Company Quick10K Filing
Quick10K
Fullnet Communications
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
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
GLD Spdr Gold Trust 36,551
OMCM Omnicomm Systems 46
VSAR Versartis 24
PRSS CafePress 20
WDLF Social Life Network 15
AMDA Amedica 12
PWON Powin Energy 0
GALEM Galem Group 0
SDC SmileDirectClub 0
VNUE VNUE 0
FULO 2019-06-30
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 1. Legal Proceedings
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 2019-06-30

FULO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

FULLNET COMMUNICATIONS INC. - Form 10-Q SEC filing
0001092570 --12-31 false 2019 Q2 0001092570 2019-01-01 2019-06-30 0001092570 2019-06-30 0001092570 2019-08-14 0001092570 2019-08-14 2019-08-14 0001092570 2018-12-31 0001092570 2019-04-01 2019-06-30 0001092570 2018-04-01 2018-06-30 0001092570 2018-01-01 2018-06-30 0001092570 us-gaap:CommonStockMember 2019-01-01 2019-06-30 0001092570 us-gaap:PreferredStockMember 2019-01-01 2019-06-30 0001092570 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-06-30 0001092570 us-gaap:RetainedEarningsMember 2019-01-01 2019-06-30 0001092570 us-gaap:CommonStockMember 2019-03-31 0001092570 us-gaap:PreferredStockMember 2019-03-31 0001092570 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001092570 us-gaap:RetainedEarningsMember 2019-03-31 0001092570 us-gaap:CommonStockMember 2019-04-01 2019-06-30 0001092570 us-gaap:PreferredStockMember 2019-04-01 2019-06-30 0001092570 us-gaap:AdditionalPaidInCapitalMember 2019-04-01 2019-06-30 0001092570 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0001092570 us-gaap:CommonStockMember 2019-06-30 0001092570 us-gaap:PreferredStockMember 2019-06-30 0001092570 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001092570 us-gaap:RetainedEarningsMember 2019-06-30 0001092570 us-gaap:CommonStockMember 2018-12-31 0001092570 us-gaap:PreferredStockMember 2018-12-31 0001092570 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001092570 us-gaap:RetainedEarningsMember 2018-12-31 0001092570 us-gaap:CommonStockMember 2018-03-31 0001092570 us-gaap:PreferredStockMember 2018-03-31 0001092570 us-gaap:AdditionalPaidInCapitalMember 2018-03-31 0001092570 us-gaap:RetainedEarningsMember 2018-03-31 0001092570 2018-03-31 0001092570 us-gaap:CommonStockMember 2018-04-01 2018-06-30 0001092570 us-gaap:PreferredStockMember 2018-04-01 2018-06-30 0001092570 us-gaap:AdditionalPaidInCapitalMember 2018-04-01 2018-06-30 0001092570 us-gaap:RetainedEarningsMember 2018-04-01 2018-06-30 0001092570 us-gaap:CommonStockMember 2018-06-30 0001092570 us-gaap:PreferredStockMember 2018-06-30 0001092570 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0001092570 us-gaap:RetainedEarningsMember 2018-06-30 0001092570 2018-06-30 0001092570 us-gaap:CommonStockMember 2017-12-31 0001092570 us-gaap:PreferredStockMember 2017-12-31 0001092570 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001092570 us-gaap:RetainedEarningsMember 2017-12-31 0001092570 2017-12-31 0001092570 us-gaap:CommonStockMember 2018-01-01 2018-06-30 0001092570 us-gaap:PreferredStockMember 2018-01-01 2018-06-30 0001092570 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-06-30 0001092570 us-gaap:RetainedEarningsMember 2018-01-01 2018-06-30 0001092570 fil:ConvertibleNotePayable1Member 2019-01-01 2019-06-30 0001092570 fil:ConvertibleNotePayable1Member 2018-12-31 0001092570 fil:EmployeeStockOptionsMember 2019-01-01 2019-06-30 0001092570 fil:EmployeeStockOptionsMember 2018-12-31 0001092570 fil:EmployeeStockOptionsMember 2018-12-31 2018-12-31 0001092570 fil:EmployeeStockOptionsMember 2019-06-30 0001092570 fil:EmployeeStockOptionsMember 2019-06-30 2019-06-30 0001092570 fil:Warrants1Member 2019-01-01 2019-06-30 0001092570 fil:Warrants1Member 2018-12-31 0001092570 fil:Warrants1Member 2018-12-31 2018-12-31 0001092570 fil:Warrants1Member 2019-06-30 0001092570 fil:Warrants1Member 2019-06-30 2019-06-30 0001092570 fil:Warrant1Member 2019-01-01 2019-06-30 0001092570 fil:Warrant2Member 2019-01-01 2019-06-30 xbrli:pure iso4217:USD xbrli:shares iso4217:USD xbrli:shares

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

 

 

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

 

For the quarterly period ended June 30, 2019

 

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

 

73-1473361

 

 

 

(State or other jurisdiction of incorporation or organization)

 

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

 

201 Robert S. Kerr Avenue, Suite 210

Oklahoma City, Oklahoma 73102

(Address of principal executive offices)

 

(405236-8200

(Registrant’s telephone number)

 

Securities registered pursuant to Section 12(g) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.00001 per share

FULO

OTC Markets Group Pink

 

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

Emerging-growth company

 

 

 

 

 

 

 

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  No þ

 

As of August 14, 2019, 14,539,675 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 — June 30, 2019 (Unaudited) and December 31, 2018

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations — Three and six months ended June 30, 2019 and 2018 (Unaudited)

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Deficit — Three and six months ended June 30, 2019 and 2018 (Unaudited)

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows — Six months ended June 30, 2019 and 2018 (Unaudited)

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 4. Controls and Procedures

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item1. Legal Proceedings

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 5. Other Information

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 6. Exhibits

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signatures

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exhibit 31.1

 Exhibit 32.1

 


2



FullNet Communications, Inc. and Subsidiaries

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

June 30, 2019 (Unaudited)

 

DECEMBER 31, 2018

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash and cash equivalents

 

$479,998 

 

$245,462 

Accounts receivable, net

 

39 

 

5,026 

Prepaid expenses and other current assets

 

45,112 

 

30,848 

 

 

 

 

 

Total current assets

 

525,149 

 

281,336 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

47,403 

 

51,267 

 

 

 

 

 

OTHER ASSETS AND INTANGIBLE ASSETS

 

8,563 

 

12,979 

 

 

 

 

 

RIGHT OF USE LEASED ASSET

 

1,003,856 

 

- 

 

 

 

 

 

ASSETS OF DISCONTINUED OPERATIONS, net

 

854 

 

775 

 

 

 

 

 

TOTAL ASSETS

 

$1,585,825 

 

$346,357 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Accounts payable

 

$19,322 

 

$18,428 

Accounts payable, related party

 

- 

 

4,000 

Accrued and other liabilities

 

557,302 

 

534,168 

Convertible notes payable, related party - current portion

 

- 

 

7,203 

Operating lease liability – current portion

 

139,023 

 

- 

Deferred revenue

 

504,403 

 

442,771 

 

 

 

 

 

Total current liabilities

 

1,220,050 

 

1,006,570 

 

 

 

 

 

CONVERTIBLE NOTES PAYABLE, related party - less current portion

 

- 

 

20,685 

OPERATING LEASE LIABILITY – less current portion

 

872,987 

 

- 

LIABILITIES OF DISCONTINUED OPERATIONS (NOTE 10)

 

51,479 

 

52,363 

Total liabilities

 

2,144,516 

 

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

 

645,573 

 

638,849  

Common stock - $0.00001 par value; authorized, 40,000,000 shares; issued and outstanding, 14,539,675 and 13,621,009 shares in 2019 and 2018, respectively

 

 145 

 

136  

Additional paid-in capital

 

8,797,779  

 

8,765,712  

Accumulated deficit

 

(10,002,188) 

 

(10,137,958) 

Total stockholders’ deficit

 

(558,691) 

 

(733,261) 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$1,585,825  

 

$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

 

Six Months Ended

 

 

June 30, 2019

 

June 30, 2018

 

June 30, 2019

 

June 30, 2018

REVENUES

 

 

 

 

 

 

 

 

     Total revenue

 

$557,981 

 

$503,193 

 

$1,157,812 

 

$1,010,253 

 

 

 

 

 

 

 

 

 

OPERATING COSTS AND EXPENSES

 

 

 

 

 

 

 

 

Cost of revenue

 

80,404  

 

62,427 

 

157,198  

 

111,263  

Selling, general and administrative expenses

 

458,668  

 

418,122 

 

948,201  

 

968,479  

Depreciation and amortization

 

4,100  

 

4,095 

 

8,280  

 

8,484  

Total operating costs and expenses

 

543,172  

 

484,644 

 

1,113,679  

 

1,088,226  

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

14,809  

 

18,549  

 

44,133  

 

(77,973) 

 

 

 

 

 

 

 

 

 

OTHER INCOME

 

2,391  

 

16,605  

 

92,349  

 

22,605  

INTEREST EXPENSE

 

-  

 

(166) 

 

(277) 

 

(496) 

INCOME TAX EXPENSE

 

-  

 

(7,334) 

 

-  

 

(12,000) 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

17,200  

 

27,654  

 

136,205  

 

(67,864) 

Gain from sale of discontinued asset

 

-  

 

-  

 

-  

 

233,277  

Net income (loss) from discontinued operations (NOTE 10)

 

44  

 

(21,669) 

 

(435) 

 

(52,990) 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$17,244  

 

$5,985  

 

$135,770  

 

$112,423  

Preferred stock dividends

 

(3,362) 

 

(3,363) 

 

(6,724) 

 

(10,087) 

Net income available to common stockholders

 

$13,882  

 

$2,622  

 

$129,046  

 

$102,336  

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

   Continuing operations – basic and diluted

 

0.00  

 

0.00  

 

0.01  

 

(0.01) 

   Discontinued operations – basic and diluted

 

0.00  

 

(0.00) 

 

(0.00) 

 

0.02  

 Net income (loss) – basic and diluted

 

$0.00  

 

$0.00  

 

$0.01  

 

$0.01  

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 Basic

 

14,271,793

 

11,871,009 

 

14,007,867

 

11,871,009  

 Diluted

 

16,876,730

 

14,753,128 

 

16,594,615

 

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 June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

Preferred stock

 

Additional

 

Accumulated

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

paid-in capital

 

deficit

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 1, 2019

 

14,021,009 

 

$140 

 

987,102 

 

$642,211 

 

$8,797,535  

 

$(10,019,432) 

 

$(579,546) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options compensation

 

- 

 

- 

 

- 

 

- 

 

2,055  

 

-  

 

2,055  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

38,666 

 

- 

 

- 

 

- 

 

116  

 

-  

 

116  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options by reducing deferred compensation payable

 

480,000 

 

5 

 

- 

 

- 

 

1,435  

 

-  

 

1,440  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of increasing dividend rate preferred stock discount

 

- 

 

- 

 

- 

 

3,362 

 

(3,362) 

 

-  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

- 

 

- 

 

- 

 

- 

 

-  

 

17,244  

 

17,244  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019 – (unaudited)

 

14,539,675 

 

$145 

 

987,102 

 

$645,573 

 

$8,797,779  

 

$(10,002,188) 

 

$(558,691) 

Six Months Ended June 30, 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

 

- 

 

- 

 

- 

 

- 

 

19,986  

 

-  

 

19,986  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

38,666 

 

- 

 

- 

 

- 

 

116  

 

-  

 

116  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options by reducing deferred compensation payable

 

480,000 

 

5 

 

- 

 

- 

 

1,435  

 

-  

 

1,440  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of increasing dividend rate preferred stock discount

 

- 

 

- 

 

- 

 

6,724 

 

(6,724) 

 

-  

 

-  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued

 

- 

 

- 

 

- 

 

- 

 

15,358  

 

-  

 

15,358  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants exercised

 

400,000 

 

4 

 

- 

 

- 

 

1,896  

 

-  

 

1,900  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

- 

 

- 

 

- 

 

- 

 

-  

 

135,770  

 

135,770  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019 – (unaudited)

 

14,539,675 

 

$145 

 

987,102 

 

$645,573 

 

$8,797,779  

 

$(10,002,188) 

 

$(558,691) 


5



Three Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

Preferred stock

 

Additional

 

Accumulated

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

paid-in capital

 

deficit

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 1, 2018

 

11,871,009 

 

$119 

 

987,102 

 

$625,399 

 

$8,702,982  

 

$(10,298,603) 

 

$(970,103) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options compensation

 

- 

 

- 

 

- 

 

- 

 

2,116  

 

-  

 

2,116  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of increasing dividend rate preferred stock discount

 

- 

 

- 

 

- 

 

3,363 

 

(3,363) 

 

-  

 

-  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

- 

 

- 

 

- 

 

- 

 

-  

 

5,985  

 

5,985  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018 – (unaudited)

 

11,871,009 

 

$119 

 

987,102 

 

$628,762 

 

$8,701,735  

 

$(10,292,618) 

 

$(962,002) 

 

Six Months Ended June 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

 

- 

 

- 

 

- 

 

- 

 

71,053  

 

-  

 

71,053  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of increasing dividend rate preferred stock discount

 

- 

 

- 

 

- 

 

10,087 

 

(10,087) 

 

-  

 

-  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

- 

 

- 

 

- 

 

-  

 

112,423 

 

112,423 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018 – (unaudited)

 

11,871,009

 

$119 

 

987,102 

 

$628,762 

 

$8,701,735  

 

$(10,292,618) 

 

$(962,002) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.


6



FullNet Communications, Inc. and Subsidiaries

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 2019

 

June 30, 2018

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net income

 

$135,770  

 

$112,423 

 (Income) loss from discontinued operations

 

435  

 

(180,287) 

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

 

 

 

 

Depreciation and amortization

 

8,280  

 

8,484 

Noncash lease expense

 

73,267  

 

- 

Stock options and warrants expense

 

35,344 

 

71,053 

Provision for uncollectible accounts receivable

 

(1,847) 

 

(7,147) 

Net (increase) decrease in

 

 

 

 

Accounts receivable

 

6,834  

 

15,454 

Prepaid expenses and other current assets

 

(14,264) 

 

(24,641) 

Net increase (decrease) in

 

 

 

 

Accounts payable

 

894  

 

(19,057) 

Accounts payable – related party

 

(4,000) 

 

(2,876) 

Accrued and other liabilities

 

24,574  

 

26,114  

Deferred revenue

 

61,632  

 

24,919  

Operating lease obligation

 

(65,113) 

 

- 

Net cash provided by operating activities

 

261,806  

 

24,439  

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Cash paid for property and equipment

 

- 

 

(7,472) 

Net cash used in investing activities

 

- 

 

(7,472) 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Principal payments on borrowings under notes payable – related party

 

(27,888) 

 

(2,637) 

Exercise of warrants

 

1,900 

 

-  

Exercise of options

 

116 

 

- 

Net cash used in financing activities

 

(25,872) 

 

(2,637) 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

  Net cash used in operating activities

 

(1,398) 

 

(26,246) 

  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) 

 

75,315 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

234,536 

 

89,645 

Cash at beginning of period

 

245,462 

 

29,399 

Cash at end of period

 

$479,998 

 

$119,044 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

Cash paid for income tax

 

$- 

 

$12,000 

Cash paid for interest – continuing operations

 

277 

 

964 

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

 

6,724 

 

10,087 

Exercise of options by reducing deferred compensation payable

 

1,440 

 

- 


7



See accompanying notes to the unaudited condensed consolidated financial statements.

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 9 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.


8



 

Schedule of Income (Loss) Per Share

 

Three Months Ended

 

Six Months Ended

 

June 30, 2019

 

June 30, 2018

 

June 30, 2019

 

June 30, 2018

Net income (loss):

    

 

    

 

 

 

 

Income (loss) from continuing operations

$17,200  

 

$27,654  

 

$136,205  

 

$(67,864) 

Income (loss) from discontinued operations – See Note 10

44  

 

(21,669) 

 

(435) 

 

180,287  

 Net income (loss)

17,244  

 

5,985  

 

135,770  

 

112,423  

Preferred stock dividends

(3,362) 

 

(3,363) 

 

(6,724) 

 

(10,087) 

Net income (loss) available to common shareholders

$13,882  

 

$2,622  

 

$129,046  

 

$102,336  

 

 

 

 

 

 

 

 

Basic income (loss) per share:

 

 

 

 

 

 

 

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

14,271,793 

 

11,871,009  

 

14,007,867  

 

11,871,009  

 

 

 

 

 

 

 

 

Basic income (loss) per share:

 

 

 

 

 

 

 

 Continuing operations

0.00 

 

0.00  

 

0.01  

 

(0.01) 

 Discontinued operations – See Note 10

0.00 

 

(0.00) 

 

(0.00) 

 

0.02  

 Basic income (loss) per share

0.00 

 

0.00  

 

0.01  

 

0.01  

 

 

 

 

 

 

 

 

Diluted income (loss) per share:

 

 

 

 

 

 

 

Shares used in diluted income (loss) per share

16,876,730 

 

14,753,128  

 

16,594,615  

 

11,871,009  

 

 

 

 

 

 

 

 

Diluted income (loss) per share:

 

 

 

 

 

 

 

 Continuing operations

0.00 

 

0.00  

 

0.01  

 

(0.01) 

 Discontinued operations – See Note 10

0.00 

 

(0.00) 

 

(0.00) 

 

0.02  

 Diluted income (loss) per share

0.00 

 

0.00  

 

0.01  

 

0.01  

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Weighted average shares and share equivalents outstanding – basic

14,271,793 

 

11,871,009  

 

14,007,867 

 

11,871,009  

Effect of preferred stock

987,102 

 

987,102  

 

987,102 

 

-  

Effect of dilutive stock options

1,351,658 

 

1,670,017  

 

1,335,155 

 

-  

Effect of dilutive warrants

266,177 

 

225,000  

 

264,491 

 

-  

Weighted average shares and share equivalents outstanding – diluted

16,876,730 

 

14,753,128  

 

16,594,615 

 

11,871,009  

 

Schedule of Anti-dilutive Securities Excluded

 

Three Months Ended

 

Six Months Ended

 

June 30, 2019

 

June 30, 2018

 

June 30, 2019

 

June 30, 2018

Preferred stock

- 

 

- 

 

- 

 

987,102 

Stock options

- 

 

2,043,000 

 

- 

 

4,117,834 

Warrants

3,000 

 

- 

 

3,000 

 

250,000 

Convertible promissory notes

- 

 

30,605 

 

27,888 

 

30,605 

Total anti-dilutive securities excluded

3,000 

 

2,073,605 

 

30,888 

 

5,385,541 

 

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.


9



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 $695,000 at June 30, 2019, of which approximately $409,000 of the Company’s current liabilities is owed to its officers and directors, and approximately $504,403 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 $260,000 and $24,000, for the six months ending June 30, 2019 and 2018, respectively.  In addition, the Company was able to generate net income of approximately $136,000 and $112,000, for the six months ending June 30, 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 2014-15.  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.


10



4.     STOCK BASED COMPENSATION

 

The following table summarizes the Company’s employee stock option activity for the six months ended June 30, 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

518,666

 

$0.003

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding June 30, 2019

2,332,168

 

$0.010

 

6.93

 

 

 

 

 

 

 

 

 

 

Options exercisable June 30, 2019

1,584,832

 

$0.007

 

6.46

 

$ 49,227

 

 

During the six months ended June 30, 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 six months ended June 30, 2019.  These stock options vested immediately upon grant (February 19, 2019) and will expire one year from the date of the grant.  On May 17, 2019, certain employees, officers and directors of the Company and their family members exercised options to purchase 518,666 restricted shares of the Company’s common stock.  Proceeds from the exercise of the Options were $1,556, of which $1,440 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 six months ended June 30, 2019 was $19,986, of which $15,876 was related to options issued during the six months ended June 30, 2019 and $4,110 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 six   months ended June 30, 2019:

 

 

 

 

2019

Risk free interest rate

 

2.51%

Expected lives (in years)

 

1  

Expected volatility

 

36%

Dividend yield

 

0%


11



5.     WARRANT ACTIVITY

 

The following table summarizes the Company’s warrant activity for the six months ended June 30, 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 June 30, 2019

290,000

 

$0.004

 

3.92

 

 

 

 

 

 

 

 

 

 

Warrants exercisable June 30, 2019

290,000

 

$0.004

 

3.92

 

$ 9,899

 

During the six months ended June 30, 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 six months ended June 30, 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 six   months ended June 30, 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 June 30, 2019, the aggregate outstanding accumulated arrearages of cumulative dividend was $182,614 or if issued in common shares, 4,793,015 shares.

 

The amortization of the increasing dividend rate preferred stock discount for the six months ended June 30, 2019 was $6,724.

 

7.      PROPERTY AND EQUIPMENT

 

During the six months ended June 30, 2019, no purchases were made for property and equipment.  During the six months ended June 30, 2019, $3,864 was recorded as depreciation expense.

 

8.     INTANGIBLE ASSETS

 

During the six months ended June 30, 2019, $4,416 was recorded as amortization expense.  


12



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 earliest 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 June 30, 2019, the remaining future cash payments under our lease total approximately $1,317,647.

 

For the six months ending June 30, 2019, we amortized $73,267 and $65,113, of our operating right-of-use, or ROU, asset and liability, respectively.  At June 30, 2019, an operating ROU asset and liability of approximately $1,003,856 and $1,012,010, respectively, are included on our condensed consolidated balance sheet.  

 

For the six months ended June 30, 2019, our fixed operating lease cost was $119,045, which is included within operating costs and expenses in our condensed consolidated statement of operations.

 

For the six months ended June 30, 2019, cash paid for amounts included in the measurement of our lease liability included within our cash flows from operating activities was $110,891.

 

Future minimum lease payments under non-cancellable operating lease as of June 30, 2019, were as follows:

 

Year ending December 31,

 

2019 (excluding the six months ended June 30, 2019)

$110,891  

2020

228,305  

2021

234,828  

2022

241,351  

2023

247,874  

Thereafter

254,398  

Total future minimum lease payments

1,317,647  

Less imputed interest

(305,637) 

Total liability

$1,012,010  

 

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.


13



 

 

 

 

 

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

 

 

 

June 30, 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

 

$43,270 

 

$42,905 

Accrued and other liabilities

 

8,209 

 

9,458 

   Total Liabilities of Discontinued Operations

 

$51,479 

 

$52,363 

 

Operating Results of Discontinued Operations

 

Three Months Ended

 

Six Months Ended

 

June 30,

2019

 

June 30,

2018

 

June 30,

2019

 

June 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

$- 

 

$18,660  

 

$- 

 

$72,546  

Selling, general and administrative expenses

479 

 

691  

 

958 

 

3,848  

Depreciation and amortization

- 

 

2,318  

 

- 

 

4,636  

Interest expense

- 

 

-  

 

- 

 

51  

 Total operating costs and expenses discontinued operations

$479 

 

$21,669  

 

$958 

 

$81,081  

 

 

 

 

 

 

 

 

Other Income included in discontinued operations

 

 

 

 

 

 

 

Gain on sale of assets

- 

 

-  

 

-  

 

233,277  

Other income from applied customer deposits

523 

 

-

 

523  

 

- 

Net Income (Loss) from Discontinued Operations

$44 

 

$(21,669) 

 

$(435) 

 

$180,287 

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

$0.00 

 

$(0.00) 

 

$(0.00) 

 

$0.02 

 

Cash Flows from Discontinued Operations

 

 

June 30,

2019

 

June 30,

2018

  Net cash used in operating activities

 

$ (1,398)  

 

$(26,246) 

  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)  

 

$75,315  


14



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.


15



Results of Operations

The following table, which includes both continuing and discontinued operations (see Note 10 – 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 six months ended June 30, 2019 and 2018:

 

 

Three Months Ended

 

Six Months Ended

 

June 30, 2019

 

June 30, 2018

 

June 30, 2019

 

June 30, 2018

 

Amount

 

Percent

 

Amount

 

Percent

 

Amount

 

Percent

 

Amount

 

Percent

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

557,981  

 

100.0 

 

$503,193  

 

100.0  

 

1,157,812 

 

100.0 

 

$1,010,253  

 

100.0  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

80,404  

 

14.4  

 

62,427  

 

12.4  

 

157,198 

 

13.6  

 

111,263  

 

11.0  

Selling, general and administrative expenses

458,668  

 

82.2  

 

418,122  

 

83.1  

 

948,201 

 

81.9  

 

968,479  

 

95.9  

Depreciation and amortization

4,100  

 

0.7  

 

4,095  

 

0.8  

 

8,280 

 

0.7  

 

8,484  

 

0.8  

Total operating costs and expenses

543,172  

 

97.3  

 

484,644  

 

96.3  

 

1,113,679 

 

96.2  

 

1,088,226  

 

107.7  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

14,809  

 

2.7  

 

18,549  

 

3.7  

 

44,133 

 

3.8  

 

(77,973) 

 

(7.7) 

Other income

2,391  

 

0.4  

 

16,605  

 

3.3  

 

92,349 

 

7.9  

 

22,605  

 

2.2  

Interest expense

 

 

 

 

(166) 

 

(0.1) 

 

(277)

 

(0.0) 

 

(496) 

 

(0.1) 

Income tax expense

 

 

 

 

(7,334) 

 

(1.4) 

 

 

 

 

(12,000) 

 

(1.1) 

Net income (loss) from continuing operations

17,200  

 

3.1  

 

27,654  

 

5.5  

 

136,205 

 

11.7  

 

(67,864) 

 

(6.7) 

Gain from sale of discontinued asset

 

 

 

 

 

 

 

 

 

 

 

233,277  

 

23.0  

Net income (loss) from discontinued operations

44  

 

0.0  

 

(21,669) 

 

(4.3) 

 

(435)

 

(0.0) 

 

(52,990) 

 

(5.2) 

  Net income (loss)

17,244  

 

3.1  

 

5,985  

 

1.2  

 

135,770 

 

11.7  

 

112,423  

 

11.1  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividends

(3,362) 

 

(0.6) 

 

(3,363) 

 

(0.7) 

 

(6,724)

 

(0.6) 

 

(10,087) 

 

(1.0) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

13,882  

 

2.5  

 

$2,622  

 

0.5  

 

129,046 

 

11.1  

 

$102,336  

 

10.1  

Three Months Ended June 30, 2019 (the “2019 2nd Quarter”) Compared to Three Months Ended June 30, 2018 (the “2018 2nd Quarter”)

Revenues

 

Total revenue increased $54,788 or 10.9% to $557,981 for the 2019 2nd Quarter from $503,193 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 2nd Quarter, we had interest income of $2,391.  In the 2018 2nd Quarter, we had other income of $16,605 from the refund of overpayment of 2012 property taxes.

 

Operating Costs and Expenses

 

Cost of revenue increased $17,977 or 28.8% to $80,404 for the 2019 2nd Quarter from $62,427 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 14.4% during the 2019 2nd Quarter, compared to 12.4% 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 increased $40,546 or 9.7% to $458,668 for the 2019 2nd Quarter compared to $418,122 for the same period in 2018.  This increase was primarily related to increases in advertising costs and employee costs of $20,994 and $18,192, respectively.  Selling, general and administrative expenses as a percentage of total revenues decreased to 82.2% during the 2019 2nd Quarter from 83.1% during the same period in 2018.


16



Depreciation and amortization expense remained relatively the same at $4,100 for the 2019 2nd Quarter compared to $4,095 for the same period in 2018.  

 

  Interest Expense

 

Interest expense decreased $166 or 100% to $0 for the 2019 2nd Quarter compared to $166 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 2nd Quarter, we realized net income of $17,244 compared to net income of $5,985 for the same period in 2018.  The increase was due primarily to the net loss from discontinued operations of $21,669 in the second quarter of 2018, that was not present in the second quarter of 2019. 

Six Months Ended June 30, 2019 (the “2019 Period”) Compared to Six Months Ended June 30, 2018 (the “2018 Period”)

Revenues

Total revenue increased $147,559 or 14.6% to $1,157,812 for the 2019 Period from $1,010,253 for the 2018 Period.  This increase was primarily attributable to the net addition of new customers and the sale of additional services to existing customers.

In the 2019 Period, we had other income of $92,349 made up of $3,906 of interest income, $81,920 from the sale of a block of excess IPv4 numbers, and $6,523 from the recalculation of the long-term lease asset.

Operating Costs and Expenses

 

Cost of revenue increased $45,935 or 41.3% to $157,198 for the 2019 Period from $111,263 for the 2018 Period.  This increase was primarily related to increases in costs of servicing new customers added through growth of business.  Cost of revenue as a percentage of revenue increased to 13.6% during the 2019 Period compared to 11.0% during the 2018 Period.

 

Selling, general and administrative expenses decreased $20,278 or 2.1% to $948,201 for the 2019 Period compared to $968,479 for the 2018 Period.  This decrease is primarily related to decreases in employee costs and travel and entertainment expenses of $86,355 and $4,327, respectively.  These decreases were offset by increases in advertising, professional services, rent and supplies of $39,291, $25,258, $4,814, and $1,345, respectively.  Selling, general and administrative expenses as a percentage of total revenue increased to 81.9% during the 2019 Period from 95.9% during the 2018 Period.

 

Depreciation and amortization expense remained relatively the same at $8,280 for the 2019 Period compared to $8,484 for the 2018 Period.

 

Interest Expense

 

Interest expense decreased to $277 for the 2019 Period compared to $496 for the 2018 Period.

Net Income

For the 2019 Period, we realized net income of $135,770 compared to net income of $112,423 for the 2018 Period.  The increase was due primarily to income from operations of $44,133 and other income of $92,349 in the 2019 Period compared to a net loss from operations of ($77,973), a net loss from discontinued operations of ($52,990), offset by a $233,277 gain from discontinued operations in the 2018 Period. 

 

Liquidity and Capital Resources

 

As of June 30, 2019, we had $479,998 in cash and $45,151 in current assets and $1,220,050 in current liabilities.  Current liabilities consist primarily of $557,302 in accrued and other liabilities, of which $409,112 is owed to our officers and directors, and $504,403 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.


17



At June 30, 2019 and December 31, 2018, we had working capital deficits of $694,901 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 June 30, 2019, $15,979 of the $19,322 we owed to our trade creditors was past due. We have no formal agreements regarding payment of these amounts.

Cash flow for the six-month periods ended June 30, 2019 and 2018 consist of the following:

 

 

 

For the Six-Month Period Ended June 30,

 

 

 

2019

 

2018

Net cash flows provided by operating activities

 

$261,806  

 

$24,439  

Net cash flows used in investing activities

 

- 

 

(7,472) 

Net cash flows used in financing activities

 

(25,872) 

 

(2,637) 

 

No property or equipment were purchased in the six months ended June 30, 2019, and cash used for the purchase of property and equipment was $7,472 for the six months ended June 30, 2018.  

 

No intangible assets were purchased in the six months ended June 30, 2019 and 2018.  

 

Cash used for the payoff of the note payable in the six months ended June 30, 2019 was $27,888, and principal payments on notes payable were $2,637 for the six months ended June 30, 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 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, our 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.


18



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 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 June 30, 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:


19



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.

 

 

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.

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.

On May 17, 2019, we agreed to sell 518,666 restricted shares of its common stock, par value $0.00001 per share pursuant to the exercise of previously issued and outstanding common stock purchase options (the “Options”) held by various employees, our officers and directors and their family members.  Proceeds from the exercise of the Options were $1,556.  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 Options, we had 14,539,675 shares of common stock issued and outstanding, and 290,000 Warrants remaining outstanding, 250,000 with an exercise price of $.003 per share and 40,000 with an exercise price of $.01 per share.

Item 5.     Other Information

During the six months ended June 30, 2019, all events reportable on Form 8-K were reported.


20



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.

 

 


21



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: August 14, 2019

By:  

/s/ ROGER P. BARESEL  

 

 

 

Roger P. Baresel 

 

 

 

Chief Executive Officer and Chief Financial Officer 

 


22