Company Quick10K Filing
Quick10K
Fullnet Communications
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-17 Sale of Shares
8-K 2019-02-19 Officers
8-K 2018-09-28 Sale of Shares
8-K 2018-02-14 Officers
8-K 2018-02-01 Enter Agreement, M&A, Exhibits
LRCX Lam Research 29,780
CTWS Connecticut Water Service 839
CYD China Yuchai 629
NWPX Northwest Pipe 243
MEIP MEI Pharma 208
ISSC Innovative Solutions & Support 74
FUSB First US Bancshares 63
CPFH Capital Financial Holdings 0
JBK Lehman 0
TZACU Tenzing Acquisition 0
FULO 2019-03-31
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-31.1 fulo_ex31z1.htm
EX-32.1 fulo_ex32z1.htm

Fullnet Communications Earnings 2019-03-31

FULO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

FULLNET COMMUNICATIONS INC. - Form 10-Q SEC filing
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

 

 

þ

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

o

 

TRANSITION REPORT PURSUANT TO 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

 

731473361

 

 

 

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

201 Robert S. Kerr Avenue, Suite 210

Oklahoma City, Oklahoma 73102

(Address of principal executive offices)

(405236-8200

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

 

Accelerated filer o

 

Non-accelerated filer þ

 

Smaller reporting company þ

Emerging-growth company

o

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No þ

As of May 15, 2019, 14,021,009 shares of the registrant’s common stock, $0.00001 par value, were outstanding.

 

 




FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

Page

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets — March 31, 2019 (Unaudited) and December 31, 2018

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations — Three months ended March 31, 2019 and 2018 (Unaudited)

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Deficit — Three months ended March 31, 2019 and 2018 (Unaudited)

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows — Three months ended March 31, 2019 and 2018 (Unaudited)

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 4. Controls and Procedures

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 1.     Legal Proceedings

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 5. Other Information

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 6. Exhibits

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signatures

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exhibit 31.1

 Exhibit 32.1

 


2



FullNet Communications, Inc. and Subsidiaries

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

March 31, 2019 (Unaudited)

 

DECEMBER 31, 2018

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash and cash equivalents

 

$465,640 

 

$245,462 

Accounts receivable, net

 

156 

 

5,026 

Prepaid expenses and other current assets

 

41,603 

 

30,848 

 

 

 

 

 

Total current assets

 

507,399 

 

281,336 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

49,295 

 

51,267 

 

 

 

 

 

OTHER ASSETS AND INTANGIBLE ASSETS

 

10,771 

 

12,979 

 

 

 

 

 

RIGHT OF USE LEASED ASSET

 

1,040,489 

 

- 

 

 

 

 

 

ASSETS OF DISCONTINUED OPERATIONS, net

 

854 

 

775 

 

 

 

 

 

TOTAL ASSETS

 

$1,608,808 

 

$346,357 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Accounts payable

 

$17,658 

 

$18,428 

Accounts payable, related party

 

3,000 

 

4,000 

Accrued and other liabilities

 

554,540 

 

534,168 

Convertible notes payable, related party - current portion

 

- 

 

7,203 

Operating lease liability – current portion

 

134,625 

 

- 

Deferred revenue

 

517,067 

 

442,771 

 

 

 

 

 

Total current liabilities

 

1,226,890 

 

1,006,570 

 

 

 

 

 

CONVERTIBLE NOTES PAYABLE, related party - less current portion

 

- 

 

20,685 

OPERATING LEASE LIABILITY – less current portion

 

909,941 

 

- 

LIABILITIES OF DISCONTINUED OPERATIONS

 

51,523 

 

52,363 

Total liabilities

 

2,188,354 

 

1,079,618 

 

 

 

 

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

Preferred stock - $0.001 par value; authorized, 10,000,000 shares; Series A convertible; issued and outstanding, 987,102 shares in 2019 and 2018

 

642,211 

 

638,849  

Common stock - $0.00001 par value; authorized, 40,000,000 shares; issued and outstanding, 14,021,009 and 13,621,009 shares in 2019 and 2018, respectively

 

140  

 

136  

Additional paid-in capital

 

8,797,535  

 

8,765,712  

Accumulated deficit

 

(10,019,432) 

 

(10,137,958) 

Total stockholders’ deficit

 

(579,546) 

 

(733,261) 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$1,608,808  

 

$346,357  

 

See accompanying notes to unaudited condensed consolidated financial statements.


3



FullNet Communications, Inc. and Subsidiaries

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

March 31, 2018

 

REVENUES

 

 

 

 

 

     Total revenue

 

599,831  

 

507,060  

 

 

 

 

 

 

 

OPERATING COSTS AND EXPENSES

 

 

 

 

 

Cost of revenue

 

76,794  

 

48,836  

 

Selling, general and administrative expenses

 

489,533  

 

550,357  

 

Depreciation and amortization

 

4,180  

 

4,389  

 

Total operating costs and expenses

 

570,507  

 

603,582  

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

29,324  

 

(96,522) 

 

 

 

 

 

 

 

OTHER INCOME

 

89,958  

 

6,000  

 

INTEREST EXPENSE

 

(277) 

 

(330) 

 

INCOME TAX EXPENSE

 

- 

 

(4,666) 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

119,005  

 

(95,518) 

 

Gain from sale of discontinued asset

 

-  

 

233,277  

 

Net loss from discontinued operations (NOTE 10)

 

(479) 

 

(31,321) 

 

 

 

 

 

 

 

NET INCOME

 

$118,526  

 

$106,438  

 

Preferred stock dividends

 

(3,362) 

 

(6,724) 

 

Net income available to common stockholders

 

$115,164  

 

$99,714  

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

   Continuing operations – basic and diluted

 

0.01  

 

(0.01) 

 

   Discontinued operations – basic and diluted

 

(0.00) 

 

0.02  

 

 Net income (loss) – basic and diluted

 

$0.01  

 

$0.01  

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 Basic

 

13,741,009 

 

11,871,009  

 

 Diluted

 

17,235,723 

 

11,871,009  

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 


4



CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT (UNAUDITED)

FullNet Communications, Inc. and Subsidiaries

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

Preferred stock

 

Additional

 

Accumulated

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

paid-in capital

 

deficit

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

 

13,621,009

 

$136 

 

987,102 

 

$638,849 

 

$8,765,712  

 

$(10,137,958) 

 

$(733,261) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options compensation

 

- 

 

- 

 

- 

 

- 

 

17,931  

 

-  

 

17,931  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of increasing dividend rate preferred stock discount

 

- 

 

- 

 

- 

 

3,362 

 

(3,362) 

 

-  

 

-  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued

 

- 

 

- 

 

- 

 

- 

 

15,358 

 

- 

 

15,358 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants exercised

 

400,000

 

4 

 

- 

 

- 

 

1,896 

 

- 

 

1,900 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

- 

 

- 

 

- 

 

-  

 

118,526 

 

118,526 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019 – (unaudited)

 

14,021,009

 

$140 

 

987,102 

 

$642,211 

 

$8,797,535  

 

$(10,019,432) 

 

$(579,546) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

Preferred stock

 

Additional

 

Accumulated

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

paid-in capital

 

deficit

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2018

 

11,871,009

 

$119 

 

987,102 

 

$618,675 

 

$8,640,769  

 

$(10,405,041) 

 

$(1,145,478) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options compensation

 

- 

 

- 

 

- 

 

- 

 

68,937  

 

-  

 

68,937  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of increasing dividend rate preferred stock discount

 

- 

 

- 

 

- 

 

6,724 

 

(6,724) 

 

-  

 

-  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

- 

 

- 

 

- 

 

-  

 

106,438 

 

106,438 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2018 – (unaudited)

 

 

11,871,009

 

$119 

 

987,102 

 

$625,399 

 

$8,702,982  

 

$(10,298,603) 

 

$(970,103) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.


5



FullNet Communications, Inc. and Subsidiaries

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 2019

 

March 31, 2018

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net income (loss)

 

$118,526  

 

$106,438 

 (Income) loss from discontinued operations

 

479 

 

(201,956) 

 Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

 

 

 

Depreciation and amortization

 

4,180  

 

4,389 

Noncash lease expense

 

36,634 

 

- 

Stock options and warrants expense

 

33,289  

 

68,937 

Provision for uncollectible accounts receivable

 

(2,001) 

 

110 

Net (increase) decrease in

 

 

 

 

Accounts receivable

 

6,871  

 

8,071 

Prepaid expenses and other current assets

 

(10,755) 

 

(22,757) 

Net increase (decrease) in

 

 

 

 

Accounts payable

 

(770) 

 

3,739 

Accounts payable – related party

 

(1,000) 

 

(7,466) 

Accrued and other liabilities

 

20,372  

 

28,433  

Deferred revenue

 

74,296  

 

37,348  

Operating lease obligation

 

(32,557) 

 

- 

Net cash provided by operating activities

 

247,564  

 

25,286  

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Cash paid for property and equipment

 

- 

 

(5,916) 

Net cash used in investing activities

 

- 

 

(5,916) 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Principal payments on borrowings under notes payable – related party

 

(27,888) 

 

(1,309) 

Exercise of warrants

 

1,900 

 

- 

Net cash used in financing activities

 

(25,988) 

 

(1,309) 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

  Net cash used in operating activities

 

(1,398 

 

(5,598) 

  Net cash provided by investing activities

 

-  

 

218,153  

  Net cash used in financing activities

 

-  

 

(116,592) 

  Net cash provided by (used in) discontinued operations

 

(1,398) 

 

95,963 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

220,178  

 

114,024 

Cash at beginning of period

 

245,462  

 

29,399 

Cash at end of period

 

$465,640  

 

$143,423 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

Cash paid for income tax

 

$- 

 

$4,666 

Cash paid for interest – continuing operations

 

277 

 

492 

Cash paid for interest – discontinued operations

 

- 

 

51 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

Right of use assets and operating lease liabilities recognized

 

$1,077,123 

 

- 

Amortization of increasing dividend rate preferred stock discount

 

$3,362 

 

$6,724 

 

See accompanying notes to the unaudited condensed consolidated financial statements.


6



FullNet Communications, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.     UNAUDITED INTERIM FINANCIAL STATEMENTS

 

The unaudited condensed consolidated 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 unaudited condensed consolidated 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, 2018.

 

Certain reclassifications have been made to prior period balances to conform with the presentation for the current period.  These reclassifications did not impact the net income (loss).

 

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, 2019.

 

Recently Issued Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02, Leases (Topic 842), which requires lessees to record assets and liabilities reflecting the leased assets and lease obligations, respectively, while following the dual model for recognition in statements of income requiring leases to be classified as either operating or finance.  Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases).  We adopted the new standard effective January 1, 2019, as allowed, using the modified retrospective approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods.  The only lease that we have is the real estate lease for our headquarters facility.  As of January 1, 2019, the adoption of the standard resulted in recognition of an operating right-of-use, or ROU, liability of approximately $1,077,123 and an operating ROU asset of $1,077,123.  These amounts are based on the present value of such commitments using the Company's incremental borrowing rate.  The standard does not materially affect our results of operations, cash flows and liquidity.  See Note 8 for further information.

 

Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.

 

Income (Loss) Per Share

 

Income (loss) per share – basic is calculated by dividing net income (loss) by the weighted average number of shares of stock outstanding during the year, including shares issuable without additional consideration. Income per share – assuming dilution is calculated by dividing net income by the weighted average number of shares outstanding during the year adjusted for the effect of dilutive potential shares calculated using the treasury stock method.


7



 

Schedule of Income (Loss) Per Share

 

Three Months Ended

 

March 31, 2019

 

March 31, 2018

Net income (loss):

    

 

    

Income (loss) from continuing operations

$119,005  

 

$(95,518) 

Income (loss) from discontinued operations – See Note 10

(479) 

 

201,956  

 Net income

$118,526  

 

$106,438  

Preferred stock dividends

(3,362) 

 

(6,724) 

Net income available to common shareholders

115,164  

 

99,714  

 

 

 

 

Basic income (loss) per share:

 

 

 

Weighted average common shares outstanding used in income (loss) per share

13,741,009  

 

11,871,009  

 

 

 

 

Basic income (loss) per share:

 

 

 

 Continuing operations

0.01  

 

(0.01) 

 Discontinued operations – See Note 10

(0.00) 

 

0.02  

 Basic income (loss) per share

0.01  

 

0.01  

 

 

 

 

Diluted income (loss) per share:

 

 

 

Shares used in diluted income (loss) per share

17,235,723  

 

11,871,009  

 

 

 

 

Diluted income (loss) per share:

 

 

 

 Continuing operations

0.01  

 

(0.01) 

 Discontinued operations – See Note 10

(0.00) 

 

0.02  

 Diluted income (loss) per share

0.01  

 

0.01  

 

 

 

 

Computation of shares used in income (loss) per share:

 

 

 

Weighted average shares and share equivalents outstanding – basic

13,741,009  

 

11,871,009  

Effect of preferred stock

987,102  

 

-  

Effect of dilutive stock options

2,245,133  

 

-  

Effect of dilutive warrants

262,479  

 

-  

Weighted average shares and share equivalents outstanding – diluted

17,235,723  

 

11,871,009  

 

Schedule of Anti-dilutive Securities Excluded

 

Three Months Ended

 

March 31, 2019

 

March 31, 2018

Preferred stock

- 

 

987,102 

Stock options

3,000 

 

4,120,834 

Warrants

- 

 

250,000 

Convertible promissory notes

27,888 

 

31,933 

Total anti-dilutive securities excluded

30,888 

 

5,389,869 

 

Anti-dilutive securities consist of stock options and convertible promissory notes whose exercise price or conversion price, respectively, was greater than the average market price of the common stock.


8



2.     MANAGEMENT'S PLANS

 

On August 27, 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s ability to Continue as a Going Concern, which requires management to assess a company’s ability to continue as a going concern within one year from financial statement issuance and to provide related footnote disclosures in certain circumstances.

 

The Company has historically experienced significant operating losses with cumulative losses from inception of approximately $10 million. These losses have resulted in a negative working capital position of approximately $719,000 at March 31, 2019, of which approximately $378,000 of the Company’s current liabilities is owed to its officers and directors, and approximately $517,000 of the Company’s current liabilities is deferred revenue.  The Company’s officers and directors, who are also major shareholders, have agreed to not seek payment of any of the amounts owed to them if such payment would jeopardize the Company’s ability to continue as a going concern.  The deferred revenue represents advance payments for services from the Company’s customers which will be satisfied by its delivery of services in the normal course of business and will not require settlement in cash.

 

The Company started a number of initiatives in 2017 which included revenue enhancement initiatives, cost saving initiatives, the sale of excess assets and an orderly exit from the CLEC business.  The Company was successful with its revenue enhancement and cost saving initiatives and in selling certain excess assets in the third quarter of 2018 and the first quarter of 2019, as well as effecting an orderly exit from the CLEC business through the sale of substantially all of its wholly owned subsidiary’s CLEC operating assets (see Note 10 – Discontinued Operations).

 

As a result of these initiatives, the Company generated positive cash flow from its operating activities of approximately $247,000 and $25,000, for the three months ending March 31, 2019 and 2018, respectively.  In addition, the Company was able to generate net income of approximately $118,000 and $106,000, for the three months ending March 31, 2019 and 2018, respectively.

 

Management expects that the success of these initiatives will provide the Company with sufficient liquidity for it to operate for the next 12 months.

 

As a result of the revenue enhancement initiatives, the cost saving initiatives, the excess asset sales and the successful exit from the CLEC business, the Company has been able to significantly improve its working capital position and alleviate any substantial doubt about the Company’s ability to continue as a going concern as defined by ASU 2014-05.  We believe that the actions discussed above mitigate the substantial doubt raised by our prior operating losses and satisfy our estimated liquidity needs 12 months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate additional liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned. Additionally, a failure to generate additional liquidity could negatively impact our ability to effectively execute our business plan.

3.     CONVERTIBLE NOTES PAYABLE RELATED PARTY

At December 31, 2018, the Company had a secured convertible promissory note from a shareholder with a balance of $27,888.  The interest rate of this note was 6%, required monthly installments of $600 including principal and interest and matured May 31, 2023.  This convertible promissory note was secured by certain equipment of the Company.  The note holder had the right to convert the note, in its entirety or in part, into common stock of the Company at the rate of $1.00 per share.  On February 26, 2019, the Company paid the remaining balance of $27,888.


9



4.     STOCK BASED COMPENSATION

 

The following table summarizes the Company’s employee stock option activity for the three months ended March 31, 2019:

 

Schedule of Employee Stock Option Activity

 

Options

 

Weighted average

exercise price

 

Weighted average

remaining

contractual life (yrs)

 

Aggregate

Intrinsic value

Options outstanding, December 31, 2018

2,370,834

 

$0.010

 

7.45

 

 

 

 

 

 

 

 

 

 

Options exercisable, December 31, 2018

1,126,167

 

$0.005

 

6.39

 

$ 34,623

 

 

 

 

 

 

 

 

Options issued during the period

480,000

 

$0.003

 

 

 

 

 

 

 

 

 

 

 

 

Options expired during the period

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised during the period

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding March 31, 2019

2,850,834

 

$0.009

 

6.11

 

 

 

 

 

 

 

 

 

 

Options exercisable March 31, 2019

2,103,498

 

$0.006

 

5.37

 

$ 191,227

 

During the three months ended March 31, 2019, 480,000 nonqualified employee stock options were granted with an exercise price of $0.003 per option.  The options were valued using Black-Scholes option pricing model on the respective date of issuance and the fair value of the shares was determined to be $15,875 of which $15,875 was recognized as stock-based compensation expense for the three months ended March 31, 2019.  These stock options vested immediately upon grant (February 19, 2019) and will expire one year from the date of the grant.  

 

Total stock-based compensation expense for the three months ended March 31, 2019 was $17,931 of which $15,875 was related to options issued during the three months ended March 31, 2019 and $2,056 was related to options issued in prior years.  Stock-based compensation is measured at the grant date, based on the calculated fair value of the option, and is recognized as an expense on a straight-line basis over the requisite employee service period (generally the vesting period of the grant).  

 

The Black-Scholes option pricing model was used with the following weighted-average assumptions for options granted during the three   months ended March 31, 2019:

 

 

 

2019

Risk free interest rate

 

2.51 %

Expected lives (in years)

 

1   

Expected volatility

 

36 %

Dividend yield

 

0 %


10



5.     WARRANT ACTIVITY

 

The following table summarizes the Company’s warrant activity for the three months ended March 31, 2019:

 

 

Schedule of Warrant Activity

 

Warrants

 

Weighted average

exercise price

 

Weighted average

remaining

contractual life (yrs)

 

Aggregate

Intrinsic value

Warrants outstanding December 31, 2018

250,000

 

$0.003

 

5.32

 

 

 

 

 

 

 

 

 

 

Warrants exercisable December 31, 2018

250,000

 

$0.003

 

4.32

 

$ 8,250

 

 

 

 

 

 

 

 

Warrants issued during the period

440,000

 

$0.005

 

 

 

 

 

 

 

 

 

 

 

 

Warrants exercised during the period

400,000

 

$0.005

 

 

 

 

 

 

 

 

 

 

 

 

Warrants outstanding March 31, 2019

290,000

 

$0.004

 

4.17

 

 

 

 

 

 

 

 

 

 

Warrants exercisable March 31, 2019

290,000

 

$0.004

 

4.17

 

$ 26,980

 

During the three months ended March 31, 2019, 300,000 and 140,000 common stock purchase warrants were granted with exercise prices of $0.003 and $0.01, respectively, per option.  The warrants were valued using Black-Scholes warrant pricing model on the respective date of issuance and the fair value of the shares was determined to be $15,358, which was recognized as expense for the three months ended March 31, 2019.  These warrants vested immediately upon grant (January 2, 2019) and will expire five years from the date of the grant.  

 

On March 4, 2019, 300,000 warrants with an exercise price of $.003 per share, and 100,000 warrants with an exercise price of $.01 per share, were exercised for 400,000 restricted shares of common stock, par value $.0001 per share.  Proceeds from the exercise of the warrants were $1,900.

 

The Black-Scholes pricing model was used with the following weighted-average assumptions for warrants granted during the three   months ended March 31, 2019:

 

 

 

2019

Risk free interest rate

 

2.51 %

Expected lives (in years)

 

5   

Expected volatility

 

146 %

Dividend yield

 

0 %

 

6.     SERIES A CONVERTIBLE PREFERRED STOCK

 

On March 9, 2019 the Company’s board of directors determined that it was in the best interest of the Company and its stockholders to conserve the Company’s working capital at this time and not make the annual dividend payment for the year ending December 31, 2018, on its Series A Convertible Preferred Stock.  The Company has never made an annual dividend payment on its Series A convertible preferred stock.  As of March 31, 2019, the aggregate outstanding accumulated arrearages of cumulative dividend was $112,375 or if issued in common shares, 1,158,509 shares.

 

The amortization of the increasing dividend rate preferred stock discount for the three months ended March 31, 2019 was $3,362.

 

7.      PROPERTY AND EQUIPMENT

 

During the three months ended March 31, 2019, no purchases were made for property and equipment.  During the three months ended March 31, 2019, $1,972 was recorded as depreciation expense.

 

8.     INTANGIBLE ASSETS

 

During the three months ended March 31, 2019, $2,208 was recorded as amortization expense.


11



9.     LEASES

 

The Company elected the practical expedient under ASU 2018-11 “Leases: Targeted Improvements” which allows the Company to apply the transition provision for Topic 842 at the Company’s adoption date instead of at the earlies comparative period presented in the financial statements. Therefore, the Company recognized and measured leases existing at January 1, 2019 but without retrospective application. In addition, the Company elected the optional practical expedient permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing lease upon adoption. No impact was recorded to the income statement or beginning retained earnings for Topic 842.”

 

We determine if a contract contains a lease by evaluating the nature and substance of the agreement. The only lease that we have is the real estate lease for our headquarters facility, which was originally executed on December 2, 1999, and which has been extended several times.  This lease has a remaining life of one year and based on previous experience, we expect to renew it for a term of five additional years.  We recognize lease expense for this lease on a straight-line basis over the lease term.

 

We used our incremental borrowing rate (8.5%), based on the information available at the date of adoption in determining the present value of the lease payments and a lease expiration date of December 31, 2024.  At March 31, 2019, the remaining future cash payments under our lease total approximately $1,373,092.

 

For the three months ending March 31, 2019, we amortized $36,634 and $32,557, of our operating right-of-use, or ROU, asset and liability, respectively.  At March 31, 2019, an operating ROU asset and liability of approximately $1,040,489 and $1,044,566, respectively, are included on our condensed consolidated balance sheet.  

 

For the three months ended March 31, 2019, our fixed operating lease cost was $59,522, which is included within operating costs and expenses in our condensed consolidated statement of operations.

 

For the three months ended March 31, 2019, cash paid for amounts included in the measurement of our lease liability included within our cash flows from operating activities was $55,445.

 

Future minimum lease payments under non-cancellable operating lease as of March 31, 2019, were as follows:

 

Year ending December 31,

 

2019 (excluding the three months ended March 31, 2019)

$    166,336   

2020

228,305   

2021

234,828   

2022

241,351   

2023

247,874   

Thereafter

254,398   

Total future minimum lease payments

1,373,092   

Less imputed interest

(328,526)  

Total liability

1,044,566   

 

10.     DISCONTINUED OPERATIONS

 

In response to the changes in the telecommunications market and deterioration in the Company’s ability to effectively compete, the Company made the decision to exit the competitive local exchange carrier or CLEC business.  On October 27, 2017, the Company’s board of directors adopted a plan to exit the CLEC business as soon as possible through the sale of its wholly owned CLEC subsidiary and/or substantially all of its CLEC subsidiary’s operating assets.  The Company was in negotiations with a potential buyer at December 31, 2017, which buyer subsequently purchased substantially all of its CLEC subsidiary’s operating assets pursuant to an asset purchase agreement which was executed and closed on February 1, 2018 (the “Sale”).

 

The Company determined that the Sale represented a strategic shift that will have a major effect on the Company’s operations and financial results since it represented a complete exit from the CLEC business and, therefore, classified its CLEC subsidiary as held for sale at December 31, 2017.

 

During February, 2018, the Company recognized a gain of $233,277 on the Sale based on total consideration of $264,872 less total basis in the assets sold and transactions costs of $31,595.  The assets sold consisted primarily of customers and associated customer premise equipment.

 


12



 

 

 

 

Consideration:

 

 

 

 Cash

 

$

246,500   

 Assumption of deferred revenue

 

 

8,366   

 Waived service obligation for February 2018

 

 

10,006   

Total consideration

 

$

264,872   

 

 

 

 

Total assets sold:

 

 

 

 Customer contracts

 

$

-   

 Fiber innerduct

 

 

3,248   

 Fiber strands

 

 

-   

 Customer CPE

 

 

-   

Total assets

 

 

3,248   

 Transactional costs

 

 

28,347   

Total basis

 

$

31,595   

Net gain

 

$

233,277   

 

Assets and Liabilities of Discontinued Operations

 

 

 

March 31, 2019

 

December 31, 2018

Carrying amounts of assets included in discontinued operations

 

 

 

 

Cash

 

$854 

 

$775 

   Total Assets of Discontinued Operations

 

$854 

 

$775 

 

 

 

 

 

Carrying amounts of liabilities included in discontinued operations

 

 

 

 

Accounts payable

 

$43,387 

 

$42,905 

Accrued and other liabilities

 

8,137 

 

9,458 

   Total Liabilities of Discontinued Operations

 

$51,523 

 

$52,363 

 

Operating Results of Discontinued Operations

 

Three Months Ended

 

March 31, 2019

 

March 30, 2018

Revenues included in discontinued operations

 

 

 

Total colocation and other revenues

-   

 

$     28,091   

 

 

 

 

Operating costs and expenses included in discontinued operations

 

 

 

Cost of services

-   

 

$    53,886   

Selling, general and administrative expenses

479   

 

3,157   

Depreciation and amortization

-   

 

2,318   

Interest expense

-   

 

51   

 Total operating costs and expenses discontinued operations

$  479   

 

$  59,412   

 

 

 

 

Other Income included in discontinued operations

 

 

 

Gain on sale of assets

-   

 

233,277   

Net Income (Loss) from Discontinued Operations

$ (479)  

 

201,956  

 Net Income (Loss) per share from discontinued operations basic and diluted

$     (0.00)  

 

$     0.02  

 

Cash Flows from Discontinued Operations

 

 

 

March 31, 2019

 

March 31, 2018

  Net cash used in operating activities

 

$ (1,398)  

 

$ (5,598)  

  Net cash provided by investing activities

 

-   

 

218,153   

  Net cash used in financing activities

 

-   

 

(116,592)  

      Net cash provided by (used in) discontinued operations

 

$ (1,398)  

 

95,963   


13



Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is qualified in its entirety by the more detailed information in our 2018 Annual Report on Form 10-K and the financial statements contained therein, including the notes thereto, and our other periodic reports filed with the Securities and Exchange Commission since December 31, 2018 (collectively referred to as the “Disclosure Documents”). Certain forward-looking statements contained in this Report and in the Disclosure Documents regarding our 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. Our ability to achieve these results is subject to certain risks and uncertainties, including those inherent risks and uncertainties generally in the Internet service provider and group message delivery industries, the impact of competition and pricing, changing market conditions, and other risks. Any forward-looking statements contained in this Report represent our judgment as of the date of this Report. We disclaim, 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.

 

Overview

We are an integrated communications provider.  Through our subsidiaries, we provide high quality, reliable and scalable Internet access, web hosting, equipment colocation, customized live help desk outsourcing services, group text and voice message delivery services, as well as advanced voice and data solutions.

References to us in this Report include our subsidiaries: FullNet, Inc. (“FullNet”), FullTel, Inc. (“FullTel”), FullWeb, Inc. (“FullWeb”), and CallMultiplier, Inc. (“CallMultiplier”).  Our principal executive offices are located at 201 Robert S. Kerr Avenue, Suite 210, Oklahoma City, Oklahoma 73102, and our telephone number is (405) 236-8200.  We also maintain Internet sites on the World Wide Web (“WWW”) at www.fullnet.net, www.fulltel.com and www.callmultiplier.com.  Information contained on our Web sites is not, and should not be deemed to be, a part of this Report.

 

Company History

We were 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. We changed our name to FullNet Communications, Inc. in December 1995. Today we are an integrated communications provider.

We market our carrier neutral colocation solutions in our data center to competitive local exchange carriers, Internet service providers and web-hosting companies. Our colocation facility is carrier neutral, allowing customers to choose among competitive offerings rather than being restricted to one carrier. Our data center is Telco-grade and provides customers a high level of operative reliability and security. We offer flexible space arrangements for customers and 24-hour onsite support with both battery and generator backup.

 

Through FullTel, our wholly owned subsidiary, we are a fully licensed competitive local exchange carrier or CLEC in Oklahoma.  However, in response to changes in the telecommunications market and deterioration in our ability to effectively compete, we made the decision in the fourth quarter of 2017, to affect an orderly exit from the CLEC business.  We were in negotiations with a potential buyer at December 31, 2017, which buyer subsequently purchased substantially all of FullTel’s operating assets pursuant to an asset purchase agreement which was executed and closed on February 1, 2018.

 

Through CallMultiplier, our wholly owned subsidiary, we offer a comprehensive cloud-based solution to consumers and businesses for automated group voice and text message delivery.

Our common stock trades on the OTC “Pink Sheets” under the symbol FULO.  While our common stock trades on the OTC “Pink Sheets”, it is very thinly traded, and there can be no assurance that our stockholders will be able to sell their shares should they so desire. 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 market price may be volatile.

 

Results of Operations

The following table, which includes both continuing and discontinued operations (see Note 9 – Discontinued Operations of the financial statement appearing elsewhere in this Report), sets forth certain statement of operations data as a percentage of revenues for the three months ended March 31, 2019 and 2018:


14



 

 

 

 

 

 

 

 

 

Three Months Ended

 

March 31, 2019

 

March 31, 2018

 

Amount

 

Percent

 

Amount

 

Percent

Revenues:

 

 

 

 

 

 

 

 Total revenue

599,831  

 

100.0  

 

507,060  

 

100.0  

 

 

 

 

 

 

 

 

Cost of revenue

76,794  

 

12.8  

 

48,836  

 

9.6  

Selling, general and administrative expenses

489,533  

 

81.6  

 

550,357  

 

108.5  

Depreciation and amortization

4,180  

 

0.7  

 

4,389  

 

0.9  

Total operating costs and expenses

570,507 

 

95.1  

 

603,582  

 

119.0  

 

 

 

 

 

 

 

 

Income (loss) from operations

29,324  

 

4.9  

 

(96,522)  

 

(19.0)  

Other income

89,958  

 

15.0  

 

6,000  

 

1.2  

Interest expense

(277) 

 

(0.1) 

 

(330) 

 

(0.1) 

Income tax expense

- 

 

 

(4,666)  

 

(0.9)  

Net income (loss) from continuing operations

119,005  

 

19.8  

 

$(95,518)  

 

(18.8)  

Gain from sale of discontinued asset

 

 

-  

 

233,277  

 

46.0  

Net income (loss) from discontinued operations

(479) 

 

(0.1) 

 

(31,321) 

 

(6.2) 

  Net income (loss)

118,526  

 

19.7  

 

106,438 

 

21.0 

 

 

 

 

 

 

 

 

Preferred stock dividends

(3,362) 

 

(0.5) 

 

(6,724) 

 

(1.3) 

 

 

 

 

 

 

 

 

Net income available to common stockholders

115,164  

 

19.2  

 

$99,714 

 

19.7 

 

Three Months Ended March 31, 2019 (the “2019 1st Quarter”) Compared to Three Months Ended March 31, 2018 (the “2018 1st Quarter”)

Revenues

 

Total revenue increased $92,771 or 18.3% to $599,831 for the 2019 1st Quarter from $507,060 for the same period in 2018. This increase was primarily attributable to the net addition of new customers and the sale of additional services to existing customers.

 

In the 2019 1st Quarter, we had interest income of $1,515 and other income of $81,920 from the sale of a block of excess IPv4 numbers and $6,523 from the recalculation of the long-term lease asset.  In the 2018 1st Quarter, we had other income of $239,277 from the liquidation of discontinued operations.

 

Operating Costs and Expenses

 

Cost of revenue increased $27,958 or 57.2% to $76,794 for the 2019 1st Quarter from $48,836 for the same period in 2018.  This increase was primarily related to servicing new customers added through growth of business. Cost of revenue as a percentage of total revenue increased to 12.8% during the 2019 1st Quarter, compared to 9.6% during the same period in 2018, as a result of increased utilization of higher cost components of our service offerings combined with price increases from our vendors.

 

Selling, general and administrative expenses decreased $60,824 or 11.0% to $489,533 for the 2019 1st Quarter compared to $550,357 for the same period in 2018.  This decrease was primarily related to decreases in employee costs of $104,547, which were offset by increases in advertising and professional services of $18,297 and $28,959 respectively.  Selling, general and administrative expenses as a percentage of total revenues decreased to 81.6% during the 2019 1st Quarter from 108.5% during the same period in 2018.


15



Depreciation and amortization expense decreased $209 or 4.8% to $4,180 for the 2019 1st Quarter compared to $4,389 for the same period in 2018.  This decrease was related to several assets reaching full depreciation during the 2019 1st Quarter.  

 

  Interest Expense

 

Interest expense decreased $53 or 16.0% to $277 for the 2019 1st Quarter compared to $330 for the same period in 2018.  This decrease was primarily related to the payoff of the related-party notes payable made during the 1st Quarter of 2019 and 2018.

Net Income

For the 2019 1st Quarter, we realized net income of $118,526 compared to net income of $106,438 for the same period in 2018.  The increase was due primarily to an increase in income from operations of $214,524 which was offset by a decrease in income from discontinued operations of $202,435. 

 

Liquidity and Capital Resources

 

As of March 31, 2019, we had $465,640 in cash and $507,399 in current assets and $1,226,890 in current liabilities.  Current liabilities consist primarily of $554,540 in accrued and other liabilities, of which $378,484 is owed to our officers and directors, and $517,067 in deferred revenue.  Our officers and directors, who are also major shareholders, have agreed to not seek payment of any of the amounts owed to them if such payment would jeopardize our ability to continue as a going concern.  The deferred revenue represents advance payments for services from our customers which will be satisfied by our delivery of services in the normal course of business and will not require settlement in cash.

 

At March 31, 2019 and December 31, 2018, we had working capital deficits of $719,491 and $725,234, respectively. We do not have a line of credit or credit facility to serve as an additional source of liquidity. Historically we have relied on shareholder loans as an additional source of funds.

 

As of March 31, 2019, $14,224 of the $20,658 we owed to our trade creditors was past due. We have no formal agreements regarding payment of these amounts.

Cash flow for the three-month periods ended March 31, 2019 and 2018 consist of the following:

 

 

 

For the Three-Month Period

Ended March 31,

 

 

2019

 

2018

Net cash flows provided by operating activities

 

$ 247,564   

 

$ 25,286   

Net cash flows used in investing activities

 

-   

 

(5,916)  

Net cash flows used in financing activities

 

(25,988)  

 

(1,309)  

 

No property or equipment were purchased in the three months ended March 31, 2019, and cash used for the purchase of property and equipment was $5,916 for the three months ended March 31, 2018.  

 

No intangible assets were purchased in the three months ended March 31, 2019 and 2018.  

 

Cash used for the payoff of the note payable in the three months ended March 31, 2019 was $27,888, and principal payments on notes payable were $1,309 for the three months ended March 31, 2018.      

The planned expansion of our business will require significant capital to fund capital expenditures and working capital needs. Our principal capital expenditure requirements will include:

 

mergers and acquisitions and 

further development of operations support systems and other automated back office systems 

 

Because our cost of developing new networks and services, funding other strategic initiatives, and operating our business depend on a variety of factors (including, among other things, the number of customers and the service for which they subscribe, the nature and penetration of services that may be offered by us, regulatory changes, and actions taken by competitors in response to our strategic initiatives), it is almost certain that actual costs and revenues will materially vary from expected amounts and these variations are likely to increase our future capital requirements. There can be no assurance that our current cash balances will be


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sufficient to fund our current business plan beyond the next few months. As a consequence, we are currently focusing on revenue enhancement and cost cutting opportunities as well as working to sell non-core assets.

Our ability to fund the capital expenditures and other costs contemplated by our business plan in the near term will depend upon, among other things, primarily our ability to generate consistent net income and positive cash flow from operations. Capital will be needed in order to implement our business plan, deploy our network, expand our operations and obtain and retain a significant number of customers in our 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 our control.

There is no assurance that we will be successful in developing and maintaining a level of cash flows from operations sufficient to permit payment of our liabilities. If we are unable to generate sufficient cash flows from operations, we will be required to modify or abandon our growth plans, limit our capital expenditures, restructure or refinance our liabilities or seek additional capital or liquidate our assets. There is no assurance that (i) any of these strategies could be effectuated on satisfactory terms, if at all, or on a timely basis or (ii) any of these strategies will yield sufficient proceeds to adequately fund operations.

 

On March 9, 2019, the Company’s board of directors made the determination that it was in the best interest of the Company and its stockholders to conserve our working capital at this time and not make the annual dividend payment for the year ending December 31, 2018.  We have never made an annual dividend payment on our Series A convertible preferred stock. 

 

Financing Activities

 

We had a secured convertible promissory note from a shareholder which required monthly installments of $600, including principal and interest.  This note was secured by certain equipment.  The outstanding balance of $26,964 was paid in full on February 26, 2019

 

We had another secured convertible promissory note from a shareholder, which we paid in full on February 1, 2018 in the amount of $116,592.

 

Critical Accounting Policies and Estimates

 

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect certain reported amounts and disclosures. In applying these accounting principles, we must often make individual estimates and assumptions regarding expected outcomes or uncertainties. As might be expected, the actual results or outcomes are generally different than the estimated or assumed amounts. These differences are usually minor and are included in our consolidated financial statements as soon as they are known. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.

 

We periodically review the carrying value of our intangible assets when events and circumstances warrant such a review. One of the methods used for this review is performed using estimates of future cash flows. If the carrying value of our intangible assets is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the intangible assets exceeds its fair value. We believe that the estimates of future cash flows and fair value are reasonable. Changes in estimates of these cash flows and fair value, however, could affect the calculation and result in additional impairment charges in future periods.

 

We periodically review the carrying value of our property and equipment whenever business conditions or events indicate that those assets may be impaired. If the estimated future undiscounted cash flows to be generated by the property and equipment are less than the carrying value of the assets, the assets are written down to fair market value and a charge is recorded to current operations. Significant and unanticipated changes in circumstances, including significant adverse changes in business climate, adverse actions by regulators, unanticipated competition, loss of key customers and/or changes in technology or markets, could require a provision for impairment in a future period.

 

We review loss contingencies and evaluate the events and circumstances related to these contingencies.  We disclose material loss contingencies that are possible or probable, but cannot be estimated. For loss contingencies that are both estimable and probable the loss contingency is accrued and expense is recognized in the financial statements.

 

Access service revenues are recognized on a monthly basis over the life of each contract as services are provided. Contract periods range from monthly to yearly. Carrier-neutral telecommunications colocation revenues, traditional telephone services and advanced voice and data services are recognized on a monthly basis over the life of the contract as services are provided. Revenue that is received in advance of the services provided is deferred until the services are provided by us. Revenue related to set up


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charges is also deferred and amortized over the life of the contract. We classify certain taxes and fees billed to customers and remitted to governmental authorities on a net basis in revenue.

 

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, we are not required and have not elected to report any information under this item.

 

Item 4.     Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures.

 

Our principal executive officer, who is also our principal financial officer, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2019 pursuant to Rule 13a-15(b) under the Exchange Act.  Based upon that evaluation, our CEO/CFO concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO/CFO, as appropriate, to allow timely decisions regarding required disclosure, due to the following material weakness:

 

a.We did not identify the proper accounting treatment for an operating lease pursuant to Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months.  

 

As of the date of this filing, the item noted above was adjusted in the accompanying financial statements. 

 

A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

 

No change in our system of internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II—OTHER INFORMATION

 

Item 1.     Legal Proceedings

 

We are not a party to any material legal proceedings.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

On January 2, 2019, we granted 440,000 common stock purchase warrants (the “Warrants”) with an expiration date of January 2, 2024, of which 140,000 had an exercise price of $.01 per share and $300,000 had an exercise price of $.003 per share.  On March 4, 2019, we issued 400,000 restricted shares of our common stock, par value $.00001 per share, pursuant to the exercise of a portion of the Warrants.  Proceeds from the exercise of the Warrants were $1,900, which we added to working capital.  The common shares were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, without payment of any form of commissions or other remuneration.

Immediately following the exercise of the Warrants, we 14,021,009 shares of common stock issued and outstanding, and 40,000 Warrants remained outstanding with an exercise price of $.01 per share.

In February 2019, we granted 480,000 employee stock options, the disclosure of which was reported in a Form 8-K dated February 19, 2019, and filed with the SEC.

Item 5.     Other Information

During the three months ended March 31, 2019, all events reportable on Form 8-K were reported.


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Item 6.     Exhibits

 

 

(a)

 

The following exhibits are either filed as part of or are incorporated by reference in this Report:

 

Exhibit

 

 

 

 

Number

 

Exhibit

 

 

 

 

 

 

 

 

 

 

2.1

 

 

Asset Purchase Agreement dated February 1, 2018, by and among FullTel, Inc. and Dobson Technologies – Transport and Telecom Solutions, LLC

 

1

 

 

 

 

 

 

 

 

4.18

 

 

Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock of FullNet Communications, Inc.

 

2

 

 

 

 

 

 

 

 

10.23

 

 

IPv4 Numbers Purchase Agreement executed February 4, 2019, by and between FullNet Communications, Inc. and Paycom Payroll, LLC.

 

3

 

 

 

 

 

 

 

 

31.1

 

 

Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of Roger P. Baresel

 

*

 

 

 

 

 

 

 

 

32.1

 

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Roger P. Baresel

 

*

 

 

 

 

 

 

 

 

101.INS

 

 

XBRL Instance Document

 

**

 

101.SCH

 

 

XBRL Taxonomy Extension Schema Document

 

**

 

101.CAL

 

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

**

 

101.DEF

 

 

XBRL Taxonomy Extension Definition Linkbase Document

 

**

 

101.LAB

 

 

XBRL Taxonomy Extension Label Linkbase Document

 

**

 

101.PRE

 

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

**

 

 

 

1

 

Incorporated by reference to Exhibit 2.1 to the Form 8-K filed February 6, 2018

 

 

 

2

 

Incorporated by reference to Exhibit 4.18 to the Form 8-K filed June 7, 2013

 

 

 

3

 

Incorporated by reference to Exhibit 10.23 to the Form 10-K filed April 1, 2019

 

 

 

*

 

Filed herewith.

 

 

 

**

 

In accordance with Rule 406T of Regulation S-T, the XBRL (Extensible Business Reporting Language) related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except to the extent expressly set forth by specific reference in such filing.

 

 


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SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

 

REGISTRANT:

FULLNET COMMUNICATIONS, INC.

 

 

Date: May 15, 2019

By:  

/s/ ROGER P. BARESEL  

 

 

 

Roger P. Baresel 

 

 

 

Chief Executive Officer and Chief Financial  Officer 

 


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