U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________.
Commission File Number: 000-27031
FullNet Communications, Inc.
----------------------------
(Exact name of registrant as specified in its charter)
Oklahoma 73-1473361
---------- ------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 N. Harvey, Suite 1704,Oklahoma City, Oklahoma 73102
-------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (405) 232-0958
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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
--- ---
The number of shares outstanding of the Issuer's Common Stock, $.00001 par
value, as of August 10, 2000 was 3,365,827
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
FORM 10-QSB
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000 (unaudited) and
December 31, 1999.............................................. 3
Consolidated Statements of Operations - Three months and
six months ended June 30, 2000 and 1999 (unaudited)............ 4
Consolidated Statement of Stockholders' Equity (Deficit) -
Six months ended June 30, 2000 (unaudited)..................... 5
Consolidated Statements of Cash Flows - Six months ended
June 30, 2000 and 1999 (unaudited)............................. 6
Notes to Consolidated Financial Statements (unaudited) ........ 8
Item 2. Management's Discussion and Analysis or Plan of Operation....... 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............. 21
Item 6. Exhibits and Reports on Form 8-K................................ 21
Signatures............................................................... 22
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<TABLE>
<CAPTION>
FullNet Communications, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS JUNE 30, DECEMBER 31,
2000 1999
(Unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 41,261 $ 12,671
Accounts receivable, net 143,521 70,306
Inventory 13,459 -
Prepaid and other current assets 42,594 15,491
------------ ------------
Total current assets 240,835 98,468
PROPERTY AND EQUIPMENT, net 405,059 117,262
COST IN EXCESS OF NET ASSETS OF BUSINESSES
ACQUIRED, net of accumulated amortization of $196,798
In 2000 and $93,512 in 1999 2,474,962 295,084
OTHER ASSETS
Deferred income taxes 17,500 17,500
Deferred offering costs 20,000 30,899
Other 7,552 5,000
------------ ------------
45,052 53,399
------------ ------------
$ 3,165,908 $ 564,213
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable - trade $ 290,971 $ 100,684
Accrued liabilities 66,153 42,424
Notes payable, current portion 1,054,023 58,949
Capital lease obligations 8,654 -
Deferred revenue 126,696 74,720
------------ ------------
Total current liabilities 1,546,497 276,777
NOTES PAYABLE, less current portion 602,462 586,922
CAPITAL LEASE OBLIGATIONS, less current portion 12,953 -
DEPOSITS 44,500 -
STOCKHOLDERS' EQUITY (DEFICIT)
Commonstock - $.00001 par value and 10,000,000 shares
Authorized; 3,201,677 and 2,088,928 shares issued and
outstanding, respectively 32 21
Common stock issuable, 237,348 and 318,709 shares in 2000 and 1999,
respectively 370,700 318,709
Additional paid-in capital 3,012,702 429,295
Accumulated deficit (2,423,938) (1,047,511)
------------ ------------
Total stockholders' equity (deficit) 959,496 (299,486)
------------ ------------
TOTAL $ 3,165,908 $ 564,213
============ ============
</TABLE>
See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
FullNet Communications, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
-------------------------- --------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Access service revenues $ 301,201 $ 160,750 $ 477,347 $ 289,441
Network solutions and other revenues 223,198 220,591 387,055 345,618
----------- ----------- ----------- -----------
Total revenues 524,399 381,341 864,402 635,059
OPERATING COSTS AND EXPENSES:
Cost of access service revenues 134,214 66,703 221,406 114,249
Cost of network solutions and other revenues 88,782 65,572 150,663 112,496
Selling, general and administrative expenses 709,060 335,755 1,173,101 478,792
Depreciation and amortization 203,560 19,503 333,745 49,050
----------- ----------- ----------- -----------
Total operating costs and expenses 1,135,616 487,533 1,878,915 754,587
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (611,217) (106,192) (1,014,513) (119,528)
INTEREST EXPENSE (281,370) (21,553) (343,701) (44,845)
OTHER EXPENSE (13,724) (19,296) (18,213) (34,738)
----------- ----------- ----------- -----------
NET LOSS $ (906,311) $ (147,041) $(1,376,427) $ (199,111)
=========== =========== =========== ===========
Net loss per common share:
Basic $ (.28) $ (.07) $ (.48) $ (.12)
Diluted $ (.28) $ (.07) $ (.48) $ (.12)
Weighted average number of common shares outstanding:
Basic 3,205,319 2,010,116 2,883,182 1,695,058
Diluted 3,205,319 2,010,116 2,883,182 1,695,058
</TABLE>
See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
FullNet Communications, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity (Deficit)
Six Months Ended June 30, 2000
(Unaudited)
Common Stock Common Additional
------------ Stock Paid-in Accumulated
Shares Amount issuable capital deficit Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 2,088,928 $ 21 $ 318,709 $ 429,295 $(1,047,511) $ (299,486)
Issuance of common stock in conjunction with
acquisitions 580,244 6 -- 1,740,727 -- 1,740,733
Common stock issuable in conjunction with
acquisition -- -- 89,050 -- -- 89,050
Common stock issued, net of offering expenses 45,200 -- -- 122,809 -- 122,809
Exercise of stock options issued relating to
services performed for offering -- -- 34,830 -- -- 34,830
-----------
Warrant exercise relating to bridge financing 206,250 2 -- 2,061 -- 2,063
Common stock issued for employee bonuses 181,055 2 (181,055) 181,053 -- --
Common stock issued in exchange for services 100,000 1 109,166 99,999 -- 209,166
Warrants to purchase common stock issued
relating to bridge financing -- -- -- 413,320 -- 413,320
Compensation from issuance of stock options -- -- -- 23,438 -- 23,438
Net loss -- -- -- -- (1,376,427) (1,376,427)
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 2000 $ 3,201,677 $ 32 $ 370,700 $ 3,012,702 $(2,423,938) $ 959,496
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
FullNet Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
--------------------------
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,376,427) $ (199,111)
Adjustments to reconcile net loss to net cash used in operating activities
Noncash compensation expense 23,438 --
Depreciation and amortization 333,745 49,050
Stock issued for services 192,500 --
Amortization of discount relating to bridge financing 271,381 --
Provision for non-collection of accounts receivable 10,605 --
Net (increase) decrease in
Accounts Receivable (40,759) 28,060
Prepaid expenses and other current assets (5,055) (418)
Other assets (2,552) (1,438)
Net increase (decrease) in
Accounts payable - trade 22,397 (17,834)
Accrued and other liabilities 16,195 (2,595)
Cash overdraft -- (8,061)
Deferred revenue (29,677) 16,817
Deposits 44,500 --
----------- -----------
Net cash used in operating activities (539,708) (135,530)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (184,017) (5,936)
Proceeds from sale of property, net of closing costs 110,122 --
Acquisitions of businesses, net of cash acquired (127,057) --
----------- -----------
Net cash used in investing activities (200,952) (5,936)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs 10,899 --
Principal payments on borrowings under notes payable (148,903) (29,234)
Principal payments on note payable to related party -- (43,891)
Principal payments on borrowings related to purchase of subsidiary -- (122,405)
Proceeds from issuance of bridge financing and warrants, net of offering costs 745,000 --
Proceeds from exercise of stock options 34,830 --
Proceeds from exercise of warrants 2,061 --
Principal payments on capital lease obligations (2,940) (6,580)
Proceeds from issuance of notes payable 5,494 --
Proceeds from borrowings under convertible notes payable -- 50,000
Issuance of common stock, net of offering costs 122,809 541,375
----------- -----------
Net cash provided by financing activities 769,250 389,265
----------- -----------
NET INCREASE (DECREASE) IN CASH 28,590 247,799
Cash at beginning of year 12,671 198
----------- -----------
Cash at end of period $ 41,261 $ 247,997
=========== ===========
(continued)
</TABLE>
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<TABLE>
<CAPTION>
FullNet Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
--------------------------
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 43,298 $ 43,308
NONCASH INVESTING AND FINANCING ACTIVITIES
Conversion of debt to equity -- 50,000
Fair value of liabilities assumed in conjunction with the acquisition of Harvest
Communications 73,062 --
Fair value of common stock issued to purchase Harvest Communications 1,612,500 --
Note payable issued in conjunction with the acquisition of Harvest Communications 175,000 --
Fair value of liabilities assumed in conjunction with the acquisition of FullNet of
Bartlesville 1,754 --
Fair value of common stock issued to purchase FullNet of Bartlesville 128,232 --
Note payable issued in conjunction with FullNet of Bartlesville acquisition 50,168 --
Acquisition of net assets of FullNet of Tahlequah 6,763 --
Note payable issued in conjunction with FullNet of Tahlequah acquisition 61,845 --
Common stock issuable in conjunction with FullNet of Nowata acquisition 89,050 --
Acquisition of net assets of FullNet of Nowata 15,366 --
Note payable issued in conjunction with FullNet of Nowata acquisition 47,950 --
Assets acquired through issuance of capital lease 24,548 --
(concluded)
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
FullNet Communications, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited financial statements and related notes have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying
financial statements and related notes should be read in conjunction with
the audited consolidated financial statements of the Company and notes
thereto for the year ended December 31, 1999.
The information furnished reflects, in the opinion of
management, all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the results of the interim periods
presented. Operating results of the interim period are not necessarily
indicative of the amounts that will be reported for the year ending
December 31, 2000.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures 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.
3. STOCKHOLDERS' EQUITY (DEFICIT)
In February 2000, the Company raised an aggregate $135,600 in
an offering of its common stock. The offering was made pursuant to an
exemption from the registration requirements of the Securities Act
pursuant to Rule 504 of Regulation D of such act.
In April, 2000, the Company amended its contract with its
investment bank, which entitled the investment bank to an additional
100,000 shares of common stock.
4. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share is computed based upon
net earnings (loss) divided by the weighted average number of common
shares outstanding during each period. Diluted earnings (loss) per common
share is computed based upon net earnings (loss) divided by the weighted
average number of common shares outstanding during each period adjusted
for the effect of dilutive potential common shares calculated using the
treasury stock method. The basic and diluted earnings (loss) per common
share are the same since the Company had a net loss for 2000 and 1999 and
the inclusion of stock options and warrants would be anti-dilutive.
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<PAGE>
5. NOTES PAYABLE
In February, March and June 2000, the Company obtained bridge
loans totaling $300,000 through the issuance of 14% promissory notes to
10 accredited investors. The terms of the financing additionally provided
for the issuance of five year warrants to purchase an aggregate of
150,000 shares of the Company's common stock at $0.01 per share, and
provided for certain registration rights. The promissory notes require
monthly interest payments, mature in six months, and are extendible for
two 90-day periods upon issuance of additional warrants for an aggregate
150,000 shares exercisable at $0.01 per share for each extension.
Warrants to purchase 106,250 shares of common stock were exercised as of
June 30, 2000 at an aggregate exercise price of $1,063.
In March 2000, the Company obtained bridge loans totaling
$500,000 through the issuance of 14% promissory notes to two accredited
investors. The terms of the financing additionally provided for the
issuance of five year warrants to purchase 100,000 shares of the
Company's common stock at $0.01 per share, and provided for certain
registration rights. The promissory notes require quarterly interest
payments, mature in six months, and are extendible for two 90 day periods
upon issuance of additional warrants for an aggregate 10,000 shares
exercisable at $0.01 per share for each extension. On March 8, 2000, the
bridge loan investors exercised their warrants and purchased 100,000
shares of common stock of the Company at an aggregate exercise price of
$1,000.
A portion of the proceeds of the bridge loans has been
allocated to the warrants and accounted for as additional paid-in
capital. The allocation was based on the estimated relative fair values
of the bridge loans and the warrants and resulted in a discount on the
bridge loans of approximately $413,000. This discount is being amortized
as interest expense over the life of the bridge loans using the interest
method.
A building acquired in conjunction with the merger of Harvest
Communications, Inc. and the Company was sold in June 2000. The sale was
a cashless transaction, and the net proceeds from the sale were applied
to the SBA loan that originally provided the proceeds to purchase the
building. Net proceeds from the transaction exceeded the carrying value
of the building by approximately 5,000. This amount was recorded as a
reduction of cost in excess of net assets of businesses acquired.
6. ACQUISITIONS
On January 25, 2000, the Company entered into an Asset
Purchase Agreement with FullNet of Tahlequah, Inc. ("FOT"), an Oklahoma
corporation, in which the Company purchased substantially all of FOT's
assets, including approximately 400 individual and business Internet
access accounts. The Company paid FOT an aggregate amount of $97,735,
comprised of $35,890 in cash and a note payable for $61,845. The note is
payable in eighteen monthly installments.
On February 4, 2000, the Company entered into an Asset
Purchase Agreement with David Looper, d/b/a FullNet of Bartlesville
("FOB"), an Oklahoma sole proprietorship in which the Company purchased
substantially all of FOB's assets, including approximately 400 individual
and business Internet access accounts. The Company paid FOB an aggregate
amount of $178,400, payable in 42,744 shares of the Company's common
stock (valued for purposes of the acquisition at $3.00 per share) and a
note payable for $50,168. The note bears an interest rate of 8% per
annum, with the principal and interest thereon payable on the earlier to
occur of (a) the closing of any private equity placement in excess of
$351,000, (b) the closing of any underwritten offering of the Company's
common stock, or (c) one year from the closing date of the Asset Purchase
Agreement.
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<PAGE>
On February 29, 2000, the Company entered into an Agreement
and Plan of Merger (the "Merger Agreement") with Harvest Communications,
Inc., ("Harvest") an Oklahoma corporation, pursuant to which Harvest
merged with and into FullNet. Harvest had approximately 2,500 individual
and business dial up Internet access accounts, 15 wireless Internet
access accounts and 35 Web hosting accounts. Pursuant to the terms of the
Merger Agreement, the Company paid the shareholders of Harvest an
aggregate amount of $1,912,500 payable in 537,500 shares of the Company's
common stock (valued for purposes of the merger at $3.00 per share), a
note payable for $175,000 and $125,000 in cash. The note bears an
interest rate of 8% per annum, with the principal and interest thereon
payable on the earlier to occur of (a) the closing of any single funding
(whether debt or equity) obtained by the Company subsequent to the date
of the Merger Agreement in an aggregate amount of at least $2,000,000,
(b) the closing of any underwritten offering of the Company's common
stock, or (c) March 6, 2001.
On June 2, 2000, the Company entered into an Asset Purchase
Agreement with Lary Smith, d/b/a FullNet of Nowata ("FON"), an Oklahoma
sole proprietorship, in which the Company purchased substantially all of
FON's assets, including approximately 300 individual and business
Internet access accounts. Pursuant to the terms of the Agreement, the
Company agreed to pay FON an aggregate purchase price of $137,000,
payable in 38,198 shares of the Company's common stock (valued for
purposes of the acquisition at $2.33125 per share) and a note payable for
$47,950. The note bears an interest rate of 8% per annum with the
principal and interest thereon payable on the earlier to occur of (a) the
closing of any single funding (whether debt or equity) obtained by the
Company subsequent to the date of the Agreement in an aggregate amount of
$2,000,000, or (b) one year from the closing date of the Agreement.
These acquisitions were accounted for as purchases. The
aggregate purchase price has been allocated to the underlying net assets
purchased or net liabilities assumed based on their estimated fair values
at the respective acquisition date. This allocation results in cost in
excess of net assets of businesses acquired of $2,433,000, which is being
amortized over the estimated periods benefited of three to five years.
Prior to the acquisitions, each of FOT, FOB, Harvest and FON was a
customer of the Company's Internet service provider access services.
The unaudited pro forma combined historical results, as if the
entities listed above (excluding FOT and FON) had been acquired at the
beginning of the six months ended June 30, 2000 and 1999, respectively,
are included in the table below.
Six Months Ended
June 30,
2000 1999
----------- -----------
Revenue $ 994,778 $ 1,037,980
Net loss $(1,469,465) $ (294,013)
Basic and diluted loss per share $ (0.51) $ (0.17)
The pro forma results above include amortization of cost in
excess of net assets of businesses acquired and interest expense on debt
assumed issued to finance the acquisitions. The pro forma results are not
necessarily indicative of what actually would have occurred if the
acquisitions had been completed as of the beginning of each of the fiscal
periods presented, nor are they necessarily indicative of future
consolidated results.
7. MANAGEMENT'S PLANS
The planned expansion of the Company's business will require
significant capital to fund capital expenditures, working capital needs,
debt service and the cash flow deficits generated by operating losses.
Current cash balances will not be sufficient to fund the Company's
current business plan beyond the next three months. As a consequence, the
Company is currently seeking convertible debt and/or equity financing as
well as the placement of a credit facility to fund the Company's
liquidity. There can be no assurance that the Company will be able to
raise additional capital on satisfactory terms or at all.
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Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion is qualified in its entirety by the more
detailed information in the Company's Form 10-KSB and the financial statements
contained therein, including the notes thereto, and the Company's other periodic
reports and all Current Reports on Form 8-K filed with the Securities and
Exchange Commission since December 31, 1999 (collectively referred to as the
"Disclosure Documents"). Certain forward-looking statements contained herein and
in such Disclosure Documents regarding the Company's business and prospects are
based upon numerous assumptions about future conditions which may ultimately
prove to be inaccurate and actual events and results may materially differ from
anticipated results described in such statements. The Company's ability to
achieve such results is subject to certain risks and uncertainties, such as
those inherent generally in the Integrated Communications Provider industry, the
impact of competition and pricing, changing market conditions, and other risks.
Any forward-looking statements contained herein represent the Company's judgment
as of the date hereof. The Company disclaims, however, any intent or obligation
to update these forward-looking statements. As a result, the reader is cautioned
not to place undue reliance on these forward-looking statements. As used herein,
the word "Company" means FullNet Communications, Inc. and its wholly owned
subsidiaries, FullNet, Inc. ("FullNet"), FullSolutions, Inc. ("FullSolutions"),
FullTel, Inc. ("FullTel") and FullWeb, Inc. ("FullWeb"), a wholly owned
subsidiary of FullSolutions, unless the context indicates otherwise.
Overview
FullNet Communications Inc. (the "Company") is a regional integrated
communications provider ("ICP") offering integrated communications and network
solutions to individuals, businesses, organizations, educational institutions,
and government agencies. Through its subsidiaries, the Company provides high
quality, reliable and scaleable Internet, telephony, and network solutions
designed to meet customer needs. Services include:
o High margin carrier-neutral telecommunications grade co-location facilities
o Dial-up and direct high-speed connectivity to the Internet under the
FullNet brand name
o Web site design, hosting and server co-location for businesses
o Wireless broadband Internet, voice and data access services
o Network design, management, optimization, and ongoing support and
maintenance for businesses
o Backbone services to small Internet Service Providers ("ISPs") and
businesses
o Global domain name registration services (expected to commence during the
third quarter of 2000)
The Company's principal executive offices are located at 200 North Harvey
Avenue, Suite 1704, Oklahoma City, Oklahoma 73102, and its telephone number is
(405) 232-0958. We also maintain an Internet site on the World Wide Web ("WWW")
at www.fullnet.net. Information contained on the Company's Web site is not, and
should not be deemed to be, a part of this Form 10-QSB.
Company History
The Company was founded in 1995 as CEN-COM of Oklahoma, Inc., an Oklahoma
corporation, to bring dial-up Internet access and education to rural locations
in Oklahoma that did not have dial-up Internet access. The Company changed its
name to FullNet Communications, Inc. in December 1995, and shifted its focus
from offering dial-up services to providing wholesale and private label network
connectivity and related services to other ISPs. During 1995 and 1996, the
Company furnished wholesale and private label network connectivity services to
ISPs in Bartlesville, Cushing, Durant, Perry, Tahlequah, and Tulsa. During 1996,
the Company sold its ISP operations in Enid, Oklahoma and began ISP operations
in Ponca City, Oklahoma.
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<PAGE>
In 1997 the Company continued its focus on being a backbone provider by
upgrading and acquiring more equipment. The Company also started offering its
own ISP brand access and services to its wholesale customers. As of June 30,
2000, there were two ISPs in Oklahoma that used the FullNet brand name where the
Company provides the backbone to the Internet. There are an additional two ISPs
that use a private label brand name, where the Company is their access backbone
and provides their technical support, managing and operating their systems on an
outsource basis. Additionally, the Company provides high-speed broadband
connectivity, website hosting, network management and consulting solutions to
over 50 businesses in Oklahoma.
In 1998 the Company's gross revenues exceeded $1,000,000 and the Company
made the Metro Oklahoma City Top 50 Fastest Growing Companies list. In 1998 the
Company commenced the process of organizing a competitive local exchange carrier
("CLEC") through FullTel, and acquired Animus Communications, Inc. ("Animus"), a
wholesale Web-service company, thereby enabling the Company to become a total
solutions provider to individuals and companies seeking a "one-stop shop" in
Oklahoma. Animus was renamed FullWeb in January 2000.
With the incorporation of FullTel and the acquisition of FullWeb, the
Company's current business strategy is to become the dominant ICP in Oklahoma
and surrounding states, focusing on rural areas. The Company expects to grow
through the commencement of providing carrier-neutral co-location space
(expected revenue stream to start during the third quarter 2000), commencement
of domain name registration (expected to begin during the third quarter 2000),
acquisition of ISPs and network solutions providers, as well as through a
FullNet brand marketing campaign. During the first six months of 2000, the
Company has completed four separate acquisitions of ISP companies, operating in,
respectively, Tahlequah, Oklahoma, Bartlesville, Oklahoma, Enid, Oklahoma and
Nowata, Oklahoma.
During the month of February 2000, trading of the Company's common stock
began trading on the OTC Bulletin Board under the symbol FULO. When a stock
begins to trade on the OTC Bulletin Board, it initially has a single market
maker. Although many stocks have several market makers, while the Company's
common stock trades on the OTC Bulletin Board, there can be no assurance as to
whether additional market makers will quote the common stock. Hence, there can
be no assurance that stockholders will be able to sell their shares should they
desire to do so. Any market for the common stock that may develop, in all
likelihood, will be a limited one, and if such a market does develop, the price
may be volatile.
Recent Developments
On June 20, 2000, the Company entered into a contract to provide
co-location services to KMC Telecom V, Inc. ("KMC"), a facilities-based
competitive local exchange carrier ("CLEC"). The agreement extends until January
31, 2004. Under the terms of the contract, KMC will pay the Company $44,500 per
month to provide co-location and support services for KMC's telecommunications
equipment at the Company's Network Operations Center ("NOC") in Oklahoma City,
Oklahoma. The Company is building out its NOC and expects to complete the
project and commence providing co-location services during the third quarter
2000.
The Company plans to market additional carrier neutral co-location
solutions in its NOC to other CLECs, Internet Service Providers and Web Hosting
companies. The Company's co-location facility will be carrier neutral, so
customers may choose among competitive offerings rather than being restricted to
one carrier. When completed, the NOC will be Telco-grade, so as to provide
customers the highest level of operative reliability and security. The Company
will offer flexible space arrangements for customers, 24 hour onsite support and
both battery and generator backup.
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<TABLE>
<CAPTION>
On August 2, 2000, the Company obtained a bridge loan of $100,000 from
Timothy J. Kilkenny, Chairman of the board and CEO, through the issuance of a
14% promissory note. The terms of the financing additionally provided for the
issuance of five year warrants to purchase an aggregate of 50,000 shares of the
Company's common stock at $0.01 per share, and provided for certain registration
rights. The promissory note requires monthly interest payments, matures in six
months, and is extendible for two 90 day periods upon issuance of additional
warrants for an aggregate 50,000 shares exercisable at $0.01 per share for each
extension.
Results of Operations
The following table sets forth certain statement of operations data as a
percentage of revenues for the three and six months ended June 30, 2000 and
1999:
Three Months Ended Six Months Ended
------------------------ --------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Access service revenues 57.4% 42.2% 55.2% 45.6%
Network solutions and other revenues 42.6 57.8 44.8 54.4
-------- -------- -------- --------
Total revenues 100.0 100.0 100.0 100.0
Cost of access service revenues 25.6 17.5 25.6 18.0
Cost of network solutions and other revenues 16.9 17.2 17.5 17.7
Selling, general and administrative expenses 135.3 88.0 135.7 75.4
Depreciation and amortization 38.8 5.1 38.6 7.7
-------- -------- -------- --------
Total operating costs and expenses 216.6 127.8 217.4 118.8
Loss from operations (116.6) (27.8) (117.4) (18.8)
Interest expense 53.7 5.7 39.7 7.1
Other expense 2.5 5.1 2.1 5.5
-------- -------- -------- --------
Net loss (172.8)% (38.6)% (159.2)% (31.4)%
======= ======== ======== ========
</TABLE>
Three Months Ended June 30, 2000 compared to Three Months Ended June 30, 1999
Revenues
Access service revenues increased $140,000 to $301,000 for the three
months ended June 30, 2000 from $161,000 for the three months ended June 30,
1999. This additional revenue is due to the acquisition of three ISPs in the
first quarter 2000 and one ISP in June 2000.
Network solution and other revenues increased $3,000 to $223,000 for the
three months ended June 30, 2000 from $220,000 for the three months ended June
30, 1999. The Company acquired Harvest Communications, an authorized Voice
Stream agent, on February 29, 2000. Voice stream phone sales were $21,000 for
the three months ended June 30, 2000. Equipment sales decreased $35,000 from
$92,000 for the three months ended June 30, 1999 to $57,000 for the three months
ended June 30, 2000. The Company historically has not actively marketed its
network solutions sales, and has typically made such sales to its existing
customer base. Revenues from server co-location grew $30,000 from $23,000 for
the three months ended June 30, 1999 to $53,000 for the three months ended June
30, 2000 due substantially to the addition of one significant client during
2000.
-13-
<PAGE>
Operating costs and Expenses
Cost of access service revenues increased $67,000 from $67,000 for the
three months ended June 30, 1999 to $134,000 for the three months ended June 30,
2000. The increase in costs is attributable primarily to $58,000 of connectivity
costs incurred in conjunction with the access service customers acquired during
2000 in four Oklahoma towns: Enid, Bartlesville, Nowata and Tahlequah.
Cost of network solutions and other revenues increased $23,000 from
$66,000 for the three months ended June 30, 1999 to $89,000 for the three months
ended June 30, 2000. This increase is primarily due to the increase in costs of
bandwidth of $15,000 incurred by FullWeb for the increase in the number of web
hosting and co-location customers over the prior comparative quarter. The
Company acquired Harvest Communications, an authorized Voice Stream agent, on
February 29, 2000. Voice stream cost of sales were $16,000 for the three months
ended June 30, 2000. Equipment cost of sales decreased $10,000 for the six
months ended June 30, 2000 due to the decrease in equipment sales as discussed
above.
Selling, general and administrative expenses increased $373,000 to
$709,000 for the three months ended June 30, 2000 from $336,000 for the three
months ended June 30, 1999. This increase is comprised principally of an
increase in professional fees of $245,000 from $19,000 for the three months
ended June 30, 1999 to $264,000 for the three months ended June 30, 2000. Of the
increase in professional fees, $190,000 is related to cash and the fair value of
common stock issued to the Company's investment bank pursuant to its agreement
dated September 1999 and as amended in April 2000. The Company also incurred
additional rent expense of $16,000 over the prior comparative quarter related to
the new office space that was rented in 2000 which will house the Company's
Network Operations Center. Approximately $48,000 of the increase is attributable
to SG&A expenses incurred during the quarter related to the Harvest
Communications merger. Payroll expenses decreased $40,000 from $284,000 for the
three months ended June 30, 1999 to $244,000 for the three months ended June 30,
2000. This decrease is due to a one time charge of $181,000 during June 1999 for
a stock grant approved by the board of directors. Excluding the stock grant,
payroll expenses increased $141,000 due to the increase in personnel over the
prior quarter. Advertising expense, insurance premiums, repair expense, bad debt
expense and supplies expense increased $11,000, $10,000, $10,000, $10,000 and
$8,000, respectively for the three months ended June 30, 2000 over the prior
comparative quarter.
Depreciation and amortization expense increased $184,000 from $20,000 for
the three months ended June 30, 1999 to $204,000 for the three months ended June
30, 2000. Of this increase, $129,000 is attributable to the amortization of cost
in excess of net assets of businesses acquired relating to the four ISP
acquisitions closed in 2000. An increase of $16,000 of amortization of cost in
excess of net assets of businesses acquired is attributable to the effect of
shortening the estimated period of benefit to five years for the acquisition of
FullWeb in 1998 that was originally being amortized over fifteen years.
Interest Expense
Interest expense increased $260,000 to $281,000 for the three months
ended June 30, 2000 from $22,000 for the three months ended June 30, 1999. This
increase is due to $231,000 of interest expense recorded for the three months
ended June 30, 2000 associated with amortization of the loan discount relating
to bridge financing issued with warrants, and $29,000 of interest expense on
bridge financing obtained in 2000.
Six months Ended June 30, 2000 compared to Six months Ended June 30, 1999.
Revenues
Access service revenues increased $188,000 from $289,000 for the six
months ended June 30, 1999 to $477,000 for the six months ended June 30, 2000.
This additional revenue is due to the acquisition of four ISPs during the first
six months of 2000 which accounts for an increase in dial-up Internet access
revenue of approximately $215,000, and growth in ISDN services of $10,000 from
$15,000 for the six months ended June 30, 1999 to $25,000 for the six months
ended June 30, 2000. The Company realized a decrease in Internet backbone
service revenues of approximately $38,000 during the six months ended June 30,
2000 compared to the six months ended June 30, 1999 relating to amounts charged
in 1999 to the four ISPs that were acquired during 2000.
-14-
<PAGE>
Network solution and other revenues increased $41,000 from $346,000 for
the six months ended June 30, 1999 to $387,000 for the six months ended June 30,
2000. The increase is attributable to growth in server co-location of $50,000
and $32,000 of installation revenues related to carrier neutral premise
co-location for the six months ended June 30, 2000 over the previous comparable
period. Equipment sales decreased $37,000 from $125,000 for the six months ended
June 30, 1999 to $88,000 for the six months ended June 30, 2000. The Company
historically has not actively marketed its network solutions sales, and has
typically made such sales to its existing customer base. The Company acquired
Harvest Communications, an authorized Voice Stream agent, on February 29, 2000.
Voice stream phone sales were $23,000 for the six months ended June 30, 2000.
Operating Costs and Expenses
Cost of access service revenues increased $107,000 from $114,000 for the
six months ended June 30, 1999 to $221,000 for the six months ended June 30,
2000, due to the increased costs of providing Internet access in Tahlequah,
Bartlesville, Enid and Nowata relating to the acquisition of ISPs in those towns
during the six months ended June 30, 2000.
Cost of network solutions and other revenues increased $38,000 from
$112,000 for the six months ended June 30, 1999 to $150,000 for the six months
ended June 30, 2000. This increase is primarily due to the increase in costs of
bandwidth of $21,000 incurred by FullWeb for the increase in the number of web
hosting and co-location customers over the prior comparative quarter. The
Company acquired Harvest Communications, an authorized Voice Stream agent, on
February 29, 2000. Voice stream cost of sales were $17,000 for the six months
ended June 30, 2000.
Selling, general and administrative expenses increased $694,000 from
$479,000 for the six months ended June 30, 1999 to $1,173,000 for the six months
ended June 30, 2000. The increase is partially comprised of an increase in
payroll costs of $76,000 related to the hiring of additional personnel.
Professional fees increased $394,000 to $425,000 during the six months ended
June 30,2000 from $31,000 for the six months ended June 30, 1999. Professional
fees include legal, accounting, investment banking and consulting fees.
Approximately $193,000 of the $425,000 of professional fees for the six months
ended June 30, 2000 is attributable to noncash expenses relating to the fair
value of common stock issued for investment banking services. Rent expense,
advertising, dues and subscriptions, insurance premiums and repairs and
maintenance expense increased $35,000, $24,000, $21,000 $22,000 and $12,000,
respectively, for the six months ended June 30, 2000 over the prior comparable
period. Additionally, there were various other expenses that increased for the
six months ended June 30, 2000 over the prior comparable period in respective
amounts less than $10,000, including office supplies, postage and delivery,
equipment rental, operating leases, long distance, computer supplies and utility
expenses.
Depreciation and amortization expense increased $285,000 from $49,000 for
the six months ended June 30, 1999 to $334,000 for the six months ended June 30,
2000. This increase is attributable substantially to the amortization of cost in
excess of net assets of businesses acquired related to the four ISP acquisitions
of $244,000 to $255,000 for the six months ended June 30, 2000 from $11,000 for
the six months ended June 30, 1999. The remainder of the increase is
attributable to depreciation expense related to the purchase of equipment and
equipment acquired through acquisition during the six months ended June 30,
2000.
-15-
<PAGE>
Other Expense
Other expense decreased $17,000 from $35,000 for the six months ended
June 30, 1999 to $18,000 for the six months ended June 30, 2000. Other expenses
were higher for the six months ended June 30, 1999 due to one time costs of
$31,000 incurred related to FullTel.
Acquisitions
The Company's acquisition strategy is designed to leverage its existing
network backbone and internal operations to enable it to enter new markets in
Oklahoma, Arkansas and Kansas, as well as to expand its presence in existing
markets, and to benefit from economies of scale.
The Company has acquired four Internet service provider businesses in
Oklahoma during the six months ended June 30, 2000.
On January 25, 2000, the Company entered into an Asset Purchase Agreement
with FullNet of Tahlequah, Inc. ("FOT"), an Oklahoma corporation, in which the
Company purchased substantially all of FOT's assets, including approximately 400
individual and business Internet access accounts. The Company paid FOT an
aggregate amount of $97,735, comprised of $35,890 in cash and a note payable for
$61,845. The note is payable in eighteen monthly installments.
On February 4, 2000, the Company entered into an Asset Purchase Agreement
with David Looper, d/b/a FullNet of Bartlesville ("FOB"), an Oklahoma sole
proprietorship, in which the Company purchased substantially all of FOB's
assets, including approximately 400 individual and business Internet access
accounts. The Company paid FOB an aggregate amount of $178,400, payable in
42,744 shares of the Company's common stock (valued for purposes of the
acquisition at $3.00 per share) and a note payable for $50,168. The note bears
an interest rate of 8% per annum, with the principal and interest thereon
payable on the earlier to occur of (a) the closing of any private equity
placement in excess of $351,000, (b) the closing of any underwritten offering of
the Company's common stock, or (c) one year from the closing date of the Asset
Purchase Agreement.
On February 29, 2000, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Harvest Communications, Inc., ("Harvest")
an Oklahoma corporation, pursuant to which Harvest merged with and into FullNet.
Harvest had approximately 2,500 individual and business dial up Internet access
accounts, 15 wireless Internet access accounts and 35 Web hosting accounts.
Pursuant to the terms of the Merger Agreement, the Company paid the shareholders
of Harvest an aggregate amount of $1,912,500 payable in 537,500 shares of the
Company's common stock (valued for purposes of the merger at $3.00 per share), a
note payable for $175,000 and $125,000 in cash. The note bears an interest rate
of 8% per annum, with the principal and interest thereon payable on the earlier
to occur of (a) the closing of any single funding (whether debt or equity)
obtained by the Company subsequent to the date of the Merger Agreement in an
aggregate amount of at least $2,000,000, (b) the closing of any underwritten
offering of the Company's common stock, or (c) March 6, 2001.
On June 2, 2000, the Company entered into an Asset Purchase Agreement
with Lary Smith, d/b/a FullNet of Nowata ("FON"), an Oklahoma sole
proprietorship, in which the Company purchased substantially all of FON's
assets, including approximately 300 individual and business Internet access
accounts. Pursuant to the terms of the Agreement, the Company agreed to pay FON
an aggregate purchase price of $137,000, payable in 38,198 shares of the
Company's common stock (valued for purposes of the acquisition at $2.33125 per
share) and a note payable for $47,950. The note bears an interest rate of 8% per
annum with the principal and interest thereon payable on the earlier to occur of
(a) the closing of any single funding (whether debt or equity) obtained by the
Company subsequent to the date of the Agreement in an aggregate amount of
$2,000,000, or (b) one year from the closing date of the Agreement.
-16-
<PAGE>
These acquisitions were accounted for as purchases. The aggregate
purchase price has been allocated to the underlying net assets purchased or net
liabilities assumed based on their estimated fair values at the respective
acquisition date. This allocation results in cost in excess of net assets of
businesses acquired of $2,433,000, which is being amortized over the estimated
periods benefited of three to five years. Prior to the acquisitions, each of
FOT, FOB FON and Harvest was a customer of the Company's ISP access services.
Liquidity and Capital Resources
The Company used $540,000 and $136,000 of cash for operating activities
for the six months ended June 30, 2000 and 1999, respectively, as a result of a
net loss for the periods. As of June 30, 2000, the Company had $41,000 in cash
and $1,546,000 in current liabilities, including $800,000 of bridge financing
that was negotiated with six month terms and $127,000 of deferred revenues which
will not require settlement in cash.
Capital expenditures relating to business acquisitions net of cash
acquired were $127,000 for the six months ended June 30, 2000. In addition,
property, plant and equipment purchases amounted to $184,000 for the six months
ended June 30, 2000, including $106,000 related to construction in progess on
the Company's NOC, which is expected to be completed during the third quarter
2000. The Company also received net proceeds of $110,000 from the sale of a
building acquired in conjuction with the Harvest Communications merger. Proceeds
received from the sale were used to repay the note payable relating to the
building.
Net cash provided by financing activities was $769,000 and $389,000 for
the six months ended June 30, 2000 and 1999, respectively. The cash provided in
2000 is due primarily to the issuance of bridge notes payable and the sale of
equity securities pursuant to Rule 504 of Regulation D of the Securities Act of
1933. The Company received net proceeds of $745,000 from the bridge financing
and $123,000 from the 504 offering.
The planned expansion of the Company's business will require significant
capital to fund capital expenditures, working capital needs, debt service and
the cash flow deficits generated by operating losses. The Company's principal
capital expenditure requirements will include:
* the completion of the Company's Network Operations Center
* the purchase and installation of telephone switches in Oklahoma,
Arkansas and Kansas
* purchase and installation of wireless and DSL Internet access
equipment
* mergers and acquisitions
* further development of operations support systems and other
automated back office systems
* domain name registration startup costs
The Company expects to make additional capital outlays exceeding $2
million during 2000 in order to continue activities called for in its current
business plan and to fund expected operating losses. As the Company's cost of
developing new networks and services, funding other strategic initiatives and
operating its business will depend on a variety of factors (including, among
other things, the number of subscribers and the service for which they
subscribe, the nature and penetration of services that may be offered by the
Company, regulatory changes, and actions taken by competitors in response to the
Company's strategic initiatives), it is almost certain that actual costs and
revenues will vary from expected amounts, very likely to a material degree, and
that such variations are likely to affect the Company's future capital
requirements. Current cash balances will not be sufficient to fund the Company's
current business plan beyond the next three months. As a consequence, the
Company is currently seeking convertible debt and/or equity financing as well as
the placement of a credit facility to fund the Company's liquidity. There can be
no assurance that the Company will be able to raise additional capital on
satisfactory terms or at all.
In the event that the Company is unable to obtain such additional capital
or to obtain it on acceptable terms or in sufficient amounts, the Company will
be required to delay the development of its network or take other actions. This
could have a material adverse effect on the Company's business, operating
results and financial condition and its ability to achieve sufficient cash flow
to service debt requirements.
-17-
<PAGE>
The ability of the Company to fund the capital expenditures and other
costs contemplated by its business plan and to make scheduled payments with
respect to bank borrowings will depend upon, among other things, its ability to
seek and obtain additional financing within the next year. Capital will be
needed in order to implement its business plan, deploy its network, expand its
operations and obtain and retain a significant number of customers in its target
markets. Each of these factors is, to a large extent, subject to economic,
financial, competitive, political, regulatory and other factors, many of which
are beyond the Company's control.
No assurance can be given that the Company will be successful in
developing and maintaining a level of cash flow from operations sufficient to
permit it to pay the principal of, and interest and any other payments on,
outstanding indebtedness. If the Company is unable to generate sufficient cash
flow from operations to service its indebtedness, it may have to modify its
growth plans, limit its capital expenditures, restructure or refinance its
indebtedness or seek additional capital or liquidate its assets. There can be no
assurance (i) that any of these strategies could be effected on satisfactory
terms, if at all, or (ii) that any such strategy would yield sufficient proceeds
to service the Company's debt or otherwise adequately fund operations.
Financing Activities
In February, March and June 2000, the Company obtained bridge loans
totaling $300,000 through the issuance of 14% promissory notes to 10 accredited
investors. The terms of the financing additionally provided for the issuance of
five year warrants to purchase an aggregate of 150,000 shares of the Company's
common stock at $0.01 per share, and provided for certain registration rights.
The promissory notes require monthly interest payments, mature in six months,
and are extendible for two 90-day periods upon issuance of an additional
warrants for an aggregate 150,000 shares exercisable at $0.01 per share for each
extension. Warrants to purchase 106,250 shares of common stock were exercised as
of June 30, 2000 at an aggregate exercise price of $1,063.
In March 2000, the Company obtained bridge loans totaling $500,000
through the issuance of 14% promissory notes to two accredited investors. The
terms of the financing additionally provided for the issuance of five year
warrants to purchase 100,000 shares of the Company's common stock at $0.01 per
share, and provided for certain registration rights. The promissory notes
require quarterly interest payments, mature in six months, and are extendible
for two 90 day periods upon issuance of additional warrants for an aggregate
10,000 shares exercisable at $0.01 per share for each extension. On March 8,
2000, the bridge loan investors exercised their warrants and purchased 100,000
shares of common stock of the Company at an aggregate exercise price of $1,000.
In February 2000, the Company raised an aggregate $135,600 in an offering
of its common stock. The offering was made pursuant to an exemption from the
registration requirements of the Securities Act pursuant to Rule 504 of
Regulation D of such act.
On August 2, 2000, the Company obtained a bridge loan of $100,000 from
Timothy J. Kilkenny, Chairman of the board and CEO, through the issuance of a
14% promissory note. The terms of the financing additionally provided for the
issuance of five year warrants to purchase an aggregate of 50,000 shares of the
Company's common stock at $0.01 per share, and provided for certain registration
rights. The promissory note requires monthly interest payments, matures in six
months, and is extendible for two 90 day periods upon issuance of additional
warrants for an aggregate 50,000 shares exercisable at $0.01 per share for each
extension.
Proceeds from the bridge loans and the 504 offering were used for
acquisitions, working capital and general corporate purposes.
-18-
<PAGE>
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Exhibit
------------ ------------------------------------------------------------------
*10.1 Master License Agreement For KMC Telecom V, Inc., dated June 20,
2000, by and between FullNet Communications, Inc. and KMC Telecom
V, Inc.
*10.2 Domain Registrar Project Completion Agreement, dated May 10, 2000,
by and between FullNet Communications, Inc., FullWeb, Inc. d/b/a
FullNic and Think Capital.
*10.3 Amendment to Financial Advisory Services Agreement between the
Company and National Securities Corporation, dated April 21, 2000
(Financial Advisory Services Agreement between the Company and
National Securities Corporation, dated September 17, 1999 filed as
Exhibit 10.1 to the Company's Form 10-KSB dated March 30, 2000 and
incorporated herein by reference).
#10.4 Asset Purchase Agreement dated June 2, 2000, by and between Lary
Smith, d/b/a FullNet of Nowata and FullNet Communications, Inc.
(filed as Exhibit 99.1 to the Company's Form 8-K dated June 19,
2000 and incorporated herein by reference).
*27.1 Financial Data Schedule.
------------------------
*Filed electronically herewith.
# Incorporated by reference.
(b) Reports on Form 8-K
On April 19, 2000, the Company filed a Form 8-K/A reporting the Pro Forma
Consolidated Condensed Financial Statements with respect to the Form 8-K that
the Company filed on February 18, 2000, reporting that, on February 4, 2000, the
Company entered into an Asset Purchase Agreement with David Looper, d/b/a
FullNet of Bartlesville, an Oklahoma sole proprietorship ("Seller"), in which
the Company purchased substantially all of Seller's assets.
On May 11, 2000, the Company filed a Form 8-K/A reporting the Pro Forma
Consolidated Condensed Financial Statements with respect to the Form 8-K that
the Company filed on March 9, 2000 reporting that, on February 29, 2000, the
Company entered into an Agreement and Plan of Merger with Harvest
Communications, Inc., ("Harvest") an Oklahoma corporation, pursuant to which
Harvest merged with and into FullNet, Inc., a wholly owned subsidiary of the
Company.
On June 20, 2000, the Company filed a Form 8-K reporting that, on June 2,
2000, the Company entered into an Asset Purchase Agreement (the "Agreement")
with Lary Smith, d/b/a FullNet of Nowata, an Oklahoma sole proprietorship
("Seller"), in which the Registrant purchased substantially all of Seller's
assets.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FULLNET COMMUNICATIONS, INC.,
An Oklahoma corporation
Date: August 18, 2000 /s/ Timothy J. Kilkenny
------------------------------------------
Timothy J. Kilkenny
Chairman of the Board of Directors;
President and Chief Executive Officer
Date: August 18, 2000 /s/ Travis Lane
------------------------------------------
Travis Lane
Vice-President and Chief Financial Officer
(Chief Accounting Officer)
-20-
