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KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(L) CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not
exposed to any significant credit risk or cash and cash equivalents.
(M) NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued
several new accounting pronouncements. Statement No. 130,
"Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income and its components,
and is effective for fiscal years beginning after December 15,
1997. Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" establishes standards for the
way that public business enterprises report information about
operating segments in annual financial statements and requires that
those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products
and services, geographic areas, and major customers, and is
effective for financial statements for periods beginning after
December 15, 1997. Statement No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits" revises employers'
disclosure requirements about pension and other postretirement
benefit plans and is effective for fiscal years beginning after
December 15, 1997. Statement No 133, "Accounting for Derivative
Instruments and Hedging Activities" establishes accounting and
reporting standards for derivative instruments and related
contracts and hedging activities. This statement is effective for
all fiscal quarters and fiscal years beginning after June 15, 1999.
The Company believes that its future adoption of these
pronouncements will not have a material effect on the Company's
financial position or results of operations.
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KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
NOTE 2 - NOTES RECEIVABLE - SHAREHOLDERS AND RELATED PARTIES
The following is a summary of notes receivable at March 31, 1999:
Notes receivable - Shareholder, unsecured. Interest at
6.625% is payable beginning June 30, 1998 when all accrued
interest will be due, then annually on each subsequent
June 30. Principal payments are due beginning December 31,
1998 when one-fifth of the outstanding amount is due.
Subsequent payments are due one-fifth each December 31
until February 26, 2002 when all outstanding principal and
interest is due. $ 56,320
Notes receivable - Shareholder, unsecured. Interest at
6.625% is payable beginning June 30, 1998 when all accrued
interest will be due, then annually on each subsequent June 30.
Principal payments are due beginning December 31, 1998 when
one-fifth of the outstanding amount is due. Subsequent payments
are due one-fifth each December 31 until February 26, 2002 when
all outstanding principal and interest is due. 49,920
Notes receivable - Related Party, unsecured. Interest at
6.625% is payable beginning June 30, 1998 when all accrued
interest will be due, then annually on each subsequent June 30.
Principal payments are due beginning December 31, 1998 when
one-fifth of the outstanding amount is due. Subsequent payments
are due one-fifth each December 31 until February 26, 2002 when
all outstanding principal and interest is due. 23,198
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KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
NOTE 2 - NOTES RECEIVABLE - SHAREHOLDERS AND RELATED PARTIES - CONTINUED
Notes receivable - Related Party, unsecured. Interest at
6.625% is payable beginning June 30, 1998 when all accrued
interest will be due, then annually on each subsequent June 30.
Principal payments are due beginning December 31, 1998 when
one-fifth of the outstanding amount is due. Subsequent payments
are due one-fifth each December 31 until February 26, 2002 when
all outstanding principal and interest is due. 15,680
Note receivable - Shareholder, unsecured. Interest at 8%,
principal and interest is payable in five annual installments of
$38,250 beginning September 30, 1998. The note was prepaid through
a portion of the year 2000 101,915
---------
Total Notes Receivable 247,033
Less: Current maturities 36,280
---------
TOTAL NOTES RECEIVABLE - LESS CURRENT
MATURITIES $ 210,753
---------
---------
The aggregate amount of notes receivable maturing in each of the three years
subsequent to March 31, 1999 is as follows:
<TABLE>
<S> <C>
For the year ending March 31, 2000 $ 36,280
2001 74,530
2002 136,223
---------
$ 247,033
---------
---------
</TABLE>
NOTE 3 - NOTE RECEIVABLE
As a result of certain actions by its former securities attorney,
which led, among other things, to the Company's recognition of a
bad debt in the prior year of $300,000, the Company entered into a
settlement agreement with the former attorney and received a
$250,000 non-interest bearing promissory note dated February 3,
1999. The note is payable in monthly installments of $20,833
commencing February 15, 1999. The note is currently in default and
the Company has recorded a bad debt allowance on the entire amount
of the note as of March 31, 1999.
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KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
NOTE 3 - NOTE RECEIVABLE - CONTINUED
The Company is negotiating with its former attorney relating to a
further financial settlement concerning the actions of the attorney
and others.
Should the Company's efforts to informally resolve these matters
prove to be unsuccessful, the Company intends to vigorously pursue
its claims, and has had preliminary discussions with new legal
counsel relating to the matter.
NOTE 4 - NOTE PAYABLE
The Company has a note payable, in the original amount of $25,000
dated June 25, 1998. Interest accrues at 5% per month which is due
and payable on the retirement of the loan. The balance as of March
31, 1999 is $22,474. The note was satisfied on May 26, 1999 in
exchange for the issuance of common stock.
NOTE 5 - PREFERRED STOCK
The Company has authorized the issuance of 5,000,000 shares of
preferred stock. The 1,000,000 shares of preferred stock issued in
connection with the Big Tex business combination discussed in Note 1
(B) are convertible to common stock. The preferred stock also has 3
to 1 voting rights over all common stock.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
(A) LEASES
On October 8, 1998 the Company, as subtenant, entered into a
sublease agreement with the existing tenant commencing on October
15, 1998. The term of the sublease is through and including the end
of the original term of the tenant's lease of the premises, which is
August 20, 2000. The monthly rent on this sublease is $1,512 through
August 20, 1999 at which time it will increase to $1,579 a month
until August 20, 2000. Future annual minimum rentals under this
sublease agreement are as follows:
<TABLE>
<S> <C>
For the year ending March 31, 2000 $ 18,615
2001 7,896
---------
$ 26,511
---------
---------
</TABLE>
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KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
NOTE 6 - COMMITMENTS AND CONTINGENCIES - (CONT'D)
(B) LEGAL ACTIONS
In the normal course of business, there may be various legal actions
and proceedings pending which seek damages against the Company.
Management believes that the amount, if any, that may result from
these claims, will not have a material adverse effect on the
financial statements.
(C) SECURITIES AND EXCHANGE COMMISSION INFORMAL INQUIRY
In August 1998, the Securities and Exchange Commission ("SEC") began
an informal inquiry relating to the sales of shares of the Company
in 1996 and 1997 to the former shareholders of Kanakaris
Internetworks, Inc. ("KIW") (See Note 1(A) and (B)). Approximately
6,000,000 shares were sold to investors of KIW. Named in the inquiry
as defendants are the Company and its President and Vice President.
Settlement negotiations have been concluded with the SEC effective
June 9, 1999. The Company, its executives and the SEC have accepted
the following settlement: Without admitting or denying any wrong
doing, the Company and its executives will consent to a permanent
injunction enjoining them from engaging in acts which constitute,
among other things violations of Section 17(a)(1) 2 OR 3 of the
Securities Act of 1933. In addition Company counsel advises that the
proposed settlement does not carry any civil penalties against the
company.
(D) YEAR 2000 ISSUES
The Company is aware of the issues associated with the programming
code in existing computer systems as the millennium (Year 2000)
approaches. The "Year 2000" problem is pervasive and complex as
virtually every computer operation will be affected in some way by
the rollover of the two-digit year value to 00. The issue is whether
computer systems will properly recognize date-sensitive information
when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a
system to fail.
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