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================================================================================
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-28213
KANAKARIS COMMUNICATIONS, INC.
(Name of small business issuer in its charter)
NEVADA 86-0888532
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3303 HARBOR BOULEVARD, SUITE F-3
COSTA MESA, CALIFORNIA 92626
(Address of principal executive offices)
Issuer's telephone number (including area code): (714) 444-0530
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes ___ No _X_
The number of shares outstanding of the registrant's only class of
Common Stock, $.001 par value per share, was 29,851,045 on February 10, 2000.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1999
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 141,572
Accounts receivable 46,428
Inventories 250
Advances to suppliers 700
Current maturities of notes receivable -
shareholders and related parties 61,695
Interest receivable 4,807
Prepaid expenses 36,477
-------------
TOTAL CURRENT ASSETS 291,929
-------------
Property and equipment, net of accumulated
depreciation and amortization 37,144
-------------
Other assets:
Notes receivable - shareholders and
related parties - noncurrent 123,644
Organization costs - net 1,300
Security deposits 700
Goodwill - net of amortization 337,865
-------------
TOTAL OTHER ASSETS 463,509
-------------
TOTAL ASSETS $ 792,582
=============
1
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KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1999
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 908,778
Convertible debentures 957,500
Notes payable 35,000
Due to former shareholder of subsidiary 74,441
Other accrued liabilities 12,837
-------------
TOTAL CURRENT LIABILITIES 1,988,556
Long-term liabilities:
Royalties payable 46,526
-------------
TOTAL LIABILITIES 2,035,082
-------------
Stockholders' (deficiency) equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; 1,000,000 Class A Convertible issued
and outstanding 10,000
Common stock, $0.001 par value; 100,000,000
shares authorized; 27,520,050 issued and
outstanding 27,520
Additional paid-in capital 9,003,584
Accumulated deficit (10,080,424)
Less subscription receivable
(1,260,000 shares, common) (1,260)
Less cost of treasury stock
(99,024 shares, common) (201,920)
-------------
TOTAL STOCKHOLDERS' (DEFICIENCY) EQUITY (1,242,500)
-------------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIENCY) EQUITY $ 792,582
=============
2
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<TABLE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months Ended December 31, 1999 and 1998
(Unaudited)
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Net sales $ 93,588 $ 227,255
Cost of sales 67,830 124,988
--------------- ---------------
GROSS PROFIT 25,758 102,267
--------------- ---------------
Operating expenses:
Executive compensation 98,112 26,905
Salaries 42,325 53,595
Employee benefits 1,622 -
Payroll taxes 11,148 3,011
Consulting fees 1,065,480 11,000
Royalties 2,333 12,943
Travel and entertainment 35,249 1,791
Telephone and utilities 12,652 6,914
Marketing and investment costs 211,175 701
Professional fees 216,713 24,500
Rent 7,899 8,565
Office and other expenses 17,607 14,806
Equipment rental and expense 953 1,315
Insurance 7,539 8,407
Depreciation and amortization 10,495 7,731
Taxes - other 2,400 -
Bank charges 661 663
--------------- ---------------
TOTAL OPERATING EXPENSES 1,744,363 182,847
--------------- ---------------
Loss before interest and other income (1,718,605) (80,580)
Interest and other income 2,321 3,004
--------------- ---------------
Net loss $ (1,716,284) $ (77,576)
=============== ===============
Net loss per common share -
basic and diluted $ (.06) $ (.01)
=============== ===============
Weighted average common shares
outstanding - basic and diluted 26,811,483 19,080,612
=============== ===============
</TABLE>
3
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<TABLE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 1999 and 1998
(Unaudited)
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,716,284) $ (77,576)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization of goodwill 6,563 6,059
Depreciation and amortization 3,932 1,672
Consulting, incurred in exchange for common stock 1,029,400 -
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable 107,832 7,582
Inventory (250) (2,084)
Prepaid expenses 24,336 (1,390)
Advances to suppliers (700) 7,139
Interest receivable (2,403) (3,004)
Increase (decrease) in:
Accounts payable and accrued expenses (24,432) 13,708
Royalties payable 53,240 15,785
Customer deposits - (5,983)
Other current liabilities 12,837 26
--------------- ---------------
Net cash used in operating activities (506,079) (40,908)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,306) -
Decrease in notes receivable -
shareholders and related parties 61,694 -
Decrease in security deposits 700 -
--------------- ---------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 52,088 -
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payment of) notes payable 35,000 (2,275)
Proceeds from convertible debt 337,500 59,400
Proceeds from sale of common stock 136 -
Proceeds from additional paid in capital 67,864 -
--------------- ---------------
TOTAL FROM FINANCING ACTIVITIES 440,500 57,125
--------------- ---------------
</TABLE>
4
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KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Three Months Ended December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Net (decrease) increase in cash
and cash equivalents $ (13,491) $ 16,217
Cash and cash equivalents, beginning of period 155,063 5,415
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 141,572 $ 21,632
=============== ===============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended December 31, 1999, the Company issued 1,426,000
shares of common stock for consulting services having a fair value of
$1,029,400.
5
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<TABLE>
KANAKARIS COMMUNICATIONS, INC.
Consolidated Statement of Changes in Stockholders' Equity
For the Three Months Ended December 31, 1999
<CAPTION>
Common Stock Preferred Stock
-------------------- ------------------- Accumulated Treasury Stock
Shares Amount Shares Amount APIC Deficit Stock Subscriptions Total
---------- -------- --------- -------- ----------- ------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances
September 30, 1999 25,958,050 $ 25,958 1,000,000 $ 10,000 $ 7,907,746 $ (8,364,140) $ (201,920) $ (1,260) $ (623,616)
Stock issued for
cash: 136,000 136 - - 67,864 - - - 68,000
Stock issued for:
Consulting fees 1,401,000 1,401 - - 1,009,249 - - - 1,010,650
Professional
services 25,000 25 - - 18,725 - - - 18,750
Net (loss) for the
three months ended
December 31, 1999 - - - - - (1,716,284) - - (1,716,284)
---------- -------- --------- -------- ----------- ------------- ----------- --------- ------------
BALANCES
DECEMBER 31, 1999 27,520,050 $ 27,520 1,000,000 $ 10,000 $ 9,003,584 $(10,080,424) $ (201,920) $ (1,260) $(1,242,500)
========== ======== ========= ======== =========== ============= =========== ========= ============
</TABLE>
6
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KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Financial Statement
December 31, 1999
(Unaudited)
Basis of presentation
- ---------------------
The condensed financial statements included herein have been prepared by
Kanakaris Communications, Inc. (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes that the disclosures are adequate to make the information presented not
misleading when read in conjunction with the Company's financial statements for
the year ended September 30, 1999. The financial information presented reflects
all adjustments, which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. The results of
operations for the three months ended December 31, 1999 are not necessarily
indicative of the results to be expected for the full year ending September 30,
2000, or any other period.
Business Organization and Activity
- ----------------------------------
The Company was incorporated in the State of Nevada on November 1, 1991. The
Company develops and supplies internet products, for electronic commerce, and
operates a subsidiary which designs and installs modular consoles.
Business Combinations
- ---------------------
On October 10, 1997 (the "Acquisition Date"), Kanakaris InternetWorks, Inc.
("KIW") consummated a Stock 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. Pursuant to APB 16, since the seller has no continuing
affiliation with the Company, the 4% royalty is accounted for as an increase to
goodwill at the date the amount is determinable. In addition, the Seller shall
receive five percent of funds which are to be allocated to Desience arising from
KIW's next securities offering as a non-refundable advance on the royalty. KIW
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 KIW.
7
<PAGE>
On November 25, 1997, KIW and its stockholders (the ("Stockholders") consummated
an acquisition agreement with Big Tex Enterprises, Inc. ("Big Tex"), an inactive
public shell with no recent operations at that time, whereby the shareholders
sold all of their preferred and common stock, which represented 100% of KIW'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, the Company changed its name to Kanakaris
Communications, Inc.
Principles of Consolidation
- ---------------------------
The accompanying consolidated financial statements include the accounts of the
Company, and its wholly-owned subsidiary Kanakaris InternetWorks, Inc., and
Kanakaris InternetWorks, Inc.'s wholly-owned subsidiary, Desience Corporation.
All significant intercompany balances and transactions have been eliminated in
consolidation.
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".
Note Payable
- ------------
As of December 31, 1999, the Company had a $35,000 note payable to an officer.
Interest accrues at 5% annually. Principal and accrued interest due January
2002.
Letters of Intent
- -----------------
On November 1, 1999 the Company signed a Memorandum of Understanding with
SyCoNet.Com, Inc. ("SyCoNet"). SyCoNet will make available all properties which
it has internet online distribution rights to, both now and in the future, for
direct over-the internet delivery by the Company. The Company will incur
encoding and bandwidth charges for those properties which it exercises its
option to deliver over the internet, and will pay SyCoNet 70% of the online
access gross fees and 25% of the product specific gross advertising fees
pertaining to this product.
On November 9, 1999, the Company signed a Memorandum of Understanding with Lain
International ("Lain"). Lain will make available all Spanish language, Spanish
dubbed and Spanish sub-titled films for which it has internet distribution
rights to the Company. The Company will create a KKRS web channel devoted
exclusively to these titles. The Company will maintain web visit status,
accounting, and will pay Lain its royalties on at least a quarterly basis, an
amount of 50% of the gross share of advertising, subscription and pay-per-view
fees for the channel devoted to Lain films, minus 50% of encoding, bandwidth and
advertising charges.
8
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Internet Data Center Services Agreements
- ----------------------------------------
On November 17, 1999, and effective December 7, 1999, the Company entered into
an agreement with Microsoft Corporation ("Microsoft"). Microsoft will assist the
Company with the development of an audio/video enhanced Website which delivers
timely and relevant audiovisual content using Windows Media Technologies in a
broadband network intrastructure.
On October 21, 1999, the Company entered into an agreement with eConnect to
enter into a joint venture and strategic alliance to be called Internet Cash
Programming (ICP). ICP will provide the consumer with the ability to purchase
programming by Same-as-Cash, or by Enhanced Credit Card payments. ICP will be
formed as a Nevada Corporation and will authorize 1,000,000 shares of stock of
which the Company will receive 400,000 shares and eConnect will receive 400,000
shares. It is anticipated that the Company will have managing control of ICP.
Subsequent Events
- -----------------
In 1999, the Company filed a complaint in the Los Angeles Superior Court against
its former securities attorney. In January of 2000, the complaint was settled
for $250,000 receivable over a 3 year period of which $30,000 has been received.
All amounts due on this matter were reserved as uncollectable as of September
30, 1999.
In January 2000, holders of all of the Company's then outstanding 10%
Convertible Subordinated Debentures converted their debentures into an aggregate
of 1,783,334 shares of the Company's common stock.
The Company signed an agreement with ValueClick in January of 2000 whereby
ValueClick will drive advertisers to the Kanakaris web site. The Company will
receive $.20 each time a customer clicks on a ValueClick-served ad. The Company
will also receive $.03 per click whenever a customer clicks on a KKRS-referred
web site.
In February 2000, the Company issued $1,000,000 of its 10% Convertible
Subordinated Debentures due February 1, 2001 to three accredited investors. Net
proceeds to the Company after the payment of finders' fees and prior to the
payment any other related offering expenses was $870,000.
In February 2000, the Company entered into an agreement with Wave Systems Corp.,
which provides the transactional capability to enable the Company to implement
the subscription and pay-per-view revenue collection portion of its
Internet-based business plan.
9
<PAGE>
Segment Information
- -------------------
For The Three Months Ended December 31
Internet Modular
Commerce Consoles Total
-------- -------- -----
1999
Revenues $ 278 $ 93,310 $ 93,588
Segment Profit (Loss) (1,696,803) (19,481) (1,716,284)
Total Assets 666,243 126,339 792,582
Additions To Long-
Lived Assets 9,724 582 10,306
Depreciation And 9,730 765 10,495
Amortization
1998
Revenues $ 25,106 $ 202,149 $ 227,255
Segment Profit (Loss) (54,403) (23,173) (77,576)
Total Assets 638,946 155,326 794,272
Additions To Long- - - -
Lived Assets
Depreciation And 7,181 550 7,731
Amortization
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
and we intend that such forward-looking statements be subject to the safe
harbors created thereby.
We have incurred significant losses since our inception. As of December
31, 1999, we had an accumulated deficit of $10,080,424. We expect to incur
substantial operating losses for the foreseeable future. Our results of
operations have been and may continue to be subject to significant fluctuations.
The results for a particular period may vary due to a number of factors, many of
which are beyond our control, including:
o the timing and nature of revenues from our Internet and e-commerce
businesses and data control console product sales that are
recognized during any particular quarter;
o the impact of price competition on our average prices for our
products and services;
o market acceptance of new product or service introductions by us or
our competitors;
o the timing of expenditures in anticipation of future sales;
o product returns;
o the financial health of our customers;
o the overall state of the Internet and e-commerce industries and the
data control console industries; and
o economic conditions generally.
Any of these factors could cause operating results to vary
significantly from prior periods and period-to-period. As a result, we believe
that period-to-period comparisons of our results of operations are not
necessarily meaningful and should not be relied upon as any indication of future
performance. Fluctuations in our operating results could cause the price of our
common stock to fluctuate substantially.
The information contained in this report is not a complete description
of our business or the risks associated with an investment in our company's
common stock. Before deciding to buy or maintain a position in our common stock,
you should carefully review and consider the various disclosures made by us in
this report and in other materials we have filed with the Securities and
Exchange Commission, including our Form SB-2 dated January 5, 2000 (and, in
particular, in the "Risk Factors" section therein), that discusses our business
in greater detail and that also discloses various risks, uncertainties and other
factors that may affect our business, results of operations or financial
condition.
Assumptions relating to the forward-looking statements involve
judgments with respect to, among other things, future economic, competitive and
market conditions, all of which are difficult or impossible to predict
accurately, and many of which are beyond our control. In addition, our business
and operations are subject to significant risks which increase the uncertainty
inherent in the forward-looking statements. In light of this, the inclusion of
forward-looking information should not be regarded as a representation or
guarantee by us or any other person that our objectives or plans will be
achieved.
OVERVIEW
We are an Internet-based provider of online delivery of films and
books. Our Internet web site, www.KKRS.Net, is the portal to all of the
proprietary content and web sites of our company. Our films are accessible by
Internet users at access rates from 56K to broadband. We have over 200 on-demand
movies available with full-screen scalability and television quality. We have
over 250 books online available. The books feature re-sizable type, the ability
to turn pages without scrolling and the ability to search by word or phrase. In
addition, currently we offer other content at www.KKRS.Net, including co-branded
auctions, classified ads and personal ads.
11
<PAGE>
In addition to our Internet and e-commerce businesses, we design,
manufacture and install ergonomic data control console systems for high-end
computer command centers used by governmental agencies and Fortune 500 and other
companies. Our customers include NASA, the Federal Bureau of Investigation, the
United States Navy, Bank of America and Mitsubishi.
To date, substantially all of our revenues have been derived through
sales of our data control console systems. Our current business strategy
includes expansion of our data control console business and a significant
emphasis upon developing and expanding our Internet and e-commerce businesses.
Our company is a Nevada corporation that was incorporated on November
1, 1991 and is the sole shareholder of Kanakaris InternetWorks, Inc. Kanakaris
InternetWorks, Inc. is the sole shareholder of Desience Corporation. Our common
stock is currently traded on the OTC Bulletin Board under the ticker symbol
"KKRS."
We currently derive substantially all of our revenue from the
manufacture and sale of our data control console systems. We are in the process
of further developing and expanding our Internet-related businesses with the
goal of deriving revenues from these businesses in the near future. In that
regard, we anticipate deriving revenue from, among other sources:
o rental and sales of online, downloaded and print books and other
written materials;
o movie subscription and pay-per-view fees;
o classified and personal ad advertising fees;
o fees based on the value of items auctioned through our Internet
Lifestyle Network; and
o sales of downloadable music.
We expect to continue to place significant emphasis upon the further
development and expansion of our Internet and e-commerce businesses. We expect
to increase our sales and marketing expenses in the near term. We intend to
increase our marketing efforts substantially in order to develop awareness and
brand loyalty for our Internet-based products and services and to generate
revenues from those who visit our Internet sites. These marketing efforts will
require a considerable effort on our part.
We also intend to continue to invest in the development of new products
and services, complete the development of our products and services currently
under development and expand our network.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
Net sales decreased $133,667 or 58.8%, from $227,255 for the three
months ended December 31, 1998 to $93,588 for the three months ended December
31, 1999. This decrease in total sales was primarily due to a decrease in sales
of our OPCON Module System which the Company believes to be a result of normal
fluctuations in the timing of orders for the Company's products. The portion of
net sales derived from our e-commerce businesses decreased $24,828 or 98.9%,
from $25,106 for the three months ended September 30, 1998 to $278 for the three
months ended December 31, 1999 due to a shift in our focus from establishing web
sites to providing downloadable content. The portion of net sales derived from
the sales of our data control console systems decreased $108,839 or 53.8%, from
$202,149 for the three months ended December 31, 1998 to $93,310 for the three
months ended December 31, 1999.
Gross profit decreased $76,509 or 74.8%, from $102,267 for the year
ended December 31, 1998 to $25,758 for the three months ended December 31, 1999.
The decrease in gross profit and corresponding decrease in gross margin from
45.0% to 27.5% was primarily due to the purchase of intangible movie rights for
use on our web sites.
Total operating expenses increased $1,561,516 from $182,847
for the three months ended December 31, 1998 to $1,744,363 for the three months
ended September 30, 1999. This increase in total operating expenses was
primarily due to a significant increase in our consulting fees from $11,000 for
the three months ended December 31, 1998 to $1,065,480 for the three months
ended December 31, 1999 and an increase in marketing and investment costs and
professional fees from $25, 201 for the three months ended December 31, 1998 to
$427,888 for the three months ended December 31, 1999.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
From February 25, 1997 through December 31, 1999, we funded our
operations primarily from equity investments through private placements of our
securities, including our convertible debentures, proceeds from our line of
credit and revenue generated from our operations.
As of December 31, 1999, we had a negative working capital of
$1,696,627 and an accumulated deficit of $10,080,424. As of that date, we had
$141,572 in cash and cash equivalents and $46,428 in accounts receivable. We
also had obligations under our debentures in the amount of $957,500.
Cash used in our operating activities totaled $506,079 for the three
months ended December 31, 1999 as compared to $40,908 for the three months ended
December 31, 1998. Cash provided by our investing activities totaled $52,088 for
the three months ended December 31, 1999 as compared to no cash provided by our
investing activities for the three months ended December 31, 1998.
Cash provided by our financing activities was $440,500 for the three
months ended December 31, 1999. $337,500 of that amount was raised through the
issuance of our debentures. Cash provided by our financing activities was
$57,125 for the three months ended December 31, 1998.
On February 25, 1999, we obtained a $5,000,000 revolving line of credit
from Alliance Equities. On April 7, 1999, this line of credit was increased to
$7,000,000. The February 25, 1999 agreement memorializing our arrangement with
Alliance Equities provides that a definitive agreement is to be negotiated
within seven days of that date. Prior to December 10, 1999, the parties had not
finalized a definitive agreement and had operated under the February 25, 1999
agreement as amended by the April 7, 1999 amendment. On December 10, 1999, the
parties executed a definitive agreement relating to the revolving line of
credit. The agreement provides that our company may draw up to $500,000 per
month on the line of credit, up to a maximum aggregate borrowing of $7,000,000.
Interest accrues at the rate of 10% per annum, with unpaid principal and accrued
interest due at maturity on December 10, 2001, unless the line of credit is
terminated earlier by mutual agreement of the parties upon 30 days' prior
written notice, is prepaid by us or is converted into shares of our common stock
by us, by the lender or automatically upon the happening of certain events.
At any time or times prior to maturity, our company may convert any
portion of the unpaid principal balance into shares of our common stock, or the
lender may convert up to 50% of the unpaid principal balance, at a conversion
price equal to the average market price for our common stock for the 30 days
prior to the conversion. The unpaid principal balance of the line of credit is
automatically convertible into shares of our common stock if we fail to pay the
unpaid principal and interest due at maturity, at a conversion price equal to
the average market price for our common stock for the 30 days prior to the
conversion. Alternatively, the unpaid principal balance of the line of credit is
automatically convertible into shares of our common stock if we close a
financing in which the aggregate gross proceeds received by us equal or exceed
$7,000,000, in which case a total of 50% of the entire original line of credit
amount (which is the aggregate of amounts previously converted at that time plus
non-converted amounts equaling a maximum of 50% of the entire original line of
credit amount) will be converted at a conversion price equal to the average
market price of our common stock as exists thirty days prior to such automatic
conversion.
In January 2000, our convertible debentures that were outstanding as of
December 31, 1999 were converted into an aggregate of 1,783,334 shares of our
common stock. In addition, during February 2000 we issued $1,000,000 of our 10%
Convertible Subordinated Debentures due February 1, 2001. The net proceeds of
that offering, after the payment of finder's fees and before the payment of
other related expenses, was $870,000.
13
<PAGE>
We believe that current and future available capital resources,
revenues generated from operations, and other existing sources of liquidity,
including our revolving line of credit with Alliance Equities, will be adequate
to meet our anticipated working capital and capital expenditure requirements for
at least the next 12 months. If, however, our capital requirements or cash flow
vary materially from our current projections or if unforseen circumstances
occur, we may require additional financing sooner than we anticipate. Failure to
raise necessary capital could restrict our growth, limit our development of new
products and services or hinder our ability to compete.
IMPACT OF YEAR 2000
We have not experienced any significant problems as a result of the
arrival of the Year 2000. Although no significant problems have materialized to
date, we will continue to monitor our systems (both IT and non-IT) throughout
the Year 2000, including the proper recognition of the leap year.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the three months ended December 31, 1999, the Company issued
1,426,000 shares of common stock for consulting services having a fair
value of $1,029,400.
During the three months ended December 31, 1999, the Company issued
136,000 shares of common stock to four accredited investors in private
offerings in exchange for $68,000 in cash.
Exemption from the registration provisions of the Securities Act of
1933 for the transactions described above is claimed under Section 4(2)
of the Securities Act of 1933, among others, on the basis that said
transactions did not involve any public offering and the purchaser were
sophisticated with access to the kind of information registration would
provide.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KANAKARIS COMMUNICATIONS, INC.
Dated: February 14, 2000 By: /S/ DAVID SHOMAKER
--------------------------------------------
David Shomaker
Acting Chief Financial Officer
(principal financial and accounting officer)
16
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 141,572
<SECURITIES> 0
<RECEIVABLES> 46,428
<ALLOWANCES> 0
<INVENTORY> 250
<CURRENT-ASSETS> 291,929
<PP&E> 37,144
<DEPRECIATION> 0
<TOTAL-ASSETS> 792,582
<CURRENT-LIABILITIES> 1,988,556
<BONDS> 0
0
10,000
<COMMON> 27,520
<OTHER-SE> (1,280,020)
<TOTAL-LIABILITY-AND-EQUITY> 792,582
<SALES> 93,588
<TOTAL-REVENUES> 93,588
<CGS> 67,830
<TOTAL-COSTS> 1,812,193
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,716,284)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,716,284)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,716,284)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
