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): April 19, 2000
FULLNET COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 000-27031 73-1473361
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(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)
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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 February 18, 2000, FullNet entered into an
Asset Purchase Agreement (the "Purchase") with David Looper, d/b/a FullNet of
Bartlesville ("FOB") dated as of February 4, 2000.
The following pro forma consolidated condensed financial statements are
presented to illustrate the effects of the Agreement on the historical financial
position and operating results of FullNet and FOB.
The following pro forma consolidated condensed balance sheet of FullNet
at December 31, 1999 gives effect to the Purchase 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 give effect to the Purchase 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 FOB. For FullNet, those financial statements are included in its
Annual Report on Form 10-KSB for the year ended December 31, 1999. For FOB,
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 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
$195,000 to acquire FOB, 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 three 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.
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TABLE OF CONTENTS
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Fullnet of Bartlesville (a sole proprietorship)
Financial Statements for Fiscal Year Ended December 31, 1999 (audited)
Independent Auditor's Report......................................................... F-1
Balance Sheet - December 31, 1999.................................................... F-2
Statement of Income and Changes in Owners' Equity - For the Year Ended December
31, 1999 ............................................................................ F-3
Statement of Cash Flows - For the Year Ended December 31, 1999 ...................... F-4
Notes to Financial Statements........................................................ F-5
FullNet Communications, Inc.
Pro Forma Consolidated Condensed Balance Sheet - December 31, 1999 .................. F-7
Notes to the Pro Forma Consolidated Condensed Balance Sheet.......................... F-8
Pro Forma Consolidated Condensed Statement of Operations - For the Year Ended
December 31, 1999.................................................................... F-9
Notes to the Pro Forma Consolidated Condensed Statement of Operations................ F-10
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INDEPENDENT AUDITOR'S REPORT
To the Owners of Fullnet of Bartlesville
We have audited the accompanying balance sheet of Fullnet of
Bartlesville, a sole proprietorship, as of December 31, 1999 and the related
statements of income and changes in owners' equity and cash flows for the year
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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Fullnet of
Bartlesville as of December 31, 1999 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Hunter, Atkins & Russell, PLC
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April 1, 2000
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Fullnet of Bartlesville
Balance Sheet
December 31, 1999
Assets
Equipment 48,909
Accumulated Depreciation (17,652)
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Total Assets $ 31,257
Liabilities and Owners' Deficit
Bank Overdraft 5,039
Accounts Payable 4,712
Notes Payable 24,218
Deferred Revenues 12,814
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Total Liabilities 46,783
Owners' (Deficit) (15,526)
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Total Liabilities and Owners' Deficit $ 31,257
See accountant's report and notes to financial statements
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Fullnet of Bartlesville
Statement of Income and Changes in Owners' Deficit
For the Year Ended December 31, 1999
Revenues
Subscription Revenues 88,074
Other Revenues 17,030
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Total Revenues 105,104
Expenses
Service and Operating Expenses 60,734
General and Administrative Expenses 20,533
Interest Expense 3,152
Depreciation Expense 7,411
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Total Expenses 91,830
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Net Income 13,274
Owners' Withdrawals (8,155)
Beginning Owners' Deficit (20,645)
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Ending Owners' Deficit $ (15,526)
See accountant's report and notes to financial statements
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Fullnet of Bartlesville
Statement of Cash Flows
For the Year Ended December 31, 1999
Cash Flows From Operating Activities:
Net Income 13,274
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Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense 7,411
Increase ( decrease) in accounts payable (1,593)
Increase ( decrease) in deferred revenue 3,036
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Total adjustments 8,854
Net cash flows provided by operating activities 22,128
Cash flows from investing activities:
Cash payments for purchase of equipment (12,154)
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Net cash flows used in investing activities (12,154)
Cash flows from financing activities:
Principal payments on notes payable (6,762)
Owners' withdrawals (8,155)
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Net cash flows used in financing activities (14,917)
Net increase (decrease) in cash and cash equivalents (4,943)
Cash and cash equivalents, beginning (96)
Cash and Cash Equivalents, Ending $ (5,039)
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for Interest Expense $ 3,152
See accountant's report and notes to financial statements
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FULLNET OF BARTLESVILLE
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1999
Note 1. Summary of significant accounting policies
Nature of Operations
Fullnet of Bartlesville (the Company) is a sole proprietorship
operating in Oklahoma. The Company offers Internet access in the Bartlesville,
Oklahoma area.
Method of Accounting
The Company prepares its financial statements on the accrual method of
accounting, recognizing income when earned and expenses when incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Cash
Cash equivalents are included in cash. The Company considers interest
bearing investments due on demand as cash equivalents. As of December 31, 1999
the Company was overdrawn in its checking accounts. This overdraft is presented
as a current liability.
Equipment
Equipment is recorded at cost. Maintenance and repairs are charged to
expense as incurred; major renewals and betterments are capitalized. When items
of property or equipment are sold or retired, the related cost and accumulated
depreciation is removed from the accounts and any gain or loss is included in
the results of operations.
Depreciation is calculated on a straight-line basis over the estimated
useful lives of the respective assets. As of December 31, 1999 the Company
incurred $7,411 of depreciation expense for the year.
Income Taxes
The Company is a proprietorship. All income taxes are computed and paid
as part of the owners' federal income tax return. No income tax accounting is
recorded.
Deferred Revenues
The Company collects monies in advance of providing the Internet
service. The monies collected but not earned are recorded as deferred revenues
and presented as a current liability. All contracts are one year or less.
Note 2. Notes Payable
As of December 31, 1999 the Company had two notes payable with a local
commercial bank. The first note had a balance of $16,839 and the second had a
balance of $7,379 as of December 31, 1999. The notes carry interest rates of 11%
and 11.5%. Both notes require monthly installment payments totaling $500.00 per
month and are secured by equipment of the Company. Both notes mature in May of
2000 and are expected to be renewed.
Note 3. Long Term Leases
The Company has long term leases with Southwestern Bell Telephone to
provide the telephone line service at a set fee. These leases are for 36 months
and the cost of the leases are expensed as incurred.
Note 4. Subsequent Event
On February 4, 2000, the owners of the Company (Owners) entered into an
asset purchase agreement with FullNet Communications, Inc. in which FullNet
Communications Inc., purchased substantially all of the Company's assets,
including approximately 400 individual and business Internet access accounts.
The Owners received approximately $178,000, including, 42,744 shares of FullNet
Communications, Inc. common stock valued at approximately $128,000 and a note
receivable for $50,000. The note bears an interest rate of 8% per annum with the
principal and interest thereon payable on the earlier to occur of (a) FullNet
Communications, Inc.'s closing of any private equity placement exceeding
$351,000, (b) the closing of any underwritten offering of FullNet Communications
Inc.'s common stock, or (c) February 4, 2001.
* * * * * * *
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FULLNET COMMUNICATIONS, INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
Year Ended December 31, 1999 (Unaudited)
Pro Forma FullNet
ASSETS FullNet (a) FOB (b) Adjustments (c) Pro Forma
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CURRENT ASSETS
Cash 12,671 (5,039) 5,039 12,671
Accounts receivable 70,306 - - 70,306
Prepaid and other current assets 15,491 - - 15,491
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Total current assets 98,468 (5,039) 5,039 93,429
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PROPERTY AND EQUIPMENT, net 117,262 31,257 - 148,519
COST IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED, net 295,084 - 164,269 459,353
OTHER ASSETS 53,399 - - 53,399
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Total assets 564,213 26,218 169,308 759,739
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable - trade 100,684 4,712 (4,712) 100,684
Accrued liabilities 42,424 - 17,126 59,550
Notes payable, current portion 58,949 24,218 25,950 109,117
Deferred revenue 74,720 12,814 (12,814) 74,720
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Total current liabilities 276,777 41,744 25,550 344,071
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NOTES PAYABLE, less current portion 586,922 - - 586,922
STOCKHOLDERS' DEFICIT
Common stock 21 - - 21
Common stock issuable 318,709 - - 318,709
Additional paid-in capital 429,295 - 128,232 557,527
Accumulated deficit (1,047,511) (15,526) 15,526 (1,047,511)
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Total stockholders' deficit (299,486) (15,526) 143,758 (171,254)
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Total liabilities and stockholders' deficit 564,213 26,218 169,308 759,739
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The accompanying notes are an integral part of these unaudited pro forma
consolidated condensed financial statements.
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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 FOB 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 $128,232 relating to the issuance of 42,744
shares of FullNet common stock (valued for purposes of the acquisition
at $3.00 per share).
(2) An increase in notes payable of $50,168 relating to the issuance of a
note as partial consideration for the acquisition and elimination of
$24,218 of Owners' notes payable.
(3) An increase in accrued expenses of $17,126 relating to the incurrence
of transaction costs by FullNet including legal, accounting and
investment banking fees.
(4) A decrease in stockholders' deficit of $15,526 relating to the
elimination of FOB's historical shareholders' deficit.
(5) The elimination of FOB's $5,039 cash overdraft.
(6) An increase in cost in excess of net assets of businesses acquired for
$164,269 for the excess of purchase price, including transaction costs,
over the fair value of the net assets acquired.
(7) The elimination of $4,712 of FOB's accounts payable and $12,814 of
deferred revenue
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FULLNET COMMUNICATIONS, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1999 (Unaudited)
Pro Forma FullNet
FullNet (d) FOB (e) Adjustments (f) Pro Forma
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REVENUES
Access service revenues 530,003 88,074 (26,684) 591,393
Network solution and other revenues 591,951 17,030 - 608,981
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1,121,954 105,104 (26,684) 1,200,374
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OPERATING EXPENSES
Cost of access service revenues 198,399 60,734 (26,684) 232,449
Cost of network solution and other revenues 248,415 - - 248,415
Selling, general, and administrative expenses 1,004,266 20,533 - 1,024,799
Depreciation and amortization 144,670 7,411 54,756 206,837
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Total operating expenses 1,595,750 88,678 28,072 1,712,500
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Income (Loss) from operations (473,796) 16,426 (54,756) (512,126)
OTHER INCOME (EXPENSE)
Interest expense (77,871) (3,152) (861) (81,884)
Other (39,928) - - (39,928)
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NET INCOME (LOSS) (591,595) 13,274 (55,617) (633,938)
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BASIC AND DILUTED LOSS PER COMMON SHARE (0.30) (0.31)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,994,548 2,035,511
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The accompanying notes are an integral part of these unaudited pro forma
consolidated condensed financial statements
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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 FOB 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 $54,756 in amortization of cost in excess of net
assets of businesses acquired for the excess of the purchase
price over the fair value of FOB's net assets acquired
amortized on a straight-line basis over a three-year period.
(2) Elimination of $26,684 of access service revenues charged to
FOB from FullNet during 1999, and $26,684 of cost of access
revenues on FOB's books for services provided by FullNet.
(3) Elimination of FOB's interest expense of $3,152 and the
incurrence of $4,013 of interest expense related to the
$50,168 note payable issued in conjunction with the Purchase.
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(c) Exhibits
2.1 Asset Purchase Agreement dated February 4, 2000, by and between David
Looper, d/b/a FullNet of Bartlesville and FullNet Communications, Inc.
*
* Previously filed
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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: April 19, 2000 By: /s/ Timothy J. Kilkenny
-----------------------
Timothy J. Kilkenny,
President and Chief Executive Officer
