<PAGE>
As filed with the Securities and Exchange Commission on August 6, 1999
Registration No. __________
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KANAKARIS COMMUNICATIONS, INC.
(Previously known as Big Tex Enterprises, Inc.)
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(Name of Small Business Issuer in its charter)
Nevada 3714 86-0888532
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Code Number)
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3303 HARBOR BLVD., SUITE F-3
COSTA MESA, CA 92626
(714) 444-0560
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(Address and telephone number of Registrant's principal executive
offices and principal place of business)
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CASALE COFFEE NOJIMA, LLP
GERARD N. CASALE, JR.
11755 WILSHIRE BOULEVARD
SUITE 1200
LOS ANGELES, CALIFORNIA 90025
(310) 312-1860
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(Name, address, and telephone number of agent for service)
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
Subject to completion, dated August __, 1999.
<PAGE>
5,000,000 shares of Common Stock
[insert logo]
KANAKARIS COMMUNICATIONS, INC.
("Company", "We", "Us", "Our")
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective Registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to Offering Price Aggregate Registration
Securities to be Registered be Registered (1) per Unit Offering Price Fee
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Common shares 5,000,000 $ -- $4,687,500.00 $1,304.00
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(1) Under SEC Rule 416, there will be a change in the amount of securities
being issued to prevent dilution resulting from stock splits, stock
dividends, or similar transaction.
We may amend this registration statement on such date or dates as may be
necessary to delay its effective date until we file a further amendment which
specifically states that this registration statement shall later become
effective in accordance with Section 8(a) of the Securities Act of 1933 or
until the registration statement becomes effective on a date that the
Securities and Exchange Commission, acting under Section 8(a), may determine.
<PAGE>
The shares offered in this Offering are highly speculative and involve a high
degree of risk to public investors and should be purchased only by persons who
can afford to lose their entire investment. (See "Risk Factors" on page XXX).
COMMON STOCK
This is the initial public offering of shares of our Common Stock. This despite
the fact that our common stock is currently trading on the NASDAQ Bulletin Board
under symbol KKRS. Our common stock last closed trading on August __, 1999 at
$-.__ per share. This Offering is being made directly by our management and may
be made in the future by underwriters we select. Our Board of Directors
determined the Offering price. The Offering price may not be the same as the
current trading price of the shares of our Common Stock on the Bulletin Board
nor may the Offering price be the same as the market price for the shares after
this Offering. In fact, the offering price may be less than the price of the
common stock trading on the Bulletin Board. See "Risk Factors".
Some of the shares have been purchased before this Offering under a Debenture
Agreement and Registration Rights Agreement. Payment for a portion of these
shares has been received by us prior to this Offering. A portion of the shares
of this Offering will be paid for in cash upon the Offering. The payment for
these shares will be deposited directly with us for immediate use. See "Use of
Proceeds". We will not deposit funds paid under this Offering into an escrow
account and we will not set a minimum raise or impound amount prior to using
monies raised under this Offering.
PROSPECTUS
Kanakaris Communications, Inc.
(previously known as Big Tex Enterprises, Inc.)
5,000,000 Shares (1)
Common Stock
Offering Price $_____ per Share
(1) Under SEC Rule 416, there will be a change in the amount of securities being
issued to prevent dilution resulting from stock splits, stock dividends, or
similar transaction.
Kanakaris Communications, Inc., a Nevada corporation (the "Company", "we",
"our", "us"), is making this offering ("Offering") of up to 5,000,000 shares of
our $0.001 par value common stock (the "Shares") at an offering price of $____
per Share on a "best efforts" basis under the terms of this Prospectus for the
purpose of providing working capital for us.
The Shares offered in this Offering are highly speculative and involve a high
degree of risk to public investors and should be purchased only by persons who
can afford to lose their entire investment. See "Risk Factors."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
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Offering Price Commission, Finders' Fees Proceeds to the Us
And Allowances
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Per Share $ None $
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Maximum $ None $
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</TABLE>
In working towards completion of this Prospectus, we may amend any
information contained in this Prospectus. The registration statement relating
to the securities has been filed with the Securities and Exchange Commission.
The securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. This prospectus is not an
offer to sell or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State where such an offer, solicitation or
sale would be unlawful prior to registration or qualification under the
securities laws of any such State.
Subject to Completion, Dated ________________, 1999
THE SHARES ARE OFFERED BY THE COMPANY AND WE RESERVE THE RIGHT TO REJECT ANY
PURCHASE FOR ANY REASON.
THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OR OPEN OFFER TO
BUY INTO SECURITIES IN A STATE IN WHICH IT IS UNLAWFUL TO MAKE AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE UNDER THIS
PROSPECTUS SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SUBSEQUENT TO THE DATE
THEREOF. HOWEVER, IF A MATERIAL CHANGE OCCURS, THIS PROSPECTUS WILL BE
AMENDED OR SUPPLEMENTED ACCORDINGLY FOR ALL EXISTING SHAREHOLDERS, AND FOR
ALL PROSPECTIVE INVESTORS WHO HAVE NOT YET BEEN ACCEPTED AS SHAREHOLDERS.
THIS PROSPECTUS DOES NOT INTENTIONALLY OMIT ANY MATERIAL FACT OR CONTAIN ANY
UNTRUE STATEMENT OF MATERIAL FACT. NO PERSON OR ENTITY HAS BEEN AUTHORIZED BY
THE US TO GIVE ANY INFORMATION OR MAKE A REPRESENTATION, WARRANTY, COVENANT, OR
AGREEMENT WHICH IS NOT EXPRESSLY PROVIDED FOR OR CONTAINED IN THIS PROSPECTUS;
IF GIVEN OR MADE, SUCH INFORMATION, REPRESENTATION, WARRANTY, COVENANT, OR
AGREEMENT MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
ALL OFFEREES AND SUBSCRIBERS WILL HAVE AN OPPORTUNITY TO MEET WITH OUR
REPRESENTATIVES TO VERIFY ANY OF THE INFORMATION INCLUDED HEREIN AND TO OBTAIN
ADDITIONAL INFORMATION. COPIES OF ALL DOCUMENTS, CONTRACTS, FINANCIAL STATEMENTS
AND OTHER COMPANY RECORDS WILL BE MADE AVAILABLE FOR INSPECTION AT ANY SUCH
MEETING OR DURING NORMAL BUSINESS HOURS UPON REQUEST TO US.
ALL OFFEREES AND SUBSCRIBERS WILL BE ASKED TO ACKNOWLEDGE IN WRITING THAT THEY
HAVE READ THIS PROSPECTUS CAREFULLY AND THOROUGHLY, AND UNDERSTOOD THE CONTENTS
THEREOF, THEY WERE GIVEN THE OPPORTUNITY TO OBTAIN ADDITIONAL INFORMATION; AND
THEY DID SO TO THEIR SATISFACTION.
WE HAVE THE RIGHT, IN OUR SOLE DISCRETION, TO ACCEPT OR REJECT SUBSCRIPTIONS
IF WE
<PAGE>
OR OUR COUNSEL DETERMINES AN INVESTOR TO BE UNSUITABLE FOR THE PURCHASE OF
THE SHARES.
(1) A maximum of 5,000,000 shares may be sold on a delayed basis under Rule
415 under the Securities Act of 1933, as amended, pursuant to the conversion
of certain debentures into our common stock. The offering will remain open
until the maturity date of the debentures on [date of maturity].
(2) No commissions will be paid from the sale of the Shares on this delayed
basis.
(3) The Net Proceeds which will be paid to us from this Offering is calculated
before deducting the payment of certain expenses of this offering. See "Use of
Proceeds."
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUMMARY...................................................... 6
RISK FACTORS............................................................ 8
HOW WE INTEND TO USE THE PROCEEDS OF THIS OFFERING...................... 17
OUR MANAGEMENT DETERMINED OUR OFFERING PRICE ARBITRARILY................ 18
DILUTION................................................................ 19
OUR PLAN FOR DISTRIBUTING THE STOCK..................................... 20
LEGAL PROCEEDINGS....................................................... 21
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS............ 23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 25
DESCRIPTION OF SECURITIES............................................... 26
INTEREST OF NAMED EXPERTS AND COUNSEL................................... 29
DISCLOSURE OF SECURITIES AND EXCHANGE COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES..................... 29
ORGANIZATION WITHIN LAST FIVE YEARS..................................... 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................. 31
DESCRIPTION OF THE BUSINESS............................................. 33
DESCRIPTION OF PROPERTY................................................. 37
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................... 37
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................ 37
EXECUTIVE COMPENSATION.................................................. 38
FINANCIAL STATEMENTS.................................................... 39
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.............................................. 79
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
This is a brief summary of the information and Financial Statements (and their
Notes) in this Prospectus. We encourage you to read the entire Prospectus before
you decide whether and how much to invest in our Shares.
THE COMPANY
We market and provide downloadable media through the Internet. Our services
include the design and hosting of Web sites, proprietary Web sites, Internet
content and commerce. We also have a division named Desience which
manufacturers and sells computer command centers and which had been operating
for over two decades as a closely held corporation prior to the time we
acquired it. Our Internet services include the design and hosting of Web
shows, corporate web sites, digital book publishing, themed content commerce
sites, downloadable music Web sites and online advertising. Our Command
center solutions from our Desience division include the design, manufacture
and installation of ergonomic solutions for the utilization of computers and
peripherals in governmental agency and Fortune 500 company environments.
BACKGROUND
Our history includes a series of acquisitions. Our predecessor, Internetworks,
Inc. ("KIW"), was incorporated in the State of Delaware on February 25, 1997. On
October 10, 1997, KIW entered an agreement to purchase all of the common stock
of the Desience Corporation in exchange for a royalty to the owners of Desience.
The royalty payable to the prior owners of Desience is based upon a percentage
of gross sales. As of the effective date of the acquisition, Desience became a
wholly-owned subsidiary of KIW.
On November 25, 1997, KIW finalized an acquisition agreement with Big Tex
Enterprises, Inc. ("Big Tex"), by which all stock of KIW was transferred to Big
Tex in exchange for stock of Big Tex. Big Tex was incorporated in Nevada on
November 1, 1991, but had been an inactive company for a considerable period of
time before the KIW acquisition. KIW, along with its Desience subsidiary, became
wholly-owned subsidiary corporations of Big Tex upon the exchange of stock, at
which time the name "Big Tex Enterprises, Inc." was changed to Kanakaris
Communications, Inc. Kanakaris Communications, Inc. (the "Company" "we" "our"
"us") is the surviving entity after the acquisition. Aside from our Desience
division, we have only recently been operating as an entity. The Company's
common stock is traded on the OTC Bulletin Board under the symbol "KKRS."
<PAGE>
SELECTED FINANCIAL DATA
The following financial information summarizes the more complete
historical financial information at the end of this Prospectus. Our independent
public accountants have audited it. You should read the information below along
with all other financial information and analysis in this Prospectus. Please
don't assume that the results below indicate results which we will achieve in
the future.
<TABLE>
<CAPTION>
FISCAL YEAR END INTERIM PERIOD ENDING
SEP. 30, 1997 SEP. 30, 1998 MAR. 31, 1999
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<S> <C> <C> <C>
Statement of
Operations Data:
Net Sales $8,475 $919,905 $356,199
Gross Profit $8,475 $438,556 $153,357
Operating Expenses $282,818 $1,094,760 $569,373
Income (Loss) from
Operations ($274,343) ($656,204) ($416,016)
Earnings (Loss)
Per Common Share ($0.0961) ($0.0449) ($0.0201)
Balance Sheet Data:
Current Assets $98,099 $194,812 $311,437
Total Assets $309,763 $787,970 $866,498
Current Liabiities $18,773 $606,796 $712,695
Long-Term Debt - $20,753 -
Total Stockholder's
Equity $290,990 $160,421 153,803
</TABLE>
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR SHARES INVOLVES A HIGH DEGREE OF RISK. THE SHARES SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
THEREFORE, PRIOR TO PURCHASE, YOUR SHOULD CONSIDER VERY CAREFULLY THE FOLLOWING
RISK FACTORS AMONG OTHER THINGS, AS WELL AS ALL OTHER INFORMATION SET FORTH IN
THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THESES STATEMENTS RELATE TO
FUTURE EVENTS OR FUTURE FINANCIAL PERFORMANCE. IN SOME CASES, YOU CAN IDENTIFY
FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS "MAY", "WILL," "SHOULD",
"PREDICTS," "PREIDCTS," "POTENTIAL", OR "CONTINUE" OR THE NEGATIVE OF SUCH
PREDICTIONS. IN EVALUATING THESE STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER
VARIOUS FACTORS, INCLUDING THE RISKS OUTLINED BELOW. THESE FACTORS MAY CAUSE OUR
ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENT. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS."
THE OFFERING PRICE OF OUR SHARES WAS DETERMINED ARBITRARILY
The offering price of our Shares bears no relation to our book value, assets or
earnings and was calculated in accordance with SEC Rule 457(g)(3). We cannot
assure that the Shares will maintain a market value that is similar to the
offering price. See "Determination of Offering Price."
OUR BOARD OF DIRECTORS DETERMINED OUR OFFERING PRICE
Our Board of Directors is responsible for the valuation of our investments and
assisting us in selecting viable prospects and clients for our corporate
portfolio. There are a wide range of values which are reasonable for an
investment or in the selection of potential claims for our services. The Board
of Directors can adopt several methods for an accurate evaluation. Ultimately,
the determination of fair value involves subjective judgment not capable of
substantiation by auditing standards. Accordingly, in some instances, it may not
be possible to substantiate by auditing standards the value of our investment.
Our Board of Directors will serve as the valuation committee which is
responsible for valuing each of our investments. In connection with any future
distributions which we may make, the value of the securities received by
investors as determined by the Board may not be the actual value that the
investors would be able to obtain even if they sought to sell such securities
immediately after a distribution. In addition, the value of the distribution may
decrease or increase significantly subsequent to the distributee shareholders
receipt thereof not withstanding the accuracy of the Board's evaluation.
THIS IS A SHELF OFFERING WHERE SOME OF THE SHARES ARE OFFERED ON A DELAYED BASIS
TO A CERTAIN SHAREHOLDER
Our Management is directly offering the Shares to the public. A certain portion
of the Shares are being offered on a delayed basis pursuant to certain
conversion rights of debenture held by one of our creditors. This creditor is
Alliance Equity, Inc. Alliance Equity, Inc. may decide to convert a portion of
principal in the debenture into the offered Shares being registered in this
Offering. We
<PAGE>
cannot assure that any or all of the Shares will be issued beyond those which
have already been elected for conversion by Alliance Equity, Inc. No
broker-dealer has been retained as an underwriter and no broker-dealer is
under any obligation to purchase any of the Shares. In addition, our officers
and directors, collectively, have limited experience in the offer and sale of
securities. See "Plan of Distribution."
WE MAY BE UNABLE TO SELL ALL THE SHARES IN THIS OFFERING
We are attempting to sell a maximum of 5,000,000 Shares under this Offering. The
sale of all the Shares would allow us to receive gross proceeds from this
Offering of $___________ less offering costs. We cannot assure that the maximum
proceeds from this offering will be received. As a result, we cannot assure that
we will have sufficient funds to implement our proposed business strategy. Also,
we may be forced to seek additional capital which may not be available on terms
favorable or acceptable to us in the future. The funds received from Alliance
Equity, Inc. through the debenture and converted from debt to equity by this
offering have already been used for the purposes identified in the "Use of
Proceeds" table. See "Use of Proceeds" and "Business."
WE MAY HAVE TO FIND ADDITIONAL CAPITAL
We may be forced to seek additional capital. Our ability to become competitive,
achieve future growth and expand operations depends on our access to capital
since we have yet to achieve profitable operations. We cannot assure that
profitable operations will be attained in the near future, if at all. In
addition, we will need to spend more money on our intended business strategies
than the amount previously financed through the Convertible Debenture Agreement.
To date, we have financed capital expenditures primarily through debt and equity
placements and will continue to do so for the foreseeable future. To implement
our growth strategy and meet capital needs, we plan to sell equity in the
Company during each phase of our business plan and take loans in the future. The
result will be further dilution to you and other investors. We cannot assure
that cash will be available on terms acceptable to us, or at all. Our failure to
obtain sufficient additional capital in the future could force us to slow our
growth or delay capital expenditures, which could have a significant negative
effect on our business, financial condition, results of operations or prospects.
See "Business -- Growth Strategy."
OUR NEW INVESTORS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION
The offering price of the Shares is substantially higher than the book value per
Share of our Common Stock. This Offering will result in immediate and
substantial dilution for you and all those investors purchasing Shares at the
Offering price. Accordingly, if you purchase our Shares under this Offering and
assuming the maximum offering amount, you will immediately experience dilution
of $_____ or __% in the pro forma net tangible book value per share from the
price you pay for the Shares. See "Dilution".
WE HAVE A LIMITED OPERATING HISTORY AND ANTICIPATE LOSSES IN THE FUTURE
The predecessor entity to the Company was formed on November 1, 1991. However,
the operational divisions of the Company were formed more recently and
accordingly, have a very limited operating history. To date, the Company as a
whole generated only minimal revenues or sales. In addition, our revenue model
is evolving and relies substantially upon the successful implementation of its
Internet business
<PAGE>
strategy. Our business must be considered in light of the risks, expenses and
problems frequently encountered by companies in their early stages of
development, particularly companies in highly competitive markets such as
Internet business and furniture design and installation. There can be no
assurance that we will be successful in addressing these risks, and any
failure to do so could have a material adverse effect on our business,
results of operations and financial condition. We anticipate that we will
incur net losses for the foreseeable future. We expect operating expenses to
increase significantly, especially in the areas of sales and marketing. As a
result, we will need to generate increased quarterly net revenue if
profitability is to be achieved. We believe that period-to-period comparisons
of our operating results will not be meaningful and that the results for any
period should not be relied upon as an indication of future performance. To
the extent that net revenue does not grow at rates we forecasted or that
increases in our operating expenses come earlier than expected, results of
operations and financial condition will be materially and adversely affected.
We cannot assure that our operating losses will not increase in the future or
that we will ever achieve or sustain profitability.
WE MAY NOT HAVE ENOUGH CAPITAL FROM THIS OFFERING TO CONTINUE OPERATIONS
Our Management believes that additional funds will be necessary for continued
operations and that the proceeds from the sale of the securities may not be
enough to last a significant period of time. In such event, we will be
required to seek additional debt and/or equity financing. We may not be able
to raise or obtain the additional capital or may have to do so on terms
unfavorable to us or to you or other new investors. If less than the maximum
number of Shares is purchased in this Offering, our business opportunities
will be limited. Accordingly, we would be forced to rely on operating results
to provide it with the necessary cash flow to meet its financial commitments,
or we may be required to seek additional capital. See "Use of Proceeds".
OUR BUSINESS IS SPECULATIVE
The commercial success of Internet startup companies and furniture design and
installation companies are often dependent on factors beyond our control,
including but not limited to technological advancement, consumer trends and
the general economy. Although we intend to fully assemble the management team
necessary to facilitate cost effective operations, neither the managers nor
other employees have been assembled as of the date of this Prospectus. We may
experience substantial cost overruns and may not have sufficient capital to
successfully complete any of our projects. Competent partners or joint
venture partners may not be available to assist us in the financing and
marketing efforts for the projects, if required. We may also incur uninsured
losses for liabilities that arise in the ordinary course of business which
are unforeseen. There is no assurance that you will not lose your entire
investment in the Shares. See "Business."
WE OPERATE OUR BUSINESS IN A COMPETITIVE FIELD
The Internet and furniture design industries are extremely competitive and
can be significantly affected by many factors, including changes in local,
regional or national economic conditions, changes in consumer preferences,
brand name recognition and marketing and the development of new and competing
technologies. We expect that existing businesses that compete with us and
which have greater resources than us will be able to implement more extensive
marketing campaigns and adopt more aggressive advertising sales policies.
<PAGE>
In addition, we may experience substantial competition in our efforts to
locate clients. Many of our competitors have greater experience, resources
and managerial capabilities than us and are in a better position to obtain
access to attract business prospects. The market is currently dominated by
large companies and many smaller companies. It is anticipated that many other
large companies which market or produce entertainment products such as films,
music CD's or tapes and books will enter the market in the future.
Consequently, we may encounter initial and continued resistance which could
challenge and slow our progress.
INTELLECTUAL PROPERTY PROTECTION
We believe that certain of our website and product content and information is
proprietary and we intend to protect that which is not already protected, under
copyright, trademark, and trade secret laws as well as through contractual
restrictions on disclosure, copying and distribution to the extent possible.
CONFLICTS OF INTEREST MAY EXIST
Our officers and directors are and may in the future be associated with other
firms involved in a range of business activities. Due to these affiliations,
there are potential inherent conflicts of interest in their acting as our
directors and officers. Conflicts of interest and non-arms-length transactions
may arise in the future in the event our officers or directors are involved in
the management of any firm with which we transact business. However, officers
and directors will be required to enter into non-competition agreements to be in
effect while they serve and for a period of 12 months thereafter.
WE MAY BE UNABLE TO MANAGE OUR GROWTH
Our ability to attract and maintain management will depend on many factors,
including competition and the overall labor market. The industries in which we
operate are subject to extreme competition for employees. We may be unable to
attract or retain management personnel necessary to operate the business or to
facilitate its further growth.
OUR OFFICERS AND DIRECTORS CONTROL OUR POLICIES
Our officers will be able to elect our Directors in the future and with certain
other votes from key shareholders can carry the vote required for authorization
of important transactions and events because of their substantial holding of our
Shares and voting power. As a result, the officers will be able to solely
control our management, policies and business operations. See "Principal
Shareholders."
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") and we intend that any
forward-looking statements fit within the safe harbors for such statements under
such sections. Our forward-looking statements include the plans and objectives
of management for future operations, including plans and objectives relating to
our planned national marketing campaign and future economic performance. The
forward-looking statements and associated risks in this Prospectus include or
relate to: (i) our ability to maintain market share in its current operating
markets, (ii) our ability to integrate acquisitions, (iii) our ability to
develop product identification, (iv) our ability to make additional acquisitions
on advantageous terms and (v) our ability to find sufficient capital for our
future operations.
<PAGE>
The forward-looking statements are based on current expectations that involve
risks and uncertainties. These forward-looking statements are based on
assumptions that there will be no significant competitive changes in conditions
that would negatively effect our business, and that there will be no material
adverse change in our operations or business or in governmental regulations
affecting us or our suppliers. Our assumptions are based on may factors
including future economic, competitive and market conditions, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Even though we believe that
these assumptions are reasonable, any such assumption could be inaccurate and
therefore we cannot assure that the results contemplated in forward-looking
statements will be realized. In addition, as disclosed elsewhere in the "Risk
Factors" section of this Prospectus, there are a number of other risks inherent
in our business and operations which could cause our operating results to vary
markedly and adversely from prior results or the results contemplated by the
forward-looking statements. Growth in absolute and relative amounts of cost of
goods sold and selling, general and administrative expenses or the occurrence of
extraordinary events could cause actual results to vary materially from the
results contemplated by the forward-looking statements. Management decisions,
including budgeting, are subjective in many respects and periodic revisions must
be made to reflect actual conditions and business developments, the impact of
which may cause us to alter marketing, capital investment and other
expenditures, which may also negatively affect our results of operations.
Because we cannot predict the accuracy of the forward-looking information
included in this Prospectus, you should not rely on this information as fact.
OUR STOCK SALES MAY BE LIMITED BECAUSE OF PENNY STOCK RULES
Our Common Stock is subject to Rule 15g-9 under the Exchange Act of 1934, which
imposes sales practice requirements on any broker-dealers who wants sell our
Common Stock, including requirements pertaining to the suitability of the
investment for the purchaser and delivery of specific disclosure materials and
monthly statements. This rule may limit the ability of broker-dealers to sell
our securities and may adversely affect your ability to sell any of the Shares
in the secondary market, if one is created.
These "penny stock" restrictions will not apply to our securities if they become
listed on the NASDAQ SmallCap Market and have certain price and volume
information provided on a current and continuing basis or meet certain minimum
net tangible assets or average revenue criteria. We have not yet applied for
listing of our Shares on the NASDAQ SmallCap Market and because of this we will
be subject to the penny stock sales restrictions in the event that a
broker-dealer wants sell our securities. We cannot assure that our securities
will qualify for exemption from these restrictions.
WE RELY HEAVILY ON LICENSE AGREEMENTS GRANTED BY LARGE COMPANIES
Our products and services are based in part on proprietary rights to software
which is licensed to us by larger companies. Our loss of any of these licenses
would require major programming efforts in order to develop replacement software
and would have a material adverse affect on us.
THE SECURITIES AND EXCHANGE COMMISSION INVESTIGATED US AND WE SETTLED THE
INVESTIGATION BY AGREEING TO DO CERTAIN THINGS
<PAGE>
The Company, Alex Kanakaris, CEO of the Company, and David Valenti, a sales
manager for us and a former Director, have signed consent decrees with the
United States Securities and Exchange Commission without admitting or denying
guilt to violations cited in the decrees and have agreed to pay administrative
fines totaling $50,000.00. We have cooperated fully with the SEC's informal
investigation. Under the consent decree order, we and the above-referenced
individuals have agreed to desist from violating federal securities laws in
connection with the offer, purchase or sale of securities. The consent decree
and order may adversely effect our ability to raise additional working capital
through future registered or exempt offerings of our securities.
THE PRICE OF THE SHARES MAY BE DIFFERENT FROM THE MARKET PRICE OF THE COMMON
STOCK
The Shares have been offered by us to certain individuals at a significantly
lower price than the current Offering price in recent financing transactions.
Shares of our Common Stock were issued in connection with such financing. In
addition, our Shares currently trade on the NASDAQ OTC Bulletin Board at prices
that may currently exceed the Offering price contemplated herein.
OUR PRIOR OFFERINGS MAY HAVE EXPOSED US TO LIABILITY
In past offerings, we have issued unregistered securities to certain individuals
based on exemptions from registration under federal and state laws. Although we
believe that all such transactions were made in compliance with applicable laws,
there is a risk that such transactions may have violated Section 5 of the
Securities Act or similar state laws. If a violation occurred, the investors in
the prior financing transactions may be entitled to rescission rights and
various other remedies. In the event that any of the purchasers involved in the
financing want their money back, we could be liable for up to the total amount
of funds obtained the prior offerings plus penalties and interest. Such
liability, if imposed, could have a material adverse impact on our financial
condition.
WE LACK A HISTORY OF OPERATIONS AND EXPERIENCE
We have no significant revenues from our Internet operations and no other
significant assets. As a result, we cannot assure that we will generate revenues
in the future and we cannot assure that we will operate at a profitable level at
any time in the foreseeable future.
WE ARE EXTREMELY DEPENDENT ON THE INTERNET INDUSTRY
Our business is influenced by the rate of use and expansion of the Internet and
computer industry. Declines in the industry may negatively impact our ability to
generate revenues.
OUR SUCCESS DEPENDS ON THE SUCCESS OF MANAGEMENT
Any potential investor is strongly cautioned that the purchase of the Shares
should be evaluated on the basis of: (i) the limited diversification of the
venture capital opportunities afforded to us, (ii) the high risk nature and
limited liquidity of the Company, and (iii) our ability to utilize funds for the
successful development and distribution of revenues as derived by the revenues
received by our yet undeveloped portfolio of clients, and any new potentially
profitable ventures, among other things. We cannot assure that any particular
client and/or property under a management contract will become successful. Nor
can we be sure that Management will be successful in getting new clientele.
<PAGE>
OUR PRODUCTS AND SERVICES ARE NOT DIVERSIFIED
Because we are a small business, it is unlikely that we will be able to acquire
major accounts until we have a proven track record, and we may not be able to
achieve the same level of diversification as larger companies in this type of
business.
WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK
The Board of Directors does not anticipate paying cash dividends on the Common
Stock for the foreseeable future and intends to retain any future earnings to
finance our growth. Payment of dividends, if any, will depend, among other
factors, on our earnings, capital requirements and the general operating and
financial conditions as well as legal limitations on the payment of dividends
out of paid-in capital. (See "Dividends")
THE INVESTMENT IN THE SHARES IS RISKY AND YOU COULD LOSE ALL OF YOUR MONEY
The Shares offered hereby are highly speculative and involve a high degree of
risk and should not be purchased by any person who cannot afford the loss of his
entire investment. Our Common Stock has been extremely volatile and may continue
to be so. A purchase of our stock in this Offering would be "unsuitable" for a
person who cannot afford to lose his entire investment.
WE ARE NOT YET A REPORTING COMPANY UNDER THE SECURITIES EXCHANGE ACT OF 1934
We are not currently subject to the reporting requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"). After this Offering, we will be
required to file with the Securities and Exchange Commission, quarterly and
annual reports on forms 10-QSB and 10-KSB in accordance with the provisions of
the Exchange Act and will be subject to the regulations promulgated by the
Securities and Exchange Commission pursuant to the Exchange Act.
WE HAVE A LIMITED PUBLIC MARKET FOR OUR STOCK
Our Common Stock trades on the NASDAQ OTC Bulletin Board under the symbol
"KKRS." Prior to the Offering, there has been a limited public market for the
Common Stock being offered. We cannot predict that an active trading market will
be sustained or that you will be able to resell the Shares at prices equal to or
greater than the Offering price which you paid for the Shares. The market price
of the Common Stock has been extremely volatile and may be significantly
affected by factors such as announcements by us or our competitors, as well as
variations in our results of operations and market conditions in the industries
in general. The market price may also be affected by movements in prices of
stock in general. As a result of these factors, purchasers of the Shares in this
Offering may not be able to sell the Shares quickly or at all.
THE COMMON STOCK DOES NOT CARRY CUMULATIVE VOTING
Holders of the Common Stock are not entitled to accumulate their votes for the
election of directors or otherwise. Accordingly, the holders of a majority of
the shares present at a meeting of shareholders will be able to elect all of our
directors, and the minority shareholders will not be able to elect a
representative to our board of directors.
OUR ISSUED CLASS A CONVERTIBLE PREFERRED STOCK HAS SPECIAL VOTING RIGHTS AND IS
ENTIRELY HELD BY OUR CEO, ALEX KANAKARIS
<PAGE>
We have authorized and issued a total of 1,000,000 shares of Class A
Convertible Preferred shares ("Preferred Shares") to our CEO Alex Kanakaris.
Each of the Preferred Shares will carry twenty (20) non-cumulative votes per
share subject to ratification by a majority of shareholders. Majority
shareholder ratification will be forthcoming. As a result of his holding the
Preferred Shares and his holding of certain Common Stock shares, Mr.
Kanakaris along with certain of our other key employees and board members
controls our decisions and the majority vote required for most significant
transactions and events under Nevada law. See "Management and Control",
"Description of Securities: Description of Class A Convertible Preferred
Stock".
WE MAY NOT BE ABLE TO REGISTER CERTAIN DOMAIN NAMES AND WE MAY HAVE A CONFLICT
WITH THE USE OF CERTAIN SYMBOLS
We currently hold the Internet domain name "kanakaris.com". Our symbol for
trading on the Bulletin Board is now "KKRS". Our symbol before using KKRS was
KANA. On Wednesday, July 28, 1999, we changed our trading symbol to KKRS because
NASDAQ informed us that another entity had already reserved the name for trading
on the NASDAQ SmallCap market and as such took precedence over our use of the
name on the Bulletin Board. We may not again be able to use the symbol "KANA".
We may also have further difficulty with the use or application of the symbol
KKRS.
On June 7, 1999 we received a letter from Teknon Corporation alleging that
they held a trademark on the mark "Netbooks." We have used the name Netbooks
since January of 1998. We are currently determining whether to resolve the
issue with Tecknon Corporation's counsel and pay a royalty for the use of the
name or cease from further use of the name. We may not be able to use the
mark or name "Netbooks" in the future.
OUR WEBSITE OPERATIONS ARE CURRENTLY BEING DEVELOPED
The success of our company depends mostly on the success of our Website. We are
currently and continually updating and developing our Website. Some of the
challenges to defining our site include completing development of downloadable
content, cost effective ways to drive traffic to our site, attracting
advertisers to our site, incorporating new technology to expand bandwidth on our
site, reaching alliances with key companies to help us grow our site and traffic
to the site, stabilizing the site from a maintenance perspective, and customer
service on the site.
RISKS ASSOCIATED WITH THE WEBSITE
Our website is subject to the risk of severe competition from other companies
like AOL, Netscape, Spinner, MP3, Amazon.com and others. We may also get
competition from new large entrants to the downloadable market such as Warner
Brothers, Disney, MGM, Paramount, Columbia, Simon and Schuster and others. We
may not be able to compete successfully.
Our website is also self-hosted meaning that we actually maintain our servers
ourselves. In case of electronic or natural disaster or overload our site may
encounter a serious disruption of service which may negatively impact the price
of our Shares. System failures or power or services outages may also negatively
impact the ability to use our site and therefore effect our Share price.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs written using year
identifiers, consisting or two digits, rather than four. Use of two digits to
<PAGE>
identify years may cause certain systems to recognize a date using "00" as the
year 1900 rather than the year 2000. This may result in the failure or
miscalculation in businesses so as to cause disruption in the flow of business.
We have not verified that the companies with which we do business are year 2000
compliant. We also have not determined the year 2000 issue
THIS LIST OF RISK FACTORS MAY NOT BE COMPREHENSIVE. EACH PROSPECTIVE INVESTOR IS
CAUTIONED AND ADVISED TO MAKE HIS OWN INQUIRIES AND ANALYSIS WITH RESPECT TO OUR
CURRENT AND FUTURE BUSINESS PLANS.
<PAGE>
HOW WE INTEND TO USE THE PROCEEDS OF THIS OFFERING
We will use the proceeds from the sale of up to 3,000,000 Shares
offered to provide working capital for the Company and other costs associated
with the Offering. Not all of the proceeds from the Offering will be received by
the Company, as the selling shareholder of the Convertible Debenture will be
able to sell up to an additional 2,000,000 Shares in this Offering. The Company
has already or will receive the proceeds from the Convertible Debenture and upon
conversion, our debt obligation will be reduced by the amount of principal
converted into the Shares of the Company.
The following table shows how we intend to use of proceeds from this
Offering:
<TABLE>
<CAPTION>
USE OF PROCEEDS PERCENT
<S> <C>
Legal Fees 5%
Accounting Fees 5%
Working Capital/General overhead 35%
Technology 10%
Marketing 10%
Product/Content Procurement 10%
Acquisitions 15%
Research and Development 5%
Design 5%
-------
Total 100.00%
</TABLE>
We anticipate spending the funds from the Offering for the purposes
indicated above. If our expenditures are less than projected, we will retain
the difference and use it for general working capital purposes or allocated
according to the discretion of the Board of Directors. Conversely, if our
expenditures are more than the amounts anticipated above, we will be required
to draw from other sources such as revenues from operations and additional
financing activities such as private offerings of debt and equity. We will
deposit the net proceeds of this Offering that are not expended immediately
may be deposited in interest or non-interest bearing accounts, or invested in
government obligations, certificates of deposit, commercial paper, money
market mutual funds, or similar investments. Some of the proceeds have
already been received by the Company as principal loaned under the terms of
the Convertible Debenture. To the extent that we have already received funds
under the Convertible Debenture Agreement, they have or will be used for the
working capital requirements of the Company and will be reflected on the
Company's books as proceeds from equity sales by the Company rather than
outstanding debt obligations. To the extent that the conversion of debt into
Shares of the Company is less than the full amount convertible under the
terms of the Convertible Debenture Agreement, the resulting proceeds to be
allocated to equity sales by the Company will not occur and the debt
obligations of the Company will be retained. Therefore, any proceeds
allocated or to be used for general working capital purposes which would have
resulted from conversion of the underlying debt into equity in the Company
will be allocated to servicing the Company's debt obligation according to the
discretion of the Board of Directors. Conversely, to the extent that such
debt related expenditures require the utilization of funds in excess of the
amounts anticipated, supplemental amounts may be drawn from other sources,
including, but not limited to, general working capital and/or external
financing. The net proceeds of this offering that are not expended
immediately may be deposited in interest or non-interest bearing accounts, or
invested in government obligations, certificates of deposit, commercial
paper, money market mutual funds, or similar investments.
<PAGE>
OUR MANAGEMENT DETERMINED OUR OFFERING PRICE ARBITRARILY
The offering price is not based upon our net worth, total asset value, or any
other objective measure of value based upon accounting measurements. The
offering price was determined under Rule 457(g) of the Securities Act of 1933,
which states that where the securities to be offered pursuant to warrants or
other rights to purchase such securities the registration fee is to be
calculated upon the basis of the price at which the warrants or rights or
securities subject thereto are to be offered to the public. If such offering
price cannot be determined at the time of filing the registration statement, the
registration fee is to be calculated upon the basis of the highest of the
following: (1) the price at which the warrants or rights may be exercised, if
known at the time of filing the registration statement; (2) the offering price
of securities of the same class included in the registration statement; or (3)
the price of securities of the same class, as determined in accordance with
paragraph (c) of that Rule. Accordingly, the Shares are converted at the price
of $0.60 per share pursuant to the terms of the Convertible Debenture Agreement
which is the offering price for purposes of calculating the registration fee and
the offering price in this Prospectus.
This registration statement is filed in accordance with Rule 415 of the
Securities Act of 1933. The Offering is expected to begin immediately after the
effectiveness of the registration statement and to be completed within two
years. During that time, this prospectus may be modified to reflect a change in,
among other material items, the offering price of the Shares, to reflect changed
market conditions.
<PAGE>
DILUTION
Net tangible book value is the amount that results from subtracting the total
liabilities and intangible assets of an entity from its total assets. Dilution
is the difference between the public offering price of a security and its net
tangible book value per Share immediately after the Offering, giving effect to
the receipt of net proceeds in the Offering. As of March 31, 1999 (the date of
the last interim financial period for which audited financial statements were
prepared for us, our net tangible book value was $153,803 or $0.0067 per Share.
Taking into consideration our issuance of all offered Shares at the public
offering price of $___ per share, our pro forma net tangible book value would be
$_____, or $______ per Share, which would represent an immediate increase of
$0._____in net tangible book value per Share and $0.____ per Share dilution per
share to new investors. Dilution of the book value of the Shares may result from
future share offerings by us.
The following table illustrates the pro forma per Share dilution:
Assuming Maximum Shares Sold
Offering Price (1)
$---------
Net tangible book value per Share before Offering (2)
$0.0067
Net tangible book value per Share after Offering (3)
$-----------
Increase attributable to issue of stock to new investor (4)
$------------
Dilution to new investor (5)
$--------------
Percent Dilution to new investor (6,7)
- ----%
(1) Offering price before deduction of offering expenses, calculated on a
Common Share Equivalent basis.
(2) The net tangible book value per share before the Offering is determined
by dividing the number of Shares outstanding prior to this Offering into our net
tangible book value.
(3) The net tangible book value after the Offering is determined by adding
the net tangible book value before the Offering to the estimated proceeds to us
from the current Offering (assuming all the Shares are issued), and dividing by
the number of common shares to be outstanding. The net tangible book value per
share after the offering is determined by dividing the number of Shares that
will be outstanding, assuming issue of all the Shares offered, after the
offering into the net tangible book value after the offering as determined in
note 3 above.
(4) The increase attributable to purchase of stock by new investors is
derived by taking the net tangible book value per share after the offering and
subtracting from it the net tangible book value per share before the offering.
(6) The dilution to new investors is determined by subtracting the net
tangible book value per share after the offering from the offering price of the
Shares in this offering, which gives a dilution value.
(7) The Percent Dilution to new investors is determined by dividing the
Dilution to new investors by the offering price per Share.
<PAGE>
OUR PLAN FOR DISTRIBUTING THE STOCK
In this Offering, we will issue up to 5,000,000 Shares of common
stock, par value $0.001 per Share, to the public pursuant to this SB-2
Registration Statement. Of this total number of Shares, we will be offering
and will issue up to a maximum of 3,000,000 Shares of our common stock in a
"best efforts" offering undertaken by the Company's officers and directors.
Additionally, a selling shareholder will sell up to a maximum of 2,000,000
Shares of the Company's common stock in accordance with a Registration Rights
Provision which is incorporated into a Convertible Debenture Agreement which
is more fully explained below. Because this Offering is being made on a "best
efforts" basis, we cannot assure that all or any of the Shares offered will
be issued by the Company.
The gross proceeds to the Company represented by the 3,000,000 Shares
being sold by the Company under this offering will be approximately $_________,
if all of the Shares are sold by the Company. We will not receive any of the
proceeds from the Shares being sold by the Selling Shareholder except that
proceeds from the Convertible Debenture already received or to be received by
the Company will be converted from a debt obligation into an equity interest in
the Company. We will not pay commissions or other fees, directly or indirectly,
to any person or firm in connection with solicitation of sales of the shares
unless we enter into a written placement agent agreement or underwriting
agreement with a member NASD broker-dealer. We will modify the public offering
price of the Shares, from time to time, by amendment to this Prospectus, in
accordance with changes in the market price of the Company's common stock. We
are offering these securities subject to prior issue and to approval of certain
legal matters by counsel.
Previously, the Company issued a ten percent (10%) convertible
debenture to a single investor. The principal amount of the Convertible
Debenture is convertible into Shares of the Company's common stock, $0.001 par
value, upon the terms and subject to the conditions set forth in the note. In
addition, a Registration Rights Provision is included in the Convertible
Debenture Agreement and is included as an exhibit to this Form SB-2. The
Registration Rights Provision requires the Company to prepare and file with the
Securities and Exchange Commission a Registration Statement on Form SB-2,
covering a sufficient number of Shares to cover the principal amount of the
Debenture which is convertible into the common stock of the Company at $0.60 per
Share, up to a maximum of 2,000,000 Shares. Proceeds to the Company from the
Debenture, assuming that the principal amount is fully funded by the Selling
Shareholder, would be $1,200,000, without taking into account interest or other
expenses.
This Registration Statement covers a minimum of 2,000,000 Shares of the
Company's Common Stock which represents the Selling Shareholder's Shares. In
addition, the Registration Statement shall state that, in accordance with the
Securities Act, it also covers an indeterminate number of additional shares of
Common Stock necessary to prevent dilution resulting from stock splits, or stock
dividends. If at any time the number of shares of Common Stock into which the
Debenture may be converted exceeds the aggregate number of shares of Common
Stock then registered, the Company shall, within thirty (30) business days after
receipt of written notice from any Investor, either (i) amend the Registration
Statement filed by the Company pursuant to the preceding sentence, if such
Registration Statement has not been declared effective by the SEC at that time,
to register all shares of Common Stock into which the Debenture may be
converted, or (ii) if such Registration Statement has been declared effective by
the SEC at that time, file with the SEC an additional Registration Statement on
Form SB-2 or any other applicable registration statement, to register the shares
of Common Stock into which the Debenture may be converted that exceed the
aggregate number of shares of Common Stock already registered.
YOU WILL HAVE AN OPPORTUNITY TO MAKE INQUIRIES
We will make available, prior to any issue of the Shares, the opportunity to ask
questions and receive answers from the Company concerning any aspect of the
investment and to obtain any additional information contained in this
Prospectus, to the extent that the Company possesses such information or can
acquire it without unreasonable effort or expense.
<PAGE>
LEGAL PROCEEDINGS
THE SECURITIES AND EXCHANGE COMMISSION INVESTIGATION AND CONSENT DECREE
The Securities and Exchange Commission filed a Complaint (SEC V. KANAKARIS
COMMUNICATIONS, INC., ET AL. - Civil Action No. CV-S-99-0967-JBR-LRL) on August
2, 1999 seeking permanent injunctions against and civil penalties from us, Alex
Kanakaris and other individuals based on certain alleged violations of the
Securities Act of 1933, the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder.
The Company, Alex Kanakaris, and David Valenti, a Sales Manager for the Company
and a former Director, have signed consent decrees with the Securities and
Exchange Commission without admitting or denying any guilt involving violations
cited in the decrees and have agreed to pay certain administrative fines. We and
the aforementioned individuals have cooperated fully with the SEC. Pursuant to
the terms of the consent decree order, we and the aforementioned individuals
have agreed not to take actions which would violate federal securities laws in
connection with the offer, purchase or sale of securities.
NETBOOKS - ALLEGED TRADEMARK INFRINGEMENT
We have received a demand from Tecknon Corporation to stop using the name
"Netbooks" in connection with our business and Website. Such demand to cease and
desist or stop our use of the term "Netbooks" is in effect until we either pay a
royalty granting us licensing rights for current and continued usage or
otherwise resolve the disputed claim. Tecknon Corporation claims that they were
first in time in receiving a trademark from the United States Patent and
Trademark Office for the name "Netbooks." We intend to continue discussions with
counsel for the entity with alleged trademark rights in order to resolve this
issue short of litigation.
ROBERT ADAMS - CLAIM FOR STOCK OPTIONS
We have received correspondence from counsel representing Mr. Robert Adams
indicating that Mr. Adams alleges he is entitled to certain stock options of
which seventy-five percent (75%) of the option price is already deemed paid in
exchange for services rendered. Such allegations are based on an alleged
agreement between us and Mr. Adams. Mr. Adams is attempting to exercise such
options for the purchase of a certain number of shares Adams claims he is
entitled to pursuant to his agreement. We intend to analyze Mr. Adams' claims
and pursue resolution of this situation. To date, there have been minimal
actions taken by Adams' counsel and no litigation is pending.
MICHAEL HORN - THREAT OF BREACH OF CONTRACT
We have received correspondence from counsel representing Mr. Michael Horn
claiming that he is entitled to monies owed to him and that we have breached
certain provisions of an agreement between us and Mr. Horn. We have responded in
written communications as well as discussions with Horn's counsel indicating our
counterclaims involving alleged actions by Horn which may or may not represent
<PAGE>
material breaches of an agreement between us and Horn. We are working towards
resolution of this situation and no threatened arbitration or litigation is
currently pending.
SHAWN HACKMAN, ESQ. LITIGATION
On August 5, 1999, we filed a Complaint in the Los Angeles Superior Court - West
District (KANAKARIS COMMUNICATIONS, INC. V. SHAWN F. HACKMAN, AND DOES 1 THROUGH
20 - Case No. _____) against Mr. Shawn Hackman, Esq. as an individual along with
20 Doe (unnamed) Defendants claiming damages for breach of contract, conversion,
fraud and deceit and negligence. This Complaint arises out of the alleged
transfer of certain funds without our authorization to an unknown entity by
named and possible unnamed defendants. We intend to vigorously pursue this
action until its resolution either through a jury trial or by fashioning an
appropriate settlement agreement.
FUTURE LITIGATION INVOLVING THE COMPANY
From time to time, we may be involved in litigation matters relating to claims
arising out of the ordinary course of business. If a court or jury rules against
us and the ruling is ultimately sustained on appeal and damages are awarded that
include punitive damages, such ruling could have a material and adverse effect
on our business, results of our operations and overall financial condition.
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The names, ages, and respective positions of our directors, officers, and
significant employees are given below. There are no other persons which can be
classified as a promoter or controlling person of the Company.
Alex Kanakaris CEO and President
Mr. Kanakaris creates the business vision of Kanakaris Communications, Inc. and
leads all aspects of its development, including strategic alliances and
invention of proprietary Internet business concepts and technologies. Mr.
Kanakaris is an Internet pioneer who has been interviewed about his vision for
the Internet on television, radio and on the World Wide Web. Mr. Kanakaris was
editor-in-chief of such publications as Video Swapper, Video Entertainment, New
Talent Streetscene and L.A.>POP. He was involved in marketing for a large
consumer electronics company and the world's largest costume jewelry company. He
became a stockbroker for Dean Witter to enhance his business knowledge in
preparation for leading a public company. Mr. Kanakaris created innovative Web
sites including www.cyberpop.com and www.NetBooks.com, and has been an early
user of streaming audio and video technology. Among his other achievements at
Kanakaris Communications have been the delivery of the first full-length motion
picture over the Internet with no download time, in December 1995 (in
conjunction with XING Technology) and the acquisition of the Desience
Corporation. Mr. Kanakaris is the host of World Web Watch, a program focusing on
Internet issues, and has interviewed such executives as Dick Brass, Vice
President, Technology, Microsoft Corporation.
Branch Lotspeich, Director and Vice Chairman of the Board
Branch Lotspeich is the President of the Kanakaris Desience division, designers
and providers of command and control environments for Internet and intranet
applications. Mr. Lotspeich directs the Kanakaris Desience relationship with
such
<PAGE>
clients as NASA, where Mr. Lotspeich has overseen the design and
implementation of Desience's OPCON Module System for the Goddard Space Flight
Center. Mr. Lotspeich has worked directly with AT&T, IBM, IRS, Ford Motor Co.
and other clients to develop data and networking centers. He is the top
advisor to the CEO on major Internet technology issues and is involved in all
aspects of the Corporation's managerial development. Mr. Lotspeich worked as
an independent consultant in telecommunications acquiring accounts including
Proctor & Gamble and Cincinnati Bell Telephone. His work encompassed site
design, broadband communications, world-wide group project communications,
and telephony. For 10 years Mr. Lotspeich was the manager of the Medical
Media Center at the University of Cincinnati. He designed and oversaw the
building of the first Medical Media Center in Hangchou, China. Mr. Lotspeich
has an expertise in computer programming, including Internet applications of
HTML, CGI and Java. For 6 years, he served as an appointment of the mayor of
Cincinnati to the Citizens Cable Regulatory Board. Mr. Lotspeich is a Summa
Cum Laude graduate of the University of Cincinnati, Bachelor of Fine Arts in
Television Broadcasting.
John McKay, Director and Webmaster
John McKay has been a Webmaster since 1995 and has worked both full-time and
as a consultant to CEO Alex Kanakaris since 1994. Mr. McKay has a background
in Advertising, Marketing, and Graphics. He has held such positions as
advertising manager for Kelly-Moore Paint Co. and Sales Promotion Manager for
ORA Electronics/Alliance Corporation, an international consumer electronics
company. He has extensive experience in developing marketing and corporate
identity programs, advertising campaigns, and creating an online presence for
corporations. He is a graduate of San Francisco State University with a
Bachelor of Science in Marketing.
David Shomaker, Acting Chief Financial Officer
David Shomaker is a partner of Haynie & Company, Certified Public Accountants,
based in Orange County, California and Salt Lake City, Utah. His management
consulting services include forecasts and projections, as well as business
valuations. He is a specialist in financial statement reporting, including
audit, review and compilation services, as well as agreed-upon procedures
reports. His areas of emphasis include management, manufacturing, and finance.
Mr. Shomaker is qualified to perform peer review and quality review services on
behalf of both the American Institute of Certified Public Accountants and the
California Society of CPAs as a team captain. He has been Certified by the
Association of Certified Fraud Examiners and the National Association of
Certified Valuation Analysts as an Examiner and Analyst in their respective
fields. He is a member of: American Institute of Certified Public Accountants,
California Society of Certified Public Accountants, Utah Association of
Certified Public Accountants, Construction Financial Management Association and
other organizations. Mr. Shomaker is a Graduate in Accounting, Brigham Young
University, Provo, Utah.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date of this Prospectus, the
outstanding Shares of our common stock which were owned of record or
beneficially by each person who owned of record, or was known by us to own
beneficially, more than 5% of our Common Stock, and the name and share
holdings of each officer and director and all officers and directors as a
group.
Title of Class: Common Stock
Name of Beneficial Owner: Alex F. Kanakaris - CEO, Director
Amount and Nature of Beneficial Owner: 1,173,381
Percent of Class before Offering: 5.1%
Title of Class: Preferred Stock
Name of Beneficial Owner: Alex F. Kanakaris - CEO, Director
Amount and Nature of Beneficial Owner: 1,000,000
Percent of Class before Offering: 100%
Title of Class: Common Stock
Name of Beneficial Owner: Branch Lotspeich - President Desience Division,
Director
Amount and Nature of Beneficial Owner: 1,323,381
Percent of Class before Offering: 5.75%
<PAGE>
DESCRIPTION OF SECURITIES
Shares Outstanding:
Before the Offering Total Shares
22,996,972 Shares
After the Offering Total Shares
27,996,972 Shares (1)
(1) This total is based on the holder of the Convertible Debenture converting
a sum of the principal amount of the debenture into 5,000,000 Shares, which
is the maximum number of shares that can be offered pursuant to this SB-2
Registration Statement at a price of $___ per Share. The Shares outstanding
after the Offering will vary depending on the amount of principal converted
into Shares of our Common Stock under the Convertible Debenture Agreement.
DESCRIPTION OF COMMON STOCK
Our authorized capital stock consists of 100,000,000 Shares of Common Stock,
$.001 par value per share and 5,000,000 shares of Preferred. The holders of
Common Stock (i) have equal ratable rights to dividends from funds legally
available therefore, when, as and if declared by our Board of Directors; (ii)
are entitled to share ratably in all of our assets available for distribution
or winding up of our affairs; (iii) do not have preemptive subscription or
conversion rights and there are no redemption or sinking fund applicable
thereto; and (iv) are entitled to one non-cumulative vote per share, on all
matters which shareholders may vote on at all meetings of shareholders. As of
the date of this prospectus, we had 22,996,972 Shares of Common Stock
outstanding.
Non-Cumulative Voting
The holders of our Shares of Common Stock of the do not have cumulative voting
rights which means that the holders of more than 50% of such outstanding Shares,
voting for the election of directors, can elect all of the directors to be
elected, if they so choose, and, in such event, the holders of the remaining
Shares will not be able to elect any of our directors.
Dividends
We do not currently intend to pay cash dividends. Our proposed dividend
policy is to make distributions of its revenues to its stockholders when our
Board of Directors deems such distributions appropriate. Because we do not
intend to make cash distributions during the first fiscal year, potential
shareholders would need to sell their shares to realize a return on their
investment. Because we are a start up company, there can be no assurances of
the projected values of their shares, nor can there be any guarantees of our
success.
<PAGE>
A Distribution of revenues will be made only when, in the judgment of our
Board of Directors, it is in our best interests and the interests of the
stockholders to do so. The Board of Directors will review, among other
things, the investment quality and marketability of the securities considered
for distribution; the impact of a distribution of the investee's securities
on its customers, joint venture associates, management contracts, other
investors, financial institutions and the companies internal management; tax
consequences and the market effects of an initial or broader distribution of
such securities.
PREFERRED SHARES
We have authorized 5,000,000 Shares of Class A Convertible Preferred Stock of
which 1,000,000 are issued and outstanding with a par value of $.01 per
share. The Preferred Shares will carry twenty-to-one voting preference over
the Common Stock subject to ratification by a majority of shareholders.
Majority shareholder ratification will be forthcoming.
The shares of Preferred Stock shall have priority over all Common Stock as to
both the payment of dividends and the distribution of all assets upon any
liquidation, dissolution or winding up of our operations and is not entitled to
preemptive rights.
In the event we are faced with liquidation, dissolution or winding up (which
does not include any situation where we consolidate or merge with or into any
other corporation), holders of the Class A Convertible Preferred Stock are
entitled to receive $.10 in cash per share plus accumulated and unpaid
dividends out of the assets available for distribution to holders of Common
Stock or other junior ranking stock. If the amounts payable for the Class A
Preferred Stock are not paid in full, the holders of the Class A Preferred
Stock will share ratably in any distribution of assets in proportion to the
full preferential amounts to which the shares are entitled.
We may redeem Class A Preferred Stock by giving 30 days' written notice, for
$.50 per share. Preferred Stock shareholders will have the right to convert
their Preferred Stock into Common Stock during this 30 day period.
Class A Preferred Stock shareholders also have the right to convert their
Preferred Stock into Common Stock at a conversion rate of one (1) share of
Preferred Stock for one (1) share of Common Stock. Any redeemed or converted
shares will be restored to the status of authorized but unissued shares of
Preferred Stock without designation as to class, and may be issued by us, but
not as shares of Class A Preferred Stock
The Preferred Stock and the Common Stock issued due to a conversion from
Preferred Stock, which bear a restrictive legend, generally may be sold in the
public market, without registration, under the following conditions (i) the
shares have been beneficially owned for at least one year; (ii) a person who is
deemed to be an "affiliate" of ours may sell, in any three (3) month period, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock or the average weekly trading volume in the
over-the-counter market during the four calendar weeks preceding such sale; or
(iii) a person deemed to be a "non-affiliate" who has held the shares for at
least two (2) years may sell their shares without regard to any volume
limitation.
<PAGE>
1999 STOCK OPTION PLAN
The purpose of our 1999 Stock Incentive Plan is to provide designated officers,
employees and non-employee directors with equity-based compensation incentives.
The Plan is administered by a Committee of "disinterested persons" (the
"Committee"). The Plan allows directors, employees and non-employees an option
to purchase Common Stock ("Stock Options") or receive Common Stock subject to
certain restrictions ("Awards"). The maximum number of shares of Common Stock to
be issued by the Plan is 2,750,000. There may be no Stock Options or Awards
granted after December 31, 2008.
Provisions Relating to Stock Options
The purchase price (the "Exercise Price") of shares of Common Stock subject
to each Stock Option ("Option Shares") shall equal the fair market value of
such shares on the date of the grant of the Stock Option unless the Employee
possesses more than 10% of the total combined voting power of all classes of
our stock. In that case, the purchase price shall equal at least 110% of the
fair market value. The Stock Option period (the "Term") shall start on the
date of the grant of the Stock Option and shall be ten (10) years, unless a
shorter period is determined by the Committee. If however, the Employee
possesses more than 10% of the total combined voting power of all classes of
our stock, then the Stock Option period shall not exceed five (5) years.
The Stock Option shall be exercisable only by an employee who remains in our
employ. The Stock Option is exercisable for a period of ninety (90) days after
employment is terminated unless the termination is due to the Employee's
retirement, disability or death (if the Employee dies during the ninety (90)
days, the Term is extended for a period of twelve (12) months). If employment is
terminated due to retirement, disability or death, the Stock Option is
exercisable for the full Term.
Each member of the Board of Director who is not an Employee (a "Non-Employee
Director") shall automatically be granted a Stock Option to purchase 5,000
shares of Common Stock on each anniversary of such person's continuous
service on the Board with a Term of ten (10) years starting on the date of
the grant. If the Non-Employee Director is terminated due to fraud,
embezzlement, misappropriation or conversion of assets or corporate
opportunities, the unexercised Stock Options shall terminate on the date of
the termination of the directorship. The Committee does not have the
authority to grant Non-Employee Directors Awards, nor does the Committee have
any discretion in granting Non-Employee Directors Options.
Provision Relating to Awards
Each Award under our Plan shall consist of a grant of shares of Common Stock
subject to a restriction period which begins on the date the Award is granted
and ends on a date determined by the Committee ("Restriction Period").
If an Employee's employment ends during the Restriction Period, the Award
shares are immediately forfeited by the Employee and reacquired by the
Company.
TRANSFER AGENT
We have hired Alpha Tech Stock Transfer, 4505 S. Wasatch Blvd., Suite 205, Salt
Lake City, Utah 84121 to act as Transfer Agent and Registrar.
<PAGE>
INTEREST OF NAMED EXPERTS AND COUNSEL
No named expert or counsel was hired on a contingent basis, will receive a
direct or indirect interest in the Company, or was a promoter, underwriter,
voting trustee, director, officer, or employee of the Company.
DISCLOSURE OF SECURITIES AND EXCHANGE COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
None of our directors will have personal liability to us or any of our
stockholders for monetary damages for breach of fiduciary duty as a director
involving any act or omission of any such director since provisions have been
made in the Articles of Incorporation limiting such liability. The foregoing
provisions shall not eliminate or limit the liability of a director (i) for
any breach of the directors duty of loyalty to us or our stockholders, (ii)
for acts or omissions not in good faith or, which involve intentional
misconduct or a knowing violation of law, (iii) under applicable Sections of
the Nevada Revised Statutes, (iv) the payment of dividends in violation of
Section 78.300 of the Nevada Revised Statutes or, (v) for any transaction
from which the director derived an improper personal benefit.
Our Bylaws provide for indemnification of our directors, officers, and
employees in most cases for any liability suffered by them or arising out of
their activities as directors, officers, and employees if they were not
engaged in willful misfeasance or malfeasance in the performance of his or
her duties; provided that in the event of a settlement the indemnification
will apply only when the Board of Directors approves such settlement and
reimbursement as being for the best interests of the Corporation. The Bylaws,
therefore, limit the liability of directors to the maximum extent permitted
by Nevada law (Section 78.751).
Our officers and directors are accountable to us as fiduciaries, which means
they are required to exercise good faith and fairness in all dealings affecting
us and our shareholders. In the event that a shareholder believes the officers
and/or directors have violated their fiduciary duties to us, the shareholder
may, subject to applicable rules of civil procedure, be able to bring a class
action or derivative suit to enforce the shareholders rights, including rights
under certain federal and state securities laws and regulations to recover
damages from and require an accounting by management. Shareholders who have
suffered losses in connection with the purchase or sale of their interest in us
related to that kind of sale or purchase, including the misapplication by any
officer or director of the proceeds from the sale of these securities, may be
able to recover such losses from us.
We will attempt to do the following:
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.
<PAGE>
ORGANIZATION WITHIN LAST FIVE YEARS
Our present business structure is the result of an acquisition
agreement between a Nevada corporation, Big Tex Enterprises, Inc. ("Big Tex"),
and a Delaware corporation, Kanakaris InternetWorks, Inc. ("KIW"). Big Tex was
originally organized in November of 1991 and had been a non-operating company
prior to the acquisition of KIW on November 25 1997. After the acquisition, we
changed our name to Kanakaris Communications, Inc. Our common stock trades on
the NASDAQ OTC Bulletin Board under the symbol "KKRS." We acquired all of the
outstanding stock of Desience Corporation ("Desience"), a privately held
computer workstation and furniture manufacturer in operation for over fifteen
years.
Since November of 1997 when the Company established its current
organizational structure as a Nevada corporation with two wholly owned
subsidiaries (Desience and KIW), we have been engaged in the development and
operation of two primary business: (i) the manufacture and sale of custom
computer command centers through our Desience division and (ii) development of
Internet content and commerce sites focused on downloadable video, music and
literary content through our Kanakaris InternetWorks division.
We are focused on developing proprietary web sites and downloadable
Internet content and anticipate that these components of our business will be a
major portion of our Internet business. See "Management Discussion and Analysis
of Financial Condition and Results of Operations."
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The following is a discussion of certain factors affecting our
results for the two fiscal years ending September 30, 1998, and the interim
financial period ending March 31, 1999, and our liquidity and capital
resources. This discussion should be read along with our consolidated
financial statements and their notes, which can be found beginning at page
F-1 of this Prospectus. As a reminder, our fiscal year ends on the Saturday
that falls closest to September 30. Unless otherwise stated, the years
mentioned throughout this Prospectus are fiscal years.
Results of Operations
Comparison of 1997 and 1998
Net Sales. Our net sales increased from $8,475 in 1997 to $919,905 in
1998, primarily as the result of the acquisition of our Desience division which
manufactures and sells computer control centers. We believe that we benefited
from this acquisition during the year but we cannot assure that this trend will
continue or that the net sales increase will be repeated.
Gross Profit. Our gross profit increased from $8,474 in 1997 to
$438,556 in 1998, primarily as a result of the acquisition of our Desience
division. We believe that we benefited from this acquisition during the year
but we cannot assure that this trend will continue or that the net sales
increase will be repeated.
Operating Expenses. Our operating expenses increased from $282,818 in
1997 to $1,094,760 in 1998, largely as a result of the Desience acquisition and
increased spending related to developing the InternetWorks division.
Income from Operations. Our income from operations resulted in a net
loss of $269,208 in 1997 which increased to a net loss of $647,729 in 1998.
This increase in net loss was primarily the result of an increase in
operating expenses which was not covered by increased revenues from
operations. We will need to increase revenues from operations in order to
attain profitability.
Interest Expense. Our interest expenses have increased from 1997 to
1998, primarily as the result of our acquisition and utilization of a credit
facility and the issuance of a convertible debenture. The may continue to rely
upon its credit facilities which will continue to increase our interest expense
as a whole and as a percentage of sales.
Liquidity and Capital Resources
Funds from Equity Placements
Our primary source of cash has been from sales of equity securities to
investors through private placement transactions. We also have available a
working capital line with a commitment of $1.2 million, which is reduced to the
extent that we draw down the line.
Debt Securities
In addition to our sale of equity securities, we have issued a debt
security in the form of a Convertible Debenture to a single investor. The
proceeds from the Convertible Debenture will be up to $1,200,000, if the full
funding is completed. The note is convertible into up to 2 million Shares of
the Company's common stock which has registration rights pursuant to the
terms of the Convertible Debenture Agreement.
<PAGE>
Debt Risk
The Company has a high level of debt. Although the net proceeds of
this Offering will increase our stockholder's equity and reduce our
indebtedness. If we cannot pay our debts on time or obtain acceptable
alternative terms, there would be a material adverse effect to us and our
shareholders. To understand the possible consequences of our debt level, see
"Risk Factors - Risks Associated with Our Financial Condition."
Liquidity and Capital Resources
Our primary source of cash is funds from equity sales by the
Company, proceeds from the Company's line of credit with Alliance Equities
and subsidiary operations from the Desience division. The Company's working
capital line has a current commitment of $1.2 million, which is reduced to
the extent that the facility is drawn upon. The Company has risks associated
with its high level of debt in relation to its operating income and assets.
See "Risk Factors." The Company intends to increase its net capital
expenditures in the upcoming fiscal year.
<PAGE>
DESCRIPTION OF THE BUSINESS
Our General Business Strategy
We operate within two major divisions, Kanakaris InternetWorks and Desience.
Kanakaris InternetWorks division is dedicated to the Internet (design and
hosting of Web sites, proprietary Web sites, Internet content and commerce) and
Desience is dedicated to the installation of computer command center solutions.
Internet service includes the design and hosting of Web show, corporate web
sites, digital book publishing, themed content commerce sites, downloadable
music Web sites and online advertising. Command center solutions include the
design, manufacture and installation of ergonomic solutions for the utilization
of computers and peripherals in governmental agency and Fortune 500 company
environments.
The following is a more detailed description of our divisions.
Kanakaris InternetWorks Division ("Kanakaris")
Kanakaris is positioned to become "The Internet World Downloadable Leader."
KKRS.Net is the portal to all propriety content and websites of Kanakaris
Communications. We are currently focused on four (4) key areas of direct
delivery of eCommerce content and we believe we possess unique technology
combinations available for each.
Kanakaris believes it is the first company to allow a single digital content
source - a book, a movie, or music in a way so that it can be replicated online
as little or as many times as needed to fulfill orders. Kanakaris believes it
has maintained proprietary secure technology for content that is directly
delivered over the Internet. Kanakaris has established NetBooks.com as the
leading example of online delivery of books and offers publishers a combination
of features unavailable anywhere else: Secure online rental, secure online
purchase, downloadable purchase and print-on-demand. See "Risk Factors"
regarding the name "Netbooks". Kanakaris is developing proprietary secure
downloadable movie technology through an alliance with GEO Interactive.
Kanakaris has identified several potential revenue sources pertaining to our
Internet business which if developed properly could help us grow. These include
direct over-the-Internet delivery of academic and professional books, trade
books,
<PAGE>
online events, online research reports and corporate profiles, online
music singles and albums, online movie sales and rental, and the sale of
Internet lifestyle related low end, mid value, and high end items as well as
online banner advertising on proprietary sites.
Online Books
The NetBooks.com portion of KKRS.Net is establishing itself as a leading web
site offering secure online delivery of books with proprietary ION Technology.
Book publishing in the United States has shown a steady increase over the past
several years. As a result, the emerging on-line bookselling industry is
expecting to grow from $630 million in 1998 to $3 billion in 2003, according to
Forrester Research Inc., a Cambridge, Mass., research group.
Currently, online booksellers account for about three percent of the market for
online books and this share is growing. There is an estimated 500 bookstore
titles available electronically on the web today. Industry experts believe that
as many as 50,000 titles will be available electronically in the next two years.
Kanakaris content is downloadable in real-time which means there is not a
significant delay in the display of text or images. We believe that our site is
secure to preserve the author's rights to ownership. We believe that Kanakaris
is the only on-line Internet publisher that provides real-time secure
fulfillment from one source file.
We have entered into an exclusive alliance with ION Systems for use of their
secure on-line download technologies. Using this new, innovative software, we
can rent or sell books on-line while allowing authors and publishers to retain
control of their content. Kanakaris allows documents, books, and manuals to be
sold for permanent access, rented by the hour, or pay per view according to the
author's wishes. The text cannot be copied, printed, or extracted using optical
character recognition software. The software prevents temporary Internet files
from storing usable text. The software allows any book or document to be read
page by page. The reader has total control over the size of the print-type with
just the click of a mouse. None of these features require any special user
software other than a JAVA-enabled browser.
There are many web sites today that allow you to download books. Because of our
alliance with ION Systems, we believe we have an advantage.
The following is a summary of the sources from which we intend to generate
revenue:
> Purchase the Download Version - The user purchases the download version
thus enabling them to use the document for off-line reading in unlimited
sessions for an unlimited amount of time. The copyright will state that they
cannot duplicate the book.
> Purchase Access - The user purchases the online book. This gives them a
password enabling them to read the online version for five years for any number
of sessions.
> Per Minute Access - The user can rent the online book on a per hour basis.
If the publisher has opted to apply a percentage of the online rental fees
towards the purchase price, then the user earns credits towards purchase of
that book as a permanent online access or download format. Eventually credits
can be applied to the print version as well.
<PAGE>
Our exclusive Partner Program is a unique method of title acquisition among
Internet publishers. The program allows qualified publishers to post books
online free of charge and receive revenue share. The program is available to
publishers, agents, packagers or other persons or organizations who have the
copyright to book titles. Qualified Partners will be able to post books online
for free and receive multiple new revenue streams. The program is available to
publishers, agents, packagers or other persons or entities who have the
copyright to multiple book titles.
A value-added feature of the Kanakaris system is real time secure fulfillment
of orders from customers. When an order for a print copy is submitted, the
purchaser is given immediate access to the online version while the book is
shipped. The online protection of the author's intellectual property and the
enhanced reading format differentiates Kanakaris from any other Internet
distributor.
Online Movies
We feature online Movies Of The Week featuring no download time and no plug-in
required. To do so, we use proprietary technology with a security feature
developed for Kanakaris by GEO Interactive. Kanakaris has amassed a catalog of
film titles for online distribution. Kanakaris plans to offer pay-per-view
movies as well as sell advertising to its website.
Online Music
Cyberpop will be the KKRS.Net downloadable music site offering a combination of
24-hour Internet radio exposure to artists combined with direct online sale of
songs and albums in a choice of the leading Internet delivery technologies.
Online Shopping/Entertainment
ILSN, the Internet LifeStyle Network, will be the first
entertainment/shopping channel on the Internet. It will be fully integrated
with our downloadable book, music and movie Web sites.
Desience Division
We seek to revitalize and grow our Desience division. Our OPCON Module
System, a proprietary modular data control console system for high-end
computer command centers has been utilized by clients such as NASA, the
Federal Bureau of Investigation, the U.S. Navy, Bank of America, Mitsubishi,
Pacfic Bell and other Fortune 500 companies and governmental agencies. We
seek to increase its independent sales force, update its promotional
materials, and update and expand its product line.
The division began business in 1972 designing and manufacturing trading desks
for the burgeoning investment industry. By 1984 Desience clients requested
similar equipment "enclosures" for their expanding computer centers.
Working with IBM, Desience developed the OPCON modular system for enclosing
and organizing the equipment and cabling associated with data and network
control centers. OPCON was built to exacting standards using steel and
aluminum construction for strength, durability and fire retardency. The first
large OPCON installation occurred in 1985, an installation of over 75 modules
at du Pont de Nemours in Wilmington, Delaware.
<PAGE>
Desience has been marketing and selling the OPCON modular system to corporate
and government mainframe computer users since the early 1980's when mainframe
computer use was growing dramatically. While 90% of Desience's sales have
been in the United States, the 1990's have seen increased business from South
America including multiple orders from Venezuela and Mexico. Desience has
also sold and installed OPCON in Canada, Barbados, Bermuda, St. Lucia,
Kuwait, and Guam. Desience assists the client in the planning process by
making site visits, taking lists of requirements, then providing customers
with blueprint floor plans of OPCON layouts, elevated views of suggested
equipment layouts and perspective presentation drawings. Additionally,
Desience oversees manufacturing of product and oversees the installation
processes.
In 1999, Desience announced plans to develop a "personal" module system,
tentatively titled Opcon 2000, to provide a single computer work station for
home or office. This product will represent the first consumer product offering
in the our history. It will be marketed over the internet and consumer retail
distribution will be pursued.
Currently there exists five manufacturers compete in the marketplace for
modular system solutions. They are divided between "wood-type" products and
metal products. Most competitors offer somewhat similar services
(installation, warranties, customer service). Deciding factors such as price,
service, features, etc. vary according to the requirements of the customer.
THE OFFERING
Our Shares will be offered as a shelf registration under Securities Act Rule
415 at $0.__ per Share. See "Plan of Distribution." The purchaser of our
convertible debenture will be permitted to convert the debenture into common
stock covered by this Prospectus. See "Plan of Distribution." If all the
Shares offered are transferred under the debenture this will represent the
net proceeds from sale of the debenture of a maximum of $______________ less
certain costs associated with this Offering. See "Use of Proceeds." The
proceeds, to the extent they have already been received by us, have been
utilized as working capital for us.
LIQUIDITY OF INVESTMENT
Although the Shares registered pursuant to this SB-2 registration statement
will be unrestricted and our common stock currently trades on the NASDAQ OTC
Bulletin Board, the Shares available for public resale is limited. Therefore,
an investor may not be able to easily sell or transfer the Shares. Investors
should be able to bear the risk of the investment in the Shares for an
indefinite period of time. See "Risk Factors."
<PAGE>
DESCRIPTION OF PROPERTY
We own no real property and leases the office space used as our principal
offices.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
Our Shares are traded in the over-the-counter market and the range of closing
bid prices shown below is as reported by the OTC Bulletin Board. The
quotations shown reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
Quarterly Stock Prices
The following are the closing prices on our stock on the last day of each
quarter for the last year (June 1998 - June 1999):
<TABLE>
<S> <C>
June 30, 1998 $0.53
September 30, 1998 $0.0625
December 31, 1998 $0.18
March 31, 1999 $2.0625
June 30, 1999 $1.1875
</TABLE>
During this time period the closing price of our stock has fluctuated from the
following approximate minimum to maximum range: $0.04 to $3.00.
(b) Dividends
We have not previously declared or paid a cash dividend to stockholders.
The Board of Directors presently intends to retain any earnings to finance our
operations and does not expect to authorize cash dividends in the foreseeable
future. Any payment of cash dividends in the future will depend upon our
earnings, capital requirements and other factors.
<PAGE>
EXECUTIVE COMPENSATION
(a) Mr. Kanakaris, as our Chief Executive Officer, shall receive $105,000 per
year, plus normal perks and benefits such as insurance, sick leave, paid
vacation days, etc. Mr. Lotspeich, as President of the Desience Division and
Technology, shall receive $105,000 per year, plus normal perks and benefits
such as insurance, sick leave, paid vacation days, etc. John McKay, Director
and Web Master shall receive $80,000 per year, plus normal perks and benefits
such as insurance, sick leave, paid vacation days, etc.
(b) There are no annuity, pension or retirement benefits proposed to be paid
to officers, directors, or employees of the corporation in the event of
retirement at normal retirement date pursuant to any presently existing plan
provided or contributed to by the corporation or any of its subsidiaries.
(c) Our Management has implemented a stock option plan dated January 1999 in
order to compensate existing management and employees as well as to help
recruit qualified personnel in the highly competitive internet industry
within which we compete.
See plan as per Barnett
<PAGE>
FINANCIAL STATEMENTS
KANAKARIS COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
CONTENTS
PAGE 1 - ACCOUNTANTS' REVIEW REPORT
PAGES 2 - 3 - CONSOLIDATED BALANCE SHEET AS
OF MARCH 31, 1999
PAGE 4 - CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE SIX MONTHS
ENDED MARCH 31, 1999
PAGE 5 - CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
PAGES 6 - 7 - CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
PAGES 8 - 19 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
<PAGE>
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors of:
Kanakaris Communications, Inc.
We have reviewed the accompanying consolidated balance sheet of Kanakaris
Communications, Inc. and Subsidiary as of March 31, 1999 and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for the six months ended March 31, 1999 in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included
in these financial statements is the representation of management of
Kanakaris Communications, Inc. and Subsidiary.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express any
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to
be in conformity with generally accepted accounting principles.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
June 30, 1999
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash $ 102,795
Accounts receivable 122,737
Inventory 5,493
Advances to suppliers 15,418
Current maturities of notes
receivable-shareholders and
related parties 36,280
Interest receivable 22,091
Prepaid expenses and other current assets 6,623
----------
Total Current Assets 311,437
----------
PROPERTY AND EQUIPMENT
Furniture and equipment 23,037
Less: Accumulated depreciation (9,229)
----------
Total Property and Equipment 13,808
----------
OTHER ASSETS
Notes receivable - shareholders and
related parties - non-current 210,753
Organization costs - net 1,750
Security deposits 700
Goodwill - net of amortization 328,050
----------
Total Other Assets 541,253
----------
TOTAL ASSETS $ 866,498
----------
----------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 525,812
Notes payable 22,474
Due to former shareholder of subsidiary 44,176
Royalties payable 29,028
Customer deposits 91,205
----------
Total Liabilities 712,695
----------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value;
5,000,000 shares authorized;
1,000,000 issued and outstanding 10,000
Common stock, $0.001 par value;
100,000,000 shares authorized;
22,996,972 issued and outstanding 22,997
Common shares to be issued,
1,340,140 1,340
Additional paid-in capital 1,657,691
Accumulated deficit (1,335,045)
Less subscriptions receivable
(1,260,000 shares, common) (1,260)
----------
Total paid-in capital and
retained earnings 355,723
Less cost of treasury stock
(99,024 shares, common) (201,920)
----------
TOTAL STOCKHOLDERS' EQUITY 153,803
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 866,498
----------
----------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
COMMON STOCK TO BE ISSUED PREFERRED STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- -------- --------- -------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1998 19,179,636 $19,179 1,340,140 $1,340 1,000,000 $10,000 $1,250,019 $ (916,937)
Stock Issued For:
Consulting fees 150,000 150 - - - - - -
Advertising services 100,000 100 - - - - - -
504 offering 3,367,336 3,368 - - - - 407,672 -
Legal services 200,000 200 - - - - - -
Net loss for the six
months ended March 31, 1999 - - - - - - - (418,108)
---------- ------- --------- ------ --------- ------- ---------- -----------
BALANCE, MARCH 31, 1999 22,996,972 $22,997 1,340,140 $1,340 1,000,000 $10,000 $1,657,691 $(1,335,045)
---------- ------- --------- ------ --------- ------- ---------- -----------
---------- ------- --------- ------ --------- ------- ---------- -----------
<CAPTION>
TREASURY STOCK
STOCK SUBSCRIPTIONS
AMOUNT RECEIVABLE TOTAL
--------- ------------- ---------
<S> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1998 $(201,920) $(1,260) 160,421
Stock Issued For:
Consulting fees - - 150
Advertising services - - 100
504 offering - - 411,040
Legal services - - 200
Net loss for the six
months ended March 31, 1999 - - (418,108)
--------- ------- ---------
BALANCE, MARCH 31, 1999 $(201,920) $(1,260) $ 153,803
--------- ------- ---------
--------- ------- ---------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
<TABLE>
<S> <C>
NET SALES $ 356,199
COST OF SALES 202,842
----------
GROSS PROFIT 153,357
----------
OPERATING EXPENSES
Executive compensation 50,750
Salaries 22,704
Payroll taxes and employee benefits 6,998
Consulting fees 229,602
Professional fees 83,200
Investment costs 44,872
Office supplies and expense 24,526
Telephone and utilities 20,184
Subcontractor costs 17,660
Depreciation and amortization 15,461
Rent 14,196
Travel and entertainment 11,886
Other expenses 8,502
Royalties 8,275
Repairs and maintenance 4,734
Equipment rental and expense 2,268
Insurance 2,013
Bank charges 1,328
Taxes - other 214
----------
TOTAL OPERATING EXPENSES 569,373
LOSS BEFORE INTEREST AND OTHER INCOME (416,016)
----------
OTHER INCOME (EXPENSE)
Interest expense - net (2,092)
Settlement agreement - attorney,
net of allowance -
----------
TOTAL OTHER (EXPENSE) (2,092)
NET LOSS $ (418,108)
----------
----------
NET LOSS PER COMMON SHARE $ (.0201)
----------
----------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 20,805,333
----------
----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (418,108)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Amortization of goodwill 12,117
Depreciation and amortization 3,344
Consulting, legal and advertising fees
incurred in exchange for common stock 450
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable (4,264)
Inventory 4,629
Prepaid expenses and other current assets (6,623)
Advances to suppliers (7,579)
Interest receivable (5,408)
Increase (decrease) in:
Accounts payable and accrued expenses 33,408
Due to former shareholder of subsidiary 13,239
Customer deposits 61,778
----------
Net cash used in operating activities (313,017)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (406)
Decrease in notes receivable -
shareholders and related parties 2,288
----------
Net cash provided by in investing activities 1,882
----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable $ (2,526)
Proceeds from sale of common stock 3,369
Proceeds from additional paid in capital 407,672
----------
Net cash provided by financing
activities 408,515
----------
INCREASE IN CASH AND
CASH EQUIVALENTS 97,380
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 5,415
----------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 102,795
----------
----------
SUPPLEMENTAL INFORMATION:
Interest Paid $ 5,000
----------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended March 31, 1999 the Company issued 450,000 shares
of common stock for consulting, legal and advertising services.
See accompanying notes to financial statements.
7
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS ORGANIZATION AND ACTIVITY
Kanakaris Communications, Inc. (Formerly Kanakaris Internetworks,
Inc.) (the "Company") was incorporated in the State of Delaware on
February 25, 1997. The Company develops and supplies internet
products, on line products and online commerce.
(B) BUSINESS COMBINATIONS
On October 10, 1997 (the "Acquisition Date"), the Company
consummated a Stock Purchase Agreement (the "Purchase Agreement")
with the shareholder (the "Seller") of Desience Corporation
("Desience") to purchase 10,000 common shares representing 100% of
its issued and outstanding common stock in exchange for a 4%
royalty on the gross sales (after collection) of Desience
subsequent to the Acquisition Date, to be paid monthly for as long
as Desience remains in business or its products are sold. In
addition, the Seller shall receive five percent of funds which are
to be allocated to Desience arising from the Company's next
securities offering as a non-refundable advance on the royalty. The
Company will hold harmless the Seller from any claims, causes of
action, costs, expenses, liabilities and prior shareholder
advances. Immediately following the exchange, Desience became a
wholly owned subsidiary of the Company. Desience designs and
installs specialized business furniture for a variety of industries.
On November 25, 1997, the Company and its shareholders (the
("Shareholders") consummated an acquisition agreement with Big Tex
Enterprises, Inc. ("Big Tex"), a public shell, whereby the
shareholders sold all of their preferred and common stock, which
represented 100% of the Company's issued and outstanding capital
stock, to Big Tex in exchange for 7,000,000 shares (6,000,000
common, 1,000,000 preferred) of Big Tex's restricted stock,
representing 66.67% of the issued and outstanding common stock and
100% of the issued and outstanding preferred stock of Big Tex,
aggregating 75% of the total voting rights (the "Exchange"). Big
Tex was founded in 1991 for the purpose of lawful business or
enterprise, but had been inactive since 1991. Immediately following
the exchange, all shares of Kanakaris Internetworks, Inc. were
canceled and Kanakaris Internetworks, Inc. was merged into Big Tex
at which time the Company changed its name to Kanakaris
Communications, Inc.
8
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(C) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and Desience, a wholly owned subsidiary.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(D) USE OF ESTIMATES
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(E) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
declining balance method over the estimated economic useful life of
5 to 7 years. Maintenance and repairs are charged to expense as
incurred. Major improvements are capitalized. Depreciation expense
for the six months ended March 31, 1999 was $3,045.
9
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(G) INVENTORIES
Inventories consisting of parts, finished goods, and collectibles
are recorded at the lower of cost or market, cost being determined
using the first-in, first-out method.
(H) ORGANIZATION COSTS
Organization costs, which are included in other assets, are being
amortized over 60 months on a straight line basis. Amortization
expense for the six months ended March 31, 1999 was $300.
(I) GOODWILL
Goodwill arising from the acquisition of Desience, as discussed in
Note 1 (B) - Business Combinations, is being amortized on a
straight-line basis over 15 years. Amortization expense for the six
months ended March 31, 1999 was $11,676.
(J) INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future
tax consequences, SFAS 109 generally considers all expected future
events other than enactments of changes in the tax law or rates.
Any available deferred tax assets arising from net operating loss
carryforwards, which approximate $1,300,000, have been offset by a
deferred tax valuation allowance on the entire amount.
(K) EARNINGS PER SHARE
Earnings per share are computed using the weighted average of
common shares outstanding as defined by Financial Accounting
Standards No. 128, "Earnings per Share".
10
<PAGE>
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.
11
<PAGE>
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
12
<PAGE>
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.
13
<PAGE>
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>
14
<PAGE>
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.
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>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Kanakaris Communications, Inc.
We have audited the accompanying consolidated balance sheets of Kanakaris
Communications, Inc. and Subsidiary (formerly Kanakaris Internetworks, Inc.
and Subsidiary) as of September 30, 1998 and 1997 and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for the year ended September 30, 1998 and for the period from
February 25, 1997 (inception) to September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Kanakaris
Communications, Inc. and Subsidiary (formerly Kanakaris Internetworks, Inc.
and Subsidiary) as of September 30, 1998 and 1997 and the results of their
operations and their cash flows for the year ended September 30, 1998 and for
the period from February 25, 1997 (inception) to September 30, 1997 in
conformity with generally accepted accounting principles.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
March 10, 1999
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash $ 5,415 $ 53,804
Accounts receivable 118,473
Inventory 10,122 -
Advances to suppliers 7,839 -
Current maturities of notes
receivable-shareholders and
related parties 36,280 39,160
Interest receivable 16,683 5,135
--------- ---------
Total Current Assets 194,812 98,099
--------- ---------
PROPERTY AND EQUIPMENT
Furniture and equipment 22,631 8,044
Less: Accumulated depreciation (6,184) (1,584)
--------- ---------
Total Property and Equipment 16,447 6,460
--------- ---------
OTHER ASSETS
Notes receivable - shareholders and
related parties - non-current 247,033 202,554
Organization costs - net 2,050 2,650
Security deposits 700 -
Goodwill - net of amortization 326,928 -
--------- ---------
Total Other Assets 576,711 205,204
--------- ---------
TOTAL ASSETS $ 787,970 $ 309,763
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 521,432 $ 18,773
Notes payable 25,000 -
Due to former shareholder of subsidiary 30,937 -
Customer deposits 29,427 -
--------- ---------
Total Current Liabilities 606,796 18,773
--------- ---------
LONG-TERM LIABILITIES
Royalties payable 20,753 -
--------- ---------
Total Liabilities 627,549 18,773
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value
in 1998 and 1997; 5,000,000 and
1,697,280 shares authorized in
1998 and 1997; 1,000,000 and
1,697,280 issued and outstanding
in 1998 and 1997 10,000 16,973
Common stock, $0.001 and $0.01 par
value in 1998 and 1997; 100,000,000
and 3,302,720 shares authorized in
1998 and 1997; 19,179,636 issued and
19,080,612 outstanding in 1998; 2,802,154,
shares issued and outstanding in 1997 19,179 28,022
Common shares to be issued,
1,340,140 1,340 -
Additional paid-in capital 1,250,019 515,203
Accumulated deficit (916,937) (269,208)
Less subscriptions receivable
(1,260,000 shares, common) (1,260) -
----------- ----------
Total paid-in capital and
retained earnings 362,341 290,990
Less cost of treasury stock
(99,024 shares, common) (201,920) -
------------ ---------
TOTAL STOCKHOLDERS' EQUITY 160,421 290,990
------------ ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 787,970 $ 309,763
------------ ---------
------------ ---------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM FEBRUARY 25, 1997 (INCEPTION) TO SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK
COMMON STOCK TO BE ISSUED PREFERRED STOCK ADDITIONAL
PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- -------- -------- ------ --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Stock Issued For:
Cash 427,174 $ 4,272 - - 1,697,280 $ 16,973 $ 515,203
Consulting fees 2,294,980 22,950 - - - - -
Advertising services 80,000 800 - - - - -
Net loss 1997 - - - - - - -
---------- -------- -------- ------ ---------- -------- --------
Balance, September 30, 1997 2,802,154 28,022 - - 1,697,280 16,973 515,203
Stock Issued For:
Cash 22,680 227 - - - - 43,073
Consulting fees 1,500,843 15,008 - - - - -
Advertising services 5,000 50 - - - - -
RECAPITALIZATION TRANSACTIONS:
- ------------------------------
Cancellation of KIW, Inc.
stock resulting from
recapitalization (4,330,677) (43,307) - - (1,697,280) (16,973) 60,280
Pre merger Big Tex
Common stock outstanding 6,000,000 6,000 (6,000)
Surrender of Common Stock by
50% Shareholder of Big Tex (3,000,000) (3,000) - - - - 3,000
Issuance of Common Stock
to Shareholders of Kanakaris
Internetworks, Inc. 6,000,000 6,000 - - - - (6,000)
Issuance of Preferred Stock
to Shareholders of Kanakaris
Internetworks, Inc. - - - 1,000,000 10,000 (10,000)
---------- ------- -------- ------ ---------- ------- ----------
Balance after recapitalization 9,000,000 9,000 - - 1,000,000 10,000 599,556
Stock Issued For:
Cash 155,250 155 96,000 96 - - 184,624
Consulting fees 1,703,200 1,703 100,000 100 - - -
Executive compensation 3,000,000 3,000 - - - - -
Advertising services 20,000 20 - - - - -
504 offering 3,981,800 3,982 537,500 537 - - 466,505
Subscriptions 1,260,000 1,260 - - - - -
Stock exchange program 59,386 59 606,640 607 - - (666)
Treasury stock redemption
Net loss 1998 - - - - - - -
---------- ------- --------- ------ ---------- ------- ----------
BALANCE, SEPTEMBER 30, 1998 19,179,636 $19,179 1,340,140 $1,340 1,000,000 $10,000 $1,250,019
---------- ------- --------- ------ --------- ------- ----------
---------- ------- --------- ------ --------- ------- ----------
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK
ACCUMULATED STOCK SUBSCRIPTIONS
DEFICIT AMOUNT RECEIVABLE TOTAL
----------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Stock Issued For:
Cash - - - $ 536,448
Consulting fees - - - 22,950
Advertising services - - - 800
Net loss 1997 (269,208) - - (269,208)
----------- ---------- ------------- ----------
Balance, September 30, 1997 (269,208) - - 290,990
Stock Issued For:
Cash - - - 43,300
Consulting fees - - - 15,008
Advertising services - - - 50
RECAPITALIZATION TRANSACTIONS:
- -----------------------------
Cancellation of KIW, Inc.
stock resulting from
recapitalization - - - -
Pre merger Big Tex
Common stock outstanding
Surrender of Common Stock by
50% Shareholder of Big Tex - - - -
Issuance of Common Stock
to Shareholders of Kanakaris
Internetworks, Inc. - - - -
Issuance of Preferred Stock
to Shareholders of Kanakaris
Internetworks, Inc. - - - -
----------- ---------- ------------- ----------
Balance after recapitalization (269,208) - - 349,348
Stock Issued For:
Cash - - - 184,875
Consulting fees - - - 1,803
Executive compensation - - - 3,000
Advertising services - - - 20
504 offering - - - 471,024
Subscriptions - - (1,260) -
Stock exchange program - - - -
Treasury stock redemption - (201,920) - (201,920)
Net loss 1998 (647,729) - - (647,729)
----------- ---------- ------------- ---------
BALANCE, SEPTEMBER 30, 1998 $ (916,937) $ (201,920)$ (1,260) $ 160,421
----------- ---------- ------------- ---------
----------- ---------- ------------- ---------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM FEBRUARY 25, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
NET SALES $ 919,905 $ 8,475
COST OF SALES 481,349 -
--------- ---------
GROSS PROFIT 438,556 8,475
--------- ---------
OPERATING EXPENSES
Executive compensation 55,052 -
Salaries 279,462 -
Employee benefits 6,479 -
Payroll taxes 20,184 -
Consulting fees 84,272 96,368
Royalties 20,753 -
Development costs - 85,253
Travel and entertainment 40,872 20,333
Telephone and utilities 46,172 18,656
Marketing 27,384 14,717
Professional fees 75,494 12,027
Rent 52,302 11,450
Office supplies and expense 10,703 9,185
Equipment rental and expense 7,953 4,279
Insurance 10,979 4,251
Auto expense 1,500 2,000
Depreciation and amortization 30,214 1,934
Provision for bad debt 300,000 -
Taxes - other 1,370 -
Repairs and maintenance 2,238 1,093
Other expenses 13,712 -
Moving expense 6,055 -
Advertising - 1,272
Bank charges 1,610 -
---------- ---------
TOTAL OPERATING EXPENSES 1,094,760 282,818
---------- ---------
LOSS BEFORE INTEREST INCOME (656,204) (274,343)
Interest income - net 8,475 5,135
---------- ---------
NET LOSS $ (647,729) $(269,208)
- -------- ---------- ---------
---------- ---------
NET LOSS PER COMMON SHARE $ (.0449) $ (.0961)
---------- ---------
---------- ---------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 14,419,873 2,802,154
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
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
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(647,729) $(269,208)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Amortization of goodwill 23,352 -
Depreciation and amortization 6,862 1,934
Write-off of fixed assets 793 -
Provision for bad debts 300,000
Consulting and advertising fees
incurred in exchange for common stock 19,880 23,750
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable (61,699) -
Inventory (1,434) -
Prepaid expenses 11,846 -
Advances to suppliers (7,839) -
Interest receivable (11,548) (5,135)
Increase (decrease) in:
Accounts payable and accrued expenses 103,139 18,773
Royalties payable 20,753 -
Deferred revenue (68,598) -
Customer deposits 29,427 -
--------- ---------
Net cash used in operating activities (282,795) (229,886)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (7,204) (8,044)
(Increase) decrease in notes
receivable - shareholders and
related parties (41,599) (241,714)
(Increase)in notes receivable (300,000) -
Payment of organization costs - (3,000)
Cash provided by subsidiary
acquisition 60,930 -
--------- ---------
Net cash used in investing
activities (287,873) (252,758)
---------- ---------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARY
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
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
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 25,000 -
Proceeds from sale of common stock 4,498 4,272
Proceeds from sale of preferred stock - 16,973
Proceeds from additional paid in capital 694,701 515,203
Purchase of treasury stock (201,920) -
--------- ---------
Net cash provided by financing
activities 522,279 536,448
--------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (48,389) 53,804
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 53,804 -
--------- ---------
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 5,415 $ 53,804
--------- ---------
--------- ---------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
- -----------------------------------------------------------------------
During the year ended September 30, 1998 the Company issued 1,260,000 shares of
common stock in exchange for unpaid subscriptions of $ 1,260, and 4,723,200
shares of common stock for executive compensation, consulting and other services
valued at $4,723.
The Company has incurred a liability in the amount of $ 30,937 which is due to
the former sole shareholder of the Company's subsidiary pursuant to the
acquisition agreement.
See accompanying notes to financial statements.
7
<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 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS ORGANIZATION AND ACTIVITY
Kanakaris Internetworks, Inc. (the "Company") was
incorporated in the State of Delaware on February 25, 1997.
The Company develops and supplies internet products, on line
products and online commerce.
(B) BUSINESS COMBINATIONS
On October 10, 1997 (the "Acquisition Date"), the Company
consummated a Stock Purchase Agreement (the "Purchase
Agreement") with the shareholder (the "Seller") of Desience
Corporation ("Desience") to purchase 10,000 common shares
representing 100% of its issued and outstanding common stock
in exchange for a 4% royalty on the gross sales (after
collection) of Desience subsequent to the Acquisition Date,
to be paid monthly for as long as Desience remains in
business or its products are sold. In addition, the Seller
shall receive five percent of funds which are to be
allocated to Desience arising from the Company's next
securities offering as a non-refundable advance on the
royalty. The Company will hold harmless the Seller from any
claims, causes of action, costs, expenses, liabilities and
prior shareholder advances. Immediately following the
exchange, Desience became a wholly owned subsidiary of the
Company. Desience designs and installs specialized business
furniture for a variety of industries.
On November 25, 1997, the Company and its shareholders (the
("Shareholders") consummated an acquisition agreement with Big
Tex Enterprises, Inc. ("Big Tex"), a public shell, whereby the
shareholders sold all of their preferred and common stock,
which represented 100% of the Company's issued and outstanding
capital stock, to Big Tex in exchange for 7,000,000 shares
(6,000,000 common, 1,000,000 preferred) of Big Tex's
restricted stock, representing 66.67% of the issued and
outstanding common stock and 100% of the issued and
outstanding preferred stock of Big Tex, aggregating 75% of the
total voting rights (the "Exchange"). Big Tex was founded in
1991 for the purpose of lawful business or enterprise, but had
been inactive since 1991. Immediately following the exchange,
all shares of Kanakaris Internetworks, Inc. were canceled and
Kanakaris Internetworks, Inc. was merged into Big Tex.
Generally accepted accounting principles require that the
company whose stockholders retain the majority interest in a
combined business be treated as the acquirer for accounting
purposes. Accordingly, the Big Tex acquisition will be
accounted for as an acquisition of Big Tex by the Company and
a recapitalization of the Company. The financial statements
8
<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 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
immediately following the acquisition are as follows: (1) the
balance sheet includes the Company's net assets at historical
costs and Big Tex's net assets at historical costs and (2) the
statement of operations includes the Company's operations for
the period presented and Big Tex's operations from November
25, 1997. As part of the agreement, Big Tex changed its name
to Kanakaris Communications, Inc.
The dollar, share and par value amounts that appear in the
1997 balance sheet's stockholders' equity section represent
the balances and denominations for such accounts prior to the
acquisition and recapitalization agreements. The dollar, share
and par value amounts that appear in the 1998 balance sheet's
stockholders' equity section represent the balances and
denominations for such accounts subsequent to the acquisition
and recapitalization agreements.
(C) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and Desience, a wholly owned
subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
(D) USE OF ESTIMATES
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles. The
preparation of financial statements in accordance with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
(E) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash
equivalents.
9
<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 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated
using the declining balance method over the estimated economic
useful life of 5 to 7 years. Maintenance and repairs are
charged to expense as incurred. Major improvements are
capitalized. Depreciation expense for the years ended
September 30, 1998 and 1997 was $6,262 and $1,584,
respectively.
(G) INVENTORIES
Inventories consisting of parts, finished goods, and
collectibles are recorded at the lower of cost or market, cost
being determined using the first-in, first-out method.
(H) ORGANIZATION COSTS
Organization costs, which are included in other assets, are
being amortized over 60 months on a straight line basis.
Amortization expense for the years ended September 30, 1998
and 1997 was $600 and $350, respectively.
(I) GOODWILL
Goodwill arising from the acquisition of Desience, as
discussed in Note 1 (B) - Business Combinations, is being
amortized on a straight-line basis over 15 years.
Amortization expense for the year ended September 30, 1998
was $23,352.
(J) EARNINGS PER SHARE
Earnings per share are computed using the weighted average of
common shares outstanding as defined by Financial Accounting
Standards No. 128, "Earnings per Share".
(K) INCOME TAXES
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109 is an asset and liability approach
that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial
statements or tax returns. In estimating future tax
consequences, SFAS 109 generally considers all expected future
events other than enactments of changes in the tax law or
rates. Any available deferred tax assets arising from net
10
<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 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
operating loss carryforwards has been offset by a deferred tax
valuation allowance on the entire amount.
(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.
11
<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 2 - NOTES RECEIVABLE - SHAREHOLDERS AND RELATED PARTIES
The following is a summary of notes receivable at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Note receivable - Shareholder, unsecured.
Interest at 6%. Principal is due
December 31, 1997 $ - $ 7,000
Note receivable - Shareholder, unsecured.
Interest at 6%. Principal is due
December 31, 1997 - 7,000
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. 70,400 49,600
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. 62,400 49,600
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. 28,998 16,999
</TABLE>
12
<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 2 - NOTES RECEIVABLE - SHAREHOLDERS AND RELATED PARTIES - CONTINUED
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
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. 19,600 9,600
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 101,915 101,915
--------- ---------
Total Notes Receivable 283,313 241,714
Less: Current maturities 36,280 39,160
--------- ---------
TOTAL NOTES RECEIVABLE - LESS CURRENT
- -------------------------------------
MATURITIES $ 247,033 $ 202,554
---------- --------- ---------
--------- ---------
</TABLE>
The aggregate amount of notes receivable maturing in each of the five years
subsequent to September 30, 1998 is as follows:
<TABLE>
<S> <C> <C>
For the year ending September 30, 1999 $ 36,280
2000 61,695
2001 74,529
2002 110,809
---------
$ 283,313
---------
---------
</TABLE>
NOTE 3 - 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.
13
<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 4 - 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>
<CAPTION>
<S> <C>
YEARS ENDING
SEPTEMBER 30 AMOUNT
------------ --------
1999 $ 16,632
2000 17,369
</TABLE>
(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 conducted with the SEC during 1999 and it is the opinion
of counsel that the Company, its executives and the SEC will
accept 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 would not
carry any civil penalties.
14
<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 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
August 10, 1999
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
<S> <C> <C>
1. Articles of Incorporation See Below
2. Certificate of Amendment of Articles of Incorporation See Below
3. Certificate of Amendment of Articles of Incorporation See Below
4. Certificate of Amendment of Articles of Incorporation See Below
5. Unanimous Written Consent of the Board of Directors See Below
of Kanakaris Communications, Inc.
6. By-laws of Kanakaris Communications, Inc. See Below
7. Certificate of Designation of Class A Convertible See Below
Preferred Stock of Kanakaris Communications, Inc.
8. Certificate of Amendment of Certificate of Designation See Below
9. Debenture Purchase Agreement See Below
10. Debenture See Below
11. Registration Rights Agreement See Below
27. Financial Data Schedule See Below
</TABLE>
<PAGE>
Exhibit 1
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
NOV 01 1991
[ILLEGIBLE], SECRETARY OF STATE
/s/ [ILLEGIBLE]
No. C17197-91
A R T I C L E S O F I N C O R P O R A T I O N
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have voluntarily associated ourselves
together for the purpose of forming a corporation under and pursuant to the
laws of the State of Nevada, and we do hereby certify:
FIRST: The name of the corporation is:
BIG TEX ENTERPRISES.
SECOND: The principal office of the corporation is to be located
at VAZQUEZ & ASSOCIATES, 4660 South Eastern, Ste 102, City of Las Vegas,
County of Clark, State of Nevada, and that the Resident Agent in charge
thereof is NELSON VAZQUEZ, but the corporation may maintain an office at such
towns, cities and places outside the State of Nevada as the Board of
Directors may, from time to time, determine, or as may be designated by the
By laws of the corporation.
THIRD: That the purpose for which said corporation is formed, and
the nature of the objects proposed to be transacted and carried on by it are:
NOT LIMITED RETAIL SALES, ADULT ENTERTAINMENT, FURNITURE & ACCESORIES, MAIL
ORDER, ETC.
To engage in any lawful activity or practice.
FOURTH: The total authorized capital stock of the corporation shall
be TWENTY-FIVE HUNDRED (2,500) Shares of Class A Common stock of the Par
Value of without par value, all of which shall be entitled to voting power.
<PAGE>
FIFTH: The members of the governing board shall be styled
Directors, and the number of such Board of Directors shall not be less than
two (2) nor more than five (5), and the names and addresses of the first
Board of Directors consisting of members, are as follows:
NAME POST OFFICE ADDRESSES
---- ---------------------
JAMES MICHAEL SKILES 3950 Koval Lane #1084
Las Vegas, NV 89109
AL DiCICCO 3950 Koval Lane #1084
Las Vegas, NV 89109
SIXTH: The capital stock of the corporation, after the amount of
the subscription price had been paid in money, property or services, as the
Directors shall determine, shall not be subject to assessment to pay the
debts of the corporation, nor for any other purpose, and no stock issued as
fully paid up shall ever be assessable or assessed, and the Articles of
Incorporation shall not be amended in this particular.
SEVENTH: Every stockholder of this corporation shall, upon the sale
of any new stock of such corporation, of the same class as that which he
already holds, have the right to purchase his pro rata share of such new
stock in proportion to this shareholdings at that time, for such amounts as
may be determined to be the offering price of the stock to either shareholders
or non-shareholders.
<PAGE>
EIGHTH: The names and post office addresses of each of the
incorporators signing these Articles of Incorporation are as follows:
NAME POST OFFICE ADDRESSES
---- ---------------------
JAMES MICHAEL SKILES 3950 Koval Lane #1084
Las Vegas, NV 89109
AL DICICCO 3950 Koval Lane #1084
Las Vegas, NV 89109
NINTH: The corporation shall have perpetual existence.
TENTH: The stockholders of the corporation shall not be
individually liable for the debts or the liabilities of the corporation,
except that the holder of shares of stock not fully paid shall be personally
liable to the corporation in amounts not to exceed the amount unpaid on the
shares held by him, at the subscription price, then, and then only, when
there is a written contract of subscription of stock.
ELEVENTH: The Board of Directors shall have the power and authority
to make and alter, or amend the By Laws, to fix the amount in each or to
otherwise be reserved as working capital, and to authorize and cause to be
executed, mortgages, and other liens upon the property, business and
franchises of the corporation.
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporators have executed
these Articles of Incorporation this 29 day of October, 1991
/s/ James Michael Skiles
-----------------------------
James Michael Skiles
/s/ Al DiCicco
-----------------------------
Al DiCicco
/s/ Al DiCicco
-----------------------------
STATE OF NEVADA ) ss
COUNTY OF CLARK )
On this 29 day of October, 1991, before me the undersigned, a
Notary Public in and for the County of Clark, State of Nevada, personally
appeared James Michael Skiles, Al DiCicco, and , known to me
to be the persons named in the above and foregoing instrument, and each for
himself, duly acknowledged to me that he or she is one of the persons named
in and who executed the above and foregoing instrument, and that he or she,
and each of them, executed the same freely and voluntarily and for the uses
and purposes therein mentioned.
/s/ Marilyn F. Acres
MARILYN F. ACRES
Notary Public-State of Nevada
Appointment Recorded in Clark County
My Appointment Expires July 23, 1995
<PAGE>
Exhibit 2
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUN 26 1997
C9767-91
DEAN HELLER SECRETARY OF STATE
NO. /s/ DEAN HELLER
---------------------------
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
BIG TEX ENTERPRISES
(THE CORPORATION)
We the undersigned, Nelson Vazquez (President/Director) and Douglas Ansell
(Secretary/Director) of the Corporation do hereby certify:
That the board of Directors of the Corporation at a meeting duly convened and
held on the 8th day of November, 1996, adopted a resolution to amend the
original articles as follows:
ARTICLE FOUR is hereby amended to read as follows:
"FOURTH: THE TOTAL AUTHORIZED CAPITAL STOCK OF THE CORPORATION SHALL BE
ONE-HUNDRED-MILLION SHARES OF CLASS A COMMON STOCK OF THE PAR VALUE OF .001
ALL OF WHICH SHALL BE ENTITLED TO VOTING POWER."
ADDITIONALLY, CONCURRENT WITH THE INCREASE IN CAPITALIZATION, THE
ISSUED AND OUTSTANDING 2,500 SHARES OF THE CORPORATION ARE HEREBY
FORWARD SPLIT ON A 2,400 FOR 1 BASIS MAKING THE ISSUED AND
OUTSTANDING SHARES OF THE CORPORATION CHANGE FROM 2,500 SHARES AT
NO PAR VALUE TO 6,000,000 COMMON SHARES AT .001 PAR VALUE.
Additionally we do hereby certify that the board of Directors of the
Corporation at a meeting duly convened and held on the 24th day of January,
1997, adopted a resolution to amend the original articles as follows:
ARTICLE THREE is hereby amended to read as follows:
"THIRD: THAT THE PURPOSE FOR WHICH SAID CORPORATION IS FORMED AND THE NATURE
OF THE OBJECTS PROPOSED TO BE TRANSACTED AND CARRIED ON BY IT ARE:
TO ENGAGE IN ANY LAWFUL ACTIVITY OR PRACTICE."
ARTICLE SEVEN is hereby RECINDED.
The number of shares of the Corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation are 2,500 (prior to forward
split); that the said change(s) and amendments have been consented to and
approved by a majority vote of the stockholders holding at least a majority
of each class of stock outstanding and entitled to vote thereon."
/s/ Nelson Vazquez /s/ Douglas Ansell
- ----------------------------------- -------------------------------------
Nelson Vazquez, President Douglas Ansell, Secretary
State Of Nevada )
) ss.
County Of Clark )
The undersigned Notary Public certified, deposes and states that Nelson
Vazquez and Douglas Ansell, personally appeared before me and executed the
foregoing on behalf of the Corporation as it's President and Secretary
respectively, this 24th day of January, 1997.
By: /s/ Bridget E. Richards
[SEAL] ----------------------------------
Notary Public in and for said
County and State
NOTARY PUBLIC
STATE OF NEVADA
COUNTY OF CLARK
BRIDGET E. RICHARDS
No: 94-4099-1
My Appointment Expires Sept. 5, 2000
<PAGE>
STATE OF NEVADA
Secretary of State
I hereby certify that this is a
true and complete copy of the
document as filed in this office.
JUN 26, '97
/s/ Dean Heller
DEAN HELLER
Secretary of State
[ILLEGIBLE]
<PAGE>
Exhibit 3
NOV 26 1997
B75
C97-1950
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
of
BIG TEX ENTERPRISES
NOV 26 1997
C 9767-91
- ---------
DOUGLAS ANSELL certifies that:
1. The original articles were filed with the Office of the Secretary
of State on November 1, 1997.
2. As of the date of this certificate, 6,000,000 shares of stock of
the corporation have been issued.
3. Pursuant to a shareholders meeting at which in excess of 51% voted
in favor of the following amendment, the company hereby adopts the
following amendments to the Articles of Incorporation of this
Corporation:
Article One is hereby amended to read as follows:
FIRST: The name of the corporation is:
KANAKARIS COMMUNICATIONS, INC.
Article Four is hereby amended to read as follows:
FOURTH: The total authorized capital stock of the corporation
shall be One-Hundred-Million Shares of Class A Common Stock of the Par
Value of .001 all of which shall be entitled to voting power and 5 Million
Shares of Class B Preferred Stock which shall be entitled to 3 to 1 voting
rights over common stock also at .001 par value.
/s/ Douglas Ansell
------------------------------
Douglas Ansell, Vice President
State of Nevada )
) ss.
County of Clark )
On 11/25/97, personally appeared before me, a Notary public, Douglas
Ansell, who acknowledged that he executed the above instrument.
/s/ Bridget E. Richards
[SEAL] --------------------------
A Notary Public in and for
said County and State.
NOTARY PUBLIC
STATE OF NEVADA
COUNTY OF CLARK
BRIDGET E. RICHARDS
No: 94-4099-1
My Appointment Expires Sept. 5, 2000
<PAGE>
Exhibit 4
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
MAR 03 1999
No. C 9767-91
----------
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
KANAKARIS COMMUNICATIONS, INC.
We, the undersigned Alex Kanakaris, President, and Branch Lotspeich,
Secretary, of Kanakaris Communications, Inc., do hereby certify:
That the Board of Directors of said corporation at a meeting duly
convened, held on the 1st day of March, 1999, adopted a resolution to amend
the original articles as follows:
Article FOURTH is hereby amended to read as follows:
"The total authorized capital stock of the corporation shall be
100,000,000 shares of Common Stock, $.001 par value and 5,000,000 shares
of Preferred Stock, $.01 par value.
"The Preferred shares may be issued from time to time in one or more
series. The Board of Directors is authorized to fix the number of shares
of any series of Preferred shares and to determine the designation of
any such series. The Board of Directors is also authorized to determine
or alter the rights, preferences, privileges, and restrictions granted
to or imposed upon any wholly unissued series of Preferred shares and,
within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of
shares constituting any series, to increase or decrease (but not below
the number of shares of such series then outstanding) the number of
shares of any such series subsequent to the issue of shares of that
series."
That the said changes and amendment were consented to and approved by a
majority vote of the stockholders holding at least a majority of stock
outstanding and entitled to vote thereon on September 29, 1997.
/s/ Alex Kanakaris
----------------------------------
Alex Kanakaris, President
/s/ Branch Lotspeich
----------------------------------
Branch Lotspeich, Secretary
<PAGE>
- -------------------------------------------------------------------------------
State of California )
County of Orange ) SS.
On MARCH 2, 1999 before me, Donna L. Hokanson, Notary Public, personally
appeared
ALEX KANAKARIS & BRANCH LOTSPEICH
- ----------------------------------
who proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) are subscribed to the within instrument and acknowledged to me
that they executed the same in their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s) or the entity upon
behalf of which the person(s) acted, executed the
WITNESS my hand and official seal.
/s/ Donna L. Hokanson
---------------------------------------
Donna L. Hokanson
Commission expires March 20, 2002
DONNA L. HOKANSON
COMM. #1178900
NOTARY PUBLIC - CALIFORNIA
ORANGE COUNTY
My Comm. Expires Mar. 20, 2002
--------------------------------------------------------------------
OPTIONAL INFORMATION
--------------------
DESCRIPTION OF ATTACHED DOCUMENT
--------------------------------
-------------------------
Title or Type of Document
-------------------------
Number of Pages
-------------------------
Date of Document
---------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
--------------------------
STATE OF NEVADA
SECRETARY OF STATE
I hereby certify that
this is a true and
complete copy of
the document as filed
in this office.
MAR 04 '99
/s/ Dean Heller
DEAN HELLER
Secretary of State
By /s/ C Morton
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Exhibit 5
UNANIMOUS WRITTEN CONSENT OF
THE BOARD OF DIRECTORS OF
KANAKARIS COMMUNICATIONS, INC.
The undersigned, being all of the members of the Board of Directors of
Kanakaris Communications, Inc., a Nevada corporation (the "Corporation"), do
hereby approve, consent to and adopt the following resolution pursuant to the
Nevada Revised Statutes:
RESOLVED, that the By-Laws adopted on November 8, 1991, including all
By-Laws heretofore adopted, are hereby vacated, abrogated and repealed, and
that there be this day adopted as the By-Laws of the Corporation the
By-Laws presented and read to this meeting, and that a copy thereof be
attached to these minutes, certified to by the Secretary of the Corporation
and placed in the minute book.
DATED: March 31, 1999
/s/ Alex F. Kanakaris
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Alex F. Kanakaris
/s/ Branch Lotspeich
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Branch Lotspeich
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Exhibit 6
BY-LAWS
OF
KANAKARIS COMMUNICATIONS, INC.
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A NEVADA CORPORATION
ARTICLE ONE
OFFICES
Section 1.1. REGISTERED OFFICE - The registered office of this
corporation shall be in the County of Carson, State of Nevada.
Section 1.2. OTHER OFFICES - The corporation may also have offices
at such other places both within and without the State of Nevada as the Board
of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE TWO
MEETINGS OF STOCKHOLDERS
Section 2.1. PLACE - All annual meetings of the stockholders shall
be held at the registered office of the corporation or at such other place
within or without the State of Nevada as the directors shall determine.
Special meetings of the stockholders may be held at such time and place
within or without the State of Nevada as shall be stated in the notice of the
meeting, or in a duly executed waiver of notice thereof.
Section 2.2. ANNUAL MEETINGS - Annual meetings of the stockholders,
commencing with the year 1999, shall be held on the 20th day of May each year
if not a legal holiday and, if a legal holiday, then on the next secular day
following, or at such other time as may be set by the Board of Directors from
time to time, at which the stockholders shall elect by vote a Board of
Directors and transact such other business as may properly be brought before
the meeting.
Section 2.3. SPECIAL MEETINGS - Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the President or the Secretary by
resolution of the Board of Directors or at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purpose of the proposed meeting.
Section 2.4. NOTICES OF MEETINGS - Notices of meetings shall be in
writing and signed by the President or a Vice-President or the Secretary or
an Assistant Secretary or by such other person or persons as the directors
shall designate. Such notice shall state the purpose or purposes for which
the meeting is called and the time and the place, which may be within or
without this State, where it is to be held. A copy of such notice shall be
either delivered personally to or shall be mailed, postage prepaid, to each
stockholder of record entitled to vote at such meeting not less than ten nor
more than sixty days before such meeting. If mailed, it shall be directed to
a stockholder at his address as it appears upon the records of the
corporation and upon such mailing of any such notice, the service thereof
shall be complete and the time of the notice shall being to run from the date
upon which such notice is deposited in the mail for transmission to such
stockholder. Personal delivery of any such notice to any officer of a
corporation or
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association or to any member of a partnership shall constitute delivery of
such notice to such corporation, association or partnership. In the event of
the transfer of stock after delivery of such notice of and prior to the
holding of the meeting it shall not be necessary to deliver or mail notice of
the meeting to the transferee.
Section 2.5. PURPOSE OF MEETINGS - Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 2.6. QUORUM - The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Articles of Incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 2.7. VOTING - When a quorum is present or represented at
any meeting, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall be sufficient to elect
directors or to decide any questions brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
Articles of Incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Section 2.8. SHARE VOTING - Each stockholder of record of the
corporation shall be entitled at each meeting of stockholders to one vote for
each share of stock standing in his name on the books of the corporation.
Upon the demand of any stockholder, the vote for directors and the vote upon
any question before the meeting shall be by ballot.
Section 2.9. PROXY - At any meeting of the stockholders any
stockholder may be represented and vote by a proxy or proxies appointed by an
instrument in writing. In the event that any such instrument in writing
shall designate two or more persons to act as proxies, a majority of such
persons present at the meeting, or, if only one shall be present, then that
one shall have and may exercise all of the powers conferred by such written
instrument upon all of the persons so designated unless the instrument shall
otherwise provide. No proxy or power of attorney to vote shall be used to
vote at a meeting of the stockholders unless it shall have been filed with
the secretary of the meeting when required by the inspectors of election.
All questions regarding the qualification of voters, the validity of proxies
and the acceptance or rejection of votes shall be decided by the inspectors
of election who shall be appointed by the Board of Directors, or if not so
appointed, then by the presiding officer of the meeting.
Section 2.10. WRITTEN CONSENT IN LIEU OF MEETING - Any action which
may be taken by the vote of the stockholders at a meeting may be taken
without a meeting if authorized by the written consent of stockholders
holding at least a majority of the voting power, unless the provisions of the
statutes or of the Articles of Incorporation require a greater proportion of
voting power to authorize such action in which case such greater proportion
of written consents shall be required.
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ARTICLE THREE
DIRECTORS
Section 3.1. POWERS - The business of the corporation shall be managed
by its Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or
by the Articles of Incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.
Section 3.2. NUMBER OF DIRECTORS - The number of directors which shall
constitute the whole board shall be five (5). The number of directors
may from time to time be increased or decreased to not less than one nor more
than fifteen by action of the Board of Directors. The directors shall be
elected at the annual meeting of the stockholders and except as provided in
Section 2 of this Article, each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 3.3. VACANCIES - Vacancies in the Board of Directors including
those caused by an increase in the number of directors, may be filled by a
majority of the remaining directors, though less than a quorum, or by a sole
remaining director, and each director so elected shall hold office until his
successor is elected at an annual or a special meeting of the stockholders.
The holders of a two-thirds of the outstanding shares of stock entitled to
vote may at any time peremptorily terminate the term of office of all or any
of the directors by vote at a meeting called for such purpose or by a written
statement filed with the secretary or, in his absence, with any other
officer. Such removal shall be effective immediately, even if successors are
not elected simultaneously and the vacancies on the Board of Directors
resulting therefrom shall be filled only by the stockholders.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in case of the death, resignation or removal of any directors, or if
the authorized number of directors be increased, or if the stockholders fail
at any annual or special meeting of stockholders at which any director or
directors are elected to elect the full authorized number of directors to be
voted for at that meeting.
The stockholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors. If the Board of
Directors accepts the resignation of a director tendered to take effect at a
future time, the Board or the stockholders shall have power to elect a
successor to take office when the resignation is to become effective.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of his term of office.
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ARTICLE FOUR
MEETINGS OF THE BOARD OF DIRECTORS
Section 4.1. PLACE - Regular meetings of the Board of Directors shall
be held at any place within or without the State which has been designated
from time to time by resolution of the Board or by written consent of all
members of the Board. In the absence of such designation regular meetings
shall be held at the registered office of the corporation. Special meetings
of the Board may be held either at a place so designated or at the registered
office.
Section 4.2. FIRST MEETING - The first meeting of each newly elected
Board of Directors shall be held immediately following the adjournment of the
meeting of stockholders and at the place thereof. No notice of such meeting
shall be necessary to the directors in order legally to constitute the
meeting, provided a quorum be present. In the event such meeting is not so
held, the meeting may be held at such time and place as shall be specified in
a notice given as hereinafter provided for special meetings of the Board of
Directors.
Section 4.3. REGULAR MEETINGS - Regular meetings of the Board of
Directors may be held without call or notice at such time and at such place
as shall from time to time be fixed and determined by the Board of Directors.
Section 4.4. SPECIAL MEETINGS - Special Meetings of the Board of
Directors may be called by the Chairman or the President or by any
Vice-President or by any two directors.
Written notice of the time and place of special meetings shall be
delivered personally to each director, or sent to each director by mail or by
other form of written communication, charges prepaid, addressed to him at his
address as it is shown upon the records or is not readily ascertainable, at
the place in which the meetings of the directors are regularly held. In case
such notice is mailed or telegraphed, it shall be deposited in the United
States mail or delivered to the telegraph company at least forty-eight (48)
hours prior to the time of the holding of the meeting. In case such notice is
delivered as above provided, it shall be so delivered at least twenty-four
(24) hours prior to the time of the holding of the meeting. Such mailing,
telegraphing or delivery as above provided shall be due, legal and personal
notice to such director.
Section 4.5. NOTICE - Notice of the time and place of holding an
adjourned meeting need not be given to the absent directors if the time and
place be fixed at the meeting adjourned.
Section 4.6. WAIVER - The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum
be present, and if, either before or after the meeting, each of the directors
not present signs a written waiver of notice, or a consent to holding such
meeting, or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 4.7. QUORUM - A majority of the authorized number of directors
shall be necessary to constitute a quorum for the transaction of business,
except to adjourn as hereinafter provided. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors,
unless a greater number be required by law or by the Articles
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of Incorporation. Any action of a majority, although not at a regularly
called meeting, and the record thereof, if assented to in writing by all of
the other members of the Board shall be as valid and effective in all
respects as if passed by the Board in regular meeting.
Section 4.8. ADJOURNMENT - A quorum of the directors may adjourn
any directors meeting to meet again at a stated day and hour; provided,
however, that in the absence of a quorum, a majority of the directors present
at any directors meeting, either regular or special, may adjourn from time to
time until the time fixed for the next regular meeting of the Board.
ARTICLE FIVE
COMMITTEES OF DIRECTORS
Section 5.1. POWER TO DESIGNATE - The Board of Directors may, by
resolution adopted by a majority of the whole Board, designate one or more
committees of the Board of Directors, each committee to consist of one or
more of the directors of the corporation which, to the extent provided in the
resolution, shall have and may exercise the power of the Board of Directors
in the management of the business and affairs of the corporation and may have
power to authorize the seal of the corporation to be affixed to all papers
which may require it. Such committee or committees shall have such name or
names as may be determined from time to time by the Board of Directors. The
members of any such committee present at any meeting and not disqualified
from voting may, whether or not they constitute a quorum, unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any absent or disqualified member. At meetings of such committees, a
majority of the members or alternate members shall constitute a quorum for the
transaction of business, and the act of a majority of the members or
alternate members at any meeting at which there is a quorum shall be the act
of the committee.
Section 5.2. REGULAR MINUTES - The committees shall keep regular
minutes of their proceedings and report the same to the Board of Directors.
Section 5.3. WRITTEN CONSENT - Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent thereto is signed by all
members of the Board of Directors or of such committee, as the case may be,
and such written consent is filed with the minutes of proceedings of the
Board or committee.
ARTICLE SIX
COMPENSATION OF DIRECTORS
Section 6.1. COMPENSATION - The directors may be paid their expenses
of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a
stated salary as director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
reimbursement and compensation for attending committee meetings.
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ARTICLE SEVEN
NOTICES
Section 7.1. NOTICE - Notices to directors and stockholders shall
be in writing and delivered personally or mailed to the directors or
stockholders at their addresses appearing on the books of the corporation.
Notice by mail shall be deemed to be given at the time when the same shall be
mailed. Notice to directors may also be given by telegram.
Section 7.2. CONSENT - Whenever all parties entitled to vote at any
meeting, whether of directors or stockholders, consent, either by a writing
on the records of the meeting or filed with the secretary, or by presence at
such meeting and oral consent entered on the minutes, or by taking part in
the deliberations at such meeting without objection, the doings of such
meetings shall be as valid as if had at a meeting regularly called and
noticed, and at such meeting any business may be transacted which is not
excepted from the written consent or to the consideration of which no
objection for want of notice is made at the time, and if any meeting be
irregular for want of notice or of such consent, provided a quorum was
present at such meeting, the proceedings of said meeting may be ratified and
approved and rendered likewise valid and the irregularity or defect therein
waived by a writing signed by all parties having the right to vote at such
meeting; and such consent or approval of stockholders may be by proxy or
attorney, but all such proxies and powers of attorney must be in writing.
Section 7.3. WAIVER OF NOTICE - Whenever any notice whatever is
required to be given under the provisions of the statutes, of the Articles of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein shall be deemed equivalent thereto.
ARTICLE EIGHT
OFFICERS
Section 8.1. APPOINTMENT OF OFFICERS - The officers of the
corporation shall be chosen by the Board of Directors and shall be a
President, a Secretary and a Treasurer. Any person may hold two or more
offices.
Section 8.2. TIME OF APPOINTMENT - The Board of Directors at its
first meeting after each annual meeting of stockholders shall choose a
Chairman of the Board who shall be a director, and shall choose a President,
a Secretary and a Treasurer, none of whom need be directors.
Section 8.3. ADDITIONAL OFFICERS - The Board of Directors may
appoint a Vice-Chairman of the Board, Vice-Presidents and one or more
Assistant Secretaries and Assistant Treasurers and such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors.
Section 8.4. SALARIES - The salaries and compensation of all
officers of the corporation shall be fixed by the Board of Directors.
Section 8.5. VACANCIES - The officers of the corporation shall hold
office at the pleasure of the Board of Directors. Any officer elected or
appointed by the Board of
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Directors may be removed at any time by the Board of Directors. Any vacancy
occurring in any office of the corporation by death, resignation, removal or
otherwise shall be filled by the Board of Directors.
Section 8.6. CHAIRMAN OF THE BOARD - The CHAIRMAN OF THE BOARD shall
preside at meetings of the stockholders and the Board of Directors, and shall
see that all orders and resolutions of the Board of Directors are carried into
effect.
Section 8.7. VICE-CHAIRMAN - The VICE-CHAIRMAN shall, in the absence
or disability of the Chairman of the Board, perform the duties and exercise
the powers of the Chairman of the Board and shall perform such other duties
as the Board of Directors may from time to time prescribe.
Section 8.8. PRESIDENT - The PRESIDENT shall be the chief executive
officer of the corporation and shall have active management of the business
of the corporation. He shall execute on behalf of the corporation all
instruments requiring such execution except to the extent the signing and
execution thereof shall be expressly designated by the Board of Directors to
some other officer or agent of the corporation.
Section 8.9. VICE-PRESIDENT - The VICE-PRESIDENT shall act under the
direction of the President and in the absence or disability of the President
shall perform the duties and exercise the powers of the President. They shall
perform such other duties and have such other powers as the President or the
Board of Directors may from time to time prescribe. The Board of Directors
may designate one or more Executive Vice-Presidents or may otherwise specify
the order of seniority of the Vice-Presidents. The duties and powers of the
President shall descend to the Vice-Presidents in such specified order of
seniority.
Section 8.10. SECRETARY - The SECRETARY shall act under the direction
of the President. Subject to the direction of the President he shall attend
all meetings of the Board of Directors and all meetings of the stockholders
and record the proceedings. He shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the President or
the Board of Directors.
Section 8.11. ASSISTANT SECRETARIES - The ASSISTANT SECRETARIES shall
act under the direction of the President. In order of their seniority, unless
otherwise determined by the President or the Board of Directors, they shall,
in the absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary. They shall perform such other duties
and have such other powers as the President or the Board of Directors may
from time to time prescribe.
Section 8.12. TREASURER - The TREASURER shall act under the direction
of the President. Subject to the direction of the President he shall have
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation
and shall deposit all monies and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the
Board of Directors. He shall disburse the funds of the corporation as may be
ordered by the President or the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so
requires, an account of all his transactions as Treasurer and of the
financial condition of the corporation.
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Section 8.13. SURETY - If required by the Board of Directors, he shall
give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the corporation, in
case of his death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the corporation.
Section 8.14. ASSISTANT TREASURER - The ASSISTANT TREASURER in the
order of their seniority, unless otherwise determined by the President or the
Board of Directors, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer. They shall
perform such other duties and have such other powers as the President or the
Board of Directors may from time to time prescribe.
ARTICLE NINE
CERTIFICATES OF STOCK
Section 9.1. SHARE CERTIFICATES - Every stockholder shall be entitled
to have a certificate signed by the President or a Vice-President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the corporation, certifying the number of shares owned by him in
the corporation. If the corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of
the various classes of stock or series thereof and the qualifications,
limitations or restrictions of such rights, shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such stock.
Section 9.2. TRANSFER AGENTS - If a certificate is signed (a) by a
transfer agent other than the corporation or its employees or (b) by a
registrar other than the corporation or its employees, the signatures of the
officers of the corporation may be facsimiles. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
cease to be such officer before such certificate is issued, such certificate
may be issued with the same effect as though the person had not ceased to be
such officer. The seal of the corporation, or a facsimile thereof, may, but
need not be, affixed to certificates of stock.
Section 9.3. LOST OR STOLEN CERTIFICATES - The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost or destroyed upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such
manner as it shall require and/or give the corporation a bond in such sum as
it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost or
destroyed.
Section 9.4. SHARE TRANSFERS - Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation, if it is
satisfied that all provisions of the laws and regulations applicable to the
corporation regarding transfer and ownership of shares have been complied
with, to issue a new certificate to the person entitled thereto, cancel the
old certificate and record the transaction upon its books.
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Section 9.5. VOTING SHAREHOLDER - The Board of Directors may fix in
advance a date not exceeding sixty (60) days nor less than ten (10) days
preceding the date of any meeting of stockholders, or the date for the payment
of any dividend, or the date for the allotment of rights, or the date when
any change or conversion or exchange of capital stock shall go into effect,
or a date in connection with obtaining the consent of stockholders for any
purpose, as a record date for the determination of the stockholders entitled
to notice of and to vote at any such meeting, and any adjournment thereof, or
entitled to receive payment of any such dividend, or to give such consent,
and in such case, such stockholders, and only such stockholders as shall be
stockholder of record on the date so fixed, shall be entitled to notice of
and to vote at such meeting, or any adjournment thereof, or to receive
payment of such dividend, or to receive such allotment of rights, or to
exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation
after any such record date fixed as aforesaid.
Section 9.6. SHAREHOLDERS RECORD - The corporation shall be
entitled to recognize the person registered on its books as the owner of
shares to be the exclusive owner for all purposes including voting and
dividends, and the corporation shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as other wise provided by the laws of Nevada.
ARTICLE TEN
GENERAL PROVISIONS
Section 10.1. DIVIDENDS - Dividends upon the capital stock of the
corporation, subject to the provisions of the Articles of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property or in
shares of the capital stock, subject to the provisions of the Articles of
Incorporation.
Section 10.2. RESERVES - Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends
such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or
for equalizing dividends or for repairing or maintaining any property of the
corporation or for such other purpose as the directors shall think conducive
to the interest of the corporation, and the directors may modify or abolish
any such reserve in the manner in which it was created.
Section 10.3. CHECKS - All checks or demands for money and notes of
the corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
Section 10.4. FISCAL YEAR - The fiscal year of the corporation shall
be fixed by resolution of the Board of Directors.
Section 10.5. CORPORATE SEAL - The corporation may or may not have a
corporate seal, as may from time to time be determined by resolution of the
Board of Directors. If a corporate seal is adopted, it shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal" and
"Nevada". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
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ARTICLE ELEVEN
INDEMNIFICATION
Every person who was or is a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a director or officer of the
corporation or is or was serving at the request of the corporation or for its
benefit as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless to the fullest extent legally
permissible under the General Corporation Law of the State of Nevada from
time to time against all expenses, liability and loss (including attorneys'
fees, judgments, fines and amounts paid or to be paid in settlement)
reasonably incurred or suffered by him in connection therewith. The expenses
of officers and directors incurred in defending a civil or criminal action,
suit or proceeding must be paid by the corporation as they are incurred and
in advance of the final disposition of the action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the corporation.
Such right of indemnification shall be a contract right which may be enforced
in any manner desired by such person. Such right of indemnification shall not
be exclusive of any other right which such directors, officers or
representatives may have or hereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their respective
rights of indemnification under any bylaw, agreement, vote of stockholders,
provision of law or otherwise, as well as their rights under this Article.
The Board of Directors may cause the corporation to purchase and
maintain insurance on behalf of any person who is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred in any such
capacity or arising out of such status, whether or not the corporation would
have the power to indemnify such person.
The Board of Directors may from time to time adopt further Bylaws
with respect to indemnification and may amend these and such Bylaws to
provide at all times the fullest indemnification permitted by the General
Corporation Law of the State of Nevada.
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ARTICLE TWELVE
AMENDMENTS
Section 12.1. BY SHAREHOLDER - The Bylaws may be amended by a majority
vote of all the stock issued and outstanding and entitled to vote at any
annual or special meeting of the stockholders, provided notice of intention
to amend shall have been contained in the notice of the meeting.
Section 12.2. BY BOARD OF DIRECTORS - The Board of Directors by a
majority vote of the whole Board at any meeting may amend these Bylaws,
including Bylaws adopted by the stockholders, but the stockholders may from
time to time specify particular provisions of the Bylaws which shall not be
amended by the Board of Directors.
APPROVED AND ADOPTED this 31st day of March , 1999.
/s/ Branch Lotspeich
---------------------------
Secretary, Branch Lotspeich
<PAGE>
CERTIFICATE OF SECRETARY
I hereby certify that I am the Secretary of Kanakaris Communications,
Inc. and that the foregoing Bylaws, consisting of 11 pages, constitute the
code of Bylaws of Kanakaris Communications, Inc., as duly adopted at a
regular meeting of the Board of Directors of the corporation held March 31,
1999.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 31st day of
March , 1999.
/s/ Branch Lotspeich
---------------------------
Secretary, Branch Lotspeich
<PAGE>
Exhibit 7
CERTIFICATE OF DESIGNATION
OF
CLASS A CONVERTIBLE PREFERRED STOCK
OF
KANAKARIS COMMUNICATIONS, INC.
Kanakaris Communications, Inc., a corporation organized and existing
under the laws of the State of Nevada (the "Corporation"), does hereby
certify that, pursuant to the authority conferred on the Board of Directors
of the Corporation by the Articles of Incorporation of the Corporation and in
accordance with the Nevada Revised Statutes, the Board of Directors of the
Corporation adopted the following resolution establishing a series of
1,000,000 shares of Preferred Stock of the Corporation designated as
CLASS A CONVERTIBLE PREFEREED STOCK
RESOLVED, that pursuant to the authority conferred on the Board of
Directors of this Corporation by the Articles of Incorporation, a
series of Preferred Stock, $.01 par value per share, of the
Corporation be and hereby is established and created, and that the
designation and number of shares thereof and the voting and other
powers, preferences and relative, participating, optional or other
rights of the shares of such series and qualifications, limitations
and restrictions thereof are as follows:
1. DESIGNATION AND AMOUNT. There shall be a series of Preferred Stock
designated as "Class A Convertible Preferred Stock", and the number of shares
constituting such series shall be 1,000,000. Such series is referred to
herein as the "Class A Preferred Stock".
2. PAR VALUE. The par value for each share of Class A Preferred Stock shall
be $.01.
3. RANK. All shares of Preferred Stock shall rank prior to all of the
Corporation's Common Stock, $.01 par value (the "Common Stock"), now or
hereafter issued, both as to payment of dividends and as to distributions of
assets upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
4. DIVIDENDS. The holders of Class A Preferred Stock are entitled to
receive, in any fiscal year, when and as declared by
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<PAGE>
the Board of Directors, out of any assets at the time legally available
therefor, dividends in cash, before any dividend is paid on Common Stock.
That dividend may be payable quarterly or otherwise as the Board of Directors
may from time to time determine. Dividends may be declared and paid on Common
Stock in any fiscal year of the Company only if dividends shall have been
paid to or declared and set apart on all Preferred Stock. The right to
dividends on Preferred Stock shall not be cumulative, and no right shall
accrue to holders of Preferred Stock by reason of the fact that dividends on
that stock are not declared in any prior year, nor shall any undeclared or
unpaid dividend bear or accrue interest.
5. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, holders of the Class A Preferred Stock are
entitled to receive $.10 in cash per share plus accumulated and unpaid
dividends out of assets available for distribution to shareholders, prior to
any distribution to holders of Common Stock or any other stock ranking junior
to the Class A Preferred Stock. If, upon any liquidation, dissolution or
winding up of the Company, the amounts payable with respect to the Class A
Preferred Stock (and with respect to any other Preferred Stock ranking on a
parity with the Class A Preferred Stock in any such distribution) are not
paid in full, the holders of the Class A Preferred Stock (and of such other
Preferred Stock) will share ratably in any such distribution of assets in
proportion to the full preferential amounts to which such shares are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of shares of Class A Preferred Stock
will not be entitled to any further participation in any distribution of
assets by the Company.
A consolidation or merger of the Company with or into any other
corporation or a sale of all or any part of the assets of the Company (which
shall not in fact result in the liquidation of the Company and the
distribution of assets to stockholders) shall not be deemed to be a
liquidation, dissolution or winding up of the Company.
6. REDEMPTION. The Class A Preferred Stock may be redeemed by the Company
at any time upon 30 days' written notice at a redemption price of $.50 per
share. Preferred Stock shareholders shall have the right to convert into
common stock during this 30-day period. The redemption price shall be payable
together with accumulated and unpaid dividends to the date fixed for
redemption. If full cumulative dividends on the Class A Preferred Stock
through the most recent dividend payment date have not been paid, the Class A
Preferred Stock may not be redeemed in part unless approved by the holders of
a majority of shares of the Class A Preferred Stock then outstanding and the
Company may not purchase
2
<PAGE>
or acquire any share of Class A Preferred Stock other than pursuant to a
purchase or exchange offer made on the same terms to all holders of the Class
A Preferred Stock. If less than all the outstanding shares of Class A
Preferred Stock are to be redeemed, the company will select those to be
redeemed by lot or a substantially equivalent method.
The shares of Class A Preferred Stock are not subject to any sinking
fund or any other similar provision.
The redemption by the Company of all or any part of the Class A
Preferred Stock is subject to the availability of cash. Moreover, under
Nevada law, shares of capital stock shall not be redeemed when the capital of
the Company is impaired or when the redemption would cause any impairment of
capital.
7. CONVERSION RIGHTS. Holders of the Class A Preferred Stock will have the
right, at their option, to convert such shares into shares of Common Stock at
any time at the conversion rate then in effect, provided that, if any of the
Class A Preferred Stock is redeemed, the conversion rights pertaining thereto
will terminate on the third business day preceding the redemption date.
Each share of Class A Preferred Stock will be initially convertible
into one (1) share of Common Stock. No fractional share or scrip representing a
fractional share will be issued upon conversion of the Class A Preferred Stock.
Cash will be paid in lieu of fractional shares.
The conversion rate will be appropriately adjusted if the Company
(a) pays a dividend or makes a distribution on its shares of Common Stock
(but not the Class A Preferred Stock) which is paid or made in shares of
Common Stock, (b) subdivides or reclassifies its outstanding shares of Common
Stock, (c) combines its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, (d) issues shares of Common Stock, or
issues rights or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock), at a price per share less than the conversion
price in effect immediately prior to the issuance thereof, or (e) distributes
to all holders of its Common Stock evidences of its indebtedness or assets
(excluding any dividend paid in cash out of legally available funds) subject
to the limitation that adjustments by reason of any of the foregoing need not
be made until they result in a cumulative change in the conversion rate of at
least five percent (5%). The conversion rate will not be adjusted upon the
conversion of shares of Class A Preferred Stock or presently outstanding
stock options or warrants. For the purpose of making the above adjustments,
the market price of a share of Common Stock shall be the average of
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<PAGE>
the closing bid and asked prices for the Common Stock on the Over-The-Counter
market.
In case of any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company is the
surviving corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, or in case of any statutory exchange of securities with another
corporation, there will be no adjustment of the conversion price, but each
holder of shares of Class A Preferred Stock then outstanding will have the
right thereafter to convert such shares into the kind and amount of
securities, cash or other property which he would have owned or have been
entitled to receive immediately after such consolidation, merger, statutory
exchange sale or conveyance had such shares been converted immediately prior
to the effective date of such consolidation , merger, statutory exchange,
sale or conveyance. In the case of a cash merger of the Company into another
corporation or any other cash transaction of the type mentioned above, the
effect of these provisions would be that the conversion features of the Class
A Preferred Stock would thereafter be limited to converting the Class A
Preferred Stock at the conversion price in effect at such time into the same
amount of cash per share that such holder would have received had such holder
converted the Class A Preferred Stock into Common Stock immediately prior to
the effective date of such cash merger or transaction. Depending upon the
terms of such cash merger or transaction, the aggregate amount of cash so
received in conversion could be more or less than the liquidation preference
of the Class A Preferred Stock.
Class A Preferred Stock may be converted upon surrender of the stock
certificate at least three (3) days prior to the redemption date at the offices
of the Corporation at 3303 Harbor Boulevard, Suite F-3, Costa Mesa, California
92626 with the form of "Election to Convert" on the reverse side of the stock
certificate completed and executed as indicated. Shares of Common Stock issued
upon conversion will be fully paid and non-assessable.
8. VOTING RIGHTS. Each share of Class A Preferred Stock shall have three
non-cumulative votes each. Shares of Common Stock and Class A Preferred Stock
vote as a single class on all matters presented to the stockholders for
action. Without the affirmative vote of the holders of a majority of the
Class A Preferred Stock then outstanding, voting as a separate class, the
Corporation may not (i) amend, alter or repeal any of the preferences or
rights of the Class A Preferred Stock, (ii) authorize any reclassification of
the Class A Preferred Stock, (iii) increase the authorized number of shares
of Class A Preferred Stock or (iv) create any
4
<PAGE>
class or series of shares ranking prior to the Class A Preferred Stock as to
dividends or upon liquidation.
9. RULE 144. The Preferred Stock, and the Common Stock issued upon
conversion of the Preferred Stock, which bear restrictive legends as a result
of the manner in which they were issued by the Company, generally may be sold
in the public market (in the absence of registration) only if the sale is
made in compliance with Rule 144 under the Act. In general, under Rule 144, a
person (or persons whose shares are aggregated with those of others) who has
beneficially owned "restricted" shares for at least one year, and a person
who is deemed to be an "affiliate" of the Company, is entitled to sell within
any three-month period a number of shares that does not exceed the greater of
1% of the then outstanding shares of Common Stock or the average weekly
trading volume in the over-the-counter market during the four calendar weeks
preceding such sale. Non-affiliates who have held their shares for at least
two years are entitled to sell their shares under Rule 144 without regard to
volume limitations. The Preferred Stock and the underlying Common Stock
bearing restrictive legends should satisfy the one-year holding period
required by Rule 144, from time to time, commencing one year from the date of
purchase of the Preferred Stock.
10. STATUS OF ACQUIRED SHARES. Shares of Class A Preferred Stock redeemed by
the Company or received upon conversion pursuant to Section 6 or otherwise
acquired by the Company will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Class A Preferred Stock.
11. PREEMPTIVE RIGHTS. The Class A Preferred Stock is not entitled to any
preemptive or subscription rights in respect of any securities of the Company.
12. SEVERABILITY OF PROVISIONS. Whenever possible, each provision hereof
shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change
as shall be necessary to render the provision in question effective and valid
under applicable law.
5
<PAGE>
IN WITNESS WHEREOF, Kanakaris Communications, Inc. has caused this
certificate to be signed by Alex Kanakaris, its President, and Branch
Lotspeich, its Secretary, this ______ day of March, 1999.
---------------------------------
Alex Kanakaris, President
---------------------------------
Branch Lotspeich, Secretary
6
<PAGE>
Exhibit 8
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION OF
CLASS A CONVERTIBLE PREFERRED STOCK OF
KANAKARIS COMMUNICATIONS, INC.
Kanakaris Communications, Inc., a corporation organized and existing under and
by virtue of the Nevada Revised Statutes of the State of Nevada (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors, by written consent, duly adopted resolutions
setting forth a proposed amendment to the Certificate of Designation of Class A
Convertible Preferred Stock of Kanakaris Communications, Inc., declaring said
amendment to be advisable and calling for a shareholder vote by proxy of said
Corporation for consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Designation of Class A Convertible Preferred
Stock of Kanakaris Communications, Inc. be amended by changing provision 8 so
that, as amended, said provision shall be read as follows:
"Each share of Class A Preferred Stock shall have twenty non-cumulative
votes each. Shares of Common Stock and Class A Preferred Stock vote as
a single class on all matters presented to the stockholders for action.
Without the affirmative vote of the holders of a majority of the Class
A Preferred Stock then outstanding, voting as a separate class, the
Corporation may not (i) amend, alter or repeal any of the preferences
or rights of the Class A Preferred Stock, (ii) authorize any
reclassification of the Class A Preferred Stock, (iii) increase the
authorized number of shares of Class A Preferred Stock or (iv) create
any class or series of shares ranking prior to the Class A Preferred
Stock as to dividends or upon liquidation."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
shareholder vote by proxy was called for upon which the necessary number of
shares as required by statute were voted in favor of said amendment.
THIRD: That said amendment was duly adopted in accordance with the Nevada
Revised Statutes.
<PAGE>
IN WITNESS WHEREOF, said Kanakaris Communications, Inc. has caused this
Certificate to be signed by Alex Kanakaris, its President, this ____ day of
July, 1999.
KANAKARIS COMMUNICATIONS, INC.
By:
-----------------------------
Alex Kanakaris
President
<PAGE>
DEBENTURE PURCHASE AGREEMENT
This Debenture Purchase Agreement (the "Agreement") is made and
entered into as of this 5th day of August, 1999, by and between Alliance
Equities, a Florida corporation (the "Purchaser"), and Kanakaris
Communications, Inc., a Nevada corporation (the "Company").
RECITALS
A. In order to provide working capital and financing for the
Company's expansion, the Purchaser will purchase up to $1.2 million of the
Company's 10% Convertible Subordinated Debentures (the "Debentures"). The
Purchaser will make the funds available to the Company, and the Company will
draw funds and issue Debentures to the Purchaser as the Company needs the
funding.
B. The Company desires to issue and sell the Debentures to the
Purchaser and the Purchaser desires to purchase the Debentures from the
Company on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereby agree as follows:
AGREEMENT
1. PURCHASE OF THE DEBENTURES.
1.1 FUNDING. Upon execution hereof, Purchaser shall
deposit ---------- Thousand Dollars ($--0,000) with the Company, which shall
be used by the Company as provided for herein.
1.2 PURCHASE OF THE DEBENTURES. Subject to the terms
and conditions of this Agreement, and subject to compliance with all
applicable federal and state securities laws, the Purchaser hereby purchases
from the Company and the Company hereby issues and sells to the Purchaser
Debentures, in substantially the form as set forth in Exhibit B attached
hereto, in the aggregate amount of up to One Million Two Hundred Thousand
Dollars ($1,200,000). Concurrent with the execution and delivery of this
Agreement, the Purchaser shall purchase and the Company shall issue and sell
a Debenture in the amount of ----------- Thousand Dollars ($---,000)].
Thereafter, whenever the Company accepts funds and issue additional
Debentures, the Company shall give the Purchaser at least five (5) business
days prior written notice, and shall issue and deliver to the Purchaser a
Debenture in the face amount of the amount to be drawn.
1.3 REGISTRATION RIGHTS AGREEMENT. Concurrent with the
execution and delivery of this Agreement, the parties will execute and
deliver the Registration Rights Agreement in substantially the form as set
forth in Exhibit C attached hereto
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser hereby represents and warrants to the Company as follows:
<PAGE>
2.1 ORGANIZATION, STANDING, AND POWER. The Purchaser
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Florida, and has all requisite power and authority
to enter into this Agreement and to perform its obligations hereunder.
2.2 EXECUTION, DELIVERY, AND PERFORMANCE. The
execution, delivery, and performance of this Agreement by the Purchaser and
the consummation of the transactions contemplated herein have been approved
by all requisite action by the Purchaser. This Agreement has been duly and
validly executed and delivered on behalf of the Purchaser and constitutes a
valid and binding obligation of the Purchaser.
2.3 NO VIOLATION. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated herein will not violate any provision of the organizational
documents of the Purchaser, violate any statute, law, or any judgment,
decree, order, regulation, or rule of any court or governmental authority, or
cause a breach of or default under, with or without any notice or the lapse
of time or both, any provision of any agreement or instrument to which the
Company is a party or by which any of its properties are affected.
2.4 NO BROKERS OR FINDERS. The Purchaser has not
employed any broker or finder or incurred any liability for any brokerage
fees, commissions, or finder's fees in connection with the purchase of the
Debentures.
2.5 SECURITIES LAWS REPRESENTATIONS.
(a) The Purchaser is an "Accredited
Investor," as such term is defined in Rule 501(a) of Regulation D,
promulgated under the Securities Act of 1933, as amended (the "Securities
Act").
(b) The Purchaser is acquiring the Debentures
solely for the Purchaser's own account and not as a nominee or agent for any
third party, for investment purposes only, and not with a view to or for sale
in connection with any distribution. The Purchaser does not have any
contract, undertaking, agreement, or arrangement with any person to sell or
transfer the Debentures or grant participations in the Debentures to such
person or to any third person.
(c) The Purchaser understands that the sale
of the Debentures, and the issuance of shares (the "Shares") of the Company's
common stock (the "Common Stock") on conversion of the Debentures, has not
been registered under the Securities Act, or registered or qualified under
the securities laws of any (collectively, the "Securities Laws"), in reliance
upon exemptions from such registration and qualification requirements, and
that such exemptions are dependent in part on the representations made
herein. The Purchaser understands that any subsequent resale of the
Debentures or the Shares must either be registered and/or qualified pursuant
to the Securities Laws or be pursuant to an exemption from registration and
qualification contained in the Securities Laws or the rules and regulations
thereunder.
(d) The Purchaser underst- 8 - ands that
since the sale of the Debentures has not been registered or qualified under
the Securities Laws, the Purchaser must bear the economic risk of an
investment in the Debentures for an indefinite period of time. The Purchaser
understands that the Company has no obligation to register or qualify the
Debentures for resale under the Securities Laws or to take any action
(including but not limited to the filing of reports or the publication of
information required by Rule 144 under the Securities Act) that would make
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<PAGE>
available any exemption from such registration and/or qualification
requirements. The Purchaser further understands that while the Company has an
obligation to register the Shares for resale, there are certain restrictions
on such obligation and further restrictions and delays in the registration
process, such that timely registration of the Shares for resale may not be
available when the Purchaser desires.
(e) The Purchaser understands that the
purchase of the Debentures involves certain risks, and the Purchaser has
taken full cognizance of and understand all the risks related to the purchase
of the Debentures. The Purchaser has the knowledge, sophistication, and
experience in financial and business matters to be capable of fully
evaluating the merits and risks of the purchase of the Debentures, to be
capable of fully understanding the information provided by the Company, and
to be able to protect the Purchaser's interests in connection with the
purchase of the Debentures. The Purchaser is capable of bearing the economic
risk of a complete loss of the Purchaser's investment in the Debentures. The
Purchaser was not formed for the purpose of purchasing the Debentures.
(f) The Purchaser has undertaken an
independent investigation of the investment in the Debentures and of the
business potential of the Company as a prudent, sophisticated investor would
deem appropriate for an investment in the Debentures. The Purchaser believes
that the Purchaser has received all the information the Purchaser considers
necessary or appropriate for deciding whether to purchase the Debentures. The
Purchaser has had the opportunity to ask questions and receive answers from
the Company concerning its businesses and financial condition and the terms
and conditions of the purchase of the Debentures and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to the Purchaser or to which the
Purchaser had access. The Purchaser has a pre-existing business or personal
relationship with the Company or its officers, directors, or controlling
persons, which is of such a nature and duration as has enabled the Purchaser,
as a reasonably prudent investor, to be aware of the character, business
acumen, and general business and financial circumstances of the Company or
such persons connected with the Company.
(g) The Purchaser understands that the
Company will issue stop transfer instructions to its transfer agent with
respect to the Debentures and the Shares, and that the certificates
evidencing the Debentures and the Shares will contain the following
restrictive transfer legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR REGISTERED OR
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS IN
RELIANCE UPON EXEMPTIONS THEREFROM. NO OFFER, SALE,
TRANSFER, ASSIGNMENT, PLEDGE, HYPOTHECATION, OR OTHER
DISPOSITION OF OR ENCUMBRANCE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER AND IN COMPLIANCE WITH ALL
APPLICABLE STATE SECURITIES LAWS, OR UPON RECEIPT BY THE
ISSUER OF AN OPINION OF LEGAL COUNSEL FOR THE HOLDER
REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
SUCH OFFER, SALE, TRANSFER, ASSIGNMENT, PLEDGE,
HYPOTHECATION, OR OTHER DISPOSITION OR ENCUM-
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<PAGE>
BRANCE IS EXEMPT FROM THE REGISTRATION PROVISIONS OF THE
SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER AND THE REGISTRATION AND/OR QUALIFICATION
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
(h) The Purchaser understands that neither
the Securities and Exchange Commission (the "SEC") nor the securities
administrator of any state has issued any finding or determination relating
to the fairness of an investment in the Debentures and that neither the SEC
nor the securities administrator of any state has or will recommend or
endorse any such investment.
(i) The investment in the Debentures does not
exceed ten percent (10%) of the Purchaser's net worth.
2.6 INVESTMENT REPRESENTATIONS.
(a) The Purchaser understands that the
Debentures are speculative and that an investment in the Company involves a
high degree of risk.
(b) The Purchaser understands that the
Company has experienced operating losses in the last two years, and that the
Company may experience operating losses in the future. There are no
assurances that the Company will achieve profitability and report net income.
(c) The Purchaser understands that the has
only a limited operating history upon which the Purchaser may evaluate its
performance. The Company's prospects must be considered in light of the
risks, difficulties, expenses, and delays encountered in a company with
limited operating history. The Purchaser understands that there are no
assurances that the Company will be successful or achieve profitability.
(d) The Purchaser understands that the
Company is in the growth stage of its development, and its operations are
subject to all of the risks inherent in a growing business enterprise,
including the likelihood of operating losses. The likelihood of the success
of the Company must be considered in light of the problems, expenses,
difficulties, complications, and delays frequently encountered in connection
with the growth of an existing business, the implementation of the Company's
business plan, and the competitive environment in which the Company operates.
(e) The Purchaser understands that the
financial projections included in the materials presented to the Purchaser
represent the manager's estimates as to the future financial performance of
the Company based upon certain assumptions and courses of action that the
Company plans to undertake. Among the material assumptions are that the
Company will receive the funding at the times and in the amounts indicated,
achieve the projected sales revenues, and control costs as indicated.
However, there will usually be differences between the financial projections
and the actual results experienced because events and circumstances
frequently do not occur as expected, and those differences may be material.
In addition, the further the projections are for the future, the greater the
likelihood that actual results will differ materially from the projections.
There are no assurances that the Company will perform as set forth in the
financial projections, or that the assumptions on which the projections are
based will occur or will occur at the times indicated.
-4-
<PAGE>
(f) The Purchaser understands that there is
no trading market for the Debentures and that the Company does not anticipate
that a trading market will develop, or if developed, will continue. If no
market develops, it may be difficult or impossible for the Purchaser to
resell the Debentures should the Purchaser desire to do so. There are no
assurances that the Purchaser will be able to resell the Debentures, or if
the Purchaser is able to resell, that the Purchaser will be able to resell
the Debentures at the purchase price.
(g) The Purchaser understands that there is
only a thin trading market for the Common Stock and that there are no
assurances that a trading market will develop with sufficient volume to
enable the Purchaser to easily sell the Shares, or if developed, will
continue. If no market with sufficient trading volume develops, it may be
difficult or impossible for the Purchaser to resell the Shares should the
Purchaser desire to do so. There are no assurances that the Purchaser will be
able to resell the Shares, or if the Purchaser is able to resell, that the
Purchaser will be able to resell the Shares at the purchase price.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Purchaser as follows:
3.1 ORGANIZATION, STANDING, AND POWER. The Company is
a corporation duly organized, validly existing, and in good standing under
the laws of the State of Nevada, and has all requisite power and authority to
enter into this Agreement and to perform its obligations hereunder.
3.2 EXECUTION, DELIVERY, AND PERFORMANCE. The
execution, delivery, and performance of this Agreement by the Company and the
consummation of the transactions contemplated herein have been approved by
all requisite action by the Company. This Agreement has been duly and validly
executed and delivered on behalf of the Company and constitutes a valid and
binding obligation of the Company.
3.3 NO VIOLATION. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated herein will not violate any provision of the organizational
documents of the Company, violate any statute, law, or any judgment, decree,
order, regulation, or rule of any court or governmental authority, or cause a
breach of or default under, with or without any notice or the lapse of time
or both, any provision of any agreement or instrument to which the Company is
a party or by which any of its properties are affected.
3.4 CAPITALIZATION. The Company is authorized to issue
up to one hundred million (100,000,000) shares of Common Stock, par value
$.001 per share, and five million (5,000,000) shares of preferred stock, par
value $.01 per share. Other than the outstanding shares of preferred stock,
the Company has no outstanding options, warrants, or rights to purchase
shares of Common Stock or securities convertible into shares of Common Stock.
4. CONDITIONS TO THE ISSUANCE OF THE DEBENTURES. Other than
the issuance of the Debenture concurrent with the execution and delivery of
this Agreement, each draw upon funds and issuance of a Debenture therefor
shall be subject to the following conditions, unless waived in writing by the
party that is the beneficiary of such condition:
-5-
<PAGE>
4.1 REPRESENTATIONS AND WARRANTIES TRUE. All of the
representations and warranties of the Company contained in Section 3 of this
Agreement shall be true and correct as of the date of the draw, and the
Company shall deliver to the Purchaser a certificate executed by the
Company's President attesting thereto; provided that any change in the
Company's capitalization as set forth in Section 3.4 of this Agreement shall
be set forth in such certificate. All of the representations and warranties
of the Purchaser contained in Section 2 of this Agreement shall be true and
correct as of the date of the draw, and all such representations and
warranties shall be deemed to be correct and the Company shall have the right
to rely upon them unless the Purchaser shall have notified the Company in
writing prior to the draw.
4.2 NOTICE. The Company shall have given the Purchaser
written notice at least five (5) business days prior to drawing on the funds.
4.3 DELIVERY TO THE PURCHASER. The Company shall have
delivered to the Purchaser (i) a duly executed Debenture in an amount equal
to the draw, and (ii) a solvency certificate executed by the Company's Chief
Financial Officer.
4. NO DEFAULT. The Company shall not be in default
under the Debentures.
5. INDEMNIFICATION.
5.1 INDEMNIFICATION. Each party (the "Indemnifying
Party") shall indemnify, save, defend, and hold the other party (the
"Indemnified Party") harmless from and against any and all claims, demands,
expenses, lawsuits, liabilities, and losses, including but not limited to
penalties, interest, court costs, and attorneys' fees, arising out of or in
connection with any breach of a representation or warranty of the
Indemnifying Party contained in this Agreement.
5.2 NOTICE OF CLAIM. Promptly after the receipt by the
Indemnified Party of any notice of a claim or the commencement of any action,
suit, or proceeding, the Indemnified Party shall give the Indemnifying Party
written notice of such claim or the commencement of such action, suit, or
proceeding. The written notice shall include the nature, amount, and cause of
any claim for indemnification in reasonable detail.
5.3 DEFENSE. Upon receipt of a written notice of a
claim from the Indemnified Party, the Indemnifying Party shall provide a
defense of the claim to the Indemnified Party, including legal counsel
selected by the Company and reasonably acceptable to the Purchaser. The
Indemnified Party may employ separate legal counsel, but such separate legal
counsel shall be at the Indemnified Party's own cost and expense, unless the
Indemnifying Party fails or refuses to provide a defense. The Indemnifying
Party shall have the exclusive authority to settle any claim, so long as such
compromise or settlement does not adversely affect the Indemnified Party. The
Indemnifying Party shall have no liability for any settlement made without
its prior written consent. The Indemnified Party shall use its best efforts
to assist the Indemnifying Party is the defense of the claim and shall make
available all information and assistance that the Indemnifying Party may
reasonably request in connection with such defense.
6. GENERAL PROVISIONS.
6.1 AMENDMENT. All amendments or modifications of this
Agreement shall be in writing and shall be signed by each of the parties
hereto.
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6.2 WAIVER. Any waiver of any right, power, or
privilege hereunder must be in writing and signed by the party being charged
with the waiver. No delay on the part of any party hereto in exercising any
right, power, or privilege hereunder shall operate as a waiver of any other
right, power, or privilege hereunder, nor shall any single or partial
exercise of any right, power, or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege.
6.3 NOTICES. All notices or other communications
required or permitted to be given pursuant to this Agreement shall be in
writing and shall be delivered personally or sent by overnight courier, by
telecopier with confirmation by first class mail, or by certified mail,
return receipt requested. Notices delivered personally or sent by overnight
courier or telecopier with confirmation by first class mail shall be
effective on the date first received, while notices sent by certified mail,
return receipt requested, shall be deemed to have been received and to be
effective three (3) business days after deposit into the mails. Notices shall
be given to the parties at the following respective addresses, or to such
other addresses as any party shall designate in writing:
If to the Company: Mr. Alex Kanakaris
President
Kanakaris Communications, Inc.
3303 Harbor Boulevard
Suite F-3
Costa Mesa, California 90265
Telephone: (714) 444-0560
Telecopier: (714) 549-8970
With a copy to: Gerard N. Casale, Jr., Esq.
Casale Coffee Nojima, LLP
11755 Wilshire Boulevard
Suite 1200
Los Angeles, California 90025
Telephone: (310) 312-1860
Telecopier: (310) 477-3481
If to the Purchaser:
President
Alliance Equities
Telephone:
Telecopier:
6.4 SUCCESSORS AND ASSIGNS. This Agreement and each of
its provisions shall be binding upon and shall inure to the benefit of the
parties hereto and their respective administrators, successors, and assigns.
Notwithstanding the immediately preceding sentence, neither party may assign
any of its rights or obligations hereunder without the prior written consent
of the other party, which consent the other party may withhold in its sole
and absolute discretion.
6.5 LAW GOVERNING. This Agreement has been negotiated,
executed, and delivered and shall be performed in the State of California
and shall be governed by and construed and enforced in accordance with the
laws of the State of California, without regard for its conflict
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of laws rules. The parties hereby irrevocably submit to the exclusive
jurisdiction of the courts of the State of California and any United States
District Court situated in the State of California for the purposes of
construing and enforcing this Agreement.
6.6 ATTORNEYS' FEES. Should a lawsuit be commenced to
interpret or enforce the terms of this Agreement, the prevailing party shall
be entitled to recover costs and attorneys' fees in addition to any other
recovery to which such party may be entitled.
6.7 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, including by facsimile transmission, all of which
together shall constitute a single instrument.
6.8 SEVERABILITY OF PROVISIONS. In the event any one
or more of the provisions of this Agreement shall for any reason be held to
be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein.
6.9 INTEGRATION. This Agreement constitutes the entire
understanding and agreement between the parties with respect to the
transactions contemplated herein and supersedes all previous communications,
representations, or understandings, either oral or written, between the
parties relating to the subject matter hereof, all of which are merged herein.
6.10 EXPENSES. Except as otherwise set forth herein,
each party shall bear all of its own expenses incurred in negotiating and
performing this Agreement.
6.11 CONSTRUCTION. The headings in the sections and
paragraphs of this Agreement are for convenience only and shall not
constitute a part hereof. Whenever the context so requires, the masculine
shall include the feminine and the neuter, the singular shall include the
plural, and conversely. The terms and all parts of this Agreement shall in
all cases be interpreted simply and according to their plain meaning and
neither for nor against any party hereto.
IN WITNESS WHEREOF, the parties have duly executed and delivered
this Agreement as of the date first written above.
Alliance Equities Kanakaris Communications, Inc.
By: ______________________________ By: ______________________________
Richard Epstein Alex Kanakaris
President President
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THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER APPLICABLE
STATE SECURITIES LAWS IN RELIANCE UPON EXEMPTIONS THEREFROM. NO OFFER, SALE,
TRANSFER, ASSIGNMENT, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION OR ENCUMBRANCE
OF THIS DEBENTURE MAY BE MADE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR UPON
RECEIPT BY THE ISSUER OF AN OPINION OF LEGAL COUNSEL FOR THE HOLDER REASONABLY
SATISFACTORY TO THE ISSUER AND ITS LEGAL COUNSEL THAT SUCH OFFER, SALE,
TRANSFER, ASSIGNMENT, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION OR ENCUMBRANCE
IS EXEMPT FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACTS AND THE RULES
AND REGULATIONS PROMULGATED THEREUNDER AND THE REGISTRATION AND/OR QUALIFICATION
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
Registered No. __________, ____
$____________ Costa Mesa, California
KANAKARIS COMMUNICATIONS, INC.
10% CONVERTIBLE SUBORDINATED DEBENTURE
DUE AUGUST 4, 2000 [First Anniversary]
Kanakaris Communications, Inc., a corporation organized and existing
under the laws of the State of Nevada (the "Company"), for value received,
hereby promises to pay to Alliance Equities (the "Payee") at the address set
forth in the books and records of the Company or at such other address as the
Payee or any registered assign (collectively, the "Holder") may designate in
writing, the principal sum of ________________________ Dollars ($_______) in
lawful money of the United States, together with interest thereon from the date
hereof at the interest rate hereinafter set forth until payment in full of the
outstanding principal balance.
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its 10% Convertible Subordinated Debentures, limited in
the aggregate principal amount to $1,200,000, and issued and sold pursuant to
that certain Debenture Purchase Agreement (the "Purchase Agreement") dated as of
August 5, 1999, by and between the Company and the Payee. The Holder is subject
to certain restrictions and is entitled to certain rights and privileges as set
forth in the Purchase Agreement. This Debenture is unsecured, and is subject to
the subordination provisions set forth in Paragraph 5 of this Debenture.
1. MATURITY. This Debenture shall mature and the outstanding
principal balance and all accrued and unpaid interest shall be due and payable
on the first anniversary of the date hereof.
2. INTEREST.
(a) The outstanding principal balance of this Debenture
shall bear interest at the rate of ten percent (10%) per annum. Interest shall
accrue on the actual number of days elapsed based upon a 365-day year. Interest
through the last day of each calendar quarter shall be due and payable in
arrears on the first business day of the month immediately following the end of
such calendar quarter.
<PAGE>
(b) Notwithstanding anything else to the contrary, the
interest rate provided for herein shall not exceed the maximum rate of interest
allowed under applicable usury law. Any payment paid in excess of this maximum
rate of interest shall be deemed to be a prepayment of principal.
3. PREPAYMENT. At its option, the Company may prepay all or any
portion of the outstanding principal balance of this Debenture at any time or
from time to time without penalty or premium by giving the Holder not less than
thirty (30) days advance written notice and paying one hundred percent (100%) of
the principal amount being prepaid plus all accrued and unpaid interest thereon.
All principal amounts prepaid shall cease to bear interest on the date of
payment. If the Debentures are held by more than one person and the Company
elects to prepay less than all of the outstanding principal balance, then the
Company shall prepay the same percentage of the outstanding principal balance of
the Debentures held by each such person. Prior to the date of payment, the
Holder shall retain full conversion rights with respect to any amount of this
Debenture called for prepayment.
4. TRANSFER. The Holder may offer, sell, transfer, assign,
pledge, hypothecate, or otherwise dispose of or encumber this Debenture, in
person or by duly authorized attorney, at the offices of the Company upon
surrender of this Debenture and on presentation of a duly executed written
instrument of transfer, together with a written opinion of the Holder's legal
counsel, reasonably satisfactory to the Company and its legal counsel, to the
effect that this Debenture may be lawfully offered, sold, transferred, assigned,
pledged, hypothecated, or otherwise disposed of or encumbered without
registration and/or qualification under all applicable federal and state
securities laws then in effect or in reliance upon an applicable exemption from
such registration and/or qualification requirements. Thereupon, the Company
shall issue a new Debenture or Debentures of the same aggregate principal amount
and in authorized denominations. The Company may issue stop transfer
instructions to its transfer agent in connection with such securities laws
restrictions. Any offer to sell, sale, transfer, assignment, pledge,
hypothecation, or other disposition or encumbrance of this Debenture, or any
interest therein, effected in violation of the foregoing transfer restrictions,
is unlawful and shall not be consummated on the books and records of the Company
or otherwise be recognized as valid by the Company, and the Company shall not
have any liability therefor.
5. SUBORDINATION.
(a) This Debenture shall be considered as "Subordinated
Debt." It shall be subordinated or junior in right of payment of principal and
interest to all present and future indebtedness that the Company owes or has
guaranteed to any bank, savings and loan, investment company, insurance
company, other licensed financial or lending institution, or accounts receivable
or factoring lender ("Senior Debt"), and it shall rank PARI PASSU in right of
payment of principal and interest on all other Debentures.
(b) The Company shall not pay any payment of the
outstanding principal balance or accrued but unpaid interest on this Debenture
if the Company is in default under any Senior Debt and the holder of such Senior
Debt prohibits the Company from paying any such payment while the Company is in
default under such Senior Debt. Upon any distribution to the creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, receivership, or similar proceeding relating to the Company or
its property, the holders of all Senior Debt shall be entitled to receive
payment in full of the outstanding principal balance and all accrued but unpaid
interest on such Senior Debt before the Holder shall be entitled to receive any
payment of principal or interest on this Debenture.
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<PAGE>
(c) For the benefit of the holder of any Senior Debt (a
"Senior Lender"), the Holder agrees to execute and deliver an intercreditor
or subordination agreement in favor of the Senior Lender containing the
provisions set forth in subparagraph 5(b) of this Debenture, and any or all
of the following provisions as may be required by the Senior Lender:
(i) In the event that the Holder receives
notice from the Senior Lender that the Company is in default of its
obligations under the Senior Debt, any payment of money or property in
satisfaction of the Company's obligations under this Debenture, including
without limitation payments received from the Company or anyone on behalf of
the Company, and distributions from any bankruptcy or reorganization
proceeding or from any liquidate or receiver of any nature whatsoever, shall
be promptly delivered to the Senior Lender in precisely the form received,
and until so delivered to the Senior Lender, the same shall be held in trust
by the Holder as the property of the Senior Lender. Any evidence of payment
shall be endorsed by the Holder to the Senior Lender and in the event that
the Holder fails to do so, the Holder shall make, constitute, and appoint the
Senior Lender as its true and lawful attorney-in-fact to endorse the Holder's
name on any such evidence of payment;
(ii) A Senior Lender may, at any time and without
notice to the Holder, exercise all rights and remedies as provided for in its
security agreements with the Company or granted to it by law, with respect to
enforcing its security interest in any collateral. In liquidating or disposing
of such collateral, the Senior Lender need only use its reasonable efforts with
respect thereto and shall not be liable to the Holder for any act or omission
with respect to the liquidation, disposition, realization, or collection of such
collateral or that the proceeds realized from such action could, under other
circumstances, have been greater. The Senior Lender shall account to the Holder
for any surplus in excess of the amount of the Senior Debt received from a
liquidation or disposition of such collateral; and
(iii) Such other customary representations,
warranties, agreements, and indemnifications.
(d) The Company shall not pay any distribution or return
of capital to any holder of its equity securities if the Company is in default
under this Debenture. Upon any distribution to the creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
receivership, or similar proceeding relating to the Company or its property, the
Holder shall be entitled to receive payment in full of the outstanding principal
balance and all accrued but unpaid interest on this Debenture before any holder
of any equity securities of the Company receives any distribution or return of
capital.
6. CONVERSION.
(a) The "Market Price" of a security shall be the
average, over the twenty (20) trading days immediately prior to the date in
question, of the closing sales price of the security on its principal stock
exchange in the United States or NASDAQ National Market System, or if not so
listed or reported, the average of the closing bid and asked prices of the
security as reported by NASDAQ, the National Quotation Bureau, or similar
organization that reports bid and asked prices. If a security is no longer
listed on a stock exchange in the United States or no longer has its sales,
bid, or asked prices reported by NASDAQ, the National Quotation Bureau, or
similar organization, then the "Fixed Market Price" of such security shall be
the average, over the last twenty (20) trading days, of the closing sales
price of the security on its principal stock exchange in the United States or
NASDAQ National Market System, or if not so listed or reported, the average
of the closing bid and asked prices of the security as reported by NASDAQ,
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<PAGE>
the National Quotation Bureau, or similar organization, as applicable. If a
security has never been listed on a stock exchange in the United States or
had its sales, bid, or asked prices reported by NASDAQ, the National
Quotation Bureau, or similar organization, then the Market Price shall be
determined by the issuer's Board of Directors in good faith.
(b) At the option of the Holder at any time after the
date of issuance, or automatically on the earlier of (i) the effective date of
the registration statement for a public offering of the Company's common stock
(the "Common Stock"), if such offering results in an offering of at least Five
Million Dollars ($5,000,000) of Common Stock, (ii) the date on which the Common
Stock is listed for sale on a national stock exchange or has its sales or bid
price quoted on NASDAQ with a sales/bid price of at least Five Dollars and No
Cents ($5.00) per share, as adjusted for stock splits, subdivisions, and
combinations of the outstanding shares of Common Stock after the date hereof, or
(iii) the securities into which this Debenture would be convertible as a result
of a merger, consolidation, or sale of assets as set forth in subparagraph 6(i)
of this Debenture, at the time of such merger, consolidation, or sale or
subsequently, meet the criteria set forth in either clause (i) or (ii) of this
subparagraph 6(b), this Debenture shall be convertible into that number of fully
paid and nonassessable shares of Common Stock (or other securities in the event
of clause (iii) of this subparagraph 6(b)), rounded to the nearest one-tenth
(.1) of one share, equal to the quotient of the outstanding principal amount of
this Debenture, plus all accrued but unpaid interest, divided by the then
Conversion Price (as defined in subparagraph 6(f) of this Debenture).
(c) Before the Holder shall be entitled to exercise the
option to convert this Debenture into shares of Common Stock, the Holder shall
surrender this certificate, duly endorsed, at the office of the Company, shall
give written notice to the Company at its principal corporate office of the
election to convert, and shall provide the Company with an investor
representation letter containing such representations as are customary in a
private placement of securities and as may be reasonably requested by the
Company. The Company shall issue and deliver to the Holder a certificate or
certificates for the number of shares of Common Stock to which the Holder shall
be entitled. The conversion shall be deemed to have been made immediately prior
to the close of business on the date that the Company receives the surrender of
this Debenture to be converted, the written notice of election to convert, and
the investor representation letter, and the Holder shall be treated for all
purposes as the record holder of such shares of Common Stock as of that date.
(d) In the event of the mandatory conversion of this
Debenture into shares of Common Stock, the Company shall give written notice of
the intent to so convert at least fifteen (15) days prior to such conversion,
and shall request that the Holder surrender this Debenture to the Company. On
the conversion date, the Company shall cancel this Debenture and so annotate its
books and records, and shall issue a certificate for the shares of Common Stock
and deliver such certificate to the Holder; provided that the Company shall have
no obligation to deliver the certificate for the shares of Common Stock until
the Holder shall have surrendered this Debenture or shall have notified the
Company that this Debenture has been lost, stolen, or destroyed and shall have
complied with the provisions of Paragraph 14 of this Debenture. On the
conversion date, the Holder shall have no more rights under this Debenture and
shall be treated for all purposes as the record holder of shares of Common Stock
as of that date.
(e) No fractional shares of Common Stock shall be issued
on the conversion of this Debenture. If any fractional interest in a share of
Common Stock would, except for the provisions of this subparagraph 6(e), be
deliverable on the conversion of this Debenture, the Company shall, in lieu of
delivering the fractional share for that fractional interest, adjust the
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fractional interest by payment to the Holder an amount in cash (computed to
the nearest cent) equal to the Market Price of the fractional interest.
(f) The Conversion Price shall initially be $0.60 per
Share or Fixed Market Price, as applicable, of the Common Stock on the date of
conversion (hereinafter be referred to as a "Fixed Conversion Price.").
(g) In the event of a stock split, subdivision, or
combination of shares of Common Stock, the Conversion Price shall not be
adjusted; provided that the Fixed Conversion Price shall be adjusted, rounded to
the nearest One-Tenth of One Cent ($.001), such that this Debenture will be
convertible into the same number of shares of Common Stock after such event as
the Holder would have if this Debenture had been converted into shares of Common
Stock immediately prior to such event.
(h) In the event of a capital reorganization,
reclassification, exchange, or substitution of the Common Stock (other than a
subdivision or combination of shares or a merger, consolidation, or sale of
assets), this Debenture shall thereafter be convertible into the kind of
securities or property that a holder of Common Stock would have been entitled to
receive on such reorganization, reclassification, exchange, or substitution. The
Conversion Price shall not be adjusted; provided that the Fixed Conversion Price
shall be adjusted, rounded to the nearest One-Tenth of One Cent ($.001), such
that this Debenture will be convertible into the same amount of securities or
property after such event as the Holder would have if this Debenture had been
converted into shares of Common Stock immediately prior to such event.
(i) In the event the Company shall merge or consolidate
into another company where the Company is not the surviving entity, or sell all
or substantially all of its assets to another person, this Debenture shall
thereafter be convertible into the kind of securities or property that a holder
of Common Stock would have been entitled to receive on such merger,
consolidation, or sale. The Conversion Price shall not be adjusted; provided
that the Fixed Conversion Price shall be adjusted, rounded to the nearest
One-Tenth of One Cent ($.001), such that this Debenture will be convertible into
the same amount of securities or property after such event as the Holder would
have if this Debenture had been converted into shares of Common Stock
immediately prior to such event. In any such case, an appropriate adjustment (as
determined by the Board of Directors) shall be made in the application of the
provisions of this Debenture with respect to the rights and interests thereafter
of the Holder such that the provisions of this Debenture (including provisions
with respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares or other property thereafter deliverable on conversion of this Debenture.
(j) In the event that the Company shall issue shares
of Common Stock, whether directly or on the exercise of an option, warrant,
or other right to purchase shares of Common Stock or on the conversion of any
convertible security, for a sales price that is less than (i) both the then
Conversion Price and the closing sales price of the Common Stock on its
principal stock exchange in the United States or NASDAQ National Market
System, or if not so listed or reported, the average of the closing bid and
asked prices of the Common Stock as reported by NASDAQ, the National
Quotation Bureau, or similar organization on the trading day immediately
prior to such issuance, or (ii) the then Fixed Conversion Price (excluding
the issuance of shares of Common Stock (1) pursuant to any stock split, stock
dividend, or subdivision, (2) on the exercise or conversion of any option,
warrant, or convertible security outstanding on the date hereof, or (3)
pursuant to any employee stock or stock option plan approved by the Company's
shareholders), (A) the Conversion Price shall be adjusted, rounded
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to the nearest one-tenth of one percent (0.1%), to be the then percentage of
the Market Price (by way of example, initially $0.60) multiplied by a
fraction, the numerator of which is the sum of the number of shares of Common
Stock on a fully diluted basis outstanding immediately prior to the issuance
plus the number of shares of Common Stock that the total consideration
received by the Company (as set forth in subparagraph 6(k) of this Debenture)
would purchase at the then Conversion Price, and the denominator of which is
the number of shares of Common Stock on a fully diluted basis outstanding
immediately after the issuance, or (B) the Fixed Conversion Price shall be
adjusted, rounded to the nearest One-Tenth of One Cent ($.001), to be the
then Fixed Conversion Price multiplied by a fraction, the numerator of which
is the sum of the number of shares of Common Stock on a fully diluted basis
outstanding immediately prior to the issuance plus the number of shares of
Common Stock that the total consideration received by the Company (as set
forth in subparagraph 6(k) of this Debenture) would purchase at the then
Fixed Conversion Price, and the denominator of which is the number of shares
of Common Stock on a fully diluted basis outstanding immediately after the
issuance.
(k) For the purposes of subparagraph 6(j) of this
Debenture, the total consideration received by the Company for any issuance of
shares of Common Stock shall be the sum of all cash and the fair market value of
all property other than cash, as determined by the Company's Board of Directors
in good faith, received or applied to the benefit of the Company, including for
options, warrants, rights, and convertible securities the amount, if any,
received on the issuance of such option, warrant, right, or convertible
security. When equity securities are issued in connection with debt securities,
the allocation of the purchase price shall be as determined by the parties
thereto, or if not so determined, then as determined by the Company's Board of
Directors in good faith.
(l) Upon any adjustment of the Conversion Price or Fixed
Conversion Price, the Company shall maintain at its principal executive office a
statement, signed by its President, any Vice President, or Chief Financial
Officer, showing in reasonable detail the facts requiring the adjustment and the
Conversion Price or Fixed Conversion Price after the adjustment.
(m) In the event that the Company shall set a record
date for the purpose of entitling the holders of the Common Stock to receive
a dividend or other distribution payable in shares of Common Stock or other
securities or rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock, or in the
event the Company shall reorganize or reclassify its capital stock (other
than a subdivision or combination of its outstanding shares), merge or
consolidate into another company, or sell of all or substantially all of its
assets to another company, or in the event of the voluntary or involuntary
dissolution, liquidation, or winding up of the Company, then the Company
shall send a written notice, in the form described below, to the Holder. The
notice shall state the date that has been set as the record date for the
purpose of such dividend or distribution, or on which the reclassification,
reorganization, merger, consolidation, sale, dissolution, liquidation, or
winding up is to take place and the record date as of which holders of record
of shares of Common Stock shall be entitled to exchange such shares for
securities or other property deliverable on reclassification,
reorganization, merger, consolidation, sale, dissolution, liquidation, or
winding up. The notice shall be mailed at least ten (10) days prior to the
date specified in the notice, as determined pursuant to the provisions of the
preceding sentence.
(n) The Company shall at all times reserve and keep
available, out of its authorized but unissued or treasury shares of Common
Stock, solely for the purpose of effecting conversion of this Debenture, the
full number of shares of Common Stock deliverable on conversion of this
Debenture. The Company shall, from time to time, in accordance with Nevada
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law, increase the authorized number of shares of Common Stock if at any time
the authorized number of shares of Common Stock remaining unissued shall not
be sufficient to permit the conversion of this Debenture.
(o) The Company shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of this Debenture. The Company shall not, however, be
required to pay any tax that may be payable in respect of any transfer involved
in the issue and delivery of shares of Common Stock in a name other than that of
the Holder, and no such issue or delivery shall be made unless and until the
Holder has paid to the Company the amount of any such tax or has established to
the satisfaction of the Company that such tax has been paid.
7. DEFAULT. Upon the occurrence of any of the following (a
"Default"), the Holder may declare the entire unpaid principal balance of this
Debenture and all accrued but unpaid interest thereon immediately due and
payable, by giving written notice to the Company:
(a) the Company fails to make any payment of the
principal or interest on this Debenture within thirty (30) days of the date such
payment was due and payable;
(b) the Company breaches any provision of this Debenture
and such breach remains uncured for thirty (30) days after written notice
thereof from the Holder, unless such breach is of such a nature that it cannot
be cured within thirty (30) days and the Company commences a cure within thirty
(30) days after receipt of written notice of the breach and diligently proceeds
to complete the cure as soon as possible but in no event greater than one
hundred eighty (180) days after receipt of such notice;
(c) the Company is in default under any Senior Debt that
gives the Senior Lender the right to accelerate such Senior Debt, and the Senior
Lender in fact accelerates the maturity of such Senior Debt, but only if such
default and acceleration would have a material adverse effect on the Company;
(d) the Company is in Default under any other Debenture,
and the holder thereof accelerates the maturity of such Debenture; or
(e) the Company elects to dissolve, dissolves, or is the
subject of any order, judgment, or decree of any court or governmental authority
dissolving or ending the existence of the Company.
8. AUTOMATIC DEFAULT. Upon the occurrence of any of the following
(an "Automatic Default"), the entire unpaid principal balance of this Debenture
and all accrued but unpaid interest thereon shall immediately become due and
payable, without the requirement for any notice from the Holder:
(a) the Company files or consents to any voluntary or
involuntary petition for bankruptcy, insolvency, reorganization, liquidation, or
other similar form of debtor relief, or petitions for or consents to the
appointment of a receiver, trustee, or liquidate on its behalf for all or a
substantial portion of its assets, or makes a general assignment for the benefit
of creditors; or
(b) the Company is the subject of any involuntary
petition for bankruptcy, insolvency, reorganization, liquidation, or other
similar form of debtor relief, or has a receiver, trustee, or liquidate
appointed on its behalf for all or a substantial portion of its assets, unless
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<PAGE>
such petition or appointment is set aside, withdrawn, or ceases to be in effect
within ninety (90) days from the date of any such petition or appointment.
9. COLLECTION. In the event of a Default or an Automatic Default,
the Holder may place this Debenture in the hands of an attorney for collection
and the Company shall pay all costs of collection, including but not limited to
court costs and attorneys' fees.
10. WAIVER. The Company hereby waives diligence, presentment,
protest, notice of protest, notice of dishonor, and notice of nonpayment of this
Debenture, and specifically consents to and waives notice of any renewal or
extension of this Debenture. The Company hereby waives the benefits of the
statute of limitations to the maximum extent allowed by law. No delay by the
Holder in exercising any power or privilege hereunder, nor the single or partial
exercise of any power or privilege hereunder, shall preclude any other or
further exercise thereof, or the exercise of any other power or privilege
hereunder.
11. AMENDMENT. This Debenture may be waived, changed, modified, or
amended only with the written consent of the Company and those persons holding a
majority of the outstanding principal balance of all of the Debentures. Any
such waiver, change, modification, or amendment approved by those persons
holding a majority of the outstanding principal balance of all of the Debentures
shall be binding on the Holder and this Debenture, even if the Holder did not
consent thereto.
12. NOTICES. All notices or other communications required or
permitted to be given pursuant to this Debenture shall be in writing and shall
be delivered personally or sent by overnight courier, by telecopier with
confirmation by firstclass mail, or by certified mail, return receipt
requested. Notices delivered personally or sent by overnight courier or
telecopier with confirmation by firstclass mail shall be effective on the date
first received, while notices sent by certified mail, return receipt requested,
shall be deemed to have been received and to be effective three (3) business
days after deposit into the mails. Notices shall be given to the Company at the
following address, to the Holder at the address set forth in the books and
records of the Company, or to such other addresses as either party shall
designate in writing:
If to the Company: Mr. Alex Kanakaris
President
Kanakaris Communications, Inc.
3303 Harbor Boulevard
Suite F-3
Costa Mesa, California 90265
Telephone: (714) 444-0560
Telecopier: (714) 549-8970
13. ASSIGNMENT. Subject to the restrictions on transfer described
in Paragraph 4 of this Debenture, the rights and obligations of the Company and
the Holder shall be binding upon and inure to the benefit their successors,
assigns, heirs, executors, administrators, and transferees.
14. REPLACEMENT OF THIS DEBENTURE. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Debenture, and, in the case of loss, theft, or destruction,
on delivery of an indemnity agreement reasonably satisfactory in form and
substance to the Company or, in the case of mutilation, on surrender and
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<PAGE>
cancellation of this Debenture, the Company at its expense shall execute and
deliver, in lieu of this Debenture, a new Debenture of like tenor and amount.
15. LAW GOVERNING. This Debenture is deemed to be negotiated,
executed, and delivered and to be performed in the State of California, and
shall be governed by and construed and enforced in accordance with the laws of
the State of California, except for its conflict of laws rules. The parties
hereby irrevocably submit to the exclusive jurisdiction of the courts of the
State of California and any United States District Court situated in the State
of California, for any suit or proceeding arising out of or based upon this
Debenture.
16. CONSTRUCTION. The headings in the Paragraphs of this Debenture
are for convenience only and shall not constitute a part hereof. Whenever the
context so requires, the masculine shall include the feminine and the neuter,
the singular shall include the plural, and conversely. The terms and all parts
of this Debenture shall in all cases be interpreted simply and according to
their plain meaning and neither for nor against any party hereto.
17. TIME OF THE ESSENCE. Time is hereby expressly declared to be
of the essence of this Debenture and of every provision hereof.
IN WITNESS WHEREOF, the Company has caused this Debenture to be issued
on the date first written above.
Kanakaris Communications, Inc.
By: _____________________________
Alex Kanakaris
President
-9-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of this 5th day of August, 1999, by and between Alliance
Equities, a Florida corporation ("AE"), and Kanakaris Communications, Inc., a
Nevada corporation (the "Company").
RECITAL
AE is purchasing Debentures from the Company that are convertible into
shares of the Company's common stock. The Company hereby grants AE certain
demand and incidental registration rights in connection with such shares.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereby
agree as follows:
AGREEMENT
1. DEFINITIONS. Unless the context requires otherwise, the
following underlined terms shall have the following respective meanings:
1.1 AGREEMENT. This Registration Rights Agreement.
1.2 AE. Alliance Equities, a Florida corporation.
1.3 COMMON STOCK. The Company's common stock.
1.4 COMPANY. Kanakaris Communications, Inc., a Nevada
corporation.
1.5 DEBENTURES. The Company's 10% Convertible
Subordinated Debentures issued to AE pursuant to that certain Debenture Purchase
Agreement of even date herewith.
1.6 EXCHANGE ACT. The Securities Exchange Act of 1934, as
amended.
1.7 HOLDER. A holder of Shares.
1.8 REGISTRATION EXPENSES. All expenses of registration,
including but not limited to registration and filing fees, including filing fees
for NASDAQ and all stock exchanges on which the Common Stock is traded, fees and
expenses of complying with the Securities Laws, printing expenses, transfer
agent fees, and the fees and expenses of the Company's independent certified
public accountants, the Company's investment banker and underwriter, and the
Company's legal counsel, but excluding the Selling Holder's brokerage fees,
underwriting fees and discounts, transfer taxes, if any, and the fees and
expenses of the Selling Holder's legal counsel and other advisors.
1.9 SEC. The United States Securities and Exchange
Commission.
1.10 SECURITIES ACT. The Securities Act of 1933, as
amended.
<PAGE>
1.11 SECURITIES LAWS. The Securities Act, the Exchange
Act, and all applicable state securities laws, and all rules and regulations
promulgated thereunder.
1.12 SELLING HOLDER. With respect to any registration
statement, any Holder whose Shares are included therein.
1.13 SHARES. Shares of Common Stock issued on conversion
of the Debentures.
2. GRANT OF REGISTRATION RIGHTS.
2.1 REGISTRATION RIGHTS. The Company hereby grants the
Holders unlimited incidental registration rights with respect to the Shares on
the terms and conditions set forth in Section 4 of this Agreement. The Company
hereby grants the Holders as a group four (4) demand registration rights on the
terms and conditions set forth in Section 3 of this Agreement.
2.2 EXPENSES. The Company shall pay all Registration
Expenses. The Selling Holders shall pay all brokerage fees, underwriting fees
and discounts, transfer taxes, if any, and the fees and expenses of the
Selling Holder's legal counsel in connection with the registration and sale
of the Shares. Except as provided in Section 5.2 of this Agreement, the
Selling Holders shall pay all Registration Expenses if they withdraw all
Shares from registration; provided that the Selling Holders shall retain all
registration rights under this Agreement.
2.3 TERM. The registration rights granted under this
Agreement shall terminate on the earliest of (i) the sale of all of the Shares
by the Holders, (ii) the receipt by the Holders of the written opinion of legal
counsel for the Company that the Shares may be publicly sold without the need
for compliance with the registration provisions of the Securities Laws, whether
under Rule 144 or otherwise, or (iii) the tenth (10th) anniversary of the date
hereof.
3. DEMAND REGISTRATION RIGHTS.
3.1 NOTICE OF DEMAND. If the Company receives a written
notice from Holders beneficially owning at least a majority of the outstanding
Shares, including Shares issuable on conversion of any unconverted portion of
the Debentures, demanding that the Company register such Holders' Shares, then
the Company shall give written notice of such demand to all Holders and will use
its commercial best efforts to include in a registration statement all Shares
requested to be so included by all Holders upon written notice to the Company
within fifteen (15) days after the date of the notice by the Company to the
Holders, as long as the total of all Shares for which registration is demanded
represents at least twenty percent (20%) of the total Shares issuable under the
Debentures.
3.2 REGISTRATION. Promptly after receipt of a demand for
registration as set forth in Section 3.1 of this Agreement, the Company shall
prepare and file with the SEC a registration statement, on the applicable form
deemed most appropriate by the Company, for all Shares for which registration is
demanded, and the Company shall use its commercial best efforts to cause such
registration statement to become effective as soon as practicable.
3.3 DEFERRAL OF REGISTRATION. If the Holders demand a
registration hereunder, the Company may defer filing such registration statement
with the SEC (i) for up to six (6) months after the effective date of a
registration statement that the Company had filed with the
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<PAGE>
SEC or had been declared effective prior to the demand by the Holders, (ii)
for up to six (6) months if the Company is advised in writing by the lead
underwriter in an underwritten offering for the issuance and sale of shares
of Common Stock by the Company that in the reasonable judgment of such
underwriter the registration demanded hereunder will impair the ability to
complete the underwritten offering (the grounds for which shall be
confidentially disclosed to a Holder if requested and if the Holder agrees to
maintain the confidentiality of such disclosure), or (iii) for up to ninety
(90) days if the Company reasonably determines that a registered offering
would be detrimental to the Company (the grounds for which shall be
confidentially disclosed to a Holder if requested and if the Holder agrees to
maintain the confidentiality of such disclosure), provided that the Company
may not filed any registration statement with the SEC during such period.
4. INCIDENTAL REGISTRATION RIGHTS.
4.1 NOTICE OF REGISTRATION; REGISTRATION. Whenever the
Company proposes to file (but without any obligation to so file) a registration
statement under the Securities Act in connection with a public offering of
shares of Common Stock for cash (other than in connection with any merger,
acquisition, or other transaction under Rule 145 of the Securities Act, exchange
offer, dividend reinvestment plan, employee benefit plan, or stock option plan),
the Company shall give all Holders written notice of such intention at least
thirty (30) days prior to the anticipated filing date. The Company shall
include in such registration statement all Shares requested to be so included by
Selling Holders upon written notice to the Company within fifteen (15) days of
the Company's notice, and shall use its commercial best efforts to cause such
registration statement to become effective as soon as practicable. The Selling
Holders shall be required to sell the Shares on the same terms and conditions as
all other shares of Common Stock being offered in such registration statement.
4.2 HOLDBACK. If the Company is advised in writing by the
lead underwriter in an underwritten offering that in the reasonable judgment of
such underwriter the number of shares of Common Stock for which incidental
registration is requested pursuant to this Agreement or any other grant of
incidental registration rights by the Company cannot be sold without impairing
the ability to complete the pre-established plan for distribution of the shares
of Common Stock whose registration gave rise to the registration statement (the
grounds for which shall be confidentially disclosed to a Selling Holder if
requested and if the Selling Holder agrees to maintain the confidentiality of
such disclosure), then the number of Shares to be sold by each Selling Holder
shall be reduced by a number that is the product of the number of Shares
requested to be sold by such Selling Holder multiplied by a fraction, the
numerator of which is the total number of shares of Common Stock by which the
registration statement is to be reduced, and the denominator of which is the
total number of shares of Common Stock requested to be sold by the Selling
Holders and all other persons exercising incidental registration rights pursuant
to any grant of incidental registration rights by the Company. If the number of
Shares of a Selling Holder is reduced, then such Selling Holder may withdraw all
Shares from registration, and shall retain incidental registration rights for
all Shares so withdrawn or reduced.
4.3 UNDERWRITING AGREEMENT. In any underwritten offering,
the Company and the Selling Holders shall enter into an underwriting agreement
with the underwriter, reasonably satisfactory to the Company and the Selling
Holders, consistent with the provisions of this Agreement, and containing
customary terms, conditions, and indemnifications.
-3-
<PAGE>
4.4 WITHDRAWAL BY THE COMPANY. The Company shall retain
the absolute right to withdraw any registration statement prior to the effective
date thereof, even if the Company has given notice to the Holders pursuant to
Section 4.1 of this Agreement and the Selling Holders have requested inclusion
of Shares therein.
5. REGISTRATION PROCEDURES.
5.1 SELLING HOLDER INFORMATION. The Selling Holders shall
provide the Company with such information about the Selling Holders and their
intended manner of distribution of the Shares, and shall otherwise cooperate
with the Company and the underwriters as may be needed or helpful in the
reasonable opinion of the Company to complete the obligations of the Company
hereunder. If any Selling Holder fails to comply with this requirement for more
than ten (10) business days after the Company gives written notice of such
failure to comply to such Selling Holder, then the Company shall have no further
obligation to include such Selling Holder's Shares in the registration
statement.
5.2 CONSULTATION. The Company shall supply copies of any
registration statement and any amendment thereto to the Selling Holders prior
to filing the registration statement with the SEC, and shall reasonably consult
with the Selling Holders and their legal counsel with respect to the form and
content of such filing. The Company shall promptly amend such registration
statement to include such reasonable changes as a Selling Holder and its legal
counsel agree should be included therein. A Selling Holder may withdraw the
Selling Holder's Shares from the registration statement and retain all
registration rights under this Agreement in the event a requested change is
unreasonably refused by the Company.
5.3 PROVISION FOR PROSPECTUSES. The Company shall furnish
the Selling Holders with the number of copies of a summary prospectus or other
prospectus, including a preliminary prospectus in conformity with the
requirements of the Securities Act, and such other documents as the Selling
Holders may reasonably request in order to facilitate the public sale or other
disposition of the Shares.
5.4 STATE SECURITIES LAWS COMPLIANCE. The Company shall
register or qualify the Shares covered by the registration statement under the
Securities Laws of such states as the Selling Holders may reasonably request in
light of the costs of such registration or qualification for the Company
(provided that the Company shall not be required to either qualify to do
business in any state where it is not then so qualified, or consent to the
general service of process for all purposes in any state where it is not then
qualified to do business), and shall perform all other acts that may be
reasonably necessary or advisable to enable the Selling Holders to consummate
the public sale or other disposition of the Shares in such states.
5.5 AMENDMENTS. The Company shall prepare and file
promptly with the SEC such amendments and supplements to the registration
statement filed with the SEC in connection with such registration and the
prospectus used in connection therewith, as may be necessary to keep such
registration statement continuously effective and in compliance with the
Securities Act for up to nine (9) months, or until all Shares registered in such
registration statement have been sold, whichever is earlier.
5.6 PROSPECTUS DELIVERY. At any time when a sale or other
public disposition of shares of Common Stock pursuant to a registration
statement is subject to a prospectus delivery requirement, the Company shall
immediately notify the Selling Holders of the occurrence of
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<PAGE>
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances
then existing. Upon receipt of such a notice, the Selling Holders shall
immediately discontinue sales or other dispositions of Shares pursuant to
such registration statement. The Selling Holders may resume sales only upon
receipt of an amended prospectus or after the Selling Holders have been
advised by the Company that use of the previous prospectus may be legally
resumed.
5.7 OPINIONS. At the request of a Selling Holder, the
Company shall furnish on the date that the Shares are delivered to the
underwriter for sale in connection with an underwritten offering registration
pursuant to this Agreement (i) a letter from the legal counsel representing the
Company for the purposes of such registration giving the Selling Holders the
right to rely upon the opinion of such legal counsel delivered to the
underwriters acting on behalf of the Company in connection with such
registration insofar as such opinion relates to the Selling Holders, and (ii) a
letter from the independent certified public accountants of the Company giving
the Selling Holders the right to rely on the letter of such accountants
delivered to the underwriters acting on behalf of the Company in connection with
such registration.
5.8 STOP ORDERS. The Company shall immediately notify the
Selling Holders of the issuance by the SEC of any stop order or order suspending
the effectiveness of any registration statement, the issuance by any state
regulatory authority of any order suspending the registration or qualification
of the Shares for sale in such jurisdiction, or the initiation of any proceeding
for such purposes. The Company, with the reasonable cooperation of the Selling
Holders, shall use its commercial best efforts to contest any such proceeding or
to obtain the withdrawal of any such order at the earliest possible date.
5.9 REVIEW OF RECORDS. The Company shall make available
all financial and other records, pertinent corporate documents, and properties
of the Company for inspection by the Selling Holders or their legal counsel or
accountants may reasonably request, and shall cause the Company's officers,
directors, and employees to supply all information reasonably requested by any
such person in connection with any registration statement filed or to be filed
hereunder, so long as such person agrees to keep confidential all records,
information, or documents designated by the Company in writing as confidential.
5.10 COMPLIANCE WITH SECURITIES LAWS. In all actions taken
under this Agreement, the Company and the Selling Holders shall comply with all
provisions of the Securities Laws.
5.11 MARKET STAND-OFF. If requested by the Company, the
Holders will not sell or otherwise transfer any Shares, other than those Shares
included in a registration statement, during the one hundred eighty (180)-day
period following the effective date of a registration statement filed by the
Company under the Securities Act. The Company will make such request only if so
advised by its investment banking firm, or by the underwriter in an underwritten
offering. The Company may impose stop transfer instructions with respect to the
Shares subject to the foregoing restrictions until the end of such one hundred
eighty (180)-day period.
6. REPORTS UNDER THE EXCHANGE ACT. With the view to making the
benefits of Rule 144 under the Securities Act available to the Holders, the
Company shall:
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<PAGE>
6.1 PUBLIC INFORMATION. Ensure that there is adequate
current public information (as set forth in Rule 144(c)) available with respect
to the Company;
6.2 TIMELY FILING. Timely file with the SEC all reports
and other documents required to be filed by the Company under the Securities
Act, the Exchange Act, and the rules and regulations promulgated thereunder; and
6.3 DELIVERIES UPON REQUEST. Promptly furnish to a Holder
upon request (i) a written statement by the Company that it has complied with
these covenants, (ii) a copy of the most recent annual or quarterly report of
the Company, and (iii) such other reports and documents filed by the Company as
may be reasonably requested by such Holder.
7. INDEMNIFICATION.
7.1 THE COMPANY'S INDEMNIFICATION. The Company shall
indemnify, defend, save, and hold each Selling Holder harmless from and against
any and all liabilities, claims, damages, demands, expenses, and losses,
including but not limited to interest, penalties, court costs, reasonable
attorneys' fees, and settlements approved by the Company, which approval shall
not be unreasonably withheld, resulting from any untrue statement of a material
fact contained in any registration statement or in any other document filed with
the SEC pursuant to this Agreement, or any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same may have been based upon (i)
information furnished in writing to the Company by such Selling Holder, any
agent for such Selling Holder, an underwriter, or another selling shareholder
for inclusion in such registration statement or other document, or (ii) the
circumstances set forth in Section 7.2(b) of this Agreement.
7.2 THE SELLING HOLDER'S INDEMNIFICATION. Each Selling
Holder shall indemnify, defend, save, and hold the Company and its officers,
directors, and controlling persons (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) harmless from and against any
and all liabilities, claims, damages, demands, expenses, and losses, including
but not limited to interest, penalties, court costs, reasonable attorneys' fees,
and settlements approved by such Selling Holder, which approval shall not be
unreasonably withheld, resulting from (a) any untrue statement of a material
fact contained in any registration statement or in any other document filed with
the SEC pursuant to this Agreement, or any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, based upon or arising from any information furnished in writing
to the Company by such Selling Holder or any agent for such Selling Holder for
inclusion in the registration statement or other document, or (b) any untrue
statement of a material fact contained in any prospectus, or any omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, if (1) a later prospectus shall correct
the untrue statement or omission that is the basis of the liability, claim,
damage, demand, expense, or loss for which indemnification is sought, (2) a copy
of the later prospectus had not been sent or given to the purchaser at or prior
to confirmation of sale to such purchaser and the Selling Holder shall have been
under an obligation to deliver such later prospectus, (3) there would have been
no liability but for such failure to deliver such later prospectus by the
Selling Holder, and (4) the Company had notified the Selling Holder prior to the
confirmation of sale that the earlier prospectus had been or would be replaced
by the later prospectus.
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<PAGE>
7.3 CONTRIBUTION. If the indemnification provided for in
this Section 7 from an indemnifying party is unavailable to an indemnified party
hereunder in respect to any liability, claim, damage, demand, expense, or loss
referred to herein, then the indemnifying party in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such liability, claim, damage, demand, expense,
or loss in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and the indemnified party in connection with the
statements or omissions that resulted in such liability, claim, damage, demand,
expense, or loss, as well as any other relevant equitable consideration. The
relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the untrue statement of
a material fact or the omission to state a material fact relates to information
supplied by such indemnifying party or indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by a party
as a result of the liabilities, claims, damages, demands, expenses, and losses
referred to above shall be deemed to include any court costs, attorneys' fees,
and other expenses reasonably incurred by such party in connection with
investigating or defending any action, suit, or proceeding. The parties hereto
agree that it would not be just and equitable if contribution pursuant to this
Section 7.3 were determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations referred
to in this Section 7.3. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not also guilty of such fraudulent
misrepresentation.
8. GENERAL PROVISIONS.
8.1 AMENDMENT. All amendments, modifications, or waivers
of this Agreement shall be in writing and shall be made only with the written
consent of the Company and the Holders of a majority of the outstanding Shares.
Any amendment, modification, or waiver effected in accordance with this Section
8.1 shall be binding upon AE and all Holders.
8.2 WAIVER. Any waiver of any right, power, or privilege
hereunder must be in writing and signed by the party or parties being charged
with the waiver. No delay on the part of any party or parties hereto in
exercising any right, power, or privilege hereunder shall operate as a waiver of
any other right, power, or privilege hereunder, nor shall any single or partial
exercise of any right, power, or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege.
8.3 NOTICES. All notices or other communications required
or permitted to be given pursuant to this Agreement shall be in writing and
shall be delivered personally or sent by overnight courier, by telecopier with
confirmation by first class mail, or by certified mail, return receipt
requested. Notices delivered personally or sent by overnight courier or
telecopier with confirmation by first class mail shall be effective on the date
first received, while notices sent by certified mail, return receipt requested,
shall be deemed to have been received and to be effective three (3) business
days after deposit into the mails. Notices shall be given to the parties at the
following respective addresses, or to such other addresses as any party shall
designate in writing:
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<PAGE>
If to the Company: Mr. Alex Kanakaris
President
Kanakaris Communications, Inc.
3303 Harbor Boulevard
Suite F-3
Costa Mesa, California 90265
Telephone: (714) 444-0560
Telecopier: (714) 549-8970
With a copy to: Gerard N. Casale, Jr., Esq.
Casale Coffee Nojima, LLP
11755 Wilshire Boulevard
Suite 1200
Los Angeles, California 90025
Telephone: (310) 312-1860
Telecopier: (310) 477-3481
If to any Holder: at the address set forth in the Company's records.
8.4 SUCCESSORS AND ASSIGNS. This Agreement and each of
its provisions shall be binding upon and shall inure to the benefit of the
parties hereto and their respective administrators, successors, and assigns.
Notwithstanding the immediately preceding sentence, no Holder may assign any of
its rights or obligations hereunder without the prior written consent of the
Company, which consent the Company may not unreasonably withhold.
8.5 LAW GOVERNING. This Agreement has been negotiated,
executed, and delivered and shall be performed in the State of California and
shall be governed by and construed and enforced in accordance with the laws of
the State of California, without regard for its conflict of laws rules. The
parties hereby irrevocably submit to the exclusive jurisdiction of the courts of
the State of California and any United States District Court situated in the
State of California for the purposes of construing and enforcing this Agreement.
8.6 ATTORNEYS' FEES. In any suit to interpret or enforce
the terms and provisions of this Agreement, the prevailing party shall be
entitled to recover court costs and attorneys' fees, in addition to any other
remedy or recovery to which such party may be entitled.
8.7 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, including by facsimile transmission, all of which together
shall constitute a single instrument.
8.8 SEVERABILITY OF PROVISIONS. In the event any one or
more of the provisions of this Agreement shall for any reason be held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
8.9 CONSTRUCTION. The headings in the sections and
paragraphs of this Agreement are for convenience only and shall not constitute a
part hereof. Whenever the context so requires, the masculine shall include the
feminine and the neuter, the singular shall include the plural, and conversely.
The terms and all parts of this Agreement shall in all cases be interpreted
simply and according to their plain meaning and neither for nor against any
party hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered
this Agreement as of the date first written above.
Alliance Equities Kanakaris Communications, Inc.
By _________________________ By: _________________________
Richard Epstein Alex Kanakaris
President President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1998. THE REVIEWED
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> SEP-30-1998 MAR-31-1999
<PERIOD-START> OCT-01-1997 OCT-01-1998
<PERIOD-END> SEP-30-1998 MAR-31-1999
<CASH> 5,415 102,795
<SECURITIES> 0 0
<RECEIVABLES> 118,473 122,737
<ALLOWANCES> 0 0
<INVENTORY> 10,122 5,493
<CURRENT-ASSETS> 194,812 311,437
<PP&E> 22,631 23,037
<DEPRECIATION> 6,184 9,229
<TOTAL-ASSETS> 787,970 866,498
<CURRENT-LIABILITIES> 606,796 712,695
<BONDS> 0 0
0 0
10,000 10,000
<COMMON> 20,519 24,337
<OTHER-SE> 129,902 119,466
<TOTAL-LIABILITY-AND-EQUITY> 787,970 866,498
<SALES> 919,905 356,199
<TOTAL-REVENUES> 928,380 606,199
<CGS> 481,349 202,842
<TOTAL-COSTS> 481,349 202,842
<OTHER-EXPENSES> 1,094,760 569,373
<LOSS-PROVISION> 0 250,000
<INTEREST-EXPENSE> 0 2,092
<INCOME-PRETAX> (647,729) (418,108)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (647,729) (418,108)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (647,729) (418,108)
<EPS-BASIC> (.045) (.020)
<EPS-DILUTED> (.045) (.020)
</TABLE>
