SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 9, 2000
FULLNET COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 000-27031 73-1473361
-------- ---------- ----------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
incorporation) Identification No.)
200 N. Harvey, Suite 1704
Oklahoma City, Oklahoma 73102
(Address of principal executive offices) (Zip Code)
(405) 232-0958
(Registrant's telephone, including area code)
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired
All financial information required by this Item 7(a) is attached hereto
beginning on page F-1.
(b) Pro Forma Consolidated Condensed Financial Statements
As described more fully in FullNet Communications, Inc.'s ("FullNet")
Current Report on form 8-K dated March 9, 2000, FullNet entered into an
Agreement and Plan of Merger (the "Merger Agreement") dated February 29, 2000
with Harvest Communications, Inc., ("Harvest") an Oklahoma corporation, pursuant
to which Harvest merged with and into FullNet, Inc., a wholly owned subsidiary
of the Registrant.
The following pro forma consolidated condensed financial statements are
presented to illustrate the effects of the Merger Agreement on the historical
financial position and operating results of FullNet and Harvest.
The following pro forma consolidated condensed balance sheet of FullNet
at December 31, 1999 gives effect to the Merger Agreement as if it occurred as
of that date. The pro forma consolidated condensed statement of operations of
FullNet for the year ended December 31, 1999 gives effect to the Merger
Agreement as if it occurred as of January 1, 1999.
The pro forma consolidated condensed financial statements have been
derived from, and should be read in conjunction with, the historical
consolidated financial statements, including the notes thereto, of each of
FullNet and Harvest. For FullNet, those financial statements are included in its
Annual Report on Form 10-KSB for the year ended December 31, 1999. For Harvest,
those financial statements are filed as part of this Report.
The pro forma consolidated condensed financial statements are presented
for informational purposes only and are not necessarily indicative of the
financial position or results of operations of FullNet that would have occurred
had the Merger Agreement been consummated as of the date indicated. In addition,
the pro forma consolidated condensed financial statements are not necessarily
indicative of the future financial condition or operating results of FullNet.
Under the purchase method of accounting, the cost of approximately
$1,969,000 to acquire Harvest, including transaction costs, has been allocated
to its underlying net assets in proportion to their respective fair values. The
excess of the purchase price over the estimated fair value of the net assets
acquired has been recorded as cost in excess of net assets of businesses
acquired. Cost in excess of net assets of businesses acquired consists of
intangible subscriber lists with an expected amortization period of five years.
Management will periodically review the carrying value of the cost in excess of
net assets of businesses acquired to determine whether any impairment may exist.
FullNet will consider relevant cash flow information, including estimated future
operating results, trends and other available information, in assessing whether
the carrying value of cost in excess of net assets of businesses acquired can be
recovered. If it is determined that the carrying value of cost in excess of net
assets of businesses acquired will not be recovered from the undiscounted future
cash flows of acquired businesses, the carrying value of such cost in excess of
net assets of businesses acquired would be considered impaired and reduced by a
charge to operations in the amount of the impairment. An impairment charge is
measured as any deficiency in the amount of estimated undiscounted cash flows of
acquired businesses available to recover the carrying value related to cost in
excess of net assets of businesses acquired.
<PAGE>
Harvest Communications, Inc.
Financial Statements for Fiscal Year Ended December 31, 1999 (audited)
Independent Auditor's Report ............................................. F-1
Balance Sheets - December 31, 1999 and 1998 .............................. F-2
Statements of Operations and Retained Earnings (Deficit) - Years ended
December 31, 1999 and 1998 ............................................. F-4
Statements of Cash Flows - Years ended December 31, 1999 and 1998 ........ F-5
Notes to Financial Statements ............................................ F-6
FullNet Communications, Inc.
Pro Forma Consolidated Condensed Balance Sheet - December 31, 1999 ....... F-11
Notes to the Pro Forma Consolidated Condensed Balance Sheet ............ F-12
Pro Forma Consolidated Condensed Statement of Operations - For the Year
Ended December 31, 1999 ............................................... F-13
Notes to the Pro Forma Consolidated Condensed
Statement of Operations .................................................. F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholder
Harvest Communications, Inc.
Enid, Oklahoma
We have audited the accompanying balance sheets of Harvest Communications, Inc.
(an Oklahoma corporation) as of December 31, 1999 and 1998, and the related
statements of operations and retained earnings (deficit) and cash flows for the
years then ended. 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.
Except as explained in the following paragraph, we conducted our audits in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit 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 overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
We did not verify the accuracy of accounts receivable, inventory and accounts
payable as of December 31, 1997, since that date was prior to our appointment as
auditors for the Company, and we were unable to satisfy ourselves regarding the
accuracy of those accounts by means of other auditing procedures. The balances
of accounts receivable, inventory and accounts payable as of December 31, 1997,
enter into the determination of net income and cash flows for the year ended
December 31, 1998.
Because of the matter discussed in the preceding paragraph, the scope of our
work was not sufficient to enable us to express, and we do not express, an
opinion on the results of operations and cash flows for the year ended December
31, 1998.
In our opinion, the balance sheets as of December 31, 1999 and 1998, and the
statements of operations and retained earnings (deficit) and cash flows for the
year ended December 31, 1999, present fairly, in all material respects, the
financial position of Harvest Communications, Inc. as of December 31, 1999 and
1998, and the results of its operations and its cash flows for the year ended
December 31, 1999, in conformity with generally accepted accounting principles.
COLLINS, BUTLER & CO., P.C.
Enid, Oklahoma
February 1, 2000
<PAGE>
<TABLE>
<CAPTION>
HARVEST COMMUNICATIONS, INC.
ENID, OKLAHOMA
BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
ASSETS
CURRENT ASSETS 12/31/99 12/31/98
- -------------- ------------ ------------
<S> <C> <C>
Cash and Cash Equivalents $ 20,097 $ 33,244
Accounts Receivable-Trade 60,619 70,120
Other Receivables 1,939 -
Inventory 57,748 1,774
Deferred Tax Asset 14,300 16,471
Prepaid Expenses 3,031 2,608
------------ ------------
TOTAL CURRENT ASSETS 157,734 124,217
------------ ------------
PROPERTY AND EQUIPMENT, AT COST
- -------------------------------
Building 116,442 -
Leasehold Improvements 13,698 -
Internet Equipment and Computers 236,528 231,571
Furniture and Fixtures 7,617 6,680
------------ ------------
TOTAL COST 374,285 238,251
Less: Accumulated Depreciation (117,638) (126,153)
------------ ------------
NET PROPERTY AND EQUIPMENT 256,647 112,098
------------ ------------
OTHER ASSETS
- ------------
Goodwill (Net of Accumulated Amortization of $5,554 and
$4,221, respectively) 14,446 15,779
------------ ------------
TOTAL ASSETS $ 428,827 $ 252,094
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
HARVEST COMMUNICATIONS, INC.
ENID, OKLAHOMA
BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES 12/31/99 12/31/98
- ------------------- ------------ ------------
<S> <C> <C>
Accounts Payable $ 125,233 $ 84,041
Prepaid Internet Access Fees 65,993 73,415
Note Payable 25,000 -
Current Portion Long-Term Debt 189,963 45,308
Income Taxes Payable 1,603 16,240
Deferred Lease Incentive 7,945 -
Accrued Liabilities and Taxes 3,222 2,628
------------ ------------
TOTAL CURRENT LIABILITIES 418,959 221,632
LONG-TERM LIABILITIES
- ---------------------
Long-Term Debt (Net of Current Portion) 14,658 25,091
------------ ------------
TOTAL LIABILITIES 433,617 246,723
------------ ------------
STOCKHOLDER'S EQUITY
- --------------------
Common Stock - $1 Par Value, 10,000 Shares Authorized,
2,000 Shares Issued and Outstanding 2,000 2,000
Retained Earnings (Deficit) (6,790) 3,371
------------ ------------
TOTAL STOCKHOLDER'S EQUITY (4,790) 5,371
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 428,827 $ 252,094
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
HARVEST COMMUNICATIONS, INC.
ENID, OKLAHOMA
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
SALES 12/31/99 12/31/98
- ----- ------------ ------------
<S> <C> <C>
Internet Access Revenues $ 683,639 $ 594,987
Phone Sales and Commission Revenues 566,408 71,515
Web Creations and Storage Fees 52,819 52,817
Dishnet and Other 8,381 6,330
------------ ------------
TOTAL SALES 1,311,247 725,649
------------ ------------
COST OF SALES
- -------------
Internet Connection Costs 219,106 155,474
Phones and Accessories 330,845 44,124
Web Creations and Storage Costs 2,860 2,675
Dishnet and Wireless Equipment 7,732 -
Internet Software Costs 4,314 7,631
------------ ------------
TOTAL COST OF SALES 564,857 209,904
------------ ------------
TOTAL GROSS PROFIT 746,390 515,745
------------ ------------
EXPENSES
- --------
Payroll and Employee Benefits 448,551 277,930
Overhead 252,713 132,644
Taxes and Licenses 4,936 2,553
Depreciation and Amortization 51,596 74,583
------------ ------------
TOTAL EXPENSES 757,796 487,710
------------ ------------
NET PROFIT (LOSS) FROM OPERATIONS (11,406) 28,035
------------ ------------
OTHER INCOME (EXPENSE)
- ----------------------
Gain (Loss) on Sale of Equipment 18,756 (12,572)
Interest Expense (18,794) (10,352)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (38) (22,924)
------------ -------------
NET INCOME (LOSS) BEFORE INCOME TAX (11,444) 5,111
Provision (Credit) for Income Taxes (1,283) 1,219
------------ ------------
NET INCOME (LOSS) (10,161) 3,892
RETAINED EARNINGS (DEFICIT)
- ---------------------------
Balance, Beginning of Year 3,371 (521)
------------ ------------
Balance, End of Year $ (6,790) $ 3,371
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
HARVEST COMMUNICATIONS, INC.
ENID, OKLAHOMA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
12/31/99 12/31/98
------------ ------------
<S> <C> <C>
Net Income (Loss) $ (10,161) $ 3,892
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided By Operating Activities:
Depreciation and Amortization Expense 51,596 74,583
(Gain) Loss on Sale of Equipment (18,756) 12,572
Changes in Noncash Assets and Liabilities:
(Increase) Decrease:
Accounts Receivable 9,501 (70,067)
Other Receivables (1,939) -
Inventory (55,974) (1,774)
Deferred Tax Asset 2,171 (5,550)
Prepaid Expenses (423) (2,608)
Increase (Decrease):
Accounts Payable 41,192 78,899
Prepaid Internet Fees (7,422) 27,963
Income Taxes Payable (14,637) 3,596
Deferred Lease Incentive 7,945 -
Accrued Liabilities and Taxes 594 2,128
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,687 123,634
------------ ------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES
- --------------------------------------------
Proceeds from Sale of Fixed Assets 66,517 11,343
Purchase of Property, Plant and Equipment (116,098) (102,247)
------------ ------------
TOTAL CASH USED BY INVESTING ACTIVITIES (49,581) (90,904)
------------ ------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Proceeds from Note Payables 25,000 20,693
Payment on Note Payables - (61,222)
Proceeds from Long-Term Debt 105,931 88,766
Payments of Principal on Long-Term Debt (98,184) (51,386)
------------ ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 32,747 (3,149)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (13,147) 29,581
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 33,244 3,663
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,097 $ 33,244
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
HARVEST COMMUNICATIONS, INC.
ENID, OKLAHOMA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1: Significant Accounting Policies
- -------
Operations
Harvest Communications, Inc. was incorporated November 20, 1995, under the laws
of the State of Oklahoma. The Company is an Internet Service Provider (ISP) and
contracts with various individuals and businesses in the Enid, Oklahoma area to
provide internet connections, home pages, etc. ISP revenues are based on the
speed of the connection required and are billed in advance on a monthly,
quarterly, semi-annual or annual basis at the customer's option.
In November, 1998, the Company became a dealer for VoiceStream Wireless
Corporation. Dealers agree to promote VoiceStream's service and receive
compensation for subscriptions they activate. The Company carries a stock of
digital phones which are sold at discounted prices or given away to new
subscribers. Certain advertising and other costs incurred by the Company are
subject to reimbursement by VoiceStream.
The Company also sells satellite TV systems and supplies relating to the product
lines discussed above.
Inventory
Inventories are stated at the lower of first-in, first-out (FIFO) cost or market
(defined as replacement cost). In 1999, inventory was pledged as collateral for
a bank loan. At December 31, 1999 and 1998, inventory consisted of the
following:
12/31/99 12/31/98
----------- -----------
Digital Telephones and Accessories $ 55,660 $ 1,774
Satellite TV Equipment 2,088 -
----------- -----------
TOTALS $ 57,748 $ 1,774
=========== ===========
Goodwill
Goodwill was recorded at $20,000 in 1995, when the Company was originally
purchased. Goodwill is being amortized over 15 years at $1,333 per year.
Depreciation
Accelerated and straight-line methods of depreciation are used for financial
statement and income tax reporting purposes. The estimated useful lives of
property and equipment are as follows:
Building 39 Years
Leasehold Improvements 6 Years
Internet Equipment and Computers 3-7 Years
Furniture and Fixtures 5-7 Years
The fully depreciated property and equipment as of December 31, 1999 and 1998,
totaled $43,493 and $17,582, respectively.
<PAGE>
HARVEST COMMUNICATIONS, INC.
ENID, OKLAHOMA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Advertising Costs
The Company expenses all advertising costs as they are incurred and records
estimated reimbursements due from VoiceStream at each month end. Advertising
costs, net of reimbursements, for the years ended December 31, 1999 and 1998,
were $25,906 and $22,885, respectively.
Use of Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less to be cash
equivalents.
12/31/99 12/31/98
----------- -----------
Cash on Hand $ 194 $ 477
Cash in Banks 19,903 32,767
----------- -----------
Total Cash and Cash Equivalents $ 20,097 $ 33,244
=========== ===========
The statements of cash flows classify changes in cash according to operating,
investing and financing activities. The following is supplementary information
and disclosure of cash flow information.
Cash Paid During the Year for: 12/31/99 12/31/98
----------- -----------
Interest $ 18,012 $ 10,386
=========== ===========
Income Taxes $ 11,271 $ 3,173
=========== ===========
Noncash Investing and Financing Activities were as follows:
Loan proceeds were paid directly to others for the following items and were
excluded from the statements of cash flows:
12/31/99 12/31/98
----------- -----------
Building Purchase $ 113,442 $ -
=========== ===========
Loan Payoff and Loan Costs $ 31,832 $ -
=========== ===========
NOTE 2: Related Party Transactions
- -------
The Company's stockholder, Wallace Walcher, is a co-maker on the note payable to
the Bank of Oklahoma. The loan's purpose was to acquire a building in Enid,
Oklahoma. The building's purchase was contracted for by Mr. Walcher and the
building was deeded to him personally at the closing in 1999. Mr. Walcher has
stated that his intent is for the Company to own the building and that he will
deed it to the Company in 2000. The building and the related loan are included
on the accompanying balance sheet.
Mr. Walcher made a loan to the Company in 1998, which was repaid in 1999. See
Note 3 for further information.
<PAGE>
<TABLE>
<CAPTION>
HARVEST COMMUNICATIONS, INC.
ENID, OKLAHOMA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3: Note Payable and Long-Term Debt
- -------
Note Payable 12/31/99 12/31/98
----------- -----------
<S> <C> <C>
Bank of America $ 25,000 $ -
=========== ===========
At December 31, 1999, the note payable consisted of a 9.75% revolving line of
credit payable to the bank with interest payable monthly and principal due in
February, 2000. This note is not secured. At December 31, 1999, the unused
portion of this revolving line was $-0-.
Long-Term Debt
12/31/99 12/31/98
----------- -----------
Bank of Oklahoma $ 179,530 $ -
Variable rate (prime plus 2.25%; 10.75% at December 31, 1999) advanceable note
payable to the bank, due in monthly payments of $2,849, through October, 2005,
and $1,558, from November, 2005, until paid in full. Any remaining principal and
interest is due in September, 2014. This loan is secured by substantially all
assets including a mortgage on a building in Enid, Oklahoma. The Company's
stockholder is a co-maker on this note and it is partially guaranteed by the
Small Business Administration. At December 31, 1999, the unadvanced portion of
this loan was $18,225.
A provision of this loan puts Harvest in default if they merge with another
company. As discussed in Note 8, Harvest signed a letter of intent to be merged
with FullNet Communications, Inc. According to the bank, no waiver of this
provision is possible; therefore, the loan is included in current liabilities as
of December 31, 1999, and loan costs of $13,033 were expensed in 1999.
Promissory Note 25,091 34,725
An 8.0% note payable to an individual, with monthly payments of $1,005,
including interest. This note matures in March, 2002, and is unsecured.
Promissory Note - 35,674
A 10.0% unsecured note payable to the stockholder, due in December, 2000. This
note was paid in full in December, 1999; therefore, it has been included in
current liabilities in 1998.
----------- -----------
TOTAL LONG-TERM DEBT 204,621 70,399
Less: Current Portion 189,963 45,308
----------- -----------
NET LONG-TERM DEBT $ 14,658 $ 25,091
=========== ===========
</TABLE>
<PAGE>
HARVEST COMMUNICATIONS, INC.
ENID, OKLAHOMA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
The future maturities of these notes may be summarized as follows:
December 31, 2000 $ 189,963
December 31, 2001 11,299
December 31, 2002 3,359
----------
TOTAL $ 204,621
==========
The Bank of Oklahoma loan includes covenants which, among other things, limit
the amount of future lending and borrowing activities, establish minimum
financial ratios, limit officer compensation and limit debt payments to related
parties.
NOTE 4: Operating Leases
- -------
The Company leases office, retail store space, internet computer equipment and
internet access under operating leases expiring in various years through June,
2002. Rent expense of $64,717 and $40,583, for 1999 and 1998, respectively, is
included in internet connection costs and overhead expenses on the accompanying
statement of operations.
The "Deferred Lease Incentive" is associated with the lease covering the
Company's retail store in Enid, Oklahoma and will be amortized over the
remaining lease period ending November, 2001.
Minimum future rental payments under these generally noncancelable operating
leases as of December 31, 1999, are as follows:
December 31, 2000 $ 82,437
December 31, 2001 45,858
December 31, 2002 12,834
-----------
TOTAL $ 141,129
===========
NOTE 5: Provision (Credit) for Income Taxes
The provision (credit) for income taxes for the years ended December 31, 1999
and 1998, included the following:
12/31/99 12/31/98
----------- -----------
Current Tax Provision (Credit) $ (3,454) $ 6,769
Deferred Tax Provision (Credit) 2,171 (5,550)
----------- -----------
TOTALS $ (1,283) $ 1,219
=========== ===========
The effective tax rate differs from the maximum statutory rate due to the
effects of graduated federal tax rates, state income taxes and certain
nondeductible expenses.
Deferred income taxes are provided for timing differences in the recognition of
income from internet access fees. These fees are included in taxable income in
the year received but are included in financial statement income in the year
earned. The deferred tax assets relating to prepaid internet access fees are
included in current assets.
<PAGE>
HARVEST COMMUNICATIONS, INC.
ENID, OKLAHOMA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 6: Contingencies
- -------
Risks and Uncertainties
Normal operations subject the Company to lawsuits and potential liabilities.
Where possible, management has obtained insurance coverage to help protect
against these liabilities and other risks.
NOTE 7: Concentration of Credit Risk
- -------
The Company has accounts receivable from VoiceStream, Inc. for phone sales
commissions and advertising reimbursements. Management believes the credit risk
is minimal and consequently, no provision has been made for doubtful accounts.
Customer Internet Access Fees
Customer internet fees are billed in advance and any prepaid amounts are
estimated and included in the accompanying balance sheets. For delinquent
accounts, internet services are terminated. Therefore, the credit risk from
customer accounts is minimal.
NOTE 8: Merger Agreement
- -------
In December, 1999, the Company signed a letter of intent to merge with FullNet
Communications, Inc. The agreement calls for the Company to become a subsidiary
of FullNet in a statutory merger. Final details and contract terms will be
negotiated in 2000.
<PAGE>
<TABLE>
<CAPTION>
FULLNET COMMUNICATIONS, INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
Year Ended December 31, 1999 (Unaudited)
Pro Forma FullNet
ASSETS FullNet (a) Harvest (b) Adjustments (c) Pro Forma
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash 12,671 20,097 (125,000) (92,232)
Accounts receivable 70,306 60,619 - 130,925
Inventory - 57,748 57,748
Prepaid and other current assets 15,491 4,970 - 20,461
-------------------------------------------------------------------
Total current assets 98,468 143,434 (125,000) 116,902
-------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net 117,262 256,647 - 373,909
COST IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED, net 295,084 14,446 1,965,763 2,275,293
OTHER ASSETS 53,399 14,300 - 67,699
-------------------------------------------------------------------
Total assets 564,213 428,827 1,840,763 2,833,803
-------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES
Accounts payable - trade 100,684 125,233 - 255,917
Accrued liabilities 42,424 4,825 56,418 103,667
Notes payable, current portion 58,949 214,963 175,000 448,912
Deferred lease incentive - 7,945 (7,945) -
Deferred revenue 74,720 65,993 - 140,713
-------------------------------------------------------------------
Total current liabilities 276,777 418,959 223,473 919,209
-------------------------------------------------------------------
NOTES PAYABLE, less current portion 586,922 14,658 - 601,580
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 21 2,000 (1,995) 26
Common stock issuable 318,709 - - 318,709
Additional paid-in capital 429,295 - 1,612,495 2,041,790
Accumulated deficit (1,047,511) (6,790) 6,790 (1,047,511)
-------------------------------------------------------------------
Total stockholders' equity (deficit) (299,486) (4,790) 1,617,290 1,313,014
-------------------------------------------------------------------
-------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) 564,213 428,827 1,840,763 2,833,803
===================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated condensed financial statements
<PAGE>
FULLNET COMMUNICATIONS, INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
(a) Reflects the historical financial position of FullNet at December 31,
1999.
(b) Reflects the historical financial position of HARVEST at December 31,
1999.
(c) Pro forma adjustments to record the purchase as of December 31, 1999 to
reflect:
(1) An increase in equity of $1,612,500 relating to the issuance
of 537,500 shares of FullNet common stock (valued for purposes
of the acquisition at $3.00 per share).
(2) A decrease in cash of $125,000 and an increase in notes
payable of $175,000 relating to the issuance of a note as
partial consideration for the acquisition.
(3) An increase in accrued expenses of $56,418 relating to the
incurrence of transaction costs by FullNet including legal and
investment banking fees.
(4) A decrease in stockholders' deficit of $4,790 relating to the
elimination of Harvest's historical shareholders' deficit.
(5) Elimination of $14,446 in cost in excess of net assets of
businesses acquired recorded by Harvest.
(6) An increase in cost in excess of net assets of businesses
acquired for $1,980,209 for the excess of purchase price,
including transaction costs, over the fair value of the net
assets acquired.
<PAGE>
<TABLE>
<CAPTION>
FULLNET COMMUNICATIONS, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1999 (Unaudted)
Pro Forma FullNet
FullNet (d) Harvest (e) Adjustments (f) Pro Forma
<S> <C> <C> <C> <C>
REVENUES
Access service revenues 530,003 683,639 (9,837) 1,203,805
Network solution and other revenues 591,951 627,608 - 1,219,559
------------------------------------------------------------------------
1,121,954 1,311,247 (9,837) 2,423,364
------------------------------------------------------------------------
OPERATING EXPENSES
Cost of access service revenues 198,399 219,106 (9,837) 407,668
Cost of network solution and other revenues 248,415 345,751 - 594,166
Selling, general, and administrative expenses 1,004,266 706,200 - 1,710,466
Depreciation and amortization 144,670 51,596 394,709 590,975
------------------------------------------------------------------------
Total operating expenses 1,595,750 1,322,653 384,872 3,303,275
------------------------------------------------------------------------
Loss from operations (473,796) (11,406) (394,709) (879,911)
OTHER INCOME (EXPENSE)
Interest expense (77,871) (18,794) 14,000 (82,665)
Other (39,928) 18,756 - (21,172)
Net income (loss) before income taxes (591,595) (11,444) (380,709) (983,748)
Credit for income taxes - (1,283) - -
------------------------------------------------------------------------
NET INCOME (LOSS) (591,595) (10,161) (380,709) (962,576)
========================================================================
BASIC AND DILUTED LOSS PER COMMON
SHARE (0.30) (0.38)
WEIGHTED AVERAGE COMMON SHARES 1,994,548 2,509,652
OUTSTANDING
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated condensed financial statements
<PAGE>
FULLNET COMMUNICATIONS, INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS (Unaudited)
(d) Reflects the historical operating results of FullNet for the year ended
December 31, 1999.
(e) Reflects the historical operating results of Harvest for the year ended
December 31, 1999, including various reclassifications that have been
made to conform to FullNet's combined financial statement presentation.
(f) Pro forma adjustments to record the purchase for the year ended
December 31, 1999 reflect:
(1) Increase of $396,042 in amortization of cost in excess of net
assets of businesses acquired for the excess of the purchase
price over the fair value of Harvest's net assets acquired
amortized on a straight-line basis over a five-year period.
Also, a decrease of $1,333 in amortization of cost in excess
of net assets of businesses acquired relating to such costs
that were eliminated from the balance sheet.
(2) Elimination of $9,837 of access service revenues charged to
Harvest from FullNet during 1999, and $9,837 of cost of access
revenues on Harvest's books for services provided by FullNet.
(3) Increase of $14,000 of interest expense related to the
$175,000 note payable issued in conjunction with the Purchase.
In addition, pro forma net loss per common share has been adjusted to
reflect the issuance of 537,500 additional shares of FullNet common stock in the
merger. Because the effect of stock options would be antidilutive to FullNet,
dilutive per share amounts on a pro forma basis are the same as basic per share
amounts.
<PAGE>
Exhibits
2.1 Agreement and Plan of Merger among FullNet Communications, Inc.,
FullNet, Inc. and Harvest Communications, Inc., and Wallace L. Walcher
dated February 29, 2000. *
* Previously filed
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FULLNET COMMUNICATIONS, INC.
(Registrant)
Date: May 9, 2000 By: /s/ Timothy J. Kilkenny
-----------------------
Timothy J. Kilkenny,
President and Chief Executive Officer
