U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED AUGUST 31, 1999
LMKI, INC.
(Name of small business issuer in its charter)
Nevada 0-26578 33-0662114
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File No.) Identification No.)
1720 East Garry Avenue, Suite 201, Santa Ana, California 92705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 475-4500
Securities registered pursuant to Section 12(b) of the Act: NONE
Name of each exchange on which registered: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE (Title of class)
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 the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes .X. No ...
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $1,598,076
The aggregate market value of the voting and non-voting common equity held by
non-affiliates was $45,278,143 computed by reference to the average bid and
asked price of such common equity, as of August 31, 1999, which was $4.91.
The number of shares outstanding of the issuer's common stock, as of August
31, 1999 was 36,115,666.
DOCUMENTS INCORPORATED BY REFERENCE: Certain previously filed exhibits in
Form 10-SB, Form 10-KSB for the fiscal year ended August 31, 1998, Form 10-
QSB for the quarter ended May 31, 1999.
Transitional Small Business Disclosure Format (check one): Yes ... No .X.
THIS ANNUAL REPORT ON FORM 10-KSB MAY CONTAIN CERTAIN PROJECTIONS, ESTIMATES
AND OTHER FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND
UNCERTAINTIES, INCLUDING THOSE DISCUSSED BELOW AT "Business - Risks And
Uncertainties." WHILE THIS OUTLOOK REPRESENTS MANAGEMENT'S CURRENT JUDGMENT
ON THE FUTURE DIRECTION OF THE BUSINESS, SUCH RISKS AND UNCERTAINTIES COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY FUTURE PERFORMANCE
SUGGESTED BELOW. THE COMPANY UNDERTAKE NO OBLIGATION TO RELEASE PUBLICLY THE
RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT
EVENTS OR CIRCUMSTANCES ARISING AFTER THE DATE HEREOF.
PART I
Item 1. Description of Business.
Overview
LMKI Inc., formerly Landmark International, Inc., delivers broadband
communications solutions including high-speed Internet access, data, voice
and video services over a revolutionary national network to a wide spectrum
of business customers. Additionally, LMKI Inc. offers application
development, network integration and systems management services to
businesses worldwide. Through strategic alliances and cost-effective
network planning, LMKI Inc. provides unparalleled performance and service.
LMKI provides both of the elements critical to the success of any business
interested in utilizing the Internet: Access and Communications
Applications. LMKI offers various cost-effective broadband connectivity
options to businesses of all scope and size. LMKI's broadband access
offerings range from DSL to DS3 service. Additionally, LMKI offers Network
Development solutions and Internet Utility solutions. With our extensive
knowledge and experience we are able to deliver VPN solutions (Virtual
Private Networking), RPN solutions (Real Private Networking), Co-location,
VOIP integration (Voice over IP) and Inter/Intra/Extra/net application
development. Furthermore, the design and deployment of these solutions takes
full advantage of the speed and reliability provided by LMKI's broadband
Internet connections.
LMKI's fully integrated, cost-effective solution approach gives businesses
little reason to search elsewhere for the same solution that would be
delivered by 2 to 3 different companies, each specializing in one facet to
the whole solution. Because LMKI's network is smarter than the competition
and we have extensive experience in deploying multi-faceted Internet
solutions, our plan is to brand LMKI as the clear market leader in
delivering solid, complete and cost-effective network solutions to
businesses that need to integrate the utility of the Internet into their
operations.
Currently LMKI has a large number of customers that come from a wide range
of industries in the marketplace. With favorable partnering and peering
agreements ranging from backbone providers such as Level 3 and Qwest to DSL
providers such as Covad, LMKI has been able to grow at an accelerated pace.
These strategic partnerships have allowed LMKI to deliver dynamic solutions
to corporations such as Xerox Corporation, IBM, Playboy Enterprises,
CarsDirect.com, Southern California Automobile Association, Kanakaris.com
and many others.
LMKI Inc. is an Internet Service Provider (ISP), offering small, medium, and
large-sized businesses the lowest-cost entry-level connection to the
Internet via high speed DSL, the newest and fastest communications
technology. LMKI's proprietary product, the Zip-DSL, allows all businesses
to participate in the full range of Internet services.
LMKI is customer-driven, providing subscribers 24-hours-a-day, seven-days-a-
week personal service. Partnership agreements with Covad (NASDAQ:COVD),
Qwest Communications (NASDAQ:QWST), and Level Three Communications
(NASDAQ:LVLT) guarantee technical support and field service for near-perfect
network reliability for LMKI'S growing infrastructure.
DSL Expansion
According to TeleChoice, a telecommunications consulting firm, the market
for digital subscriber lines (DSL) has charted growth of 300% for the first
half of 1999, well beyond analysts' expectations. Positioning itself to
give cable modem competition a good run, DSL is a technology that uses
digital coding to push up to 99% more information through a regular copper
phone line. The result is that the line can transmit data using a higher
frequency, and simultaneous voice and fax using a lower frequency. DSL
services the "last mile"- the area stretching from the central phone
exchange to the customer - that has proven such a challenge in providing
fast connections to businesses. Laurie Falconer, DSL analyst at TeleChoice,
expects market growth for DSL to speed up, and competition to increase.
"There's a lot of demand for it," she says. Falconer claims a main factor to
separate the market leaders and losers will be the viability of the targeted
market. LMKI is only aiming to attract multi-location businesses to its
product.
Published figures and projections about growth of the Internet vary, but
agreement about rapid expansion is standard. A new study of the Internet
telephony business by Killen & Associates, a telecommunications research and
consultant group in Palo Alto, Ca. Forecasts an $8 Billion market by the
year 2003 for providers of IP services offering voice, fax and video
capabilities.
Recent mergers of telephone and cable companies, and acquisitions of
Internet technology companies predict that broadband access is the future of
the online world. LMKI Communications, which began its business activities
in January 1999 has already achieved a doubling of its monthly growth rate,
with current subscribers and expects an exponential cumulative gross run
rate over the next year.
Business Broadband
Data Competitive Local Exchange Carriers (CLECs) have built their business
models around the small and medium-size markets for local broadband
services, and it's easy to see why. International Data Corp. (IDC) of
Framingham, Massachusetts estimates that as of year-end 1998, 3.9 million of
the 7.4 billion small businesses in the United States had Internet access.
Nearly 3.3 million of these small businesses were using dial-up services.
According to John Stormer, NorthPoint's Vice President of marketing,
converting small business dial-up customers to DSL "defines a big part of
the market opportunity."
The Internet's increasingly pivotal role in business via Web content, e-
commerce and virtual private networks (VPNs), combined with the lack of
affordable, high-speed access solutions for small businesses, have created a
large niche for DSL services. Although the market is still nascent, Morgan
Stanley Dean Witter & Co. of New York estimates the U.S. DSL service market
for access alone will reach $7 billion to $9 billion by 2002.
For a number of reasons, data CLECs have chosen to use DSL to reach their
target market instead of other access media. One factor is that competing
access technologies are not currently well-positioned for small businesses.
ISDN, for example, is a relatively slow broadband service with many hidden
charges. Broadband wireless has technology glitches to fix, and any business
deployments of cable modems would require further network build-outs and
upgrades to two-way high-speed service.
DSL, on the other hand, takes advantage of unused spectrum in existing
copper telephone wires, the same basic wiring used to supply a home or
office with regular telephone service. According to Peter Meade, a senior
analyst with market researcher Cahners In-Stat Group, Newton, Massachusetts,
DSL is a great solution for small businesses, remote offices and
telecommuters. "T1 [a leased line connection] is too expensive for this
segment, dial-up is too slow, and ISDN [offered by ILECs] adds per-minute
online charges to their base monthly price," Meade says.
J.P. Morgan's Langner agrees: "DSL is a dedicated service, and that makes it
much more attractive to business than cable, dial-up and ISDN. It is
becoming a viable T1 competitor on price."
Although local phone companies are in the best position to offer DSL because
they own the core infrastructure that supports it, until very recently, they
were reluctant to market these services to business customers. According to
New York based Bank of America Securities LLC senior analyst Michael
Renegar, ILECs won't aggressively sell DSL services to businesses. "DSL will
cannibalize existing T1 service, for which ILECs typically charge $1,000 a
month," he says. "It would reduce margins considerably."
Business Strategy
LMKI intends to capitalize on the enormous public attention focused on the
Internet by increasing its telemarketing sales and technical support staff,
targeting its advertising to its core audience, and by providing the most
efficient, lowest-cost high speed Internet service in its corridor.
Lmki Communication's Competitive Advantages
- - LMKI's knowledgeable and growing sales force and technical staff. LMKI
is making sure that the sales force is trained on the "high-end"
networking elements in which LMKI deals so they will be able to
service the needs of their customers.
- - LMKI's business model optimizes cost, efficiency and flexibility. LMKI
has addressed the largest cost factor in their methodology for
deploying their network through a leasing strategy rather than a
building strategy. This keeps start-up costs as low as possible.
- - LMKI's efficiency can be seen in harnessing a network comprised of
highly intelligent and functional network elements (such as their
application of MPLS meshed with the backbones of L3 and Qwest and the
last mile services of Covad). LMKI can focus on support systems that
use the carrier's distributed intelligence and are developed faster
and leaner.
- - LMKI changes its network with keystrokes rather than forklifts. LMKI's
business model optimizes network flexibility due to strategic
relationships with multiple carriers. This allows LMKI to use the
latest network and software technologies focused on meeting the
business plan. This advantage over embedded network elements and
operation support systems cannot be overstated and is the key to
successful competition.
- - LMKI's lowest cost strategy for small and medium- sized businesses
that need to compete with and survive against larger companies.
- - Partner Strength. Covad, Qwest, Level 3 partnerships give LMKI the
ability to deliver connectivity solutions faster and at a lower cost
than the competition.
- - LMKI's impressive client base. Including Southern California
Automobile Association (CSAA) with approximately 300 DSL and 250 ISDN
connections in a private network, Playboy with streaming video, Xerox
with a private network, and CarsDirect.com with broadband web hosting.
- - Integration. All of the different connectivity solutions and custom
applications development can be seamlessly integrated.
- - Automation. LMKI's Network Management tools are automated which leads
to less downtime, and lower labor costs.
- - LMKI's customized customer approach and advanced telecommunications
technology.
- - LMKI management's experience and knowledge and ability to provide
highest quality services.
- - Success depends upon careful planning and the selection of partners.
LMKI can meet the customer's needs more efficiently with entrenched
procedures. This enables LMKI to excel at customer service.
Innovative Products
IP Technology. The cutting edge technology in the telecommunications
industry moving forward to the future is based on the IP protocol. IP
technology is able to realize the convergence of traditional voice type
applications plus current and future data/internet type applications. IP
provides operational efficiency when managing a single platform that can
carry any type of service application. At an early stage, LMKI recognized
this potential and deployed a worldwide IP network. The Virtual Private
Network (VPN), and Real Private Network (sm) (RPN), qualify as Cisco Powered
Networks, and are a major step in materializing converged networks. The main
focus of LMKI in deploying and managing the VPN and RPN is to maintain and
guarantee the highest quality and reliability standards. The non-use of the
public Internet, has given LMKI a competitive edge, therefore we can ensure
a better than Carrier Grade quality.
The Real Private Network (sm) service incorporates the speed, security and
versatility of DSL (Digital Subscriber Line) technology with the wide
geographical coverage of Qwest's and Level Three's fiber networks. By
combining multiple connectivity options with a homogenous, managed network,
business customers that do not yet have DSL available in their area can take
advantage of our RPN services through dedicated OC-n, T3, T1, ATM, frame
relay, ISDN and dial up connectivity services. Using these multiple
technologies gives LMKI a differential advantage over the competition. No
competitor can offer the same full service solution as LMKI. Other players
can come in an offer a solution, but at a much higher price, without the
speed and reliability LMKI offers.
A Real Private Network is a unique service that securely links together each
of an organization's sites to create a private wide area network without
touching the Internet. By meshing together cutting edge technology such as,
DSL, ISDN, Frame Relay and Point to Point dedicated circuits, we deliver a
cost-effective alternative to deploying an internal network. Offering the
features, performance, and security that business information requires, a
Real Private Network includes pre-configured hardware, network management,
and security services, yet costs much less than traditional WAN solutions.
Some of the main benefits to LMKI's proprietary product:
- - Offers the benefits of private networking without the burden of
network management, investment in Internet-access, expensive hardware,
and obsolete equipment.
- - Optional mediated access to the public Internet in conjunction with
private site-to-site connectivity.
- - Enables users to access files and applications from any location on
the Real Private Network as if the network were a LAN; workers and
workgroups anywhere can more efficiently share information and
collaborate on computer-based projects.
- - Service guarantees assure the performance and reliability needed for
high priority information.
- - Lets the client give customers and business partners controlled access
to their internal resources for strategic and tactical advantage.
- - Quickens the delivery of internal e-mail, file transfers, and other
internal traffic by avoiding the public Internet.
Strategic Partnerships
LMKI has created strategic partnerships with Covad, Level Three, and Quest
to be the technological leader in the high speed internet connectivity
marketplace.
What makes LMKI so revolutionary is the backbone of our nationwide network
has been outsourced to nationwide carriers Qwest Communications
International and Level Three Communications. LMKI was the first customer
to co-locate with Level Three. By using Qwest's and Level Three's network
infrastructure, we avoid all of the costs and pitfalls of implementing our
own infrastructure, yet we are able to take advantage of the economies of
scale and the redundancy that only multi-billion dollar companies such as
Qwest and Level Three can afford. The result: our network is faster, and
can be re-tooled, re-configured and tuned to match the changing needs of the
market without the man-power overhead and capital that our competition has
to spend on their legacy networks. This keeps LMKI growing and evolving as
the market place changes, while the competition is trying to gain ground on
our previous accomplishments. We can focus our resources on delivering
value-added services and quality network access, rather than on backbone
technology that changes constantly.
Covad Communications Group is a packet-based Competitive Local Exchange
Carrier that provides high-speed digital communications services using
Digital Subscriber Line technology to LMKI's customers. Covad sells speed to
users hooked on LANs. Covad provides remote access to LANs and the
Internet, with speeds of up to 1.5 megabits per second (25 times faster than
most modems). Covad's use of existing copper phone lines allows it to offer
lower rates and 24-hour local connectivity. The company, which installs
lines, configures equipment, and designs networks in 22 regions. Other
clients include Cisco Systems, Oracle, and Sprint.
Level Three Communications is a telecommunications & information services
company that plans to build an advanced, international facilities-based
communications network based on Internet Protocol (IP) technology. It is
building an international fiber-optic network, in which entities, like
Nextel and Nextlink, are investing in return for network capacity. Level 3
offers local, long-distance and Internet service over leased network
capacity in 15 cities in the US and two in Europe. It also offers computer
operations outsourcing and owns stakes in telecom providers RCN and
Commonwealth Telephone Enterprises.
Qwest Communications International is a telecommunications based company
that encompasses an 18,800-mile fiber-optic network connecting approximately
500 US cities, and 90 countries. Qwest offers local and long-distance
telephone, Internet, and multimedia services to businesses and consumers
over its Internet protocol-based network -- 12,500 miles of which are
active. The #4 US long-distance provider is also building networks to serve
Mexico (1,400 miles) and Europe (9,100 miles, in a joint venture with Dutch
phone company KPN). Qwest has network capacity on three transatlantic cables
and is helping to construct a transpacific cable. Qwest has also agreed to
merge with Baby Bell US WEST.
Government Regulation
Telemarketing sales practices are regulated both federally, and at the state
level. The Federal Telephone Consumer Protection Act of 1991 (the TCPA)
prohibits telemarketing firms from imitating telephone solicitations to
residential telephone subscribers before 8:00 a.m. or after 9:00 p.m. local
time, and prohibits the use of automated telephone dialing equipment to call
certain telephone numbers. In addition, the TCPA requires telemarketing
firms to maintain a list of residential customers that have stated that they
do not want to receive telephone solicitations and, thereafter, to avoid
making calls to such customers' telephone numbers.
The federal Telemarketing and Consumer Fraud and Abuse Prevention Act of
1994 (the TCFAPA) broadly authorizes the Federal Trade Commission (the FTC)
to issue regulations prohibiting misrepresentation in telemarketing sales.
In August 1995, the e FTC issued new telemarketing sales rules. Generally,
these rules prohibit misrepresentation regarding the cost, terms,
restrictions, performance, or duration of products or services offered by
telephone solicitation and otherwise specifically address other perceived
telemarketing abuses in the offering of prizes and the sale of business
opportunities or investments. The Company trains its telephone service
representatives to comply with the TCPA and programs its call management
system to avoid telephone calls during restricted hours or to individuals
maintained on the Company's "do not call" list.
A number of states have enacted or are considering legislation to regulate
telemarketing. For example, telephone sales in certain states cannot be
final unless a written contract is delivered to and signed by the buyer and
may be cancelled within three business days. Several states require
telemarketers to obtain licenses and post bonds. The Company does not
process card payments for any of its customers and does not currently
operate in any states where these requirements are imposed. From time to
time, bills are introduced in Congress, which, if enacted, would regulate
the use of credit information. The Company cannot predict whether this
legislation will be enacted and what effect, if any, it would have on the
telemarketing industry.
The telephone industry is also subject to government regulation, primarily
by state public utility commissions. The Company relies on its clients and
their advisers to develop the scripts to be used by the Company in making
consumer solicitations. The Company has never been help responsible for
regulatory noncompliance.
Risks And Uncertainties
OUR EXTREMELY LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS AND PROSPECTS
We only recently began to market our major service, DSL lines. We began
offering commercial service in 1999. Accordingly, you have limited
information about our company with which to evaluate our business, strategies
and performance and an investment in our common stock.
OUR RAPID GROWTH MAY STRAIN OUR OPERATIONS
Our rapid growth will continue to cause a significant strain on our
managerial, operational, financial and information systems resources. To
accommodate our increasing size and manage our growth, we must continue to
implement and improve these systems and expand, train and manage our
employees. Although we are taking steps to manage our growth effectively, we
may not succeed. If we fail to successfully manage our growth, our ability to
maintain and increase our member base will be impaired, and as a result, our
business may suffer.
TECHNOLOGY TRENDS COULD RENDER OUR BANDWIDTH OR TECHNOLOGY OBSOLETE
Our products and services are targeted toward users of the Internet, which
has experienced rapid growth. The Internet services market is characterized
by rapidly changing technology, evolving industry standards; changes in
member needs and frequent new service and product introductions. Our future
success depends, in part, on our ability to use leading technologies
effectively, to develop our technical expertise, to enhance our existing
services and to develop new services that meet changing member needs on a
timely and cost-effective basis. In particular, we must provide subscribers
with the appropriate products, services and guidance to best take advantage
of the rapidly evolving Internet. Our failure to respond in a timely and
effective manner to new and evolving technologies (such as those offering
greater bandwidth services, among others) could have a negative impact on our
business and financial results.
We cannot assure that we will be successful in responding to changing
technology or market trends. In addition, services or technologies developed
by others may render our services or technologies uncompetitive or obsolete.
Furthermore, changes to our services in response to market demand may require
the adoption of new technologies that could likewise render many of our
assets technologically uncompetitive or obsolete. As we accept bandwidth from
IXC and our other existing global network suppliers or acquire bandwidth or
equipment from other suppliers that may better meet our needs than existing
bandwidth or equipment, many of our assets could be determined to be obsolete
or excess. The disposition of obsolete or excess assets could have a material
adverse effect on our business, financial condition and results of
operations.
Even if we do respond successfully to technological advances and emerging
industry standards, the integration of new technology may require substantial
time and expense, and we cannot assure you that we will succeed in adapting
our network infrastructure in a timely and cost-effective manner.
Our business may also be affected by problems caused by computer viruses,
security breaches and other inappropriate uses of our network (e.g., email
"spamming"). Alleviating these problems may cause interruptions, delays or
cessation in service to our members, which could cause them to terminate
their membership or assert claims against us.
OUR BUSINESS DEPENDS ON CONTINUED GROWTH OF THE INTERNET
Our future success substantially depends on continued growth in the use of
the Internet. Although we believe that Internet usage and popularity will
continue to grow as it has in the past, we cannot be certain that this growth
will continue or that it will continue in its present form. If Internet usage
declines or evolves away from our business, our growth will slow or stop and
our financial results will suffer.
WE ARE DEPENDENT ON TELECOMMUNICATIONS CARRIERS AND OTHER SUPPLIERS
We rely on traditional telecommunications carriers to transmit our traffic
over local and long distance networks. These networks may experience
disruptions that are not easily remedied. In addition, we depend on certain
suppliers of hardware and software. If our suppliers fail to provide us with
network services, equipment or software in the quantities, at the quality
levels or at the times we require, or if we cannot develop alternative
sources of supply, it will be difficult, if not impossible, for us to provide
our services.
Our failure to develop and maintain good relationships with marketing
partners in a local service market could adversely affect our ability to
obtain and retain customers in that market
In addition to marketing through our direct sales force, we rely on
relationships with local marketing partners, such as integrators of computer
systems and networks and consultants. These partners recommend our services
to their clients, provide us with referrals and help us build a local
presence in each market. We may not be able to identify, and maintain good
relationships with, quality marketing partners or assure you that they will
recommend our services rather than our competitors' services to their
customers. Our failure to identify, and maintain good relationships with,
quality marketing partners could have a material adverse effect on our
ability to obtain and retain customers in a market and, as a result, our
business would suffer.
OTHER TECHNOLOGIES FOR THE HIGH-SPEED INTERNET CONNECTIVITY MARKET WILL
COMPETE WITH OUR SERVICES
Our services are competing with a variety of different high-speed Internet
connectivity technologies, including cable modem, satellite and other
wireless technologies. Many of these technologies will compete effectively
with our services. If any technology competing with our technology is more
reliable, faster, less expensive, reaches more customers or has other
advantages over DSL technology, then the demand for our products and services
and our revenues and gross margins may decrease.
YEAR 2000 RISK MAY ADVERSELY AFFECT OUR COMPANY
Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We utilize software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year
2000 phenomenon. For example, we are dependent on the institutions involved
in processing our members' credit card payments for Internet services. We are
also dependent on telecommunications vendors and leased POP vendors to
maintain network reliability.
We have assessed our proprietary software and internal systems and determined
them to be year 2000 compliant. We anticipate that our systems, including
components thereof provided by third-party vendors, will be year 2000
compliant by 2000. The failure of our software and computing systems and of
our third-party vendors to be year 2000 compliant could have a material
adverse effect on us.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE
We have funded operations primarily through operating funds, private and
public sales of equity securities, borrowings from third parties and
capitalized leases. Our capital requirements depend on numerous factors,
including the rate of market acceptance of our services, our ability to
maintain and expand our member base, the rate of expansion of our network
infrastructure and potential acquisitions. We cannot accurately predict the
timing and amount of our capital requirements. If our capital requirements
vary materially from our plans, we may require additional financing sooner
than anticipated. We have no commitments for any additional financing other
than a $25 million (increasing to $100 million over a three year period) line
of credit from Qwest Communications, Inc. Any additional equity financing
may be dilutive to our stockholders, and debt financing, if available, may
involve restrictions on our financing and operating activities. If we are
unable to obtain additional financing as needed, we may be required to reduce
the scope of our operations or anticipated expansion.
RELIANCE UPON OPERATING MANAGEMENT
Our success is dependent substantially upon the efforts of certain key
personnel. No person should purchase the securities offered herein unless
they are willing to entrust all aspects of the Company to those persons. The
loss of any of such key personnel could adversely affect our business and
prospects. We may not be able to replace or add to such key personnel.
OUR GROWTH AND EXPANSION MAY STRAIN OUR ABILITY TO MANAGE OUR OPERATIONS AND
OUR FINANCIAL RESOURCES
Our rapid growth has placed a strain on our administrative, operational and
financial resources and has increased demands on our systems and controls.
We cannot assure that our existing operating and financial control systems
and infrastructure will be adequate to maintain and effectively monitor
future growth. Our continued growth may also increase our need for qualified
personnel. We cannot assure that we will be successful in attracting,
integrating and retaining such personnel.
We face risks associated with our acquisitions of bandwidth from network
suppliers, including our strategic alliances with Covad Communications Group,
Inc. and Qwest Communications International, Inc. relating to our dependence
on their ability to satisfy their obligations to us, the possibility that we
may need to incur significant expenses to utilize bandwidth and their ability
to build-out their networks under construction that could adversely affect
our ability to utilize acquired bandwidth
We are subject to a variety of risks relating to our recent acquisitions of
fiber-based telecommunications bandwidth from our various global network
suppliers, including our strategic alliance with IXC Communications Inc., and
the delivery, operation and maintenance of such bandwidth. Such risks
include, among other things, the following:
- - the risk that financial, legal, technical and/or other matters may
adversely affect such suppliers' ability to perform their respective
operation, maintenance and other services relating to such bandwidth,
which may adversely affect our use of such bandwidth;
- - the risk that we will not have access to sufficient additional capital
and/or financing on satisfactory terms to enable us to make the
necessary capital expenditures to take full advantage of such
bandwidth;
- - the risk that such suppliers may not continue to have the necessary
financial resources to enable them to complete, or may otherwise elect
not to complete, their contemplated build-out of their respective fiber
optic telecommunications systems; and
- - the risk that such build-out may be delayed or otherwise adversely
affected by presently unforeseeable legal, technical and/or other
factors.
We cannot assure that we will be successful in overcoming these risks or any
other problems encountered in connection with our acquisitions of bandwidth.
FLUCTUATIONS IN OPERATING RESULTS
Our operating results could vary from period to period as a result of our
inability to increase continuously its number of subscribers. An economic
recession, downturn in consumer optimism or other factors may trigger an
economic environment that could negatively influence potential customers and
may affect the sales effort of the Company.
WE FACE A HIGH LEVEL OF COMPETITION IN THE COMMUNICATION SERVICES INDUSTRY
The market for high bandwidth communications connectivity and related
services is extremely competitive. We anticipate that competition will
continue to intensify as the use of the Internet grows. The tremendous growth
and potential market size of the Internet access market has attracted many
new start-ups as well as established businesses from different industries.
Our current and prospective competitors include other national, regional and
local ISPs, long distance and local exchange telecommunications companies,
cable television, direct broadcast satellite, wireless communications
providers and on-line service providers. We believe that our network,
products and customer service distinguish us from these competitors. However,
some of these competitors have significantly greater market presence, brand
recognition and financial, technical and personnel resources than we do.
We compete with all of the major long distance companies, also known as
inter-exchange carriers, including AT&T, MCIWorldCom, Sprint and Cable &
Wireless/IMCI, which also offer Internet access services. The recent sweeping
reforms in the federal regulation of the telecommunications industry have
created greater opportunities for local exchange carriers, including the
regional Bell operating companies, to enter the Internet connectivity market.
We believe that there is a move toward horizontal integration through
acquisitions of, joint ventures with, and the wholesale purchase of
connectivity from ISPs to address the Internet connectivity requirements of
the current business customers of long distance and local carriers. The
WorldCom/MFS/UUNet consolidation, the WorldCom/MCI merger, the ICG/NETCOM
merger, Cable & Wireless' purchase of the internet MCI assets, the
Intermedia/DIGEX merger, GTE's acquisition of BBN, Global Crossing's recently
announced plans to acquire Frontier Corp. (and Frontier's prior acquisition
of Global Center), Qwest Communication's recently announced plans to acquire
US West and AT&T's purchase of IBM's global communications network are
indicative of this trend. Accordingly, we expect to experience increased
competition from the traditional telecommunications carriers. Many of these
telecommunications carriers may have the ability to bundle Internet access
with basic local and long distance telecommunications services. This bundling
of services may have an adverse effect on our ability to compete effectively
with the telecommunications providers and may result in pricing pressure on
us that could have a material adverse effect on our business, financial
condition and results of operations.
Many of the major cable companies have announced that they are exploring the
possibility of offering Internet connectivity, relying on the viability of
cable modems and economical upgrades to their networks. Several announcements
also have recently been made by other alternative service companies
approaching the high bandwidth connectivity market with various wireless
terrestrial and satellite-based service technologies.
The predominant on-line service providers, including America Online and
Microsoft Network, have all entered the Internet access business by
engineering their current proprietary networks to include Internet access
capabilities. We compete to a lesser extent with these on-line service
providers. However, America Online's acquisition of Netscape Communications
Corporation and related strategic alliance with Sun Microsystems will enable
it to offer a broader array of Internet protocol-based services and products
that could significantly enhance its ability to appeal to the business
marketplace and, as a result, compete more directly with us.
Recently, there have been several announcements regarding the planned
deployment of broadband services for high speed Internet access by cable and
telephone companies. These services would include new technologies such as
cable modems and xDSL. These providers have initially targeted the
residential consumer. However, it is likely that their target markets will
expand to encompass business customers, which is our target market. This
expansion could adversely affect the pricing of our service offerings.
Moreover, there has recently been introduced a number of free ISP services,
particularly in non-U.S. markets, and some ISPs are offering free personal
computers to their subscribers. These trends could have a material adverse
effect on our business, financial condition and results of operations.
As a result of the increase in the number of competitors and the vertical and
horizontal integration in the industry, we currently encounter and expect to
continue to encounter significant pricing pressure and other competition.
Advances in technology as well as changes in the marketplace and the
regulatory environment are constantly occurring, and we cannot predict the
effect that ongoing or future developments may have on us or on the pricing
of our products and services. Increased price or other competition could
result in erosion of our market share and could have a material adverse
effect on our business, financial condition and results of operations. We
cannot assure you that we will have the financial resources, technical
expertise or marketing and support capabilities to continue to compete
successfully.
GOVERNMENT REGULATION
Our services are subject to federal, state and local regulation and changes
in laws or regulations could adversely affect the way we operate our
business.
The facilities we use and the services we offer are subject to varying
degrees of regulation at the federal, state and/or local levels. Changes in
applicable laws or regulations could, among other things, increase our costs,
restrict our access to the central offices of the traditional telephone
companies, or restrict our ability to provide our services. For example, the
1996 Telecommunications Act, which, among other things, requires traditional
telephone companies to un-bundle network elements and to allow competitors to
locate their equipment in the telephone companies' central offices, is the
subject of ongoing proceedings at the federal and state levels, litigation in
federal and state courts, and legislation in federal and state legislatures.
In addition, FCC rules governing pricing standards for access to the networks
of the traditional telephone companies are currently being challenged in
federal court. We cannot predict the outcome of the various proceedings,
litigation and legislation or whether or to what extent these proceedings,
litigation and legislation may adversely affect our business and operations.
In addition, decisions by the FCC and state telecommunications regulators
will determine some of the terms of our relationships with traditional
telecommunications carriers, including the terms and prices of
interconnection agreements, and access fees and surcharges on gross revenue
from interstate and intrastate services. State telecommunications regulators
determine whether and on what terms we will be authorized to operate as a
competitive local exchange carrier in their state. In addition, local
municipalities may require us to obtain various permits, which could increase
the cost of services or delay development of our network. Future federal,
state and local regulations and legislation may be less favorable to us than
current regulations and legislation and may adversely affect our businesses
and operations.
We provide Internet services through data transmissions over public telephone
lines and cable networks. These transmissions are governed by the Federal
Communications Commission (the "FCC"). As an Internet access provider, we are
not subject to direct regulation by the FCC or any other governmental agency,
other than regulations applicable to businesses generally. However, we could
become subject to FCC or other regulatory agency regulation especially as
Internet services and telecommunication services converge. Changes in the
regulatory environment could decrease our revenues and increase our costs.
Subsidiaries
The company has one wholly owned subsidiary, Landmark Communications, Inc.,
a Nevada Corporation doing business as Landmark Long Distance Inc. in the
State of California.
Employees
The company has 50 employees, including 4 in executive management, 4 in
administration, 5 in operations, and 37 in marketing. The Company considers
its employee relations to be good.
Item 2. Description of Property.
The Company leases approximately 5,000 square feet of commercial office space
at 1720 East Garry Avenue, Suite 201, Santa Ana, California 92705. The
monthly rent is approximately $5,000 on a one-year lease, which expires in
November 1999, at which time the Company may continue to rent the space on a
month to month basis. The Company is currently looking in for new space to
accommodate its rapid growth. The anticipated space required is 25,000
square feet which its expects to pay between $1.20 to $2.00 per square foot,
depending upon what services are included. The Company foresees no problem
in obtaining such space.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's common stock has been traded in the over-the-counter market
since 1995. It is currently is traded in the over-the-counter market and is
quoted on the OTC Electronic Bulletin Board (symbol "LMKI") maintained by
NASDAQ. The market for the Company's Common Stock has often been sporadic and
limited.
The following table sets forth the high and low bid prices for the Company's
common stock as reported by NASDAQ during the past two years and current
year. The prices reflect interdealer quotations, without retail markup,
markdown or commissions and may not represent actual transactions.
Quarter Ended High Bid Low Bid
8/31/96 4.125 4.0
11/30/96 3.875 3.344
2/28/97 1.25 0.063
5/31/97 0.132 0.063
8/31/97 0.125 0.063
11/30/97 0.063 0.01
2/28/98 0.0625 0.03125
5/31/98 0.03125 0.03125
8/31/98 0.03125 0.03125
11/28/99 0.03125 0.03125
2/29/99 0.09 0.02
5/31/99 1.00 0.05
8/31/99 9.125 0.4375
As of August 31, 1999 the closing bid price of the Company's common shares
was $4.875. As of August 31, 1999, there were 428 registered holders of
record of the Company's shares.
No dividends have been declared with respect to the Company's common shares
since inception. The Company is not likely to pay any dividends in the
foreseeable future. The Company intends to reinvest any earnings in its
operations.
The transfer agent for the Company's securities is Nevada Agency and Trust
Company, 50 West Liberty, Suite 880, Reno, Nevada 89501, 775-322-0626.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Results of Operations.
The Company's operating results have fluctuated in the past due to on again
off again GTE sales promotions. As of January of 1999 LMKI canceled its
contract with GTE and focused all of its attention on its DSL and broadband
business. Since the Company started selling T-1 services last year it has
been working closely the Mobilenetics Inc. and as of June 1, 1999 LMKI
purchased all of the outstanding stock of Mobilenetics Inc. The management
and employees of Mobilenetcis provided the needed technical expertise to
further its goal in being a leader DSL and broadband market. LMKI has also
formed strategic partnerships with Covad, Level Three and Quest, to bring
high speed internet connectivity to the marketplace. These partnerships'
provide LMKI with a nation-wide foot print in which the Company plans to
aggressively market its products.
LMKI has created strategic partnerships with Covad, Level Three, and Quest to
be the technological leader in the high speed internet connectivity
marketplace. The Company plans to leverage these partnerships and others in
order to become a nation-wide provider of DSL and broadband services.
In connection with our expansion in to a nation-wide provider, we expect to
significantly increase our capital expenditures, as well our sales and
marketing expenditures, to deploy our networks and support our customers.
Accordingly, we expect to incur substantial losses for at least the next two
years.
Revenue
During the last half FYE August 31, 1999, LMKI entered the DSL and broadband
Internet market and increased its sales from $397,363 in 1998 to $1,598,076,
a 402% increase. Two thirds of the sales were booked in the last quarter.
This increase is attributable to the switch to the DSL and broadband
business, the rapid growth in customers in both Los Angeles/Orange metro and
San Francisco Bay areas. We expect revenues to increase in future period as
we expand our network within existing regions, and enter in to new regions
and increase our sales and marketing efforts in all of our target markets.
Cost of Sales. We recorded network and product costs of $52,001 for the
year ended August 31, 1998 and $922,589 for the year ended August 31, 1999.
This increase is attributable to the expansion our DSL and broadband network
and increased orders resulting from our sales and marketing efforts. We
expect network and product costs to increase significantly in future periods
due to the increased sales activity and expected revenue growth.
Sales, Marketing, General and Administrative Expenses
Sales, marketing, general and administrative expenses consist primarily of
salaries, expenses for the development of our business, the development of
corporate identification, promotional and advertising costs, expenses for the
establishment of our management team, and sales commissions. These expenses
increased from $350,538 for the fiscal year ended August 31, 1998 to
$1,313,383 for the fiscal year ended August 31, 1999. This increase is
attribute to the growth in headcount in all areas of our company as we
expanded our sales and marketing efforts, expanded our networks and broadband
capabilities, and built our operating infrastructure. Sales, marketing,
general and administrative expenses are expected to increase significantly as
we continue to expand our business.
Deferred Compensation and Intangible Asset Amortization
We account for our stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and Related Interpretations. Since December of 1997, we have
granted stock options with exercise prices equal to the fair value of the
underlying Common Stock, as determined by our Board of Directors and based on
our sales of stock to third parties and based on quoted market prices.
Accordingly, we have not recorded compensation expense related to the
granting of stock options in 1997 and 1998.
In June of 1999 we recorded intangible assets of $443,709 for the issuance of
common stock for the acquisition of Mobilenetics. Annual amortization of
this asset will be approximately $89,000 in each of the next four years and
approximately $44,000 in the fifth subsequent year.
Financial Condition
To date, the Company has satisfied its cash requirements primarily through
the debt financings, capitalized lease financings and loans from shareholder.
The Company's principal uses of cash are to fund working capital requirements
and capital expenditures, to service its capital lease and debt financing
obligations, and to finance and fund acquisitions. Net cash used by
operations for the year ended August 31, 1999 was approximately $626,970 and
the cash used by operations for the year ended August 31, 1998 was
approximately $40,925. Cash used for operating activities in the year ending
August 31, 1998 was primarily affected by the net loss from operations and
the increase of accounts receivable as the company was expanding its market
share and improving its infrastructure.
Net cash provided by investing activities for the years ended August 31, 1999
and 1998 was approximately $3,512 and $0, respectively.
Net cash provided by financing activities for the years ended August 31, 1999
and 1998 was approximately $745,348 and $29,431. The primary source of
financing for 1999 was from one shareholder.
The net cash increase for the year ended August 31, 1999 was $3,772 as
compared to a net cash increase for the year ended August 31, 1998 of $5,408.
At August 31, 1999, the Company had cash and cash equivalents of $125,692
approximately $125,692, and positive working capital of $25,689. The Company
anticipates that it will require additional financing on a continuing basis.
The Company will be required to raise such additional funds through public or
private financing, strategic relationships or other arrangements. We cannot
assure you that such additional funding, if needed, will be available on
terms attractive to the Company, or at all.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, date-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of normal business activities. The Company has reviewed
its products and services, as well as its internal management information
systems in order to identify and modify those products, services and systems
that are not year 2000 compliant.
Based on the Company's assessment to date, the Company has determined that
its internally developed software, including all of its operational,
financial and management information systems software are year 2000
compliant.
The Company's operational, financial and management information systems
software which have not been internally developed have been certified as year
2000 compliant by the third party vendors who have supplied the software.
The equipment and software that runs the Company's data centers are supplied
by Microsoft, Cisco Systems, and Intel Corporation. The Company has
implemented software patches supplied by Microsoft so that the Microsoft
software in these data centers no longer contains any material year 2000
deficiencies. The Company implemented similar patches for the software
supplied by Cisco Systems at the end of 1998. LMKI is building a new
communications network, and, as such, LMKI does not have a technology
infrastructure comprised of legacy software and systems. In building its
communications network, LMKI has adopted a strategy to select technology
vendors and suppliers that provide products that are represented by such
vendors and suppliers to be Year 2000 Ready. In negotiating its vendor and
supplier contracts, LMKI secures Year 2000 representations and warranties
that address the Year 2000 Readiness of the applicable product(s). To date,
LMKI has exclusively used equipment from Cisco Systems within our network
backbone, and Customer Premises Equipment (CPE) from both Cisco Systems and
Flowpoint / Cabletron. Both companies have provided LMKI with sufficient Year
2000 readiness information and test results for the equipment that we have
purchased from these vendors. LMKI has tested and validated the Year 2000
Readiness of the LMKI Network and select external systems, products, and
facilities that are essential components in LMKI's delivery of the Services
by engaging in a product delivery system tests. These system tests have been
performed in a controlled, defined laboratory environment utilizing
procedures to replicate the end-to-end delivery of Services. The Company does
not separately track internal costs incurred to assess and remedy
deficiencies related to the year 2000 problem, however, such costs are
principally the payroll costs for its information systems group. The Company
does not have and is not developing a contingency plan in the event its
systems fail as a result of year 2000 related problems.
However, despite testing by the Company and its vendors, the Company's
products, services and systems may contain undetected errors or defects
associated with year 2000 date functions. In the event any material errors or
defects are not detected and fixed or third parties cannot timely provide the
Company with products, services or systems that meet the year 2000
requirements, the Company's operating results could be materially adversely
affected. Known or unknown errors or defects that affect the operation of the
Company's products, services or systems could result in delay or loss of
revenue, interruption of network services, cancellation of customer
contracts, diversion of development resources, damage to the Company's
reputation, and litigation costs. There can be no assurance that these or
other factors relating to year 2000 compliance issues will not have a
material adverse effect on the Company's business, operating results or
financial condition.
Item 7. Financial Statements.
The financial statements required by this item begin immediately following
the exhibit pages of this report.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with 16(a) of the Exchange Act.
Name Age Title
William J. Kettle 69 Chief Executive Officer, Chairman, Director
Bryan Turbow 31 President, Chief Technical Officer, Director
Adela Maria Kettle 53 Vice President, Director
John W. Diehl, Jr. 45 Chief Financial Officer, Secretary, Director
Mr. Kettle has been Chief Executive Officer and a Director of the Company
since October 1994. He became Chairman in June 1999 at the time when he
stepped down as President, a position he had held since October 1994. He was
President and Chairman of ThriftyTel, Inc. from 1988 until August 1994.
ThriftyTel is engaged in the business of providing discount long distance
telephone services. ThriftyTel filed a petition in Chapter 11 in 1994
subsequent to Mr. Kettle's disassociation. From 1981 to 1985, Mr. Kettle
served as Secretary, Treasurer and a director of Sierra College in Los
Angeles, California. From 1972 to 1981 he was President of Bauder College in
Sacramento, California. Mr. Kettle attended Kilgore College and the
University of Houston.
Bryan L. Turbow has been the President and Chief Technical Officer of the
Company since June 1999, when he merged MobileNetics Corporation with the
Company. He became a Director in October 1999. He started MobileNetics in
June 1986, and was the president, and sole shareholder until merging with the
Company. At MobileNetics he was responsible for telecommunications consulting
and systems integration.
Adela Maria Kettle has since September 1994 been Vice President of the
Company. From 1986 through August 1994 she was Executive Vice
President of Sales and Marketing at Thrifty Telecommunicaitons, Inc. From
1981 to 1985, she was Vice President of Sales and Marketing at Sierra College
in Los Angeles, California. From 1970 to 1981 she was employed at Bauder
College in Sacramento, California, ending as Vice President of Sales and
Marketing.
John W. Diehl, Jr. has since September 1994 been an independent accounting
and tax consultant with the Company. As of June of 1999 he has been the
Chief Financial Officer and Secretary of the company. He is a Certified
Public Accountant with ten years of public accounting experience, six years
in his own practice and prior to that Director of Internal Audit for Memorial
Health Services, Long Beach for ten years and two years as Director of
Telecommunications after Director of Audit. He holds a BS in Business
Administration with emphasis in Accounting from the California State
University at Northridge and a Masters in Business Administration from the
University of La Verne.
Compliance with 16(a) of the Exchange Act. Federal securities laws require
the Company's directors, certain of its officers, and persons owning
beneficially more than ten percent (10%) of a registered class of the
Company's equity securities, to file initial reports of ownership and reports
of changes in ownership with the Commission. The Company is required to
disclose any failure of persons, who at any time during the fiscal year, were
directors, officers required to report, or more than ten percent (10%)
beneficial owners, to file timely those reports during the fiscal year. The
Company undertakes the responsibility to file all required reports on behalf
of its directors and officers. To the Company's knowledge, based solely upon
information furnished to the Company by its directors and certain of its
officers, during the fiscal year ended August 31, 1999, the following Company
directors, officers required to report, and greater than ten percent (10%)
beneficial owners did not make all such filings on a timely basis: John Diehl
as to Form 5 pertaining to the acquisition of common stock listed in Item 10
and 11, Adela Maria Kettle as to Form 4 pertaining to the disposition of
common shares listed in Item 11, William Kettle as to Form 4 pertaining to
the acquisition of common shares and options listed in Item 10 and 11, Bryan
Turbow as to Form 5 pertaining to his acquisition of common stock listed in
Item 11 in connection with the Company's acquisition of MobileNetics.
Item 10. Executive Compensation.
Summary Compensation
The following table provides information concerning the compensation of the
named executive officers for each of the Company's last three completed
fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
Other Securities
Name Annual Restricted Under- All Other
and Compen- Stock lying LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary ($) Bonus ($) ($) ($) SARs (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William J. Kettle 1999 $0 4,000,000 (1) 4,000,000 (2)
Chairman, Chief 1998 $0 4,000,000 (3) 4,000,000 (4)
Executive Officer 1997 $0
Bryan L. Turbow 1999
Vice President, 1998 $36,174 $4,020 (6)
President, Chief 1998 $0
Technical Officer 1997 $0
Adela Maria Kettle 1999 $47,977
Secretary 1997 $33,099
John W. Diehl, Jr 1999 $41,300(5) 200,000 (5)
Chief Financial 1998 $3,800 (5)
Officer 1997 $7,950 (5)
</TABLE>
Footnotes
(1) Award granted as of 12-28-98 for 4,000,000 restricted common shares at
$.01 per share.
(2) Option granted as of 12-28-98 for 4,000,000 restricted common shares at
$.01 per share.
(3) Award granted as of 12-28-97 for 4,000,000 restricted common shares at
$.01 per share.
(4) Option granted as of 12-28-97 for 4,000,000 restricted common shares at
$.01 per share.
(5) Payment as an independent consultant.
(6) Other employee benefits.
Option/SAR Grants
The following table shows information regarding grants of stock options in
this last completed fiscal year to the executive officers named in the
Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
[Individual Grants]
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees or Base
Expiration
Name Granted (#) in Fiscal Year Price ($/Sh) Date
(a) (b) (c) (d) (e)
William J. Kettle 4,000,000 100% .01 12-28-2003
Footnotes
(1) Award granted as of 12-28-98 for 4,000,000 restricted common shares at
$.01 per share.
(2) Option granted as of 12-28-98 for 4,000,000 restricted common shares at
$.01 per share.
Aggregated option/SAR exercises and fiscal year-end option/SAR Value
The following table shows information concerning each exercise of stock
options (or tandem SARs) and freestanding SARs during the last completed
fiscal year by each of the executive officers named in the Summary
Compensation Table and the fiscal year-end value of unexercised options and
SARs.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised In-The-Money Options/
Exercise Realized Options/SAR's at FY-End (#) SAR's at FY-End($)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C>
William J. Kettle 0 0 8,000,000 0 39,200,000
</TABLE>
Footnotes
(1) FY-End Option/SAR Values based on exercise price of $.01 per share and
8-31-99 bid price of $4.91 per share.
Long-Term Incentive Plans
The Company had an incentive plan adopted December 5, 1996 that granted
20,000 shares of common stock to each employee with the understanding that
if they quit or are fired with cause within two years they will surrender
their stock back to the company or the Company will have the right to
cancel those shares unilaterally. A total of 540,000 shares were issued
under this plan.
There was no compensation paid in the last fiscal year for services as a
director of the Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of the latest fiscal year end, the stock
ownership of each named executive officer, directors, all executive
officers and directors of the Company as a group, and of each person known
by the Company to be a beneficial owner of 5% or more of its Common Stock.
Except as otherwise noted, each person listed below is the sole beneficial
owner of the shares and has sole investment and voting power of such
shares. No person listed below has any option, warrant or other right to
acquire additional securities of the Company except as otherwise noted.
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Owner Ownership of Class
William J. Kettle (1) 7,550,000 20.9
1123 Buckingham Drive
Costa Mesa, CA 92626
Bryan L. Turbow (1) 12,000,000 33.2
1750 E. Garry Ave. #201
Santa Ana, CA 92705
A. Maria Kettle (1) 7,137,000 (2) 19.8
1123 Buckingham Drive
Costa Mesa, CA 92626
John W. Diehl, Jr. (1) 200,000 0.6
1083 Vallejo Circle
Costa Mesa, CA 92626
Paul Gamberg 2,000,000 5.5
233 North Rampart
Los Angeles, CA 90026
Named Officers and 26,887,000 74.4
Directors As a Group
Total Outstanding 36,115,666 100.0
(1) Officer or Director.
(2) As Beneficiary of The Chapman Group. William J. Kettle is the Trustee
of The Chapman Group and disclaims beneficial ownership thereof. Adela
Maria Kettle is the wife of William J. Kettle.
Item 12. Certain Relationships and Related Transactions.
Adela Maria Kettle is the wife of William J. Kettle.
During fiscal year 1999, the majority shareholder and Chairman, William J.
Kettle, advanced $797,680 to the Company for working capital purposes. The
notes payable bear interest at 10% per annum. The notes are repayable upon
demand in cash or in common stock (at 50% of the bid price on the date of
the loan) of the Company, or a combination thereof, at the option of the
shareholder. Mr. Kettle intends to exchange his notes for common stock of
the Company and has agreed not to demand repayment before November 11,
2000. The notes outstanding were issued as follows:
Date Amount
6/9/1999 $20,000
6/21/1999 $70,000
6/25/1999 $25,000
6/28/1999 $20,000
7/8/1999 $21,500
7/12/1999 $42,180
7/13/1999 $29,000
7/27/1999 $220,000
8/4/1999 $300,000
8/31/1999 $50,000
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibit Table.
2.1 Merger Agreement - Acuisition of Mobilenetics Corporation (Incorporated
by reference to Exhibit 2 of Form 10-QSB for the quarter ended May 31,
1999)
3.1 Articles Of Incorporation (1)
3.2 By-Laws (1)
10.1 Agreement For Payment Of Tax Obligations (2)
10.2 Equipment Lease Agreement (2)
10.3 Investment Banking Agreement. (Incorporated by reference to Exhibit
10.3 of Form 10-QSB for the quarter ended May 31, 1999)
10.4 Options Outstanding (*)
10.5 Form of Note Payable to William J. Kettle (*)
23 Consent Of Expert (*)
24 Power Of Attorney (*)
27 Financial Data Schedule (*)
____________________
(*) Filed herewith.
(1) Previously filed in the original registration statement Form 10-SB.
(2) Previously filed in Form 10-KSB for the fiscal year ended August 31,
1998.
(b) Reports on Form 8-K filed during the quarter ended August 31, 1999.
None.
LMKI, Inc.
(formerly Landmark International, Inc.)
Consolidated Financial Statements
with Report of Independent Auditors
For the Three Years in the Period Ended August 31, 1999
LMKI, Inc.
(formerly Landmark International, Inc.)
For the three years in the period ended August 31, 1999
Contents
Page
Report of Independent Auditors 1
Consolidated Financial Statements:
Balance sheets 2
Statements of operations 3
Statements of changes in stockholders' equity (deficit) 4
Statements of cash flows 5
Notes to financial statement 6-12
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
LMKI, Inc.
We have audited the accompanying consolidated balance sheets of LMKI, Inc.
(formerly Landmark International, Inc.) as of August 31, 1999 and 1998, and
the related consolidated statements of operation, cash flows and changes in
stockholders' equity (deficit) for each of the three years in the period
ended August 31, 1999. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the ove
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LMKI,
Inc. (formerly Landmark International, Inc.) as of August 31, 1999 and
1998, and the results of its operations and its cash flows for each of the
three years in the period ended August 31, 1999, in accordance with
generally accepted accounting principles.
Portland, Oregon
November 10, 1999
LMKI, Inc. 2
(formerly Landmark International, Inc.)
Consolidated Balance Sheets
August 31
1999 1998
ASSETS
Current assets:
Cash $ 125,692 $ 3,772
Accounts receivable 837,850 98,352
Deferred tax assets 242,750 13,650
Total current assets 1,206,292 115,774
Equipment less accumulated
depreciation and amortization
of $40,482 in 1999 ($3,897 in 1998) 262,067 143,161
Other assets:
Goodwill less accumulated
amortization of $23,353 in 1999 443,709 -
Deposits 35,725 -
479,434 -
$ 1,947,793 $ 258,935
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 999,319 $ 81,089
Accrued payroll and
related liabilities 133,749 8,089
Accrued interest to shareholder 3,112 -
Other accrued liabilities 7,133 2,000
Capitalized lease obligations
due within one year 37,290 39,182
Total current liabilities 1,180,603 130,360
Capitalized lease obligations 55,275 79,778
Notes payable to shareholder 797,680 -
Commitments
Stockholders' equity (deficit):
Common stock, $.001; shares authorized
50,000,000, shares issued and
outstanding 36,115,666 in 1999
(19,986,666 in 1998) 36,116 19,987
Additional paid-in capital 345,796 68,955
Retained deficit (467,677) (40,145)
Total stockholders' equity (deficit) (85,765) 48,797
$ 1,947,793 $ 258,935
See accompanying notes.
LMKI, Inc. 3
(formerly Landmark International, Inc.)
Consolidated Statements of Operations
Years ended August 31
1999 1998 1997
Net sales $ 1,598,076 $ 397,363 $ 285,200
Cost of sales 922,589 52,001 -
Gross profit 675,487 345,362 285,200
Selling expense 111,903 130,050 159,751
General and
administrative
expenses 1,201,480 220,488 188,200
Loss from operations (637,896) (5,176) (62,751)
Interest (income)
expense, net 18,736 5,843 (46)
Loss before provision
for income taxes (656,632) (11,019) (62,705)
Provision (benefit) for
income taxes (229,100) 100 (11,750)
Net loss $ (427,532) $ (11,119) $ (50,955)
Net loss per common share $ (.0162) $ (.0007) $ (.0043)
See accompanying notes.
LMKI, Inc. 4
(formerly Landmark International, Inc.)
Consolidated Statements of Changes in Stockholders Equity (Deficit)
For the period from September 1, 1996 through August 31, 1999
Additional Retained Total
Common stock paid-in equity stockholders'
Shares Amount capital (deficit) equity
(deficit)
Balance at
September 1, 1996 11,366,666 $ 11,367 $ 37,375 $ 21,929 $ 70,671
Shares issued in
exchange for
services 540,000 540 (540) - -
Net loss - - - (50,955) (50,955)
Balance at
August 31, 1997 11,906,666 11,907 36,835 (29,026) 19,716
Shares issued in
exchange for
equipment 4,000,000 4,000 36,200 - 40,200
Shares issued in
exchange for
services 4,080,000 4,080 (4,080) - -
Net loss - - - (11,119) (11,119)
Balance at
August 31, 1998 19,986,666 19,987 68,955 (40,145) 48,797
Shares issued in
exchange for
services 5,129,000 5,129 97,841 - 102,970
Shares issued in
exchange for
equipment 1,000,000 1,000 89,000 - 90,000
Shares issued for
purchase of
Mobilenetics
Corporation 10,000,000 10,000 90,000 - 100,000
Net loss - - - (427,532) (427,532)
Balance at
August 31, 1999 36,115,666 $ 36,116 $ 345,796 $(467,677) $(85,765)
See accompanying notes.
LMKI, Inc. 5
(formerly Landmark International, Inc.)
Consolidated Statements of Cash Flows
Years ended August 31
1999 1998 1997
Cash flows from operating activities:
Net loss $(427,532) $ (11,119) $(50,959)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 36,585 3,897 -
Amortization of goodwill 23,353 - -
Deferred income taxes (229,100) (1,900) (11,750)
Services exchanged for common stock 102,970 - -
Changes in assets and liabilities,
net of effects of purchase of
Mobilenetics Corporation:
Accounts receivable (676,509) (59,738) 77,975
Accounts payable 412,588 24,031 -
Accrued payroll related liabilities 125,660 2,000 -
Accrued interest to shareholder 3,112 - -
Other accrued liabilities 1,903 1,904 -
(626,970) (40,925) 15,266
Cash flows from investing activities:
Decrease in advances - 9,858 (9,858)
Cash paid for Mobilenetics
Corporation, net of cash acquired 3,512 - -
3,512 9,858 (9,858)
Cash flows from financing activities:
Repayments of capitalized lease
obligations (52,302) (10,769) -
Proceeds from common stock - 40,200 -
Proceeds from notes payable to
shareholder 797,680 - -
745,378 29,431 -
Net increase (decrease) in cash 121,920 (1,636) 5,408
Cash at beginning of year 3,772 5,408 -
Cash at end of year $ 125,692 $ 3,772 $ 5,408
Supplemental disclosure of
cash flow information-
Cash paid during the year
for interest $ 15,624 $ 5,843 $ -
Supplemental disclosure on noncash
investing and financing activities:
Equipment acquired under capitalized
lease agreements $ 49,085 $ 129,729 $ -
Equipment acquired in exchange for
common stock $ 90,000 $ - $ -
Common stock issued in exchange for
purchase of Mobilenetics Corporation $ 100,000 $ - $ -
See accompanying notes.
LMKI, Inc. 6
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business: LMKI, Inc. (formerly Landmark International, Inc.) (the
"Company") is a Nevada Corporation engaged in providing communication
services to individuals and businesses.
Basis of Consolidation: The consolidated financial statements include the
accounts of LMKI, Inc. and its wholly-owned subsidiary Mobilenetics
Corporation ("Mobilenetics") since the date of its acquisition. All
intercompany accounts and transactions have been eliminated.
Equipment: Equipment is carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the depreciable
assets, which range from three to seven years.
Equipment under capitalized lease obligations are carried at estimated fair
market value determined at the inception of the lease. Amortization is
computed using the straight-line method over the original term of the lease
or the estimated useful lives of the assets, whichever is shorter.
Goodwill: Goodwill represents the excess purchase price over the estimated
fair value of Mobilenetics. Goodwill is being amortized using the
straight-line method over five years.
Revenue Recognition: Fees for services are recognized at month-end as
services are completed and income earned.
Advertising: The Company expenses the cost of advertising as incurred as
selling expenses. Advertising expenses was approximately $10,500 for 1999
($2,000 for 1998; $3,300 for 1997).
Income Taxes: Income taxes are accounted for and reported using an asset
and liability approach. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax
basis of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to effect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the
tax payable or refundable for the period plus or minus the change during
the year in deferred tax assets and liabilities.
LMKI, Inc. 7
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
1. Nature of Business and Summary of Significant Accounting policies
(continued)
Net Loss per Common Share: Net loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding during the
period. The weighted average number of common stock shares outstanding was
26,320,277 for 1999 (15,799,269 for 1998; 11,764,639 for 1997). Stock
options and warrants outstanding are not considered common stock
equivalents, as the affect on net loss per share would be anti-dilutive.
Concentration Risk: The Company grants credit to customers in the Southern
portion of the State of California. The Company's ability to collect
receivables is affected by economic fluctuations in the geographic areas
served by the Company.
Risks and Uncertainties: The process of preparing financial statements in
conformity with generally accepted accounting principles requires the use
of estimates and assumptions regarding certain types of assets,
liabilities, revenues and expenses. Management of the Company has made
certain estimates and assumptions regarding the collectibility of accounts
receivable. Such estimates and assumptions primarily relate to unsettled
transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated
amounts.
2. Business Combination:
Effective June 1, 1999, LMKI, Inc. acquired Mobilenetics, a supplier of
communications equipment, in a business combination accounted for as a
purchase. The Company issued 10,000,000 shares of its common stock in
exchange for all of the outstanding shares of Mobilenetics. The value of
the shares issued for Mobilenetics was $100,000 ($.01 per share) which
approximated the bid price of the Company's common stock on the date of
exchange. The purchase price exceeded the fair market value of
Mobilenetics by $467,062.
Cash paid for Mobilenetics, net of cash acquired was as follows:
Fair value of the Company's common stock $100,000
Fair value Mobilenetics:
Accounts receivable 86,167
Equipment 16,406
Deposits 35,725
Cost in excess of fair value of net assets acquired 467,062
Accounts payable (508,872)
96,488
Cash Acquired $ 3,512
LMKI, Inc. 8
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
2. Business Combination (continued)
The results of operations of Mobilenetics are included in the accompanying
consolidated financial statements since the date of acquisition. The
following pro forma summary presents the consolidated financial position
and results of operations of the Company as if the business combination
occurred on September 1, 1998:
As of August 31, 1999:
Tangible current assets $ 963,542
Total assets 2,164,873
Current liabilities 1,180,603
Total liabilities 2,033,558
Total stockholders' equity 131,315
For the year ended August 31, 1999:
Net sales 2,289,208
Net loss (1,257,202)
Loss per common share (20.936)
The above amounts are based upon certain assumptions and estimates which
the Company believes are reasonable. The pro forma financial position and
results of operations do not purport to be indicative of the results which
would have been obtained had the business combination occurred as of
September 1, 1998 or which may be obtained in the future.
3. Capitalized Lease Obligations:
The Company leases equipment under non-cancelable lease agreements.
Equipment under lease agreements aggregated at August 31, 1999 $107,540
($129,929 in 1998) less accumulated amortization at August 31, 1999 of
$18,042 ($3,443 in 1998).
Aggregate future minimum lease payments and the present value of minimum
lease payments are as follows:
Years ending August 31:
2000 $ 59,873
2001 40,097
2002 18,064
Total minimum lease payments 118,034
Less amount representing interest 25,469
Present value of minimum lease payments 92,565
Less amounts due within one year 37,290
Long-term capitalized lease obligations $ 55,275
LMKI, Inc. 9
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
Notes Payable to Shareholder
During 1999, the majority shareholder and Chairman of the Company, advanced
an aggregate of $797,680 for working capital purposes. The notes payable
bear interest at 10% per annum. The shareholder was paid approximately
$4,900 in interest during 1999.
The notes are repayable upon demand in cash or in common stock of the
Company, or a combination thereof, at the option of the shareholder. At
this time, the shareholder intends to exchange his notes for common stock
of the Company and has agreed not to demand repayment before November 11,
2000.
5. Income Taxes
The components of the provision (benefit) for income taxes are as follows
for the years ended August 31:
1999 1998 1997
Federal:
Current $ - $ 1,500 $ -
Deferred net operating loss carryover (213,000) (1,600) (10,200)
(213,000) (100) (10,200)
State of California:
Current - 500 -
Deferred net operating loss carryover (16,100) (300) (1,550)
(16,100) 200 (1,550)
Provision (benefit) for income taxes $(299,100) $ 100 $(11,750)
Reconciliation of income taxes computed at the federal statutory rate to
the provision (benefit) for income taxes is as follows for the years ended
August 31:
1999 1998 1997
Tax at statutory rates $(223,255) $ (1,653) $(11,724)
Differences resulting from:
State tax, net of federal benefit (10,604) 159
Non-deductible and other items 4,759 1,594 (26)
Provision (benefit) for income taxes $(229,100) $ 100 $(11,750)
LMKI, Inc. 10
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
6. Common Stock
In December 1998, the Board of Directors authorized the issuance of
4,000,000 shares of common stock to the Chairman of the Company for
services rendered. Also in December 1998, the Chairman of the Company was
granted the option to purchase an additional 4,000,000 share of the
Company's common stock.
As of August 31, 1999, an aggregate of 8,000,000 shares of stock were
exercisable to the Chairman of the Company, of which 4,000,000 shares
expire in December 2002 and 4,000,000 shares expire in December 2003, if
not exercised. The options are exercisable at one cent per share and are
exercisable in whole or part. The Company has reserved 8,000,000 shares of
its common stock for issuance to the Chairman.
In December 1998, the Board of Directors authorized the issuance of 500,000
shares of common stock to two individuals in exchange for professional
services. The common stock was valued at $18,500 ($.031 per share) which
represented the bid price of the common stock and the approximate value of
the services on the date of exchange. In March 1999, the Board of
Directors authorized the issuance of 400,000 shares of common stock to two
individuals in exchange for professional services. The common stock was
valued at $36,000 ($.090 per share) which represented the bid price of the
common stock and the approximate vale of the services on the date of
exchange. In August 1999, the Board of Directors authorized the issuance
of 100,000 shares of common stock to an individual in exchange for
professional services. The common stock was valued at $10,000 ($.10 per
share) which represented the value of the services rendered and the
approximate average bid price of the common stock during the year prior to
the acquisition of Mobilenetics.
In December 1997, the Board of Directors authorized the issuance of
4,000,000 shares of common stock to the Chairman of the Company for
services rendered. Also in December 1997, the Chairman of the Company was
granted the option to purchase an additional 4,000,000 shares of the
Company's common stock.
In December 1997, the Board of Directors authorized the issuance of 80,000
shares of common stock to two individuals in exchange for $100 and public
relation services.
In December 1996, the Board of Directors authorized the issuance of 20,000
shares of common stock to each employee of the Company at that time. The
shares were to be surrendered back to the Company in the event that any
employee who received shares terminated their employment with the Company,
or was terminated by the Company for cause. The Company issued an
aggregate of 540,000 shares of its common stock to these employees.
LMKI, Inc. 11
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
7. Commitments
The Company leases certain equipment under non-cancelable operating lease
agreements which expire between the years 2001 and 2003. Aggregate minimum
future lease payments under these leases are as follows:
Years ending August 31:
2000 $ 63,490
2001 58,857
2002 6,644
2003 739
Total minimum lease payments $ 129,730
Equipment lease expense aggregated approximately $50,700 for the year ended
August 31, 1999.
8. Significant Customer
The Company has entered into a Dedicated Access Service Agreement ("Service
Agreement") with a customer to provide them with communication services
through July 2000. The Service Agreement is renewable for an additional
one year.
The customer accounted for approximately 25% of net sales in 1999.
Management does not believe that the Company is economically dependent upon
any single customer.
The Company's policy is to perform on-going credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been within
management's expectations.
9. Subsequent Event
In September 1999, the Company entered into an irrevocable Investment
Agreement for a "private equity line" of up to $35,000,000. Under the
Investment Agreement an investment banking company has made a firm
commitment to purchase the Company's common stock and resale the securities
in an offering under Regulation D of the United States Securities and
Exchange Commission.
LMKI, Inc. 12
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
9. Subsequent Event (continued)
Subject to an effective registration statement and ending 36 months from
the initial subscription date, the Company at its discretion may "Put"
common stock to the investment banking company. The purchase price per
share will equal 92% of the lowest closing bid price of the common stock
during the 20 business days following each Put, subject to a minimum price
specified by the Company as defined in the Investment Agreement. The
amount of each Put sold to the investment banking company may be up to
$2,000,000, but the number of shares sold may generally not exceed 15% of
the aggregate trading volume of the Company's common stock during the 20
business days following each Put.
The investment banking company shall receive warrants to purchase 10% of
the number of shares of the Company it purchases under each Put. The
warrants are exercisable at a price equal to 110% of the market price for
each Put.
In consideration of the Investment Agreement, the Company granted the
investment banking company warrants to purchase 490,000 shares of its
common stock. The warrants are exercisable upon the successful completion
of certain tasks and at a price equal to the lowest closing bid price for
the 5 days prior to the exclusion of the Investment Agreement or the 5 days
following its execution, whichever price is lower.
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby
authorizes William J. Kettle, the agent for service named in this Report,
with full power to act alone, to file one or more amendments to this
Report, which amendments may make such changes in this Report as such agent
for service deems appropriate, and the Registrant and each such person
hereby appoints such agent for service as attorney-in-fact, with full power
to act alone, to execute in the name and in behalf of the Registrant and
any such person, individually and in each capacity stated below, any such
amendments to this Report.
[SIGNATURES]
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
LMKI, INC. (Registrant)
By:/s/_______________________________
William J. Kettle
Chairman, Chief Executive Officer
Date: 11/27/99
By:/s/_______________________________
Bryan L. Turbow, President
Date: 11/27/99
By: /s/______________________________
John W. Diehl, Jr.
Chief Financial Officer, Secretary
Date: 11/27/99
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/_______________________________ 11/27/99
William J. Kettle Chairman, Director,
Chief Executive Officer
/s/_______________________________ 11/27/99
Bryan L. Turbow President, Director
/s/_______________________________ 11/27/99
Adela Maria Kettle Vice President, Director
/s/_______________________________ 11/27/99
John W. Diehl, Jr. Chief Financial Officer,
Secretary
Options Outstanding - Granted by resolution of the Board of Directors
Option granted on 12/28/97 for 4,000,000 common shares at $.01 per share to
William Kettle, presently unexercised.
Option granted on 12/28/98 for 4,000,000 common shares at $.01 per share to
William Kettle, presently unexercised.
PROMISSORY NOTE
$ ____________________
SANTA ANA, CALIFORNIA
Dated: __________________
Debtor: Landmark International, Inc.
Lender: William J. Kettle
1. Note. In consideration for a loan in the principal amount of
$____________ the Debtor promises to pay to the order of Lender, within 364
days here from, at the option of the Lender, either:
(a) the principal amount plus interest thereon at the rate of ten
percent per annum; or
(b) common stock of Debtor in an amount calculated by dividing the
bid price of the stock on the date the principal amount was loaned
into two times the principal amount (without interest); or
(c) any combination of (a) and (b).
2. Collection Costs. Debtor agrees to pay the actual expenditures made
in any attempt to collect the amount due pursuant to this Note.
3. Attorney's Fees. Debtor agrees that if any legal action is necessary
to enforce or collect this Note, the prevailing party shall be entitled to
reasonable attorneys' fees in addition to any other relief to which that
party may be entitled. This provision shall be applicable to the entire
Note.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
hereinabove.
DEBTOR: Landmark International, Inc.
By: ______________________________________
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this 1999 Annual Report on
Form 10-KSB of LMKI, Inc. of our report dated November 10, 1999 relating to
the consoldiated balance sheets of LMKI, Inc. as of August 31, 1999 and
1998 and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the three years in the period
then ended.
TIMOTHY L. STEERS, CPA, LLC
Portland, Oregon
November 10,1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
August 31, 1999 consolidated financial statements and is qualified in its
entirety by reference to such financial statements and the notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 125,692
<SECURITIES> 0
<RECEIVABLES> 837,850
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,206,292
<PP&E> 302,549
<DEPRECIATION> 40,482
<TOTAL-ASSETS> 1,947,793
<CURRENT-LIABILITIES> 1,180,603
<BONDS> 0
0
0
<COMMON> 380,912
<OTHER-SE> (467,677)
<TOTAL-LIABILITY-AND-EQUITY> 1,947,793
<SALES> 1,598,076
<TOTAL-REVENUES> 1,598,076
<CGS> 922,589
<TOTAL-COSTS> 1,034,492
<OTHER-EXPENSES> 1,201,480
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,736
<INCOME-PRETAX> (656,632)
<INCOME-TAX> (299,100)
<INCOME-CONTINUING> (424,532)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (424,532)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
