Fullnet Communications Inc 10-Q for FY2020 Q2

Fullnet Communications Inc (FULO)

10-Q 2020-08-14 For: 2020-06-30

Added on April 06, 2026

About this 10-Q

Fullnet Communications Inc filed this 10-Q on August 14, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Net income: $141.63K; up 721.3% from net income of $17.24K a year earlier
Diluted EPS: $0.01; compared with $0.00 a year earlier

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Oklahoma		73-1473361

(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

Large accelerated filer o			Accelerated filer o		Non-accelerated filer þ		Smaller reporting company ☑
Emerging-growth company	☐


	Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets — June 30, 2020 (Unaudited) and December 31, 2019		3

Condensed Consolidated Statements of Operations — Three and six months ended June 30, 2020 and 2019 (Unaudited)		4

Condensed Consolidated Statements of Shareholders’ Deficit — Three and six months ended June 30, 2020 and 2019 (Unaudited)		5

Condensed Consolidated Statements of Cash Flows — Six months ended June 30, 2020 and 2019 (Unaudited)		7

Notes to Condensed Consolidated Financial Statements (Unaudited)		8

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

Item1. Legal Proceedings		18

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		18

Item 5. Other Information		18

Item 6. Exhibits		19

Signatures		20

Exhibit 31.1
Exhibit 32.1


	June 30, 2020 (Unaudited)	DECEMBER 31, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents	`$790,858`	`$612,005`
Accounts receivable, net	`5,600`	`943`
Prepaid expenses and other current assets	`39,167`	`19,986`

Total current assets	`835,625`	`632,934`

PROPERTY AND EQUIPMENT, net	`58,399`	`57,751`

OTHER ASSETS AND INTANGIBLE ASSETS	`30,828`	`18,250`

RIGHT OF USE LEASED ASSET	`567,605`	`618,333`

TOTAL ASSETS	`$1,492,457`	`$1,327,268`

LIABILITIES AND SHAREHOLDERS’ DEFICIT

CURRENT LIABILITIES
Accounts payable	`$50,960`	`$50,786`
Accrued and other liabilities	`382,642`	`475,776`
Operating lease liability – current portion	`108,135`	`103,651`
Deferred revenue	`723,359`	`508,861`

Total current liabilities	`1,265,096`	`1,139,074`

OPERATING LEASE LIABILITY – net of current portion	`459,470`	`514,682`
Total liabilities	`1,724,566`	`1,653,756`

SHAREHOLDERS’ DEFICIT
Preferred stock - $0.001 par value; authorized, 10,000,000 shares; Series A convertible; issued and outstanding, 568,257 and 875,054 shares in 2020 and 2019, respectively	`349,910`	`554,516`
Common stock - $0.00001 par value; authorized, 40,000,000 shares; issued and outstanding, 14,539,675 and 14,539,675 shares in 2020 and 2019, respectively	`150`	`145`
Additional paid-in capital	`9,046,267`	`8,939,519`
Accumulated deficit	`(9,628,436)`	`(9,820,668)`
Total shareholders’ deficit	`(232,109)`	`(326,488)`

TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	`$1,492,457`	`$1,327,268`


	Three Months Ended		Six Months Ended
	June 30, 2020	June 30, 2019	June 30, 2020	June 30, 2019
REVENUES
Total revenue	`$888,435`	`$557,981`	`$1,602,782`	`$1,157,812`

OPERATING COSTS AND EXPENSES
Cost of revenue	`133,524`	`80,404`	`242,195`	`157,198`
Selling, general and administrative expenses	`611,194`	`459,147`	`1,165,856`	`949,159`
Depreciation and amortization	`2,209`	`4,100`	`4,399`	`8,280`
Total operating costs and expenses	`746,927`	`543,651`	`1,412,450`	`1,114,637`

INCOME FROM OPERATIONS	`141,508`	`14,330`	`190,332`	`43,175`

OTHER INCOME	`117`	`2,914`	`1,900`	`92,872`
INTEREST EXPENSE	`-`	`-`	`-`	`(277)`

NET INCOME	`$141,625`	`$17,244`	`$192,232`	`$135,770`
Preferred stock dividends	`(13,163)`	`(20,636)`	`(33,538)`	`(41,272)`
Net income (loss) available to common shareholders	`$128,462`	`$(3,392)`	`$158,694`	`$94,498`

Net income (loss) per share:
Basic and diluted	`$0.01`	`$(0.00)`	`$0.01`	`$0.01`

Weighted average common shares outstanding:
Basic	`14,542,192`	`14,271,793`	`14,542,192`	`14,007,867`
Diluted	`17,599,562`	`14,271,793`	`17,182,766`	`16,594,615`


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


	Six Months Ended
	June 30, 2020	June 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	`$192,232`	`$135,770`
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	`4,399`	`8,280`
Noncash lease expense	`50,728`	`73,267`
Stock options and warrants expense	`23,442`	`35,344`
Provision for (recovery of) uncollectible accounts receivable	`2,523`	`(1,847)`
Common stock issued for prior preferred stock repurchase charged to expense	`3,280`	`-`
Net (increase) decrease in
Accounts receivable	`(7,179)`	`6,834`
Prepaid expenses and other assets	`(31,760)`	`(14,264)`
Net increase (decrease) in
Accounts payable	`174`	`1,259`
Accounts payable – related party	`-`	`(4,000)`
Accrued and other liabilities	`(39,309)`	`23,325`
Deferred revenue	`214,498`	`61,632`
Operating lease obligation	`(50,728)`	`(65,113)`
Net cash provided by operating activities	`362,300`	`260,487`

CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment	`(5,047)`	`-`
Net cash used in investing activities	`(5,047)`	`-`

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on borrowings under notes payable – related party	`-`	`(27,888)`
Exercise of options	`-`	`116`
Exercise of warrants	`-`	`1,900`
Payments for repurchase of preferred stock	`(178,400)`	`-`
Net cash used in financing activities	`(178,400)`	`(25,872)`

NET INCREASE IN CASH AND CASH EQUIVALENTS	`178,853`	`234,615`
Cash and cash equivalents at beginning of period	`612,005`	`246,237`
Cash and cash equivalents at end of period	`$790,858`	`$480,852`

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	`$-`	`$277`

NON-CASH INVESTING AND FINANCING ACTIVITIES
Right of use assets and operating lease liabilities recognized	`$-`	`$1,077,123`
Repurchased preferred stock assigned to settle related party liability	`$53,825`	`$-`
Common stock issued in connection with repurchase of preferred stock	`$19,624`	`$-`
Amortization of increasing dividend rate preferred stock discount	`$3,595`	`$6,724`
Exercise of options by reducing deferred compensation payable	`$-`	`$1,440`

Schedule of Anti-dilutive Securities Excluded
	Three Months Ended		Six Months Ended
	June 30, 2020	June 30, 2019	June 30, 2020	June 30, 2019
Stock options	`269,000`	`2,332,168`	`299,000`	`-`
Preferred stock	`568,257`	`987,102`	`568,257`	`-`
Warrants	`-`	`290,000`	`-`	`3,000`
Convertible promissory notes	`-`	`-`	`-`	`27,888`
Total anti-dilutive securities excluded	`837,257`	`3,609,270`	`867,257`	`30,888`

Schedule of Employee Stock Option Activity
	Options	Weighted average exercise price	Weighted average remaining contractual life (yrs)	Aggregate Intrinsic value
Options outstanding, December 31, 2019	2,318,835	$ 0.010	6.42

Options exercisable, December 31, 2019	1,628,165	$ 0.007	6.00	$ 37,682

Options issued during the period	2,036,000	$ 0.015

Options expired during the period	-	-

Options outstanding June 30, 2020	4,354,835	$ 0.012	7.73

Options exercisable June 30, 2020	3,044,835	$ 0.012	7.04	$ 116,599

		2020
Risk free interest rate		0.38% - 0.89%
Expected lives (in years)		5
Expected volatility		208% - 236%
Dividend yield		0%

Schedule of Warrant Activity
	Warrants	Weighted average exercise price	Weighted average remaining contractual life (yrs)	Aggregate Intrinsic value
Warrants outstanding December 31, 2019	290,000	$ 0.004	3.41

Warrants exercisable December 31, 2019	290,000	$ 0.004	3.41	$ 7,550

Warrants issued during the period	100,000	$ 0.004

Warrants outstanding June 30, 2020	390,000	$ 0.004	2.40

Warrants exercisable June 30, 2020	390,000	$ 0.004	2.40	$ 17,950

Year ending December 31,
2020 (six months remaining)	`$76,116`
2021	`152,232`
2022	`152,232`
2023	`152,232`
2024	`152,232`
Total future minimum lease payments	`685,044`
Present value of discount	`(117,439)`
Current portion lease liability	`(108,135)`
Long-term lease liability	`$459,470`

	For the Six-Month Period Ended June 30,
	2020	2019
Net cash flows provided by operating activities	`$ 362,300`	$ 260,487
Net cash flows used in investing activities	`(5,047)`	`-`
Net cash flows used in financing activities	`(178,400)`	`(25,872)`

•		mergers and acquisitions and
•		further development of operations support systems and other automated back office systems


	REGISTRANT: FULLNET COMMUNICATIONS, INC.
Date: August 14, 2020	By:	/s/ ROGER P. BARESEL
		Roger P. Baresel
		Chief Executive Officer and Chief Financial Officer

1.	I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2020, of FullNet Communications, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2020			/s/ Roger P. Baresel,
			Chief Executive Officer and Chief Financial Officer