page 15
PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
NOTE 6 - COMMITMENTS AND CONTINGENCIES - (CONT'D)
(D) YEAR 2000 ISSUES - (CONT'D)
The Company uses a standard off the shelf accounting software
package for all of its accounting requirements. Management has
contacted the software vendor and determined that the accounting
software is Year 2000 compliant. All internal management software is
Microsoft based and management continually monitors the Year 2000
status of such software. Management has verified Year 2000 status
with its primary vendors and has not identified any Year 2000 issues
with those vendors. Costs of investigating internal and external
Year 2000 compliance issues have not been material to date. As a
result, management believes that the effect of investigating and
resolving Year 2000 compliance issues on the Company will not have a
material effect on the Company's future financial position or
results of operations.
In addition to the effect of Year 2000 issues on the Company's
accounting and management systems, Year 2000 issues may effect the
Company's products as the products are primarily computer related.
The Company's products have been developed and tested with regard to
Year 2000 compliance. All products were deemed to be Year 2000
compliant. The costs of such development and testing and validating
were minimal and absorbed as part of the Company's normal quality
control procedures.
(E) LETTER OF INTENT
On January 26, 1999, the Company entered into a Letter of Intent
with Timothy L. Waller to develop, design, and maintain two Real
Estate Web Sites: (1) www.brea.com (Bank Real Estate Auctions) is
intended to be used to sell bank owned real estate via the internet
in an auction like atmosphere and (2) www.fsbomls.com (For Sale By
Owner Multiple Listing Service) is intended to enable real estate
owners to market and sell their property without the services of a
professional real estate broker. The two parties intend to sign a
formal agreement and are still in negotiations as of the date of
this report.
16
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
NOTE 6 - COMMITMENTS AND CONTINGENCIES - (CONT'D)
(F) LICENSE AGREEMENT
On February 18, 1999, the Company entered into a License Agreement
("Agreement") with ION Systems, Inc. ("ION"), a Missouri
corporation. The Agreement is through December 31, 2004, and
thereafter will be renewed automatically for additional renewal
terms of five years each, ending on December 31 of each fifth year.
Under the terms of the Agreement, ION grants to the Company a
license to use its products, the E*Web and the X*Maker computer
software enabling the secure downloading and viewing of web sites,
for or in connection with the Company's web sites. The two parties
agreed that the software may be used solely for the publishing,
displaying, promoting, marketing, offering and selling for a fee of
certain specified book categories as well as of products or services
listed in the books published. The aforementioned activities are
meant to be offered directly to customers and end users using the
facilities of a web site. No geographic or territorial restrictions
apply to the use of the software. At the option of the Company to be
exercised until August 30, 1999, the license with regard to E*Web
shall be exclusive to the Company for a license fee of $1,000,000.
The agreed fee for each book conversion performed by ION will be
$100, and the royalties for each book sale and product sale shall be
12% and 5%, respectively, of the gross revenue. Furthermore, ION
shall have the right to buy 100,000 shares of the Company's common
stock at a price of $0.30 per share one time at any time between
June 1, 1999 and December 31, 2005.
NOTE 7 - PRIVATE PLACEMENT
On December 3, 1998 and February 18, 1999 the Company completed two
offerings under the Securities and Exchange Commission Regulation D,
Rule 504. In the first offering, 2,892,326 shares were sold to two
investors at $.06 per share for a total of $173,540. In the second
offering 475,000 shares were sold to one investor at $.50 per share
for a total of $237,500.
17
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
NOTE 8 - REVOLVING LINE OF CREDIT
On February 25, 1999, the Company signed a Memorandum of
Understanding ("Memorandum") with Alliance Equities
Inc.("Alliance"), a Florida-based venture capital firm. Under the
terms of the Memorandum, Alliance will make available a $5 million
revolving line of credit in order to enable the Company to pursue
current Internet opportunities, commerce development, and a possible
stock buy back program. The two parties agreed that the indebtedness
may be paid back by the Company either with cash or the issuance of
stock. Furthermore, the two parties agreed that Alliance will
continue its ongoing consulting services to the Company including,
but not limited to, strategic growth advice and introductions,
marketing advice, and business ideas. Alliance will be compensated
for these services at the option of the Company either in cash, or
through the issuance of stock or credit towards the purchase of
stock. The line of credit was increased to $7 million on April 7,
1999.
NOTE 9 - STOCK INCENTIVE PLAN
On January 6, 1999, the Company's Board of Directors created a stock
incentive plan, to be named the 1999 Stock Incentive Plan (the
"Plan"). The Plan is intended to allow designated officers,
employees and certain Non-Employee Directors of the Company to
receive certain options to purchase the Company's common stock and
to receive grants of common stock subject to certain restrictions.
The maximum number of shares that may be issued pursuant to the Plan
shall be 2,750,000, all of which have been reserved as of January 6,
1999.
On January 6, 1999, the Board of Directors approved the granting of the
following options under the plan:
Qualified Options:
<TABLE>
<CAPTION>
Exercise Expiration
Name Amount Price * Date
---- ------ ------- ----
<S> <C> <C> <C>
Alex Kanakaris 500,000 $0.18 Jan. 6, 2004
Branch Lotspeich 500,000 0.18 Jan. 6, 2009
Lisa Lawrence 50,000 0.18 Jan. 6, 2009
</TABLE>
* - Market value on date of grant
Non-Qualified Options:
<TABLE>
<CAPTION>
Exercise Expiration
Name Amount Price Date
---- ------ ----- ----
<S> <C> <C> <C>
Alex Kanakaris 900,000 $0.25 Jan. 6, 2009
Branch Lotspeich 400,000 0.25 Jan. 6, 2009
</TABLE>
18
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
NOTE 10 - SUBSEQUENT EVENTS
(A) COMMON STOCK OFFERING
The Company is in the process of preparing for filing of a
Registration Statement under Form SB-2 whereby the company will
offer a certain number, as defined in the offering document, of
their authorized common stock and common stock options.
(B) INTERNET DATA CENTER SERVICES AGREEMENT
On June 27, 1999, the Company entered into an agreement with Exodus
Communications, Inc. to provide the Company with internet data
services. Under the agreement, Exodus Communications, Inc. will
perform these services under a discounted pricing arrangement, a
schedule of which is incorporated into the agreement. In
consideration for this pricing arrangement, Exodus Communications,
Inc. will receive some equity in the form of common stock on a par
basis with the discounts extended, to be determined in the next few
weeks.
(C) LETTER OF INTENT
On June 28, 1999, the Company entered into a Letter of Intent with
RH Investment Corporation, as an advisor, to structure and
formalize a proposed offering of the Company's securities pursuant
to the anticipated SB-2 registration statement to be filed with the
Securities and Exchange Commission as previously discussed in (A).
Under the Letter of Intent, the Company and Advisor intend and
agree to enter into (I) a contractual financial consulting
agreement, (ii) a strategic alliance wherein the advisor will
assist the Company in funding its ongoing capital requirements,
(iii) an agreement to provide the Company with investment banking
services relating to financial planning and capital sourcing and
(iv) seek to form a non-exclusive underwriting syndicate for the
Company's proposed SB-2 offering.
19
<PAGE>
KANAKARIS COMMUNICATIONS, INC.
AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONTENTS
<TABLE>
<S> <C> <C>
PAGE 1 - INDEPENDENT AUDITORS' REPORT
PAGES 2 - 3 - CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 30, 1998 AND 1997
PAGE 4 - CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE YEAR
ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM FEBRUARY 25, 1997
(INCEPTION)TO SEPTEMBER 30, 1997
PAGE 5 - CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND
FOR THE PERIOD FROM FEBRUARY 25, 1997
(INCEPTION) TO SEPTEMBER 30, 1997
PAGES 6 - 7 - CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
AND FOR THE PERIOD FROM FEBRUARY 25, 1997
(INCEPTION) TO SEPTEMBER 30, 1997
PAGES 8 -17 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
</TABLE> |
