<PAGE19>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
NOTE 4 - COMMITMENTS AND CONTINGENCIES - (CONT'D)
(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.
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.
NOTE 5 - PRIVATE PLACEMENT
June 15, 1998, the Company prepared an Offering Memorandum
under Securities and Exchange Commission exemptions from
Registration provided by Section 3 (b) Regulation D and Rule
504 promulgated thereunder to raise $625,000 by offering
shares of the Company's common stock. The offering was
terminated on September 28, 1998 and the Company raised
$471,024 from such offering. (Also See Note 6 (D)).
15
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
NOTE 6 - SUBSEQUENT EVENTS
(A) 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 agreed to sign a formal
agreement within 120 days from the date of the Letter of
Intent.
(B) 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.
(C) 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. The
16
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
NOTE 6 - SUBSEQUENT EVENTS - (CONT'D)
two parties agreed to sign a final agreement within 14 days
from the date of the Memorandum. 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. Any money advanced to the
Company by Alliance in the interim of signing the final
agreement will be returned if no final agreement can be
reached. 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.
(D) OFFERING MEMORANDUMS
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,
3,333,333 shares were sold to two investors at $.06 per share
for a total of $200,000. In the second offering 470,000 shares
were sold to one investor at $.50 per share for a total of
$235,000.
(E) AGREEMENT AND SETTLEMENT
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 amount 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 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.
17
<PAGE>
The Financial Statements required by Item 310 of Regulation S-B are incorporated
by reference in this Prospectus, and are set forth in their entirety in Part F/S
to this Prospectus.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Information on this item is set forth in Prospectus under the heading
"Disclosure of Securities and Exchange Commission Position on Indemnification
for Securities Act Liabilities."
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Information on this item is set forth in the Prospectus under the heading "Use
of Proceeds."
RECENT SALES OF UNREGISTERED SECURITIES
Information on this item is set forth in the Prospectus in the Notes to
Consolidated Financial Statements contained in Part F/S to this Prospectus.
EXHIBITS
The Exhibits required by Item 601 of Regulation S-B, and an index thereto, are
attached.
UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a post
effective amendment to this registration statement to:
Include any prospectus required by section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and Notwithstanding the forgoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation From the low or high end of
the estimated maximum offering range may be reflected in the form of prospects
filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in the volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the Calculation of
Registration Fee table in the effective registration statement.
(iii) Include any additional or changed material information on the plan of
distribution.
<PAGE>
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(c) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(d) Provide to the underwriter at the closing specified in the underwriting
agreement certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the Act) may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorize, in the City of Costa Mesa, State of California, on August 10, 1999.
Kanakaris Communications, Inc.
By: /s/ Alex Kanakaris
Alex Kanakaris, CEO
Special Power of Attorney
The undersigned constitute and appoint Alex Kanakaris their true and lawful
attorney-in-fact and agent with full power of substitution, for him and in his
name, place, and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Form SB-2 Registration
Statement, and to file the same with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting such
attorney-in-fact the full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that such attorney-in-fact may lawfully do or cause
to be done by virtue hereof.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
date indicated:
Signature
Title
Date
/s/ Alex Kanakaris
Alex Kanakaris
Chief Executive Officer, Director
August 10, 1999
/s/ Branch Lotspeich
Branch Lotspeich
President Desience Division, Director
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