For each of the years ended May 31, 2003 and 2002, no charges to operations were made for impairments in the future benefit of this trade name.

Other intangible assets are amortized over the estimated useful life of the underlying asset using the straight-line method.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

5. GOODWILL AND REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS

Goodwill represents the excess of the purchase price paid for a subsidiary over the fair market values of the underlying assets and liabilities assumed in the acquisition transaction. These amounts are amortized over a five to ten year period using the straight-line method. As of May 31, 2002, all goodwill has been charged to operations as a result of the discontinuing of all operations in acquired subsidiaries.

Reorganization Value in Excess of Amounts Allocable to Identified Assets represents the excess of the recapitalized value of Epicus over the fair market value of the assets acquired upon final settlement of Epicus' filing under Chapter 11 of the United States Bankruptcy Code. This amount was originally being amortized over a forty year term using the straight-line method. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company follows the policy of evaluating all qualifying assets as of the end of each reporting quarter.

As of May 31, 2002, management, upon realization that the Fiscal 2002 operational objectives were not met, recorded an impairment of future recoverability of the recorded reorganization value in excess of amounts allocated to identifiable assets equivalent to 100.0% of the unamortized goodwill remaining at May 31, 2002.

6. REVENUE RECOGNITION

Local telephone services for business and residential service are billed to the respective customer in advance at the initiation of each monthly billing cycle. Long distance telephone services are billed in arrears in the month following the provision of the service. All revenue for both local and long distance services are recognized at the respective date of billing.

In the event of cancellation of service by a customer prior to the expiration of the completion of the monthly billing cycle results in a partial refund due to the customer. These reductions of revenue, due to cancellation of service, are recognized at the point of service termination and are recognized as a component of trade accounts payable until final settlement of the customer's account balance.

7. INCOME TAXES

The Company uses the asset and liability method of accounting for income taxes. At May 31, 2003 and 2002, the deferred tax asset and deferred tax liability accounts, as recorded when material to the financial statements, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization, allowance for doubtful accounts and vacation accruals.

As of May 31, 2003 and 2002, the deferred tax asset related to the Company's net operating loss carryforward is fully reserved.

8. ADVERTISING COSTS

The Company does not conduct any direct response advertising activities. For non-direct response advertising, the Company charges the costs of these efforts to operations at the first time the related advertising is published.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

9. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock and common stock equivalents (primarily outstanding options and warrants). Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method. The calculation of fully diluted earnings (loss) per share assumes the dilutive effect of the exercise of outstanding options and warrants at either the beginning of the respective period presented or the date of issuance, whichever is later. As of May 31, 2003 and 2002, the Company's issued and outstanding, warrants, options and convertible debt are considered antidilutive due to the Company's net operating loss position.

10. EMPLOYEE STOCK OPTIONS

The Company has adopted the policy of fair value based accounting for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123.

NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions.

Interest rate risk is the risk that the Company's earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. The Company does not use derivative instruments to moderate its exposure to interest rate risk, if any.

Financial risk is the risk that the Company's earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. The company does not use derivative instruments to moderate its exposure to financial risk, if any.

NOTE F - CONCENTRATIONS OF CREDIT RISK

The Company and its Epicus subsidiary maintain their respective cash accounts in a financial institution subject to insurance coverage issued by the Federal Deposit Insurance Corporation (FDIC). Under FDIC rules, the Company and its subsidiaries are entitled to aggregate coverage of $100,000 per account type per separate legal entity per financial institution. During the years ended May 31, 2003 and 2002, respectively, the various operating companies had deposits in a financial institution with credit risk exposures in excess of statutory FDIC coverage. The Company has incurred no losses during Fiscal 2003 or 2002 as a result of any of these unsecured situations.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE G - BUSINESS COMBINATIONS

On July 28, 2000, in accordance with an Agreement and Plan of Share Exchange, the Company acquired 100% of the outstanding shares of common stock of Moye and Associates, Inc., a Georgia Corporation, doing business as TheBest.Net (Moye). The Company exchanged an aggregate 600,000 shares of restricted, unregistered common stock for 100.0% of the issued and outstanding stock of Moye. The transaction was accounted for using the purchase method of accounting. Goodwill is normally recorded when the purchase price exceeds the fair value of the net assets and liabilities acquired. Management reviewed the prospects of recovery of goodwill that was recorded on the date of purchase and determined that the goodwill was 100% impaired based on the Letter of Intent to sell Moye & Associates (see below). The excess of the fair value of the liabilities assumed over the fair value of the assets acquired (negative book value) was not recorded as negative Goodwill.

On July 19, 2001, the Company signed a Letter of Intent to sell the active clients of Moye. The buyer paid $133.33 for each existing"dial-up" and "domain hosting client". It was estimated that there were between approximately 1,500 and 2,700 active fee-for-service clients on the date of signing the Letter of Intent. The buyer deposited a down payment of $150,000 with the Company and an additional $50,000 into an interest bearing account at the date of signing. As of May 31, 2002, all amounts due under this sale of assets contract had been satisfied.

During Fiscal 2003, the Company issued approximately 500,000 shares of restricted, unregistered common stock to Tully Moye in complete settlement of all remaining obligations related to the acquisition and disposition of Moye & Associates, Inc. (dba TheBest.Net).

NOTE H - RESTRICTED CASH

As collateral for a standby letter of credit securing telephone service provided by BellSouth Corp., the Company has placed on deposit with the financial institution issuing the standby letter of credit approximately $201,000 in an interest bearing certificate of deposit.

NOTE I - ADVANCES DUE FROM OFFICER

The Company has advanced approximately $15,000 to a corporate officer. This amount is non-interest bearing and is unsecured. The advance is repayable upon demand and may, at the officer's discretion, be used to offset accrued, but unpaid, compensation.

                                   May 31, 2003     May 31, 2002      Estimated life
                                   ------------     ------------      --------------
Computer equipment                    $385,668         $349,980          5 years
Office furniture and fixtures         44,126           67,336          7-10 years
Software and system programming       145,039          145,039           5 years
                                      -------          -------
                                      574,833          562,355
Less accumulated depreciation         (291,039)        (228,659)
                                       -------          -------
Net property and equipment            $283,794         $333,696
                                       =======          =======

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE J - PROPERTY AND EQUIPMENT - CONTINUED

Depreciation expense for the years ended May 31, 2003 and 2002, was $105,023 and $102,951, respectively.

During the fourth quarter, management performed a complete physical inventory of all property and equipment, reevaluated the estimated useful lives of all property and equipment remaining in service at May 31, 2002, and evaluated the potential recoverability of all property and equipment pursuant to Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". On May 31, 2002, the Company recognized an abandonment of certain previously capitalized property and equipment resulting in a charge to operations of approximately $305,656. Additionally, management established new estimated useful lives of property and equipment as follows:

                                    As of             As of
                                 May 31, 2002     May 31, 2001
                                 ------------     ------------
Computer equipment                  5 years         12 years
Office furniture and fixtures     7-10 years        12 years
Software development                5 years         12 years

The effect of this change in estimate was recognized in the fourth quarter for Fiscal 2002 and prospectively for all remaining balances to be depreciated.

NOTE K - ACCRUED OFFICER COMPENSATION

As of May 31, 2003 and 2002, respectively, the Company has accrued approximately $2,472,372 and $2,119,176 for earned, but unpaid, compensation to it's Chief Executive Officer and Chief Operating Officer, at a rate of approximately at the rate of approximately $20,833 and $8,600 per month respectively.

In July 2001, the Company's Board of Directors approved the issuance of a bonus to the Company's Chief Executive Officer and Chief Operating Officer, to be paid in the form of common stock registered pursuant to a Registration Statement on Form S-8, as additional compensation for the Company's inability to provide consistent cash compensation to these officers. In July 2001, the Company issued 600,000 shares of common stock in a transaction valued at approximately $36,000, which equaled the closing quoted price of the Company's equivalent securities on the date of the transaction.

                                                                                  May 31, 2003 May 31, 2002
                                                                                  ------------ ------------
$750,000 note payable to a foreign corporation. Interest at 13.0% Accrued
   interest payable quarterly. Final maturity due in June 2003 and automatically
   renewable for one-year periods upon written notice by the Company prior to
   the maturity date. Collateralized by 3,000,000 shares of restricted,
   unregistered common stock of the Company.                                       $  750,000   $  750,000

$400,000 note payable to creditor trust fund. Interest at 8.0%. Payable in
   quarterly installments of $25,000 plus accrued interest. Final maturity in
   April 2004. In the event the Company fails to make any scheduled quarterly
   payment, the Creditors' Trust is entitled to an immediate entry of judgment
   for any remaining amounts due upon the filing of an Affidavit of
   Non-Payment by the Creditors' Trust.                                            $  350,000   $  350,000

$150,000 note payable to an individual. Principal and unpaid interest
   due upon demand. Unsecured                                                         111,000      111,000

$97,878 note payable to an unrelated entity.  Non-interest bearing.
   Unsecured. Due upon demand                                                          97,878       97,878

$100,000 note payable to former employee pursuant to an employment
   agreement for advances made by former owner of an acquired subsidiary.
   Non-interest bearing Paid in May 2003 with the issuance of 500,000 shares
   of restricted, unregistered common stock                                                --       54,215
                                                                                   ----------   ----------

   Total notes payable to banks and others                                         $1,308,878   $1,363,093
                                                                                   ==========   ==========

                                                                                  May 31, 2003 May 31, 2002
                                                                                  ------------ ------------

Unsecured advances made by the Company's Chief Executive Officer and/or entities
   controlled by either Company officers and/or individuals related to the
   Company's Chief Executive
   Officer.  Interest at 6.25%.  Due upon demand.  Unsecured                       $1,267,608    $1,373,323
                                                                                   ==========    ==========

(Remainder of this page left blank intentionally)

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE N - CONVERTIBLE DEBENTURES

On September 28, 2001, a consortium of four (4) separate investment entities under common management purchased 12% convertible debentures from the Company and were issued the right to receive warrants to purchase an aggregate of 3,500,000 shares of common stock from the Company in a future private placement transaction.

As of May 31, 2003, the Company has issued and outstanding approximately $1,255,128 in 12.0% convertible debentures (Debentures). Interest on the debentures is payable on a quarterly basis on March 31, June 30, September 30 and December 31 of each year while such Debentures are outstanding and on each Conversion Date, whichever occurs earlier. Interest may be paid, at the Company's option, in either cash or restricted, unregistered common stock. The Debentures must be prepaid if an event of default occurs under the Debentures and at the Company's option may be prepaid within thirty days of the original issue date of the Debentures. Management is of the opinion that the Company has sufficient authorized common shares to cover the conversions. In the event that the Company does not have adequate authorized and unissued shares of common stock to effect the maximum shares needed to effect the conversion, the Company may need to seek shareholder consent to increase our amount of authorized shares. If we do not have enough authorized shares to cover the conversions and are unable to obtain shareholder approval to increase our authorized shares, such failure would be considered a breach of certain relevant provisions and representations and warranties under the Debenture documents and could result in the acceleration of all amounts due under the Debentures.

On May 1, 2003, the Company and the Debenture Holders entered into a Debenture Redemption Agreement (Redemption Agreement). The Redemption Agreement sets forth the following terms and conditions related to the Debentures on an ongoing basis:

1. Redemption Schedule; Payment of Net Redemption Amount: The Company shall pay the Net Redemption Price to the Debenture Holders in monthly installments in the amount of $40,000 (the "Monthly Redemption Payment"), with the first installment thereof due on July 1, 2003 and subsequent installments thereof due on the first business day of each succeeding month (each, a "Payment Date") until the Net Redemption Amount has been paid in full. The Company shall pay the Debenture Holders by wire transfer of immediately available funds pursuant to the Debenture Holders' written instructions. The Monthly Redemption Payment shall be applied with respect to the Debenture Holders in the following order: (i) Accrued Interest, (ii) Redemption Premium, and (iii) outstanding principal balance of the Owned Debentures.

2. Prohibited Conversions: The Debenture Holders shall not convert the Owned Debentures into shares of the Company's common stock, par value $0.001 per share (the "Shares") during the period commencing on the date hereof and ending on June 30, 2003 (the "Prohibited Period").

3. Permitted Conversions: Following the Prohibited Period, the Debenture Holders shall be permitted to convert its Owned Debentures, to the extent such Owned Debentures have not been previously redeemed hereunder, into Shares in accordance with the terms and subject to the conditions of the Owned Debentures, subject to the following restrictions:

a) If the last reported sale price of the Shares on the Over-the-Counter Bulletin Board as reported by Bloomberg (the "Price") is less than $.10 per Share, then the Debenture Holders shall have the right to convert their Owned Debentures into not more than an aggregate of 300,000 Shares every thirty (30) days during the period in which the Price remains less than $.10 per Share,

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE N - CONVERTIBLE DEBENTURES - CONTINUED

b) If the Price is equal to or exceeds $.10 per Share but is less than $.20 per Share, then the Debenture Holders shall have the right to convert their Owned Debentures into not more than an aggregate of 500,000 Shares every thirty (30) days during the period that the Price is equal to or exceeds $.10 per Share but is less than $.20 per Share,

c) If the Price is equal to or exceeds $.20 per Share but is less than $.30 per Share, then the Debenture Holders shall have the right to convert their Owned Debentures into not more than an aggregate of 750,000 Shares every thirty (30) days during the period that the Price is equal to or exceeds $.20 per Share but is less than $.30 per Share, and

d) If the Price is equal to or exceeds $.30 per Share, then the Debenture Holders shall not be restricted by the Company hereunder with respect to the number of Shares into which the Debentures may be converted during the period that the Price is equal to or exceeds $.30 per Share, provided, however, that if the Company fails to (i) make the Monthly Redemption Payment pursuant to Section 2 hereof within five (5) business days following the Payment Date or (ii) pay any delinquent amounts that are due and owing under this Agreement, then the foregoing restrictions on the Debenture Holders' right to convert their Owned Debentures into Shares shall be suspended until the first day of the next month following the date that the Monthly Redemption Payment is received in full by the Debenture Holders.

4. Issuance of Additional Shares: The Company shall issue and deliver to the Debenture Holders shares of common stock representing, in the aggregate, one percent (1%) of the outstanding shares of the Company on the earlier to occur of:
(i) the date of full conversion by the Debenture Holders of all of the Owned Debentures and (ii) the date of payment by the Company of the total Aggregate Redemption Price (collectively, the "Additional Shares").

5. Interest: Interest on the outstanding balance of the Owned Debentures shall continue to accrue following the date hereof as specified in the respective Owned Debenture and shall be payable in cash or Shares in accordance with the terms thereof.

6. Effectiveness of the Registration Statement: The Company shall take all necessary actions, including the preparing and filing of one or more registration statements of the Company and any amendments or supplements thereto (the "Registration Statement") required under the Securities Act of 1933, as amended, and the rules and regulation thereunder, to cause the Shares issuable upon conversion of the Owned Debentures to be registered for resale pursuant to an effective Registration Statement. If (i) the Company fails to respond to all comments made by the Securities and Exchange Commission (the "SEC") in connection with the Registration Statement within ten (10) business days of receipt from the SEC or (ii) the SEC has not declared the Registration Statement effective on or before July 10, 2003, then the Company shall immediately pay to each Debenture Holders an amount equal to five percent (5%) of the sum of (a) the outstanding balance of the Debenture Holders's Owned Debentures, (b) accrued interest on the Debenture Holders's Owned Debentures and (c) a premium equal to thirty percent (30%) of the sum of (a) and (b) (the "Registration Penalty"). The Registration Penalty shall be payable either in cash or Shares, the number of which shall be based on the conversion price set forth in the Owned Debentures, at each Debenture Holders's option. If a Debenture Holders elects to receive the Registration Penalty in cash, then the full amount of the Registration Penalty shall be paid to such Debenture Holders by wire transfer of immediately available funds in accordance with the instructions set forth on attached Schedule II.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE N - CONVERTIBLE DEBENTURES - CONTINUED

7. Effect of Breach: In the event of a breach by the Company of any of the provisions of this Agreement, either by a failure to timely make any payment or failure to effect any conversion by the Debenture Holders or otherwise, in addition to any other remedies available to the Debenture Holders in law or equity with respect to such breach, the applicable discount to the market price of the Owned Debentures shall permanently be amended from fifty percent (50%) to seventy-five percent (75%).

In conjunction with the issuance of the convertible debentures, the debentures were issued with an equivalent per share value of common stock below the ending quoted market price of the Company's common stock on the issue date. This difference created a Beneficial Conversion Feature Discount of approximately $300,000. This discount was then amortized over the unexpired time period between the date of issue of the eligible shares and the maturity date of the underlying debentures. Approximately $141,177 and $158,823 was amortized to operations during the years ended May 31, 2003 and 2002, respectively.

                                      May 31, 2003      May 31, 2002
                                      ------------      ------------
Federal:
  Current                                   $    --           $   --
  Deferred                                       --               --
                                            -------           ------
                                                 --               --
                                            -------           ------
State:
  Current                                        --               --
  Deferred                                       --               --
                                            -------           ------
                                                 --               --
                                            -------           ------
  Total                                     $    --           $   --
                                            =======          =======

The Company has a net operating loss carryforward of approximately $14,000,000 to offset future taxable income. Subject to current regulations, this carryforward will begin to expire in 2006. The amount and availability of the net operating loss carryforwards may be subject to limitations set forth by the Internal Revenue Code. Factors such as the number of shares ultimately issued within a three year look-back period; whether there is a deemed more than 50 percent change in control; the applicable long-term tax exempt bond rate; continuity of historical business; and subsequent income of the Company all enter into the annual computation of allowable annual utilization of the carryforwards.

The Company's income tax expense for the years ended May 31, 2003 and 2002, respectively, are as follows:

                                                      May 31, 2003  May 31, 2002
                                                      ------------  ------------

Statutory rate applied to loss before income taxes     $(554,326)   $(1,784,000)
Increase (decrease) in income taxes resulting from:
     State income taxes                                       --           -
     Other, including reserve for deferred tax asset     554,326      1,784,000
                                                       ---------    -----------
       Income tax expense                              $      --    $        --
                                                       =========    ===========

                                          May 31, 2003    May 31, 2002
Deferred tax assets
  Net operating loss carryforwards         $4,760,000      $5,195,000
  Less valuation allowance                 (4,760,000)     (5,195,000)
                                           ----------      ----------

Net Deferred Tax Asset                     $       --      $       --
                                           ==========      ===========

During the year ended May 31, 2003 and 2002, respectively, the valuation allowance (decreased) increased by approximately $(435,000) and $1,482,000.

NOTE P - PREFERRED STOCK

Our Articles of Incorporation authorize the issuance of up to 5,000 shares of Preferred Stock, $0.001 par value per share, the designation and rights of which are to be determined by our Board of Directors. There are no shares of Preferred Stock issued and outstanding at May 31, 2003 or 2002, respectively.

Our Board of Directors has authority, without action by the shareholders, to issue all or any portion of the authorized but unissued Preferred Stock in one or more series and to determine the voting rights, preferences as to dividends and liquidation, conversion rights, and other rights of such series. We consider it desirable to have Preferred Stock available to provide increased flexibility in structuring possible future acquisitions and financings and in meeting corporate needs which may arise. If opportunities arise that would make desirable the issuance of Preferred Stock through either public offering or private placements, the provisions for Preferred Stock in our Articles of Incorporation would avoid the possible delay and expense of a shareholder's meeting, except as may be required by law or regulatory authorities. Issuance of the Preferred Stock could result, however, in a series of securities outstanding that will have certain preferences with respect to dividends and liquidation over the common stock that would result in dilution of the income per share and net book value of the common stock. Issuance of additional common stock pursuant to any conversion right that may be attached to the terms of any series of Preferred Stock may also result in dilution of the net income per share and the net book value of the common stock. The specific terms of any series of Preferred Stock will depend primarily on market conditions, terms of a proposed acquisition or financing, and other factors existing at the time of issuance. Therefore, it is not possible at this time to determine in what respect a particular series of Preferred Stock will be superior to our common stock or any other series of Preferred Stock which we may issue. Our Board of Directors may issue additional Preferred Stock in future financings, but has no current plans to do so at this time.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE Q - COMMON STOCK TRANSACTIONS

On September 28, 2001, the Company filed a Registration Statement under The Securities Act of 1933 on Form S-8 registering an aggregate 5,000,000 shares of common stock. During Fiscal 2002, the Company issued an aggregate 4,500,000 shares to individuals providing consulting , legal and financial services to the Company. These transactions were valued at the closing quoted price of the Company's common stock at the transaction date. An aggregate $270,000 was charged to operations as a result of these transactions.

On May 6, 2002, the Company filed a Registration Statement under The Securities Act of 1933 on Form S-8 registering an aggregate 5,000,000 shares of common stock. During Fiscal 2002, the Company issued an aggregate 3,325,000 shares to individuals providing various consulting, legal and financial services to the Company. These transactions were valued at the closing quoted price of the Company's common stock at the transaction date. An aggregate $133,000 was charged to operations as a result of these transactions.

During Fiscal 2002, the Company issued an aggregate 4,998,013 shares of common stock as a result of the exercise of the conversion of outstanding 12% debentures. Additionally, the Company issued 1,347,465 shares in payment of accrued interest on these debentures. These transactions were valued pursuant to the debenture terms.

In February 2002, the Company sold an aggregate 2,000,000 shares of common stock to foreign investors, pursuant to Regulation S, for gross proceeds of $100,000. The Company also incurred fees for capital placement services of approximately $31,000.

In June 2001 and October 2001, the Company issued an aggregate 2,200,000 shares of common stock to former shareholders of Moye & Associates, Inc. in final settlement of all outstanding issues, payments and compensation related to this acquisition in a prior period. Approximately $22,000 was charged to operations on this transaction.

During Fiscal 2002, the Company issued an aggregate 1,700,000 shares of restricted, unregistered common stock as payment for various business and financial consulting services. These transactions were valued on the respective transaction date at the discounted closing quoted market price of the Company's common stock. As a result of these transactions, approximately $54,000 was charged to operations.

On June 10, 2002, the Company issued an aggregate 150,000 (50,000 each) shares of restricted, unregistered common stock to three unrelated individuals as payment for various business and financial consulting services. This transaction was valued on the respective transaction date at the discounted closing quoted market price of the Company's common stock. As a result of this transaction, approximately $3,000 was charged to operations.

On July 29, 2002, the Company issued 100,000 shares of restricted, unregistered common stock to an employee of Epicus, Inc. as payment of a retirement bonus. This transaction was valued on the respective transaction date at the discounted closing quoted market price of the Company's common stock. As a result of this transaction, approximately $2,000 was charged to operations.

During the period from September 25, 2002 through November 13, 2002, the Company issued an aggregate 3,104,832 shares of common stock to the respective Debenture Holders as a result of the exercise of the conversion of outstanding 12% debentures. Additionally, the Company issued 1,375,000 shares in payment of accrued interest on these debentures. These transactions were valued pursuant to the debenture terms.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE Q - COMMON STOCK TRANSACTIONS - CONTINUED

On February 2, 2003, the Company issued an aggregate 1,800,000 shares (200,000 shares each) of restricted, unregistered common stock nine (9) separate employees of Epicus, Inc. for performance bonuses. Further, the Company issued 1,000,000 shares of restricted, unregistered common stock to the Chief Information Officer of Epicus, Inc. as a performance bonus. These aggregate transactions were valued on the respective transaction date at approximately the closing quoted market price of the Company's common stock. As a result of this transaction, approximately $56,000 was charged to operations.

On February 20, 2003 and April 15, 2003, the Company, in separate transactions, issued 500,000 and 972,222 shares of restricted, unregistered common stock, respectively, to an unrelated corporation for business and financial consulting services. This transaction was valued on the transaction date at approximately the closing quoted market price of the Company's common stock. As a result of these transactions, approximately $42,083 was charged to operations.

During the period from September 25, 2002 through February 28, 2003, the Company issued an aggregate 17,384,592 shares of common stock to the respective Debenture Holders as a result of the exercise of the conversion of outstanding 12% debentures. Additionally, the Company issued 3,375,000 shares in payment of accrued interest on these debentures. These transactions were valued pursuant to the debenture terms.

On March 7, 2003, the Company issued an aggregate 300,000 (100,000 each) shares of common stock previously registered on Form S-8 to the three individuals receiving common stock in the June 10, 2002 transaction listed above. As a result of this transaction, approximately $6,300 was charged to operations.

During the period from March 14, 2003 through April 11, 2003, the Company issued an aggregate 11,003,034 shares of common stock to the respective Debenture Holders as a result of the exercise of the conversion of outstanding 12% debentures. These transactions were valued pursuant to the debenture terms.

NOTE R - STOCK WARRANTS

On September 28, 2001, in conjunction with the sale of an aggregate of $700,000 of 12% convertible debentures, the Company issued the right to receive warrants to purchase an aggregate 3,500,000 shares of common stock at a price to be determined at the time of the warrant(s) issue. As of May 31, 2003, and subsequent thereto, the Company has not issued any warrants.

NOTE S - STOCK OPTIONS

On May 31, 1998, the Company's Board of Directors adopted a Stock Option Plan far its employees, directors and consultants. On April 24, 2001, the Company filed a Registration Statement under the Securities Act of 1933 on Form S-8 to register 5,000,000 underlying shares of the stock option plan.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE S - STOCK OPTIONS - CONTINUED

The purpose of the plan is to promote success of the Company by providing a method whereby eligible employees, directors and independent contractors and consultants providing services to the Company may be awarded additional remuneration for services rendered and invest in the capital stock of the Company. The plan will be administered by the Compensation Committee of the Board of Directors and will consist of not less than two people. This committee shall have the full power and authority to grant to eligible persons options under the plan. Persons eligible to participate in the plan include officers and directors, employee, non-employee directors, independent contractors and consultants of the Company, as the Committee shall select. The plan includes and participants may receive Incentive Stock Options or Nonqualified Stock Options. An option granted under the plan shall remain exercisable during the term of the option to the extent provided in the applicable agreement and the plan. Shares of Common Stock delivered in payment in connection with the exercise of an Option, and shares of Common Stock withheld for such payment, shall be valued for such purpose at their Fair Market Value as of the exercise date. By acceptance of an Award, the Award is a special incentive compensation that will not be taken into account, in any manner, as salary, compensation or bonus in determining the amount of any payment under any pension, retirement or other employee benefit plan, program or policy of the Company or any Subsidiary.

Employees of the Company who have been granted options are authorized by the Committee to purchase the shares at a price equal to 55% of the three day average closing bid price prior to the date of written election to exercise. Through May 31, 2003, options to purchase a cumulative 4,296,277 shares of common stock of the 5,000,000 shares authorized in the Plan have been granted and concurrently exercised. As of May 31, 2003, there are no granted and outstanding options.

NOTE T - COMMITMENTS AND CONTINGENCIES

The Company leases its corporate offices from an entity owned by the Company's President and Chief Executive Officer. The lease, which provides for annual rentals of approximately $42,400. Rent expense for the years ended May 31, 2003 and 2002 was $42,400 and $42,400, respectively.

The Company's operating subsidiary, Epicus, has entered into sublease agreement for office space in Lake Mary, Florida. The lease expires September 24, 2004 and requires monthly rental payments of approximately $11,500 per month for the first 12 months of the sublease term and $11,845 for the remainder of the term. Epicus also has a first right of refusal to acquire additional space contiguous to the new space. Further, the Company has an option to acquire certain office furnishings left in the space by the former tenant at a bargain price if said option is exercised by December 31, 2003. Future payments under this sublease are as follows: year ending December 31, 2003 - approximately $138,000; year ending December 31, 2004 - approximately $106,600.

(Remainder of this page left blank intentionally)

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE T - COMMITMENTS AND CONTINGENCIES - CONTINUED

Epicus, Inc. (Epicus) has been involved in a dispute with one of its former carriers, Sprint Florida, regarding a default in payment for services. On August 23, 2000, Sprint filed suit in the Circuit Court of the Ninth Judicial Circuit in and for Orange County Florida. The Company believed that the accusation was incorrect, however after obtaining advice from legal counsel, we decided not to litigate the matter and on December 21, 2000, the carrier was awarded by that court, a default judgment against Epicus in the amount of $321,587.52. In accordance with a Judgment Payment Agreement dated February 15, 2001, Epicus agreed to pay Sprint as follows: Principal payments of $10,000 each will be due commencing March 15, 2001 through September 15, 2002 (18 months). The final balloon payment of $142,000 was payable on October 15, 2002. While the scheduled payment(s) have not been demanded by Sprint, as of the date of this filing, Management of the Company intends to enter negotiations to renew and/or restructure the payment agreement in order to mitigate any potentially negative effect on the Company's cash flow while satisfying this obligation.

A suit has been filed against Epicus in the Supreme Court of British Columbia in Vancouver, Canada by EXL Information Corporation, a Canadian corporation, in the amount of $184,761 for alleged breach of contract regarding a licensing fee for the use of their billing software. Epicus used the software for a short period of time and found that, contrary to the vendor's representations, it did not meet our specific needs and therefore stopped payment. EXL Information Corporation is seeking damages for the loss of revenue that would have been earned over the life of the agreement. The outcome of this litigation is not determinable at this time. Management intends to aggressively defend this action to conclusion.

In June 2002, AT&T Corporation filed a lawsuit against Epicus Group in the amount of $480,796 alleging non-payment of charges. Epicus Group has consistently denied responsibility for the charges and negotiations have been ongoing in an attempt to resolve this dispute. The matter has gone to mediation and a verbal agreement for a settlement in the amount of $120,000 has been reached.

During the quarter ended May 31, 2003, there has been no significant change in any of the above listed litigation, except as noted.

(Remainder of this page left blank intentionally)

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

Phoenix International Industries, Inc. (Company) was incorporated on July 22 1985, pursuant to the laws of the State of Florida under the name Hydrobac, Inc. On July 7, 1986, the Company's name was changed to ProBac, Inc. and on October 5, 1994, its name was changed to Trident Environmental Systems, Inc. During those periods the Company's primary business was in various types of products and systems for use in the environmental clean-up industry. On October 2, 1996, the Company's name was changed to Phoenix International Industries, Inc. From January 1996 through May 31, 1997, the Company sought acquisitions as it wound down and closed its original environmental clean-up business.

In May 2003, Phoenix International Industries Inc. changed the company's name to Epicus Communications Group, Inc. (Epicus Group). The name change was effected to better reflect the Company's business emphasis on the telecommunications sector and to better create consistent name branding with the Company's wholly-owned operating subsidiary, Epicus, Inc.

During Fiscal 2000, the Company acquired control of Telephone Company of Central Florida, Inc. (TCCF), an entity then operating under Chapter 11 of the United States Bankruptcy Court. As an integral component of TCCF's Plan of Reorganization, the Company recapitalized TCCF, effective on the effective date of TCCF's discharge from bankruptcy. On July 9, 1999, the U. S. Bankruptcy Court issued an Order of Confirmation related to TCCF's Plan of Reorganization and the Company recapitalized TCCF within ten days of the Confirmation Order. TCCF is a "competitive local exchange carrier ("CLEC") telephone company and a reseller of other telecommunications services. On January 17, 2001 the corporate name of TCCF was changed to Epicus, Inc. (Epicus).

On July 28, 2000, the Company acquired 100% of the stock of Moye & Associates, Inc. (Moye) of St. Simons Island, Georgia. Moye's primary business was that of an Internet Service Provider (ISP) known as TheBest.Net. This move was seen by management as being synergetic with the operations of TCCF. On July 19, 2001, the Company sold all operating assets of Moye to an unrelated party and, effectively, discontinued all operations within this subsidiary.

On April 9, 1998, the Company acquired 100% of the outstanding stock of Mic Mac Investments, Inc. (Mic Mac), a South Carolina corporation. Mic Mac at the time of acquisition was a long distance telephone service "reseller" specializing in services to the hospitality industry. All operations related to Mic Mac were discontinued by February 1999.

NOTE B - PREPARATION OF FINANCIAL STATEMENTS

The Company follows the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and has adopted a year-end of May 31.

Management acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE B - PREPARATION OF FINANCIAL STATEMENTS - CONTINUED

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In the opinion of management, the accompanying interim financial statements, prepared in accordance with the U. S. Securities and Exchange Commission's instructions for Form 10-QSB, are unaudited and contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows of the Company for the respective interim periods presented. The current period results of operations are not necessarily indicative of results which ultimately will be reported for the full fiscal year ending May 31, 2004.

During interim periods, the Company follows the accounting policies set forth in its annual audited financial statements filed with the U. S. Securities and Exchange Commission on its Annual Report on Form 10-KSB for the year ended May 31, 2003. The information presented within these interim financial statements may not include all disclosures required by generally accepted accounting principles and the users of financial information provided for interim periods should refer to the annual financial information and footnotes when reviewing the interim financial results presented herein.

These financial statements reflect the books and records of Epicus Communications Group, Inc., Epicus, Inc., Mic Mac, Inc. and Moye & Associates, Inc. for the six months ended November 30, 2003 and 2002, respectively. All significant intercompany transactions have been eliminated in consolidation. The consolidated entities are referred to as either Company or Epicus Group.

The Company conducted business activities in only one distinct business segment during Fiscal 2003 and 2002 and subsequent thereto.

NOTE C - GOING CONCERN UNCERTAINTY

The Company has experienced cumulative operating losses for the three-year period ended May 31, 2003 of approximately $15,600,000 and has used cumulative cash in operating activities for the same period of approximately $4,636,000. In a effort to control costs and better manage the Company's key operating subsidiary, Epicus, Inc., the Company discontinued all operations within Mic Mac and Moye during the year ended May 31, 2002 and sold or otherwise disposed of all operating assets of these subsidiaries.

The Company's liquidity has been sustained through the sale of equity securities, restricted and unrestricted, domestically and in international markets. Further, significant working capital advances have been made by members of management or by entities owned or controlled by members of management.

Management is of the opinion that Epicus became cash flow positive during the third quarter of Fiscal 2003 (year ending May 31, 2003). This event contributed significantly to the improvement of relations with the Company's vendors to relieve daily operational pressures and should continue to provide sufficient cash to support the Company's day-to-day liquidity requirements as well as retire outstanding debt and delinquent trade payables during future periods.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE C - GOING CONCERN UNCERTAINTY - CONTINUED

The Company's continued existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis.

Because of the Company's lack of positive cash flows, the Company's continuance is fully dependent either future sales of securities or upon its current management and/or advances or loans from significant stockholders or corporate officers to provide sufficient working capital to preserve the integrity of the corporate entity.

There is no assurance that the Company will be able to obtain additional funding through the sales of additional securities or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company.

It is the intent of management and significant stockholders to provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. However, there is no legal obligation for either management or significant stockholders to provide additional future funding.

NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. CASH AND CASH EQUIVALENTS

For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.

Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies.

2. ACCOUNTS RECEIVABLE

In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States and are principally concentrated in the southeastern quadrant of the country. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance.

3. PROPERTY AND EQUIPMENT

Property and equipment are recorded at historical cost. These costs are depreciated over the estimated useful lives, generally three to ten years, of the individual assets using the straight-line method. Gains and losses from the disposition of property and equipment are included in operations as incurred.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

4. INTANGIBLE ASSETS

Monies paid for development of the trade name "Epicus", approximately $23,525, were capitalized as a component of Other Assets on the Company's consolidated balance sheet. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company follows the policy of evaluating all qualifying assets as of the end of each reporting quarter. For each of the years ended May 31, 2003 and 2002 and the respective six month periods ended November 30, 2003 and 2002, no charges to operations were made for impairments in the future benefit of this trade name.

Other intangible assets, where appropriate, are amortized over the estimated useful life of the underlying asset using the straight-line method.

5. REVENUE RECOGNITION

Local telephone services for business and residential service are billed to the respective customer in advance at the initiation of each monthly billing cycle. Long distance telephone services are billed in arrears in the month following the provision of the service. All revenue for both local and long distance services are recognized at the respective date of billing.

In the event of cancellation of service by a customer prior to the expiration of the completion of the monthly billing cycle results in a partial refund due to the customer. These reductions of revenue, due to cancellation of service, are recognized at the point of service termination and are recognized as a component of trade accounts payable until final settlement of the customer's account balance.

6. INCOME TAXES

The Company uses the asset and liability method of accounting for income taxes. At February 29, 2004 and February 28, 2003, the deferred tax asset and deferred tax liability accounts, as recorded when material to the financial statements, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization, allowance for doubtful accounts and vacation accruals.

As of February 29, 2004 and February 28, 2003, the deferred tax asset related to the Company's net operating loss carryforward is fully reserved.

7. ADVERTISING COSTS

The Company does not conduct any direct response advertising activities. For non-direct response advertising, the Company charges the costs of these efforts to operations at the first time the related advertising is published.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

8. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock and common stock equivalents (primarily outstanding options and warrants). Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method. The calculation of fully diluted earnings (loss) per share assumes the dilutive effect of the exercise of outstanding options and warrants at either the beginning of the respective period presented or the date of issuance, whichever is later. As of February 29, 2004 and February 28, 2003, the Company's issued and outstanding, warrants, options and convertible debt are considered antidilutive due to the Company's net operating loss position.

9. EMPLOYEE STOCK OPTIONS

The Company has adopted the policy of fair value based accounting for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123.

NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions.

Interest rate risk is the risk that the Company's earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. The Company does not use derivative instruments to moderate its exposure to interest rate risk, if any.

Financial risk is the risk that the Company's earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. The company does not use derivative instruments to moderate its exposure to financial risk, if any.

NOTE F - CONCENTRATIONS OF CREDIT RISK

The Company and its Epicus subsidiary maintain their respective cash accounts in a financial institution subject to insurance coverage issued by the Federal Deposit Insurance Corporation (FDIC). Under FDIC rules, the Company and its subsidiaries are entitled to aggregate coverage of $100,000 per account type per separate legal entity per financial institution. During the nine months ended February 29, 2004 and February 28, 2003, respectively, and for each of the years ended May 31, 2003 and 2002, respectively, the companies had deposits in financial institutions at various times for varying lengths of time with credit risk exposures in excess of statutory FDIC coverage. The Company has incurred no losses to date as a result of any of these unsecured situations.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE G - BUSINESS COMBINATIONS

On July 28, 2000, in accordance with an Agreement and Plan of Share Exchange, the Company acquired 100% of the outstanding shares of common stock of Moye and Associates, Inc., a Georgia Corporation, doing business as TheBest.Net (Moye). The Company exchanged an aggregate 600,000 shares of restricted, unregistered common stock for 100.0% of the issued and outstanding stock of Moye. The transaction was accounted for using the purchase method of accounting. Goodwill is normally recorded when the purchase price exceeds the fair value of the net assets and liabilities acquired. Management reviewed the prospects of recovery of goodwill that was recorded on the date of purchase and determined that the goodwill was 100% impaired based on the Letter of Intent to sell Moye & Associates (see below). The excess of the fair value of the liabilities assumed over the fair value of the assets acquired (negative book value) was not recorded as negative Goodwill.

On July 19, 2001, the Company signed a Letter of Intent to sell the active clients of Moye. The buyer paid $133.33 for each existing"dial-up" and "domain hosting client". It was estimated that there were between approximately 1,500 and 2,700 active fee-for-service clients on the date of signing the Letter of Intent. The buyer deposited a down payment of $150,000 with the Company and an additional $50,000 into an interest bearing account at the date of signing. As of May 31, 2002, all amounts due under this sale of assets contract had been satisfied.

During Fiscal 2003, the Company issued approximately 500,000 shares of restricted, unregistered common stock to Tully Moye in complete settlement of all remaining obligations related to the acquisition and disposition of Moye & Associates, Inc. (dba TheBest.Net).

NOTE H - RESTRICTED CASH

As collateral for a standby letter of credit securing telephone service provided by BellSouth Corp., the Company has placed on deposit with the financial institution issuing the standby letter of credit approximately $201,000 in an interest bearing certificate of deposit. Any interest earnings in excess of the required balance to collateralize the standby letter of credit may be transferred to the Company's operating account at the discretion of management.

During the quarter ended February 29, 2004, management redeemed the amounts on deposit and transferred the funds directly to BellSouth Corp. in lieu of maintaining the standby letter of credit. As of February 29, 2004, the Company has approximately $522,000 on deposit with BellSouth Corp.

NOTE I - ADVANCES DUE FROM OFFICER

In a prior year, the Company advanced approximately $15,000 to a corporate officer. This amount is non-interest bearing and is unsecured. The advance is repayable upon demand and may, at the officer's discretion, be used to offset accrued, but unpaid, compensation. As of February 29, 2004, the Company has accrued approximately $779,800 in compensation due, but unpaid, to this officer.

                                      February 29,     February 28,
                                         2004             2003       Estimated life
                                      ------------     ------------  --------------

Computer equipment                     $415,764         $364,745        5 years
Office furniture and fixtures            45,702           38,723       7-10 years
Software and system programming         145,039          145,039        5 years
                                       --------         --------
                                        606,505          548,507
Less accumulated depreciation          (373,886)        (261,505)
                                       --------         --------

Net property and equipment             $232,619         $287,002
                                       ========         ========

Depreciation expense for the nine months ended February 29, 2004 and February 28, 2003 was approximately $82,847 and $75,489, respectively.

NOTE K - ACCRUED OFFICER COMPENSATION

As of February 29, 2004 and February 28, 2003, respectively, the Company has accrued a cumulative amount of approximately $2,737,269 and $2,384,073, respectively, for earned, but unpaid, compensation to it's Chief Executive Officer and Chief Operating Officer, at a rate of approximately at the rate of approximately $20,833 and $8,600 per month respectively.

                                                                                  February 29, February 28,
                                                                                     2004         2003
                                                                                   ----------   ---------
$750,000 note payable to a foreign corporation. Interest at 13.0% Accrued
   interest payable quarterly. Final maturity due in June 2003 and automatically
   renewable for one-year periods upon written notice by the Company prior to
   the maturity date. Collateralized by 3,000,000 shares of restricted,
   unregistered common stock of the Company                                        $  750,000   $  750,000

$400,000 note payable to creditor trust fund. Interest at 8.0%. Payable in
   quarterly installments of $25,000 plus accrued interest. Final maturity in
   April 2004. In the event the Company fails to make any scheduled quarterly
   payment, the Creditors' Trust is entitled to an immediate entry of judgment
   for any remaining amounts due upon the filing of an Affidavit of Non-Payment
   by the Creditors' Trust                                                            350,000      350,000

$150,000 note payable to an individual. Principal and unpaid interest due
   upon demand.  Unsecured                                                            111,000      111,000

$97,878 note payable to an unrelated entity.  Non-interest bearing
   Unsecured.  Due upon demand                                                         97,878       97,878

$100,000 note payable to former employee pursuant to an employment agreement
   for advances made by former owner of an acquired subsidiary.  Non-interest
   bearing. Paid in May 2003 with the issuance of 500,000 shares
   of restricted, unregistered common stock                                                --       54,215
                                                                                   ----------   ----------

   Total notes payable to banks and others                                         $1,308,878   $1,363,093
                                                                                   ==========   ==========

                                                                                 February 29,    November 30,
                                                                                     2004           2002
                                                                                 ------------    ------------

Unsecured advances made by the Company's Chief Executive Officer and/or entities
   controlled by either Company officers and/or individuals related to the
   Company's Chief Executive Officer. Interest at 6.25%. Due upon demand
   Unsecured                                                                       $528,617       $1,269,668
                                                                                   ========       ==========

NOTE N - CONVERTIBLE DEBENTURES

On September 28, 2001, a consortium of four (4) separate investment entities under common management purchased 12% convertible debentures from the Company and were issued the right to receive warrants to purchase an aggregate of 3,500,000 shares of common stock from the Company in a future private placement transaction.

As of February 29, 2004, the Company has issued and outstanding approximately $746,269 in 12.0% convertible debentures (Debentures). Interest on the debentures is payable on a quarterly basis on March 31, June 30, September 30 and December 31 of each year while such Debentures are outstanding and on each Conversion Date, whichever occurs earlier. Interest may be paid, at the Company's option, in either cash or restricted, unregistered common stock. The Debentures must be prepaid if an event of default occurs under the Debentures and at the Company's option may be prepaid within thirty days of the original issue date of the Debentures. Management is of the opinion that the Company has sufficient authorized common shares to cover the conversions. In the event that the Company does not have adequate authorized and unissued shares of common stock to effect the maximum shares needed to effect the conversion, the Company may need to seek shareholder consent to increase our amount of authorized shares. If we do not have enough authorized shares to cover the conversions and are unable to obtain shareholder approval to increase our authorized shares, such failure would be considered a breach of certain relevant provisions and representations and warranties under the Debenture documents and could result in the acceleration of all amounts due under the Debentures.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE N - CONVERTIBLE DEBENTURES - CONTINUED

On May 1, 2003, the Company and the Debenture Holders entered into a Debenture Redemption Agreement (Redemption Agreement). The Redemption Agreement sets forth the following terms and conditions related to the Debentures on an ongoing basis:

4. Redemption Schedule; Payment of Net Redemption Amount: The Company shall pay the Net Redemption Price to the Debenture Holders in monthly installments in the amount of $40,000 (the "Monthly Redemption Payment"), with the first installment thereof due on July 1, 2003 and subsequent installments thereof due on the first business day of each succeeding month (each, a "Payment Date") until the Net Redemption Amount has been paid in full. The Company shall pay the Debenture Holders by wire transfer of immediately available funds pursuant to the Debenture Holders' written instructions. The Monthly Redemption Payment shall be applied with respect to the Debenture Holders in the following order: (I) Accrued Interest, (ii) Redemption Premium, and (iii) outstanding principal balance of the Owned Debentures.

5. Prohibited Conversions: The Debenture Holders shall not convert the Owned Debentures into shares of the Company's common stock, par value $0.001 per share (the "Shares") during the period commencing on the date hereof and ending on June 30, 2003 (the "Prohibited Period").

6. Permitted Conversions: Following the Prohibited Period, the Debenture Holders shall be permitted to convert its Owned Debentures, to the extent such Owned Debentures have not been previously redeemed hereunder, into Shares in accordance with the terms and subject to the conditions of the Owned Debentures, subject to the following restrictions:

4. If the last reported sale price of the Shares on the Over-the-Counter Bulletin Board as reported by Bloomberg (the "Price") is less than $.10 per Share, then the Debenture Holders shall have the right to convert their Owned Debentures into not more than an aggregate of 300,000 Shares every thirty (30) days during the period in which the Price remains less than $.10 per Share,

5. If the Price is equal to or exceeds $.10 per Share but is less than $.20 per Share, then the Debenture Holders shall have the right to convert their Owned Debentures into not more than an aggregate of 500,000 Shares every thirty (30) days during the period that the Price is equal to or exceeds $.10 per Share but is less than $.20 per Share,

6. If the Price is equal to or exceeds $.20 per Share but is less than $.30 per Share, then the Debenture Holders shall have the right to convert their Owned Debentures into not more than an aggregate of 750,000 Shares every thirty (30) days during the period that the Price is equal to or exceeds $.20 per Share but is less than $.30 per Share, and

7. If the Price is equal to or exceeds $.30 per Share, then the Debenture Holders shall not be restricted by the Company hereunder with respect to the number of Shares into which the Debentures may be converted during the period that the Price is equal to or exceeds $.30 per Share, provided, however, that if the Company fails to (I) make the Monthly Redemption Payment pursuant to Section 2 hereof within five (5) business days following the Payment Date or (ii) pay any delinquent amounts that are due and owing under this Agreement, then the foregoing restrictions on the Debenture Holders' right to convert their Owned Debentures into Shares shall be suspended until the first day of the next month following the date that the Monthly Redemption Payment is received in full by the Debenture Holders.

7. Issuance of Additional Shares: The Company shall issue and deliver to the Debenture Holders shares of common stock representing, in the aggregate, one percent (1%) of the outstanding shares of the Company on the earlier to occur of:
(I) the date of full conversion by the Debenture Holders of all of the Owned Debentures and (ii) the date of payment by the Company of the total Aggregate Redemption Price (collectively, the "Additional Shares").

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE N - CONVERTIBLE DEBENTURES - CONTINUED

8. Interest: Interest on the outstanding balance of the Owned Debentures shall continue to accrue following the date hereof as specified in the respective Owned Debenture and shall be payable in cash or Shares in accordance with the terms thereof.

9. Effectiveness of the Registration Statement: The Company shall take all necessary actions, including the preparing and filing of one or more registration statements of the Company and any amendments or supplements thereto (the "Registration Statement") required under the Securities Act of 1933, as amended, and the rules and regulation thereunder, to cause the Shares issuable upon conversion of the Owned Debentures to be registered for resale pursuant to an effective Registration Statement. If (I) the Company fails to respond to all comments made by the Securities and Exchange Commission (the "SEC") in connection with the Registration Statement within ten (10) business days of receipt from the SEC or (ii) the SEC has not declared the Registration Statement effective on or before July 10, 2003, then the Company shall immediately pay to each Debenture Holders an amount equal to five percent (5%) of the sum of (a) the outstanding balance of the Debenture Holders's Owned Debentures, (b) accrued interest on the Debenture Holders's Owned Debentures and(C)) a premium equal to thirty percent (30%) of the sum of (a) and (b) (the "Registration Penalty"). The Registration Penalty shall be payable either in cash or Shares, the number of which shall be based on the conversion price set forth in the Owned Debentures, at each Debenture Holders's option. If a Debenture Holders elects to receive the Registration Penalty in cash, then the full amount of the Registration Penalty shall be paid to such Debenture Holders by wire transfer of immediately available funds in accordance with the instructions set forth on attached Schedule II.

10. Effect of Breach: In the event of a breach by the Company of any of the provisions of this Agreement, either by a failure to timely make any payment or failure to effect any conversion by the Debenture Holders or otherwise, in addition to any other remedies available to the Debenture Holders in law or equity with respect to such breach, the applicable discount to the market price of the Owned Debentures shall permanently be amended from fifty percent (50%) to seventy-five percent (75%).

In conjunction with the issuance of the convertible debentures, the debentures were issued with an equivalent per share value of common stock below the ending quoted market price of the Company's common stock on the issue date. This difference created a Beneficial Conversion Feature Discount of approximately $300,000. This discount was then amortized over the unexpired time period between the date of issue of the eligible shares and the maturity date of the underlying debentures. Approximately $141,177 and $158,823 was amortized to operations during the years ended May 31, 2003 and 2002, respectively.

                                 February 29,       February 28,
                                     2004              2003
                                 ------------       ------------
Federal:
  Current                           $    --           $    --
  Deferred                               --                --
                                    -------           -------
                                         --                --
                                    -------           -------
State:
  Current                                --                --
  Deferred                               --                --
                                    -------           -------
                                         --                --
                                    -------           -------
  Total                             $    --           $    --
                                     ======            ======

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE O - INCOME TAXES - CONTINUED

As of May 31, 2003, the Company has a net operating loss carryforward of approximately $12,688,000 to offset future taxable income. Subject to current regulations, this carryforward will begin to expire in 2006. The amount and availability of the net operating loss carryforwards may be subject to limitations set forth by the Internal Revenue Code. Factors such as the number of shares ultimately issued within a three year look-back period; whether there is a deemed more than 50 percent change in control; the applicable long-term tax exempt bond rate; continuity of historical business; and subsequent income of the Company all enter into the annual computation of allowable annual utilization of the carryforwards.

The Company's income tax expense for the nine months ended February 29, 2004 and February 28, 2003, respectively, are as follows:

                                                      February 29, February 28,
                                                          2004        2003
                                                       ----------   ---------

Statutory rate applied to loss before income taxes     $(514,000)   $ 85,000
 Increase (decrease) in income taxes resulting from:
     State income taxes                                       --          --
     Other, including reserve for deferred tax asset     514,000     (85,000)
                                                       ---------    --------

       Income tax expense                              $      --    $     --
                                                       =========    ========

Temporary differences, consisting primarily of statutory deferrals of expenses for organizational costs and accrued, but unpaid, accruals for officer compensation and statutory differences in the depreciable lives for property and equipment, between the financial statement carrying amounts and tax bases of assets and liabilities give rise to deferred tax assets and liabilities as of February 29, 2004 and February 28, 2003, respectively:

                                      February 29,      February 28,
                                          2004              2003
                                      ------------      ------------
Deferred tax assets
  Net operating loss carryforwards    $4,380,000        $5,195,000
  Less valuation allowance            (4,380,000)       (5,195,000)
                                      ----------        ----------

Net Deferred Tax Asset                $       --        $       --
                                      ==========        ==========

During the nine months ended February 29, 2004 and February 28, 2003, respectively, the valuation allowance increased by approximately $68,000 and $-0-.

NOTE P - PREFERRED STOCK

Our Articles of Incorporation authorize the issuance of up to 5,000 shares of Preferred Stock, $0.001 par value per share, the designation and rights of which are to be determined by our Board of Directors. There are no shares of Preferred Stock issued and outstanding at either February 29, 2004 and February 28, 2003, respectively.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE P - PREFERRED STOCK - CONTINUED

Our Board of Directors has authority, without action by the shareholders, to issue all or any portion of the authorized but unissued Preferred Stock in one or more series and to determine the voting rights, preferences as to dividends and liquidation, conversion rights, and other rights of such series. We consider it desirable to have Preferred Stock available to provide increased flexibility in structuring possible future acquisitions and financings and in meeting corporate needs which may arise. If opportunities arise that would make desirable the issuance of Preferred Stock through either public offering or private placements, the provisions for Preferred Stock in our Articles of Incorporation would avoid the possible delay and expense of a shareholder's meeting, except as may be required by law or regulatory authorities. Issuance of the Preferred Stock could result, however, in a series of securities outstanding that will have certain preferences with respect to dividends and liquidation over the common stock that would result in dilution of the income per share and net book value of the common stock. Issuance of additional common stock pursuant to any conversion right that may be attached to the terms of any series of Preferred Stock may also result in dilution of the net income per share and the net book value of the common stock. The specific terms of any series of Preferred Stock will depend primarily on market conditions, terms of a proposed acquisition or financing, and other factors existing at the time of issuance. Therefore, it is not possible at this time to determine in what respect a particular series of Preferred Stock will be superior to our common stock or any other series of Preferred Stock which we may issue. Our Board of Directors may issue additional Preferred Stock in future financings, but has no current plans to do so at this time.

NOTE Q - COMMON STOCK TRANSACTIONS

On February 3, 2004, at the Annual Meeting of the Company Shareholders, an action was approved to increase the authorized number of shares of common stock to be issued from 200,000,000 to 800,000,000. This action has been registered as an amendment to the Company's Articles of Incorporation and is reflected in the accompanying financial statements as of the first day of the first period presented.

On June 10, 2002, the Company issued an aggregate 150,000 (50,000 each) shares of restricted, unregistered common stock to three unrelated individuals as payment for various business and financial consulting services. This transaction was valued on the respective transaction date at the discounted closing quoted market price of the Company's common stock. As a result of this transaction, approximately $3,000 was charged to operations.

On July 29, 2002, the Company issued 100,000 shares of restricted, unregistered common stock to an employee of Epicus, Inc. as payment of a retirement bonus. This transaction was valued on the respective transaction date at the discounted closing quoted market price of the Company's common stock. As a result of this transaction, approximately $2,000 was charged to operations.

During the period from September 25, 2002 through November 13, 2002, the Company issued an aggregate 3,104,832 shares of common stock to the respective Debenture Holders as a result of the exercise of the conversion of outstanding 12% debentures. Additionally, the Company issued 1,375,000 shares in payment of accrued interest on these debentures. These transactions were valued pursuant to the debenture terms.

On February 2, 2003, the Company issued an aggregate 1,800,000 shares (200,000 shares each) of restricted, unregistered common stock nine (9) separate employees of Epicus, Inc. for performance bonuses. Further, the Company issued 1,000,000 shares of restricted, unregistered common stock to the Chief Information Officer of Epicus, Inc. as a performance bonus. These aggregate transactions were valued on the respective transaction date at approximately the closing quoted market price of the Company's common stock. As a result of this transaction, approximately $56,000 was charged to operations.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE Q - COMMON STOCK TRANSACTIONS - CONTINUED

On February 20, 2003 and April 15, 2003, the Company, in separate transactions, issued 500,000 and 972,222 shares of restricted, unregistered common stock, respectively, to an unrelated corporation for business and financial consulting services. This transaction was valued on the transaction date at approximately the closing quoted market price of the Company's common stock. As a result of these transactions, approximately $42,083 was charged to operations.

During the period from September 25, 2002 through February 28, 2003, the Company issued an aggregate 17,384,592 shares of common stock to the respective Debenture Holders as a result of the exercise of the conversion of outstanding 12% debentures. Additionally, the Company issued 3,375,000 shares in payment of accrued interest on these debentures. These transactions were valued pursuant to the debenture terms.

On March 7, 2003, the Company issued an aggregate 300,000 (100,000 each) shares of common stock previously registered on Form S-8 to the three individuals receiving common stock in the June 10, 2002 transaction listed above. As a result of this transaction, approximately $6,300 was charged to operations.

During the period from March 14, 2003 through April 11, 2003, the Company issued an aggregate 11,003,034 shares of common stock to the respective Debenture Holders as a result of the exercise of the conversion of outstanding 12% debentures. These transactions were valued pursuant to the debenture terms.

During the period from July 10, 2003 through August 15, 2003, the Company issued an aggregate 1,800,000 shares of common stock to the respective Debenture Holders as a result of the exercise of the conversion of outstanding 12% debentures. These transactions were valued pursuant to the debenture terms. In situations where the conversion price, per the debenture terms, was less than the discounted closing price of the Company's common stock on the NASDAQ Electronic Bulletin Board on the date of each respective transaction, the Company recognized a non-cash charge to operations. The Company recognized a non-cash charge of approximately $12,750 for the differential between the "fair value" of these securities sold and the contractual exchange price.

During the period from June 24, 2003 through August 8, 2003, the Company sold an aggregate 12,000,000 shares of common stock pursuant to Regulation S of the Securities Act of 1933 for gross proceeds of approximately $568,000. No underwriter was used in connection with the sale of these securities.

On July 14, 2003, the Company issued approximately 1,000,000 shares of restricted, unregistered common stock to an unrelated entity providing consulting and telemarketing services to the Company's wholly-owned subsidiary, Epicus, Inc. This transaction was valued at approximately $45,000, which was equal to or in excess of the discounted closing price of the Company's common stock on the NASDAQ Electronic Bulletin Board on the date of each respective transaction. The Company relied upon Section 4(2) of The Securities Act of 1933, as amended, for an exemption from registration on these shares.

On July 11, 2003, the Company issued approximately 680,000 shares of common stock previously registered pursuant to a Registration Statement on Form S-8 for legal services. These transactions were valued at approximately $64,600, which was equal to the quoted closing price of the Company's securities on the NASDAQ Electronic Bulletin Board.

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE Q - COMMON STOCK TRANSACTIONS - CONTINUED

During the period from September 10, 2003 through November 14, 2003, the Company issued an aggregate 8,978,902 shares of common stock to the respective Debenture Holders as a result of the exercise of the conversion of outstanding 12% debentures. These transactions were valued pursuant to the debenture terms. In situations where the conversion price, per the debenture terms, was less than the discounted closing price of the Company's common stock on the NASDAQ Electronic Bulletin Board on the date of each respective transaction, the Company recognized a non-cash charge to operations. The Company recognized a cumulative non-cash charge of approximately $51,473 for the differential between the "fair value" of these securities sold and the contractual exchange price.

During the period from December 12, 2003 through February 27, 2004, the Company issued an aggregate 15,173,478 shares of common stock to the respective Debenture Holders as a result of the exercise of the conversion of outstanding 12% debentures. These transactions were valued pursuant to the debenture terms. In situations where the conversion price, per the debenture terms, was less than the discounted closing price of the Company's common stock on the NASDAQ Electronic Bulletin Board on the date of each respective transaction, the Company recognized a non-cash charge to operations. The Company recognized a cumulative non-cash charge of approximately $79,254 for the differential between the "fair value" of these securities sold and the contractual exchange price.

During January 2004, the Company's Board of Directors approved the issuance of an aggregate 62,500,000 shares of restricted, unregistered common stock to Gerard Haryman, the Company's Chairman, in repayment of approximately $1,000,000 in unsecured debt. Through February 29, 2004, the Company has issued 50,000,000 of the approved shares in retirement of $800,000 in debt. The per share exchange price was equal to or in excess of the discounted closing price of the Company's common stock on the NASDAQ Electronic Bulletin Board on the date of the transaction. The Company relied upon Section 4(2) of The Securities Act of 1933, as amended, for an exemption from registration on these shares.

NOTE R - STOCK WARRANTS

On September 28, 2001, in conjunction with the sale of an aggregate of $700,000 of 12% convertible debentures, the Company issued the right to receive warrants to purchase an aggregate 3,500,000 shares of common stock at a price to be determined at the time of the warrant(s) issue. As of May 31, 2003, and subsequent thereto, the Company has not issued any warrants.

NOTE S - STOCK OPTIONS

On May 31, 1998, the Company's Board of Directors adopted a Stock Option Plan far its employees, directors and consultants. On April 24, 2001, the Company filed a Registration Statement under the Securities Act of 1933 on Form S-8 to register 5,000,000 underlying shares of the stock option plan.

(Remainder of this page left blank intentionally)

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE S - STOCK OPTIONS - CONTINUED

The purpose of the plan is to promote success of the Company by providing a method whereby eligible employees, directors and independent contractors and consultants providing services to the Company may be awarded additional remuneration for services rendered and invest in the capital stock of the Company. The plan will be administered by the Compensation Committee of the Board of Directors and will consist of not less than two people. This committee shall have the full power and authority to grant to eligible persons options under the plan. Persons eligible to participate in the plan include officers and directors, employee, non-employee directors, independent contractors and consultants of the Company, as the Committee shall select. The plan includes and participants may receive Incentive Stock Options or Nonqualified Stock Options. An option granted under the plan shall remain exercisable during the term of the option to the extent provided in the applicable agreement and the plan. Shares of Common Stock delivered in payment in connection with the exercise of an Option, and shares of Common Stock withheld for such payment, shall be valued for such purpose at their Fair Market Value as of the exercise date. By acceptance of an Award, the Award is a special incentive compensation that will not be taken into account, in any manner, as salary, compensation or bonus in determining the amount of any payment under any pension, retirement or other employee benefit plan, program or policy of the Company or any Subsidiary.

Employees of the Company who have been granted options are authorized by the Committee to purchase the shares at a price equal to 55% of the three day average closing bid price prior to the date of written election to exercise. Through May 31, 2003, options to purchase a cumulative 4,296,277 shares of common stock of the 5,000,000 shares authorized in the Plan have been granted and concurrently exercised. As of May 31, 2003, there are no granted and outstanding options.

NOTE T - COMMITMENTS AND CONTINGENCIES

LEASED FACILITIES

The Company leases its corporate offices from an entity owned by the Company's President and Chief Executive Officer. The lease, which provides for annual rentals of approximately $42,400. Rent expense for the six months ended November 30, 2003 and 2002 was approximately $21,200, respectively.

The Company's operating subsidiary, Epicus, has entered into sublease agreement for office space in Lake Mary, Florida. The lease expires September 24, 2004 and requires monthly rental payments of approximately $11,500 per month for the first 12 months of the sublease term and $11,845 for the remainder of the term. Epicus also has a first right of refusal to acquire additional space contiguous to the new space. Further, the Company has an option to acquire certain office furnishings left in the space by the former tenant at a bargain price if said option is exercised by December 31, 2003. Future payments under this sublease are as follows: year ending December 31, 2003 - approximately $138,000; year ending December 31, 2004 - approximately $106,600.

The Company is in negotiations for new long-term office space for the Epicus subsidiary and anticipates replacing the above discussed sublease agreement upon it's expiration in September 2004.

(Remainder of this page left blank intentionally)

EPICUS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
(formerly Phoenix International Industries, Inc. and Subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE T - COMMITMENTS AND CONTINGENCIES - CONTINUED

LITIGATION

Epicus, Inc. (Epicus) has been involved in a dispute with one of its former carriers, Sprint Florida, regarding a default in payment for services. On August 23, 2000, Sprint filed suit in the Circuit Court of the Ninth Judicial Circuit in and for Orange County Florida. The Company believed that the accusation was incorrect, however after obtaining advice from legal counsel, we decided not to litigate the matter and on December 21, 2000, the carrier was awarded by that court, a default judgment against Epicus in the amount of $321,587.52. In accordance with a Judgment Payment Agreement dated February 15, 2001, Epicus agreed to pay Sprint as follows: Principal payments of $10,000 each will be due commencing March 15, 2001 through September 15, 2002 (18 months). The final balloon payment of $142,000 was payable on October 15, 2002. While the scheduled payment(s) have not been demanded by Sprint, as of the date of this filing, Management of the Company intends to enter negotiations to renew and/or restructure the payment agreement in order to mitigate any potentially negative effect on the Company's cash flow while satisfying this obligation.

A suit has been filed against Epicus in the Supreme Court of British Columbia in Vancouver, Canada by EXL Information Corporation, a Canadian corporation, in the amount of $184,761 for alleged breach of contract regarding a licensing fee for the use of their billing software. Epicus used the software for a short period of time and found that, contrary to the vendor's representations, it did not meet our specific needs and therefore stopped payment. EXL Information Corporation is seeking damages for the loss of revenue that would have been earned over the life of the agreement. The outcome of this litigation is not determinable at this time. Management intends to aggressively defend this action to conclusion.

In June 2002, AT&T Corporation filed a lawsuit against Epicus Group in the amount of $480,796 alleging non-payment of charges. Epicus Group has consistently denied responsibility for the charges and negotiations have been ongoing in an attempt to resolve this dispute. The matter has gone to mediation and a verbal agreement for a settlement in the amount of $120,000 has been reached.

During the quarter ended February 29, 2004, there has been no significant change in any of the above listed litigation, except as noted.