Company Quick10K Filing
Quick10K
Fullnet Communications
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 2019-02-19 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
AAP Advance Auto Parts 12,900
DXCM Dexcom 10,600
TPH Tri Pointe Group 1,990
TOWR Tower International 502
NNBR NN 417
OCX Oncocyte 223
CLUB Town Sports International 112
LARK Landmark Bancorp 106
CENB CEN Biotech 0
KBSGI KBS Growth & Income REIT 0
FULO 2018-09-30
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 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-31.1 fn_ex31z1.htm
EX-32.1 fn_ex32z1.htm

Fullnet Communications Earnings 2018-09-30

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 September 30, 2018

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 o

 

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 November 14, 2018, 13,621,009 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 — September 30, 2018 (Unaudited) and December 31, 2017

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations — Three and Nine months ended September 30, 2018 and 2017 (Unaudited)

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Deficit — Nine months ended September 30, 2018 (Unaudited)

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows — Nine months ended September 30, 2018 and 2017 (Unaudited)

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 4. Controls and Procedures

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

SEPTEMBER 30, 2018 (Unaudited)

 

DECEMBER 31, 2017

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash

 

$176,438 

 

$29,399 

Accounts receivable, net

 

8,583 

 

8,854 

Prepaid expenses and other current assets

 

43,869 

 

6,110 

   Assets of discontinued operations, net (Note 8)

 

6,357 

 

4,472 

 

 

 

 

 

Total current assets

 

235,247 

 

48,835 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

40,869 

 

39,448 

 

 

 

 

 

OTHER ASSETS AND INTANGIBLE ASSETS

 

15,188 

 

21,813 

 

 

 

 

 

LONG-TERM ASSETS DISCONTINUED OPERATIONS, net (Note 8)

 

14,668 

 

24,871 

 

 

 

 

 

TOTAL ASSETS

 

$305,972 

 

$134,967 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Accounts payable

 

$23,131 

 

$37,371 

Accounts payable, related party

 

3,516 

 

7,982 

Accrued and other liabilities

 

552,255 

 

610,107 

Convertible notes payable, related party - current portion

 

7,203 

 

5,354 

Deferred revenue

 

416,961 

 

397,931 

   Liabilities of discontinued operations (Note 8)

 

83,747 

 

140,566 

 

 

 

 

 

Total current liabilities

 

1,086,813 

 

1,199,311 

 

 

 

 

 

CONVERTIBLE NOTES PAYABLE, related party - less current portion

 

22,053 

 

27,888 

 

 

 

 

 

LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS (NOTE 8)

 

- 

 

53,246 

Total liabilities

 

1,108,866 

 

1,280,445 

 

 

 

 

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

Preferred stock - $0.001 par value; authorized, 10,000,000 shares; Series A convertible; issued and outstanding, 987,102 shares in 2018 and 2017

 

633,806 

 

618,675  

Common stock - $0.00001 par value; authorized, 40,000,000 shares; issued and outstanding, 13,621,009 shares in 2018 and 11,871,009 in 2017

 

136  

 

119  

Additional paid-in capital

 

8,768,697  

 

8,640,769  

Accumulated deficit

 

(10,205,533) 

 

(10,405,041) 

 

 

 

 

 

Total stockholders’ deficit

 

(802,894) 

 

(1,145,478) 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$305,972  

 

$134,967  

 

See accompanying notes to unaudited condensed consolidated financial statements.


3



FullNet Communications, Inc. and Subsidiaries

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 2018

 

September 30, 2017

 

September 30, 2018

 

September 30, 2017

REVENUES

 

 

 

 

 

 

 

 

Co-location and other revenues

 

$505,642  

 

$452,860  

 

$1,498,594  

 

$1,355,728  

Access service revenues

 

8,841  

 

9,759  

 

26,142  

 

32,892  

Total revenues

 

514,483  

 

462,619  

 

1,524,736  

 

1,388,620  

 

 

 

 

 

 

 

 

 

OPERATING COSTS AND EXPENSES

 

 

 

 

 

 

 

 

Cost of co-location and other revenues

 

64,492  

 

43,874  

 

170,288  

 

114,502  

Cost of access service revenues

 

2,375  

 

2,536  

 

7,842  

 

7,880  

Selling, general and administrative expenses

 

416,052  

 

407,971  

 

1,384,531  

 

1,200,782  

Depreciation and amortization

 

4,192  

 

4,156  

 

12,676  

 

13,577  

Total operating costs and expenses

 

487,111  

 

458,537  

 

1,575,337  

 

1,336,741 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

27,372  

 

4,082 

 

(50,601) 

 

51,879  

 

 

 

 

 

 

 

 

 

OTHER INCOME

 

79,646  

 

-  

 

102,251  

 

-  

INTEREST EXPENSE

 

(108) 

 

(495) 

 

(604) 

 

(1,612) 

INCOME TAX EXPENSE

 

(6,000) 

 

-  

 

(18,000) 

 

-  

 

 

 

 

 

 

 

 

 

Net income from continuing operations

 

100,910  

 

3,587  

 

33,046  

 

50,267  

Gain from sale of discontinued asset

 

-  

 

-  

 

233,277  

 

-  

Net loss from discontinued operations (NOTE 8)

 

(13,825) 

 

(19,211) 

 

(66,815) 

 

(76,380) 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$87,085  

 

$(15,624) 

 

$199,508  

 

$(26,113) 

Preferred stock dividends

 

(5,044) 

 

(6,725) 

 

(15,131) 

 

(20,174) 

Net income (loss) available to common stockholders

 

$82,041  

 

$(22,349) 

 

$184,377  

 

$(46,287) 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

   Continuing operations – basic

 

0.01  

 

0.00  

 

0.00 

 

0.00 

   Continuing operations – diluted

 

0.01  

 

0.00  

 

0.00 

 

0.00 

   Discontinued operations – basic

 

(0.00) 

 

(0.00) 

 

0.01 

 

(0.01) 

   Discontinued operations - diluted

 

(0.00) 

 

(0.00) 

 

0.01 

 

(0.01) 

 Net income (loss) - basic

 

$0.01  

 

$(0.00) 

 

$0.02 

 

$(0.00) 

 Net income (loss) - diluted

 

$0.01  

 

$(0.00) 

 

$0.01 

 

$(0.00) 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 Basic

 

11,909,052 

 

11,871,009 

 

11,883,830 

 

11,871,009 

 Diluted

 

14,851,830 

 

14,887,069 

 

14,815,054 

 

14,833,073 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 


4



FullNet Communications, Inc. and Subsidiaries

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT (UNAUDITED)

Nine Months Ended September 30, 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

 

- 

 

- 

 

- 

 

- 

 

73,076  

 

-  

 

73,076  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of increasing dividend rate preferred stock discount

 

- 

 

- 

 

- 

 

15,131 

 

(15,131) 

 

-  

 

-  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options by reducing deferred compensation payable

 

1,750,000

 

17 

 

- 

 

- 

 

69,983 

 

- 

 

70,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

- 

 

- 

 

- 

 

-  

 

199,508 

 

199,508 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2018 – (unaudited)

 

13,621,009

 

$136 

 

987,102 

 

$633,806 

 

$8,768,697  

 

$(10,205,533) 

 

$(802,894) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 


5



FullNet Communications, Inc. and Subsidiaries

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 2018

 

September 30, 2017

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net income (loss)

 

$199,508  

 

$(26,113) 

 (Income) loss from discontinued operations

 

(166,462) 

 

76,380 

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

 

 

 

 

Depreciation and amortization

 

12,676  

 

13,577 

Stock options compensation

 

73,076  

 

11,005 

Provision for uncollectible accounts receivable

 

(5,796) 

 

262 

Net (increase) decrease in

 

 

 

 

Accounts receivable

 

6.067  

 

(1,320) 

Prepaid expenses and other current assets

 

(37,759) 

 

(14,766) 

Net increase (decrease) in

 

 

 

 

Accounts payable

 

(14,420) 

 

(47,702) 

Accounts payable – related party

 

(4,286) 

 

(10,474) 

Accrued and other liabilities

 

12,148  

 

55,915  

Deferred revenue

 

19,030  

 

36,479  

Net cash provided by operating activities

 

93,782  

 

93,243  

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Cash paid for property and equipment

 

(7,472) 

 

(1,471) 

Net cash used in investing activities

 

(7,472) 

 

(1,471) 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Principal payments on borrowings under notes payable – related party

 

(3,986) 

 

(3,755) 

Net cash used in financing activities

 

(3,986) 

 

(3,755) 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

  Net cash used in operating activities

 

(36,846 

 

(63,529) 

  Net cash provided by investing activities

 

218,153  

 

-  

  Net cash used in financing activities

 

(116,592) 

 

(21,054) 

  Net cash provided by (used in) discontinued operations

 

64,715  

 

(84,583) 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

147,039  

 

3,434 

Cash at beginning of period

 

29,399  

 

19,383 

Cash at end of period

 

$176,438  

 

$22,817 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

Cash paid for income tax

 

$18,000 

 

$- 

Cash paid for interest – continuing operations

 

1.417 

 

1,612 

Cash paid for interest – discontinued operations

 

51 

 

8,652 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

Amortization of increasing dividend rate preferred stock discount

 

$15,131 

 

$20,174 

Exercise of options by reducing deferred compensation payable

 

70,000 

 

- 

 

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

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (Topic 606) “Revenue from Contracts with Customers.”  Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, “Revenue Recognition”, and requires entities to recognize revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.  We adopted Topic 606 as of January 1, 2018.  The adoption of Topic 606 did not have a material impact to our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Income because the revenue of the Company does not include contracts that extend over several periods.

 

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, 2017.

 

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, 2018.  

 

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

 

Nine Months Ended

 

September 30, 2018

 

September 30, 2017

 

September 30, 2018

 

September 30, 2017

Net income (loss):

    

 

    

 

 

 

 

Income from continuing operations

$100,910  

 

$3,587  

 

$33,046  

 

$50,267  

Income (loss) from discontinued operations – See Note 8

(13,825) 

 

(19,211) 

 

166,462  

 

(76,380) 

 Net income (loss)

$87,085  

 

$(15,624) 

 

$199,508  

 

$(26,113) 

Preferred stock dividends

(5,044) 

 

(6,725) 

 

(15,131) 

 

(20,174) 

Net income (loss) available to common shareholders

82,041  

 

(22,349) 

 

184,377  

 

(46,287) 

 

 

 

 

 

 

 

 

Basic income (loss) per share:

 

 

 

 

 

 

 

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

11,909,052  

 

11,871,009  

 

11,883,830  

 

11,871,009  

 

 

 

 

 

 

 

 

Basic income (loss) per share:

 

 

 

 

 

 

 

 Continuing operations

0.01  

 

0.00  

 

0.00 

 

0.00  

 Discontinued operations – See Note 8

(0.00) 

 

(0.00) 

 

0.01 

 

(0.01) 

 Basic income (loss) per share

0.01  

 

(0.00) 

 

0.02 

 

(0.00) 

 

 

 

 

 

 

 

 

Diluted income (loss) per share:

 

 

 

 

 

 

 

Shares used in diluted income (loss) per share

14,851,830 

 

14,887,069 

 

14,815,054 

 

14,833,073 

 

 

 

 

 

 

 

 

Diluted income (loss) per share:

 

 

 

 

 

 

 

 Continuing operations

0.01  

 

0.00  

 

0.00 

 

0.00  

 Discontinued operations – See Note 8

(0.00) 

 

(0.00) 

 

0.01 

 

(0.01) 

 Diluted income (loss) per share

0.01  

 

(0.00) 

 

0.01 

 

(0.00) 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Weighted average shares and share equivalents outstanding – basic

11,909,052 

 

11,871,009 

 

11,883,830 

 

11,871,009 

Effect of preferred stock

987,102 

 

987,102 

 

987,102 

 

987,102 

Effect of dilutive stock options

1,727,251 

 

1,796,778 

 

1,716,322 

 

1,745,847 

Effect of dilutive warrants

228,425 

 

232,180 

 

227,800 

 

229,115 

Weighted average shares and share equivalents outstanding – diluted

14,851,830 

 

14,887,069 

 

14,815,054 

 

14,833,073 

 

 

Schedule of Anti-dilutive Securities Excluded

 

Three Months Ended

 

Nine Months Ended

 

September 30, 2018

 

September 30, 2017

 

September 30, 2018

 

September 30, 2017

Preferred stock

- 

 

- 

 

- 

 

- 

Stock options

266,000 

 

- 

 

266,000 

 

- 

Warrants

- 

 

- 

 

- 

 

- 

Convertible promissory notes

29,256 

 

158,444 

 

29,256 

 

158,444 

Total anti-dilutive securities excluded

295,256 

 

158,444 

 

295,256 

 

158,444 

 

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.     GOING CONCERN AND MANAGEMENT'S PLANS

At September 30, 2018 current liabilities exceeded current assets by $851,566.  The Company does not have a line of credit or credit facility to serve as an additional source of liquidity. Historically the Company has relied on shareholder loans as an additional source of funds. These factors raise substantial doubts about the Company’s ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent upon continued operations of the Company that in turn is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, to maintain present financing, to achieve the objectives of its business plan and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

 

The Company’s business plan includes, among other things, expansion through mergers and acquisitions and the development of its co-location and advanced voice and data solutions. Execution of the Company’s business plan will require significant capital to fund capital expenditures, working capital needs and debt service. There can be no assurance that current cash balances will be sufficient to fund the Company’s current business plan beyond the next few months. As a consequence, the Company is currently focusing on revenue enhancement and cost cutting opportunities as well as working to sell non-core assets and to extend vendor payment terms. The Company continues to seek additional convertible debt 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 obtain additional capital on satisfactory terms, or at all, or on terms that will not dilute the shareholders’ interests.

3.     CONVERTIBLE NOTES PAYABLE RELATED PARTY

At December 31, 2017, the Company had a secured convertible promissory note from a shareholder with a balance of $33,242.  The interest rate of this note is 6%, requires monthly installments of $600 including principal and interest and matures May 31, 2023.  This convertible promissory note is secured by certain equipment of the Company.  The note holder has 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.  During the nine months ended September 30, 2018, the Company made principal and interest payments totaling $5,403, of which $3,986 was applied to the principal.  The note had a balance of $29,256 at September 30, 2018, of which $7,203 is short-term and $22,053 is long-term.

 

At December 31, 2017, the Company had a convertible promissory note from a shareholder with a balance of $116,592, which was secured by all tangible and intangible assets of the Company. The Company paid the remaining balance of $116,592 in full on February 1, 2018, to complete the sale of the Company’s competitive local exchange carrier or CLEC business.  See footnote 8 – Discontinued Operations.

 

4.     STOCK BASED COMPENSATION

 

The following table summarizes the Company’s employee stock option activity for the nine months ended September 30, 2018:

 

 

Schedule of Employee Stock Option Activity

 

Options

 

Weighted average

exercise price

 

Weighted average

remaining

contractual life (yrs)

 

Aggregate

Intrinsic value

Options outstanding, December 31, 2017

2,110,834

 

$0.006

 

8.18

 

 

 

 

 

 

 

 

 

 

Options exercisable, December 31, 2017

626,834

 

$0.003

 

6.03

 

$ 22,902

 

 

 

 

 

 

 

 

Options issued during the period

2,013,000

 

$0.040

 

 

 

 

 

 

 

 

 

 

 

 

Options expired during the period

3,000

 

$0.003

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised during the period

1,750,000

 

$0.040

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding September 30, 2018

2,370,834

 

$0.010

 

7.65

 

 

 

 

 

 

 

 

 

 

Options exercisable, September 30, 2018

1,125,167

 

$0.005

 

6.64

 

$ 34,590

 

 

During the nine months ended September 30, 2018, 2,013,000 nonqualified employee stock options were granted with an exercise


9



price of $.04 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 $76,996 of which $68,277 was recognized as stock-based compensation expense for the nine months ended September 30, 2018.  Of these stock options, 1,750,000 of the stock options vested immediately upon grant (February 14, 2018) and 260,000 will vest one-fifth on each annual anniversary date of the grant.  The total 2,013,000 will expire ten years from the date of the grant.  On September 28, 2018, certain officers and directors and their family members exercised options to purchase 1,750,000 restricted shares of the Company’s common stock.  Proceeds from the exercise of the Options were $70,000, which was derived from the reduction of deferred compensation payable the Company owed to these officers and directors.  The common shares were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506 of Regulation D thereunder without payment of any form of commissions or other remuneration.

 

Total stock-based compensation expense for the nine months ended September 30, 2018 was $73,076 of which $68,277 was related to options issued during the nine months ended September 30, 2018 and $4,799 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 nine   months ended September 30, 2018:

 

 

 

 

2018

Risk free interest rate

 

2.65% - 2.77%

Expected lives (in years)

 

5  

Expected volatility

 

163% - 178%

Dividend yield

 

0%

 

5.     SERIES A CONVERTIBLE PREFERRED STOCK

 

On March 9, 2018 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, 2017, 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 September 30, 2018, the aggregate outstanding accumulated arrearages of cumulative dividend was $103,970 or if issued in common shares, 2,888,045 shares.

 

The amortization of the increasing dividend rate preferred stock discount for the nine months ended September 30, 2018 was $15,131.

 

6.      PROPERTY AND EQUIPMENT

 

During the nine months ended September 30, 2018, $7,472 was paid for property and equipment.  During the three and nine months ended September 30, 2018, $1,984 and $6,051 was recorded as depreciation expense, respectively.

 

7     INTANGIBLE ASSETS

 

During the three and nine months ended September 30, 2018, $2,208 and $6,625 was recorded as amortization expense, respectively.  

 

8.     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.

 

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.


10



 

 

 

 

 

 

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

 

 

 

September 30, 2018

 

December 31, 2017

Carrying amounts of assets included in discontinued operations

 

 

 

 

Cash

 

$3,442 

 

$1,801 

Prepaid expenses and other current assets

 

2,915 

 

2,671 

Property and equipment, net

 

14,668 

 

24,871 

   Total Assets of Discontinued Operations

 

$21,025 

 

$29,343 

 

 

 

 

 

Carrying amounts of liabilities included in discontinued operations

 

 

 

 

Accounts payable

 

$61,940 

 

$57,342 

Accrued and other liabilities

 

21,807 

 

19,878 

Convertible notes payable, related party – current portion

 

- 

 

116,592 

Convertible notes payable, related party – less current portion

 

- 

 

- 

   Total Liabilities of Discontinued Operations

 

$83,747 

 

$193,812 

 

Operating Results of Discontinued Operations

 

Three Months Ended

 

Nine Months Ended

 

September 30, 2018

 

September 30, 2017

 

September 30, 2018

 

September 30, 2017

Revenues included in discontinued operations

 

 

 

 

 

 

 

Total colocation and other revenues

-   

 

$     39,357   

 

28,091   

 

$    115,807   

 

 

 

 

 

 

 

 

Operating costs and expenses included in discontinued operations

 

 

 

 

 

 

 

Cost of services

10,128   

 

$    49,227   

 

82,674   

 

$   162,639   

Selling, general and administrative expenses

1,379   

 

4,069   

 

5,226   

 

13,285   

Depreciation and amortization

2,318   

 

2,537   

 

6,955   

 

7,611   

Interest expense

-   

 

2,735   

 

51   

 

8,652   

 Total operating costs and expenses discontinued operations

$  13,825   

 

$  58,568   

 

$  94,906   

 

$  192,187   

 

 

 

 

 

 

 

 

Other Income included in discontinued operations

 

 

 

 

 

 

 

Gain on sale of assets

-   

 

-   

 

233,277   

 

-   

Net Income (Loss) from Discontinued Operations

$ (13,825)  

 

$ (19,211)  

 

166,462   

 

$ (76,380)  

 Net Income (Loss) per share from discontinued operations basic

$     (0.00)  

 

$     (0.00)  

 

$       0.01   

 

$     (0.01)  

 Net Income (Loss) per share from discontinued operations diluted

$     (0.00)  

 

$     (0.00)  

 

$       0.01   

 

$     (0.01)  


11



 

 

Cash Flows from Discontinued Operations

 

 

 

September 30, 2018

 

September 30, 2017

  Net cash used in operating activities

 

(36,846 

 

(63,529) 

  Net cash provided by investing activities

 

218,153  

 

- 

  Net cash used in financing activities

 

(116,592) 

 

(21,054) 

      Net cash provided by (used in) discontinued operations

 

64,715  

 

(84,583) 


12



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 2017 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, 2017 (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 co-location, customized live help desk outsourcing services, group text and voice message delivery services, traditional telephone 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 co-location solutions in our network operations center to competitive local exchange carriers, Internet service providers and web-hosting companies. Our co-location 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.


13



Results of Operations

The following table, which includes both continuing and discontinued operations (see Note 8 – 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 and nine months ended September 30, 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

September 30, 2018

 

September 30, 2017

 

September 30, 2018

 

September 30, 2017

 

Amount

 

Percent

 

Amount

 

Percent

 

Amount

 

Percent

 

Amount

 

Percent

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Co-location and other revenues

$505,642  

 

98.3%

 

$452,860  

 

97.9%

 

$1,498,594  

 

98.3  

 

$1,355,728  

 

97.6%

Access service revenues

8,841  

 

1.7  

 

9,759  

 

2.1  

 

26,142  

 

1.7  

 

32,892  

 

2.4  

Total revenues

514,483  

 

100.0  

 

462,619  

 

100.0  

 

1,524,736  

 

100.0  

 

1,388,620  

 

100.0  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of co-location and other revenues

64,492  

 

12.5  

 

43,874  

 

9.5  

 

170,288  

 

11.2  

 

114,502  

 

8.2  

Cost of access service revenues

2,375  

 

0.5  

 

2,536  

 

0.5  

 

7,842  

 

0.5  

 

7,880  

 

0.6  

Selling, general and administrative expenses

416,052  

 

80.9  

 

407,971  

 

88.2  

 

1,384,531  

 

90.8  

 

1,200,782  

 

86.5  

Depreciation and amortization

4,192  

 

0.8  

 

4,156  

 

0.9  

 

12,676  

 

0.8  

 

13,577  

 

1.0  

Total operating costs and expenses

487,111  

 

94.7  

 

458,537  

 

99.1  

 

1,575,337  

 

103.3  

 

1,336,741  

 

96.3  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

27,372  

 

5.3  

 

4,082  

 

0.9  

 

(50,601) 

 

(3.3) 

 

51,879  

 

3.7  

Other income

79,646  

 

15.5  

 

 

 

-  

 

102,251  

 

6.7  

 

 

 

-  

Interest expense

(108) 

 

(0.02) 

 

(495) 

 

(0.1) 

 

(604) 

 

(0.04) 

 

(1,612) 

 

(0.1) 

Income tax expense

(6,000) 

 

(1.2) 

 

 

 

-  

 

(18,000) 

 

(1.2) 

 

 

 

-  

Net income from continuing operations

100,910  

 

19.6  

 

$3,587  

 

0.8  

 

33,046  

 

2.2  

 

50,267  

 

3.6  

Gain from sale of discontinued asset

 

 

-  

 

 

 

-  

 

233,277  

 

15.3  

 

 

 

-  

Net loss from discontinued operations

(13,825) 

 

(2.7) 

 

(19,211) 

 

(4.2) 

 

(66,815) 

 

(4.4) 

 

(76,380) 

 

(5.5) 

  Net income (loss)

87,085  

 

16.9  

 

(15,624) 

 

(3.4) 

 

199,508  

 

13.1  

 

(26,113) 

 

(1.9) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividends

(5,044) 

 

(1.0) 

 

(6,725) 

 

(1.4) 

 

(15,131) 

 

(1.0) 

 

(20,174) 

 

(1.4) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

82,041  

 

15.9  

 

$(22,349) 

 

(4.8) 

 

184,377  

 

12.1  

 

$(46,287) 

 

(3.3)%

 

Three Months Ended September 30, 2018 (the “2018 3rd Quarter”) Compared to Three Months Ended September 30, 2017 (the “2017 3rd Quarter”)

Revenues

 

Co-location and other revenues increased $52,782 or 11.7% to $505,642 for the 2018 3rd Quarter from $452,860 for the same period in 2017. This increase was primarily attributable to the net addition of new customers and the sale of additional services to existing customers.

 

Access service revenues decreased $918 or 9.4% to $8,841 for the 2018 3rd Quarter from $9,759 for the same period in 2017 primarily due to a decline in the number of access customers.

 

In the 2018 3rd Quarter, we had other income of $79,646, which included $64,492 from the sale of a block of excess IPv4 numbers and $15,155 from the refund of the overpayment of certain property taxes.  We had no such income in the 2017 3rd Quarter.

 

Operating Costs and Expenses


14



Cost of co-location and other revenues increased $20,618 or 47.0% to $64,492 for the 2018 3rd Quarter from $43,874 for the same period in 2017. This increase was primarily related to servicing new customers added through growth of business. Cost of co-location and other revenues as a percentage of co-location and other revenues increased to 12.8% during the 2018 3rd Quarter, compared to 9.7% during the same period in 2017.

 

Cost of access service decreased $161 or 6.3% to $2,375 for the 2018 3rd Quarter from $2,536 for the same period in 2017. This decrease was primarily due to decreases in the costs of servicing access customers. Cost of access service revenues as a percentage of access service revenues increased to 26.9% during the 2018 3rd Quarter from 26.0 % during the same period in 2017. This increase was primarily a factor of fixed costs that were not reduced by a decline in access customers.

 

Selling, general and administrative expenses increased $8,081 or 2.0% to $416,052 for the 2018 3rd Quarter compared to $407,971 for the same period in 2017.  This increase was primarily related to an increase in employee costs of $5,817 and an increase in the provision for bad debt of $1,753.  Selling, general and administrative expenses as a percentage of total revenues decreased to 80.9% during the 2018 3rd Quarter from 88.2% during the same period in 2017.

 

Depreciation and amortization expense increased $36 or 0.9% to $4,192 for the 2018 3rd Quarter compared to $4,156 for the same period in 2017.  This increase was related to asset purchases made during the 2018 3rd Quarter.  

 

  Interest Expense

 

Interest expense decreased $387 or 78.0% to $108 for the 2018 3rd Quarter compared to $495 for the same period in 2017.  This decrease was primarily related to the payoff of the related-party note payable made during the 2018 1st Quarter.

Net Income

For the 2018 3rd Quarter, we realized net income of $87,085 compared to a net loss of $15,624 for the same period in 2017.  The increase was due primarily to an increase in income from operations of $23,290 and from other income of $79,646. 

Nine Months Ended September 30, 2018 (the “2018 Period”) Compared to Nine Months Ended September 30, 2017 (the “2017 Period”)

Revenues

Co-location and other revenues increased $142,866 or 10.5% to $1,498,594 for the 2018 Period from $1,355,728 for the 2017 Period.  This increase was primarily attributable to the net addition of new customers and the sale of additional services to existing customers.

Access service revenues decreased $6,750 or 20.5% to $26,142 for the 2018 Period from $32,892 for the 2017 Period primarily due to a decline in the number of access customers.

 

Operating Costs and Expenses

 

Cost of co-location and other revenues increased $55,786 or 48.7% to $170,288 for the 2018 Period from $114,502 for the 2017 Period.  This increase was primarily related to increases in costs of servicing new customers added through growth of business.  Cost of co-location and other revenues as a percentage of co-location and other revenues increased to 11.4% during the 2018 Period compared to 8.4% during the 2017 Period.

 

Cost of access service revenues decreased $38 or 0.5% to $7,842 for the 2018 Period from $7,880 for the 2017 Period. This decrease was primarily due to decreases in costs of servicing access customers.  Cost of access service revenues as a percentage of access service revenues increased to 30.0% during the 2018 Period, compared to 24.0% during the 2017 Period.  This increase was primarily a factor of fixed costs that were not reduced by a decline in access customers.

 

Selling, general and administrative expenses increased $183,749 or 15.3% to $1,384,531 for the 2018 Period compared to $1,200,782 for the 2017 Period.  This increase is primarily related to increases in advertising, employee costs, professional services fees, and administrative telephone expense of $37,939, $115,741, $29,393, and $4,183, respectively.  These increases were offset by a decrease in property taxes of $5,215.  In the 2017 Period we had non-recurring agent commissions expense of $13,225.  Selling, general and administrative expenses as a percentage of total revenues increased to 90.8% during the 2018 Period from 86.5% during the 2017 Period.


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Depreciation and amortization expense decreased to $12,676 for the 2018 Period compared to $13,577 for the 2017 Period primarily due to the sale of some assets.

 

Interest Expense

 

Interest expense decreased to $604 for the 2018 Period compared to $1,612 for the 2017 Period.

 

  Net Income

 

For the 2018 Period, we realized net income of $199,508 compared to a net loss of $26,113 for the 2017 Period.  The increase was due primarily to a $233,277 gain on the sale of our discontinued CLEC assets and $102,251 of other income, which offset a $50,601 net loss from operations and $66,815 loss from discontinued operations.

 

Liquidity and Capital Resources

 

As of September 30, 2018, we had $176,438 in cash and $235,247 in current assets and $1,086,813 in current liabilities.  Current liabilities consist primarily of $552,255 in accrued and other liabilities, of which $363,407 is owed to our officers and directors, and $416,961 in deferred revenue.  Our officers and directors, who are also major shareholders, have informally 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 September 30, 2018 and December 31, 2017, we had working capital deficits of $851,566 and $1,150,476, 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 September 30, 2018, of the $23,131 we owed to our trade creditors $18,209 was past due. We have no formal agreements regarding payment of these amounts.

Cash flow for the nine-month periods ended September 30, 2018 and 2017 consist of the following:

 

 

 

For the Nine-Months Period Ended September 30,

 

 

 

2018

 

2017

Net cash flows provided by operating activities

 

$93,782  

 

$93,243  

Net cash flows used in investing activities

 

(7,472) 

 

(1,471) 

Net cash flows used in financing activities

 

(3,986) 

 

(3,755) 

 

Cash used for the purchase of property and equipment was $7,472 and $1,471, respectively, for the nine months ended September 30, 2018 and 2017.  

 

No intangible assets were purchased in the nine months ended September 30, 2018 and 2017.  

 

Cash used for principal payments on notes payable was $3,986 and $3,755, respectively, for the nine months ended September 30, 2018 and 2017.      

The planned expansion of our business will require significant capital to fund capital expenditures, working capital needs, and debt service. 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 sufficient to fund our current business plan beyond the next few months. As a consequence, we are currently focusing on revenue


16



enhancement and cost cutting opportunities as well as working to sell non-core assets and to extend vendor payment terms. We continue to seek additional convertible debt or equity financing as well as the placement of a credit facility to fund our liquidity. There is no assurance that we will be able to obtain additional capital on satisfactory terms or at all or on terms that will not dilute our shareholders’ interests.

Until we obtain sufficient additional capital, the further development of our network will be delayed or we will be required to take other actions. Our inability to obtain additional capital resources has had and will continue to have a material adverse effect on our business, operating results and financial condition.

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, our ability to generate consistent net income and positive cash flow from operations as well as our ability to seek and obtain additional financing. 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, 2018, 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, 2017.  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 we paid in full on February 1, 2018 in the amount of $116,592.  

 

We have another secured convertible promissory note from a shareholder which requires monthly installments of $600, including principal and interest.  This note is secured by certain equipment.  At September 30, 2018, the outstanding principal and accrued interest of the secured convertible promissory note was $29,256.

 

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


17



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 co-location 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 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 September 30, 2018 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 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.

 

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 2.     Unregistered Sales of Equity Securities and Use of Proceeds

On September 28, 2018, certain officers and directors and their family members exercised options to purchase 1,750,000 restricted shares of the Company’s common stock.  Proceeds from the exercise of the options were $70,000.  The common shares were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506 of Regulation D thereunder without payment of any form of commissions or other remuneration.

Immediately following the exercise of the Options, the Company had 13,621,009 shares of common stock outstanding.

Item 5.     Other Information

On August 7, 2018, the Company executed an asset purchase agreement with EBOX, Inc., a Canadian corporation, covering the Company’s sale of a block of excess IPv4 numbers for $68,608.  The Company closed on the sale on August 7, 2018, at which time the Company received $64,491 in cash after the deduction of $4,117 in selling costs.

During the three months ended September 30, 2018 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

 

 

 

 

 

 

 

 

10.22

 

 

IPv4 Numbers Purchase Agreement executed August 7, 2018, by and between FullNet Communications, Inc. and EBOX, Inc.

 

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 10.22 to the Form 10-Q filed August 14, 2018

 

 

 

*

 

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: November 14, 2018

By:  

/s/ ROGER P. BARESEL  

 

 

 

Roger P. Baresel 

 

 

 

Chief Executive Officer and Chief Financial  Officer 

 

 


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