0001140705-18-000215.txt : 20180814 0001140705-18-000215.hdr.sgml : 20180814 20180814141901 ACCESSION NUMBER: 0001140705-18-000215 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 56 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180814 DATE AS OF CHANGE: 20180814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FULLNET COMMUNICATIONS INC CENTRAL INDEX KEY: 0001092570 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 731473361 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27031 FILM NUMBER: 181016324 BUSINESS ADDRESS: STREET 1: 201 ROBERT S KERR AVENUE STREET 2: SUITE 210 CITY: OKLAHOMA CITY STATE: OK ZIP: 73102 BUSINESS PHONE: 405-236-8200 MAIL ADDRESS: STREET 1: 201 ROBERT S KERR AVENUE STREET 2: SUITE 210 CITY: OKLAHOMA CITY STATE: OK ZIP: 73102 10-Q 1 fulo-20180630.htm FULLNET COMMUNICATIONS, INC. - FORM 10-Q SEC FILING 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 June 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 August 14, 2018, 11,871,009 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 — June 30, 2018 (Unaudited) and December 31, 2017

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows — Six months ended June 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

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 4. Controls and Procedures

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 1. Legal Proceedings

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 5. Other Information

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 6. Exhibits

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signatures

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exhibit 10.22

 Exhibit 31.1

 Exhibit 32.1

 


2



FullNet Communications, Inc. and Subsidiaries

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

JUNE 30, 2018 (Unaudited)

 

DECEMBER 31, 2017

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash

 

$119,044 

 

$29,399 

Accounts receivable, net

 

547 

 

8,854 

Prepaid expenses and other current assets

 

30,751 

 

6,110 

   Assets of discontinued operations, net (Note 8)

 

4,852 

 

4,472 

 

 

 

 

 

Total current assets

 

155,194 

 

48,835 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

42,853 

 

39,448 

 

 

 

 

 

OTHER ASSETS AND INTANGIBLE ASSETS

 

17,396 

 

21,813 

 

 

 

 

 

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

 

16,987 

 

24,871 

 

 

 

 

 

TOTAL ASSETS

 

$232,430 

 

$134,967 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Accounts payable

 

$18,314 

 

$37,371 

Accounts payable, related party

 

5,106 

 

7,982 

Accrued and other liabilities

 

636,221 

 

610,107 

Convertible notes payable, related party - current portion

 

7,203 

 

5,354 

Deferred revenue

 

422,850 

 

397,931 

   Liabilities of discontinued operations (Note 8)

 

81,336 

 

140,566 

 

 

 

 

 

Total current liabilities

 

1,171,030 

 

1,199,311 

 

 

 

 

 

CONVERTIBLE NOTES PAYABLE, related party - less current portion

 

23,402 

 

27,888 

 

 

 

 

 

LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS (NOTE 8)

 

- 

 

53,246 

Total liabilities

 

1,194,432 

 

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

 

628,762  

 

618,675  

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

 

119  

 

119  

Additional paid-in capital

 

8,701,735  

 

8,640,769  

Accumulated deficit

 

(10,292,618) 

 

(10,405,041) 

 

 

 

 

 

Total stockholders’ deficit

 

(962,002) 

 

(1,145,478) 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$232,430  

 

$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

 

Six Months Ended

 

 

June 30, 2018

 

June 30, 2017

 

June 30, 2018

 

June 30, 2017

REVENUES

 

 

 

 

 

 

 

 

Co-location and other revenues

 

$496,098  

 

$449,144  

 

$992,952  

 

$902,868  

Access service revenues

 

7,095  

 

11,274  

 

17,301  

 

23,133  

Total revenues

 

503,193  

 

460,418  

 

1,010,253  

 

926,001  

 

 

 

 

 

 

 

 

 

OPERATING COSTS AND EXPENSES

 

 

 

 

 

 

 

 

Cost of co-location and other revenues

 

59,487  

 

36,640  

 

105,796  

 

70,628  

Cost of access service revenues

 

2,940  

 

2,915  

 

5,467  

 

5,344  

Selling, general and administrative expenses

 

418,122  

 

399,686  

 

968,479  

 

792,811  

Depreciation and amortization

 

4,095  

 

4,648  

 

8,484  

 

9,421  

Total operating costs and expenses

 

484,644  

 

443,889  

 

1,088,226  

 

878,204  

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

18,549  

 

16,529 

 

(77,973) 

 

47,797 

 

 

 

 

 

 

 

 

 

OTHER INCOME

 

16,605  

 

-  

 

22,605  

 

-  

INTEREST EXPENSE

 

(166) 

 

(363) 

 

(496) 

 

(1,117) 

INCOME TAX EXPENSE

 

(7,334) 

 

-  

 

(12,000) 

 

-  

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

27,654  

 

16,166  

 

(67,864) 

 

46,680  

Gain from sale of discontinued asset

 

-  

 

-  

 

233,277  

 

-  

Net income (loss) from discontinued operations (NOTE 8)

 

(21,669) 

 

(31,844) 

 

(52,990) 

 

(57,169) 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$5,985  

 

$(15,678) 

 

$112,423  

 

$(10,489) 

Preferred stock dividends

 

(3,363) 

 

(6,725) 

 

(10,087) 

 

(13,449) 

Net income (loss) available to common stockholders

 

$2,622  

 

$(22,403) 

 

$102,336  

 

$(23,938 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

   Continuing operations – basic and diluted

 

0.00  

 

0.00  

 

(0.01) 

 

0.00  

   Discontinued operations – basic and diluted

 

(0.00) 

 

(0.00) 

 

0.02  

 

(0.00) 

 Net income (loss) - basic and diluted

 

$0.00  

 

$(0.00) 

 

$0.01  

 

$(0.00 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 Basic

 

11,871,009 

 

11,871,009 

 

11,871,009 

 

11,871,009 

 Diluted

 

14,753,128 

 

14,845,591 

 

11,871,009 

 

14,687,328 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 


4



FullNet Communications, Inc. and Subsidiaries

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT (UNAUDITED)

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.

 


5



FullNet Communications, Inc. and Subsidiaries

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 2018

 

June 30, 2017

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net income (loss)

 

$112,423  

 

$(10,489) 

 (Income) loss from discontinued operations

 

(180,287) 

 

57,169 

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

 

 

 

 

Depreciation and amortization

 

8,484  

 

9,421 

Stock options compensation

 

71,053  

 

3,248 

Provision for uncollectible accounts receivable

 

(7,147) 

 

429 

Net (increase) decrease in

 

 

 

 

Accounts receivable

 

15,454  

 

(1,559) 

Prepaid expenses and other current assets

 

(24,641) 

 

(18,583) 

Net increase (decrease) in

 

 

 

 

Accounts payable

 

(19,057) 

 

(32,121) 

Accounts payable – related party

 

(2,876) 

 

(13,419) 

Accrued and other liabilities

 

26,114  

 

36,127  

Deferred revenue

 

24,919  

 

29,908  

Net cash provided by operating activities

 

24,439  

 

60,131  

 

 

 

 

 

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

 

(2,637) 

 

(2,484) 

Net cash used in financing activities

 

(2,637) 

 

(2,484) 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

  Net cash used in operating activities

 

(26,246 

 

(48,645) 

  Net cash provided by investing activities

 

218,153  

 

-  

  Net cash used in financing activities

 

(116,592) 

 

(13,887) 

  Net cash provided by (used in) discontinued operations

 

75,315  

 

(62,532) 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

89,645  

 

(6,356) 

Cash at beginning of period

 

29,399  

 

19,383 

Cash at end of period

 

$119,044  

 

$13,027 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

 

Cash paid for income tax

 

$12,000 

 

$- 

Cash paid for interest – continuing operations

 

964 

 

1,116 

Cash paid for interest – discontinued operations

 

51 

 

5,917 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

Amortization of increasing dividend rate preferred stock discount

 

$10,087  

 

$13,449  

 

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

 

Six Months Ended

 

June 30, 2018

 

June 30, 2017

 

June 30, 2018

 

June 30, 2017

Net income (loss):

    

 

    

 

 

 

 

Income (loss) from continuing operations

$27,654  

 

$16,166  

 

$(67,864) 

 

$46,680  

Income (loss) from discontinued operations – See Note 8

(21,669) 

 

(31,844) 

 

180,287  

 

(57,169) 

 Net income (loss)

$5,985  

 

$(15,678) 

 

$112,423  

 

$(10,489) 

Preferred stock dividends

(3,363) 

 

(6,725) 

 

(10,087) 

 

(13,449) 

Net income (loss) available to common shareholders

2,622  

 

(22,403) 

 

102,336  

 

(23,938) 

 

 

 

 

 

 

 

 

Basic income (loss) per share:

 

 

 

 

 

 

 

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

11,871,009  

 

11,871,009  

 

11,871,009  

 

11,871,009  

 

 

 

 

 

 

 

 

Basic income (loss) per share:

 

 

 

 

 

 

 

 Continuing operations

0.00 

 

0.00  

 

(0.01) 

 

0.00  

 Discontinued operations – See Note 8

(0.00) 

 

(0.00) 

 

0.02  

 

(0.00) 

 Basic income (loss) per share

0.00  

 

(0.00) 

 

0.01  

 

(0.00) 

 

 

 

 

 

 

 

 

Diluted income (loss) per share:

 

 

 

 

 

 

 

Shares used in diluted income (loss) per share

14,753,128  

 

14,845,591  

 

11,871,009  

 

14,687,328  

 

 

 

 

 

 

 

 

Diluted income (loss) per share:

 

 

 

 

 

 

 

 Continuing operations

0.00 

 

0.00  

 

(0.01) 

 

0.00  

 Discontinued operations – See Note 8

(0.00 

 

(0.00) 

 

0.02  

 

(0.00) 

 Diluted income (loss) per share

0.00  

 

(0.00) 

 

0.01  

 

(0.00) 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Weighted average shares and share equivalents outstanding – basic

11,871,009  

 

11,871,009 

 

11,871,009  

 

11,871,009 

Effect of preferred stock

987,102  

 

987,102 

 

- 

 

987,102 

Effect of dilutive stock options

1,670,017  

 

1,752,619 

 

- 

 

1,602,083 

Effect of dilutive warrants

225,000  

 

234,861 

 

- 

 

227,134 

Weighted average shares and share equivalents outstanding – diluted

14,753,128  

 

14,845,591 

 

11,871,009  

 

14,687,328 

 

 

Schedule of Anti-dilutive Securities Excluded

 

Three Months Ended

 

Six Months Ended

 

June 30, 2018

 

June 30, 2017

 

June 30, 2018

 

June 30, 2017

Preferred stock

- 

 

-

 

987,102 

 

-

Stock options

2,043,000 

 

- 

 

4,117,834 

 

- 

Warrants

- 

 

- 

 

250,000 

 

- 

Convertible promissory notes

30,605 

 

172,411 

 

30,605 

 

166,881 

Total anti-dilutive securities excluded

2,073,605 

 

172,411 

 

5,385,541 

 

166,881 

 

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 June 30, 2018 current liabilities exceeded current assets by $1,015,836. 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 six months ended June 30, 2018, the Company made principal and interest payments totaling $3,602, of which $2,637 applied to the principal.  The secured convertible promissory note had a balance of $30,605 at June 30, 2018 of which $7,203 is short-term and $23,402 is long-term.

 

4.     STOCK BASED COMPENSATION

 

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

2,010,000

 

$0.040

 

 

 

 

 

 

 

 

 

 

 

 

Options expired during the period

3,000

 

$0.003

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding, June 30, 2018

4,117,834

 

$0.023

 

8.63

 

 

 

 

 

 

 

 

 

 

Options exercisable, June 30, 2018

2,825,167

 

$0.027

 

8.55

 

$ 26,759

 

 

During the six months ended June 30, 2018, 2,010,000 nonqualified employee stock options were granted with an exercise 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 $76,895 of which $67,777 was recognized as stock-based compensation expense for the six months ended June 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 2,010,000 will expire ten years from the date of the grant.  

 


9



Total stock-based compensation expense for the six months ended June 30, 2018 was $71,053 of which $67,777 was related to options issued during the six months ended June 30, 2018 and $3,276 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, 2018:

 

 

 

2018

Risk free interest rate

 

2.65%

Expected lives (in years)

 

5  

Expected volatility

 

178%

Dividend yield

 

0%

 

 

5.     SERIES A CONVERTIBLE PREFERRED STOCK

 

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 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 June 30, 2018, the aggregate outstanding accumulated arrearages of cumulative dividend was $98,926 or if issued in common shares, 3,297,933 shares.

 

The amortization of the increasing dividend rate preferred stock discount for the six months ended June 30, 2018 was $10,087.

 

6.      PROPERTY AND EQUIPMENT

 

During the six months ended June 30, 2018, $7,472 was paid for property and equipment.  During the three and six months ended June 30, 2018, $1,887 and $4,067 was recorded as depreciation expense, respectively.

 

7     INTANGIBLE ASSET

 

During the three and six months ended June 30, 2018, $2,208 and $4,417 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 it’s CLEC subsidiary as held for sale at December 31, 2017.

 

The Company recognized a gain of $233,277 on the Sale based on total considerations 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 

 

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 note matured on May 31, 2018, and the Company paid the remaining balance of $116,592 in full on February 1, 2018.

 

Assets and Liabilities of Discontinued Operations

 

 

 

June 30, 2018

 

December 31, 2017

Carrying amounts of assets included in discontinued operations

 

 

 

 

Cash

 

$3,102 

 

$1,801 

Prepaid expenses and other current assets

 

1,750 

 

2,671 

Property and equipment, net

 

16,987 

 

24,871 

   Total Assets of Discontinued Operations

 

$21,839 

 

$29,343 

 

 

 

 

 

Carrying amounts of liabilities included in discontinued operations

 

 

 

 

Accounts payable

 

$59,898 

 

$57,342 

Accrued and other liabilities

 

21,438 

 

19,878 

Convertible notes payable, related party – current portion

 

- 

 

116,592 

Convertible notes payable, related party – less current portion

 

- 

 

- 

   Total Liabilities of Discontinued Operations

 

$81,336 

 

$193,812 

 

Operating Results of Discontinued Operations

 

Three Months Ended

 

Six Months Ended

 

June 30, 2018

 

June 30, 2017

 

June 30, 2018

 

June 30, 2017

Revenues included in discontinued operations

 

 

 

 

 

 

 

Total colocation and other revenues

-   

 

$     34,170   

 

28,091   

 

$    76,450   

 

 

 

 

 

 

 

 

Operating costs and expenses included in discontinued operations

 

 

 

 

 

 

 

Cost of services

18,660   

 

$    57,016   

 

72,546   

 

$   113,412   

Selling, general and administrative expenses

691   

 

4,554   

 

3,848   

 

9,216   

Depreciation and amortization

2,318   

 

2,537   

 

4,636   

 

5,074   

Interest expense

-   

 

1,907   

 

51   

 

5,917   

Total operating costs and expenses discontinued operations

$  21,669   

 

$  66,014   

 

$  81,081   

 

$  133,619   

 

 

 

 

 

 

 

 

Other Income included in discontinued operations

 

 

 

 

 

 

 

Gain on sale of assets

-   

 

-   

 

233,277   

 

-   

Net Income (Loss) from Discontinued Operations

$ (21,669)  

 

$ (31,844)  

 

180,287   

 

$ (57,169)  

 Net Income (Loss) per share from discontinued operations basic

$     (0.00)  

 

$     (0.00)  

 

$       0.02   

 

$     (0.00)  

 Net Income (Loss) per share from discontinued operations diluted

$     (0.00)  

 

$     (0.00)  

 

$       0.02   

 

$     (0.00)  


11



 

 

Cash Flows from Discontinued Operations

 

 

 

June 30,2018

 

June 30, 2017

  Net cash used in operating activities

 

(26,246 

 

(48,645) 

  Net cash provided by investing activities

 

218,153  

 

- 

  Net cash used in financing activities

 

(116,592) 

 

(13,887) 

      Net cash provided by (used in) discontinued operations

 

75,315  

 

(62,532) 

 

9.     SUBSEQUENT EVENT

 

On August 7, 2018, the Company executed an asset purchase agreement with EBOX, Inc., a Canadian corporation, pursuant to which the Company will sell a block of excess IPv4 numbers for $68,608.  The Company anticipates closing on the sale prior to the end of August 2018, at which time the Company will receive $64,491 in cash after the deduction of $4,117 in selling costs.


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 competitive local exchange carrier 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”), and FullWeb, Inc. (“FullWeb”). 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 other 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. FullTel activates local access telephone numbers for the cities in which we market, sell and operate our retail FullNet Internet service provider brand, wholesale dial-up Internet service; our business-to-business network design, connectivity, domain and Web hosting businesses; and traditional telephone services as well as advanced voice and data solutions. At December 31, 2017 FullTel provided us with local telephone access in approximately 232 cities.

 

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

 

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

Our common stock trades on the OTC “Pink Sheets” under the symbol FULO. While our common stock trades on the OTC “Pink Sheets”, it is very thinly traded, and there can be no assurance that our stockholders will be able to sell their shares should they so desire. Any market for the common stock that may develop, in all likelihood, will be a limited one, and if such a market does develop, the market price may be volatile.

 

Results of Operations


13



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 six months ended June 30, 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

June 30, 2018

 

June 30, 2017

 

June 30, 2018

 

June 30, 2017

 

Amount

 

Percent

 

Amount

 

Percent

 

Amount

 

Percent

 

Amount

 

Percent

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Co-location and other revenues

$496,098  

 

98.6%

 

$449,144  

 

97.5%

 

$ 992,952 

 

98.3  

 

$902,868  

 

97.5%

Access service revenues

7,095  

 

1.4  

 

11,274  

 

2.5  

 

17,301 

 

1.7  

 

23,133  

 

2.5  

Total revenues

503,193  

 

100.0  

 

460,418  

 

100.0  

 

1,010,253 

 

100.0  

 

926,001  

 

100.0  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of co-location and other revenues

59,487  

 

11.8  

 

36,640  

 

7.9 

 

105,796 

 

10.5  

 

70,628  

 

7.6  

Cost of access service revenues

2,940  

 

0.6  

 

2,915  

 

0.6 

 

5,467 

 

0.5  

 

5,344  

 

0.6  

Selling, general and administrative expenses

418,122  

 

83.1  

 

399,686  

 

86.8 

 

968,479 

 

95.9  

 

792,811  

 

85.6  

Depreciation and amortization

4,095  

 

0.8  

 

4,648  

 

1.0 

 

8,484 

 

0.8  

 

9,421  

 

1.0  

Total operating costs and expenses

484,644  

 

96.3  

 

443,889  

 

96.3 

 

1,088,226 

 

107.7  

 

878,204  

 

94.8  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

18,549  

 

3.7  

 

16,529  

 

3.6  

 

(77,973)

 

(7.7) 

 

47,797  

 

5.2  

Other income

16,605  

 

3.3  

 

 

 

-  

 

22,605 

 

2.2  

 

 

 

-  

Interest expense

(166) 

 

(0.1) 

 

(363) 

 

(0.1) 

 

(496)

 

(0.1) 

 

(1,117) 

 

(0.1) 

Income tax expense

(7,334) 

 

(1.4) 

 

 

 

-  

 

(12,000)

 

(1.1) 

 

 

 

-  

Net income (loss) from continuing operations

27,654  

 

5.5  

 

$16,166  

 

3.5  

 

(67,864)

 

(6.7) 

 

$46,680 

 

5.1%

Gain from sale of discontinued asset

 

 

-  

 

 

 

-  

 

233,277 

 

23.0  

 

- 

 

-  

Net income (loss) from discontinued operations

(21,669) 

 

(4.3) 

 

(31,844) 

 

(6.9) 

 

(52,990)

 

(5.2) 

 

(57,169) 

 

(6.2) 

  Net income (loss)

5,985  

 

1.2  

 

(15,678) 

 

(3.4) 

 

112,423 

 

11.1  

 

(10,489) 

 

(1.1) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividends

(3,363) 

 

(0.7) 

 

(6,725) 

 

(1.5) 

 

(10,087)

 

(1.0) 

 

(13,449) 

 

(1.5) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

2,622  

 

0.5  

 

$(22,403) 

 

(4.9) 

 

102,336 

 

10.1  

 

$(23,938) 

 

(2.6)%

 

Three Months Ended June 30, 2018 (the “2018 2nd Quarter”) Compared to Three Months Ended June 30, 2017 (the “2017 2nd Quarter”)

Revenues

 

Co-location and other revenues increased $46,954 or 10.4% to $496,098 for the 2018 2nd Quarter from $449,144 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 $4,179 or 37.1% to $7,095 for the 2018 2nd Quarter from $11,274 for the same period in 2017 primarily due to a decline in the number of customers.

 

Operating Costs and Expenses

 

Cost of co-location and other revenues increased $22,847 or 62.3% to $59,487 for the 2018 2nd Quarter from $36,640 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 12.0% during the 2018 2nd Quarter, compared to 8.1% during the same period in 2017.


14



Cost of access service increased $25 or 0.8% to $2,940 for the 2018 2nd Quarter from $2,915 for the same period in 2017. This increase was primarily due to increases in the costs of servicing access customers. Cost of access service revenues as a percentage of access service revenues increased to 41.4% during the 2018 2nd Quarter from 25.8 % during the same period in 2017. This increase was primarily a factor of fixed costs that were not reduced by a decline in customers.

 

Selling, general and administrative expenses increased $18,436 or 4.6% to $418,122 for the 2018 2nd Quarter compared to $399,686 for the same period in 2017. This increase was primarily related to an increase in professional services fees of $17,057. Selling, general and administrative expenses as a percentage of total revenues decreased to 83.1% during the 2018 2nd Quarter from 86.8% during the same period in 2017.

 

Depreciation and amortization expense decreased $553 or 11.9% to $4,095 for the 2018 2nd Quarter compared to $4,648 for the same period in 2017.  This decrease was primarily related to several assets reaching full depreciation.  

 

 Interest Expense

 

Interest expense decreased $197 or 54.3% to $166 for the 2018 2nd Quarter compared to $363 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.

 

Six Months Ended June 30, 2018 (the “2018 Period”) Compared to Six Months Ended June 30, 2017 (the “2017 Period”)

Revenues

Co-location and other revenues increased $90,084 or 10.0% to $992,952 for the 2018 Period from $902,868 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 $5,832 or 25.2% to $17,301 for the 2018 Period from $23,133 for the 2017 Period primarily due to a decline in the number of customers.

 

Operating Costs and Expenses

 

Cost of co-location and other revenues increased $35,168 or 49.8% to $105,796 for the 2018 Period from $70,628 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 10.6% during the 2018 Period compared to 7.8% during the 2017 Period.

 

Cost of access service revenues increased $123 or 2.3% to $5,467 for the 2018 Period from $5,344 for the 2017 Period. This increase was primarily due to increases in costs of servicing access customers.  Cost of access service revenues as a percentage of access service revenues increased to 31.6% during the 2018 Period, compared to 23.1% during the 2017 Period.

 

 

Selling, general and administrative expenses increased $175,668 or 22.1% to $968,479 for the 2018 Period compared to $792,811 for the 2017 Period.  This increase is primarily related to increases in advertising, employee costs, and professional services fees of $32,174, $126,385, and $19,986, respectively.  These increases were offset by a decrease in property taxes of $3,740.  In the 2017 Period we had non-recurring agent commissions expense of $13,275.  Selling, general and administrative expenses as a percentage of total revenues increased to 95.9% during the 2018 Period from 85.6% during the 2017 Period.

 

Depreciation and amortization expense remained relatively the same at $8,484 for the 2018 Period compared to $9,421 for the 2017 Period.  

Interest Expense

 

Interest expense decreased to $496 for the 2018 Period compared to $1,117 for the 2017 Period.

 

Liquidity and Capital Resources

 

 As of June 30, 2018, we had $119,044 in cash and $155,194 in current assets and $1,171,030 in current liabilities.  Current liabilities consist primarily of $636,221 in accrued and other liabilities of which $466,225 is owed to our officers and directors and $422,850 of which is deferred revenue.  Our officers and directors, who are also major shareholders, have informally agreed to not


15



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 June 30, 2018 and December 31, 2017, we had working capital deficits of $1,015,836 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 June 30, 2018, of the $18,314 we owed to our trade creditors $14,214 was past due. We have no formal agreements regarding payment of these amounts.

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

 

 

 

 For the Six-Months Periods Ended

June 30,

 

 

 

2018

 

2017

Net cash flows provided by operating activities

 

$24,439  

 

$60,131  

Net cash flows used in investing activities

 

(7,472) 

 

(1,471) 

Net cash flows used in financing activities

 

(2,637) 

 

(2,484) 

 

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

 

No intangible assets were purchased in the six months ended June 30, 2018 and 2017.  

 

Cash used for principal payments on notes payable was $2,637 and $2,484, respectively, for the six months ended June 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 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 and to make scheduled payments with respect to borrowings will depend upon, among other things, our ability to seek and obtain additional financing in the near term. 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 outstanding indebtedness. If we are unable to generate sufficient cash flows from operations to service our indebtedness, we will be required to modify or abandon our growth plans, limit our capital expenditures, restructure or refinance our indebtedness or seek additional capital or liquidate our assets. There is no assurance that (i) any of these strategies


16



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 service our debt or otherwise 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 a 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 June 30, 2018, the outstanding principal and accrued interest of the secured convertible promissory note was $30,605.

 

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 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.


17



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, 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.


18



PART II—OTHER INFORMATION

Item 1.     Legal Proceedings

As a provider of telecommunications, we are affected by regulatory proceedings in the ordinary course of our business at the state and federal levels. These include proceedings before both the Federal Communications Commission and the Oklahoma Corporation Commission (“OCC”). In addition, in our operations we rely on obtaining many of our underlying telecommunications services and/or facilities from incumbent local exchange carriers or other carriers pursuant to interconnection or other agreements or arrangements. In January 2007, we concluded a regulatory proceeding pursuant to the Federal Telecommunications Act of 1996 before the OCC relating to the terms of our interconnection agreement with Southwestern Bell Telephone, L.P. d/b/a AT&T, which succeeds a prior interconnection agreement. The OCC approved this agreement in May 2007. This agreement may be affected by regulatory proceedings at the federal and state levels, with possible adverse impacts on us. We are unable to accurately predict the outcomes of such regulatory proceedings at this time, but an unfavorable outcome could have a material adverse effect on our business, financial condition or results of operations.

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

 

During the six months ended June 30, 2018, we issued 2,010,000 nonqualified employee stock options with exercise prices of $.04 per option. The exercise price was the same as the OTC market price for our common stock as of the grant date.  Of these options, 1,750,000 options vested immediately on February 14, 2018 (the grant date), and the remaining 260,000 stock options will vest one-fifth on each annual anniversary date of the grant and will expire ten years from the date of the grant.  We do not have a written employee stock option plan.  In connection with the issuance of these common stock options, no underwriting discounts or commissions were paid or will be paid. The common stock options were issued without registration under the Securities Act of 1933, as amended, in reliance on the registration exemption afforded by Regulation D and more specifically Rule 506 of Regulation D.

Item 5.     Other Information

On August 7, 2018, the Company executed an asset purchase agreement with EBOX, Inc., a Canadian corporation, pursuant to which the Company will sell a block of excess IPv4 numbers for $68,608.  The Company anticipates closing on the sale before the end of August 2018, at which time the Company will receive $64,491 in cash after the deduction of $4,117 in selling costs.

During the three months ended June 30, 2018 all events reportable on Form 8-K were reported.


19



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

 

 

 

 

 

 

 

 

4.4

 

 

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.

 

*

 

 

 

 

 

 

 

 

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 1, 2018

 

 

 

#2

 

Incorporated by reference to Exhibit 4.18 to the Form 8-K dated June 3, 2013

 

 

 

*

 

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.

 

 


20



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 14,2018

By:  

/s/ ROGER P. BARESEL  

 

 

 

Roger P. Baresel 

 

 

 

Chief Executive Officer and Chief Financial  Officer 

 

 


21

 

EX-10.22 2 fn_ex10z22.htm IPV4 NUMBERS PURCHASE AGREEMENT IPv4 Numbers Purchase Agreement

EXHIBIT 10.22

IPv4 NUMBERS PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (“Agreement”) is made and entered into as of the date of last signature set forth below (“the Effective Date”), between:

FullNet Communications, Inc., an Oklahoma corporation, having its primary address at 201 Robert S. Kerr Avenue, Suite 210, Oklahoma City, OK 73102, USA ("Seller"),

and

EBOX Inc., a Canadian corporation, having its primary address at 1225 St-Charles Ouest, Bureau 1100, Longueuil, Quebec J4K 0B9, Canada ("Buyer"),

Seller and Buyer are collectively, the “Parties”, and individually, a “Party”.

WHEREAS, Seller has previously been allocated, and is recognized by ARIN as the authorized registrant of the IPv4 Numbers, as defined below;

WHEREAS, Buyer desire to purchase from Seller, and Seller desires to sell to Buyer, the IPv4 Numbers that are allocated to and owned by, Seller on the terms, subject to the conditions and as more fully set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the provisions set forth below, and subject to the terms and conditions set forth herein, the Parties agree as follows:

1.DEFINITIONS. 

a.ARIN” means the American Registry for Internet Numbers.  

 

b.Broker” means GetConnect IPv4 Brokers Inc., a Canadian corporation, having its primary address at 11 Brunel Court, Toronto, Ontario M5V 3Y3, Canada, acting as a broker (representing the Seller) for the sale and purchase of the IPv4 Numbers. 

 

c.Business Day” means any day other than a Saturday, Sunday, or federally-recognized public holiday in Canada or the United States of America. 

 

d.Closing” means the completion of the sale and transfer of the IPv4 Numbers pursuant to the conditions of this Agreement.  

 

e.Escrow Agent” means escrow.com, an agent to provide escrow services from Internet Escrow Services, Inc., a California corporation ("IES"), as documented in Appendix One.  

 

f.IPv4 Numbers” means the IPv4 address block 64.58.32.0/20, a total of 4,096 IPv4 addresses. 

 

g.US$” means the official currency of the United States of America known as the United States Dollar. 

 

h.A reference to a Clause or Appendix is a reference to a clause of, or appendix to, this Agreement. The Appendices form part of this Agreement, and references to this Agreement shall include the Appendices. 

 

i.Clause, Appendix and Paragraph headings are for ease of reference only and shall not affect the interpretation of this Agreement. 

2.PURCHASE OF IPv4 NUMBERS. 

a.Subject to the provisions of this Agreement, Buyer agrees to purchase from Seller, and Seller agrees to arrange the transfer of, all of Seller's rights, title and interest, to the IPv4 Numbers.  




b.The purchase price for the IPv4 Numbers shall be US$ 16.75 per IPv4 address, for a total of exactly US$ 68,608.00 ("Purchase Amount") payable as set forth herein. 

3.PAYMENT PROCEDURE. 

a.Buyer, Seller and Broker will use Escrow Agent for this transaction. Broker will pay the escrow fees.  Broker will create a transaction account on escrow.com.  

 

b.Buyer shall deliver the Purchase Amount to Broker’s escrow.com transaction account within two (2) Business Days of the Effective Date. The date the Purchase Amount is delivered to escrow.com is known as the “Deposit Date”.  

 

c.Beginning on the Transfer Date, as defined in Clause 4 (f), the IPv4 Numbers will be in the inspection period. Buyer will have no more than one (1) Business Day to: 

 

i.Accept the IPv4 Numbers. Buyer then agrees to immediately release the Purchase Amount as set forth in this Agreement.  

 

ii.Reject the IPv4 Numbers. Buyer has ten (10) days to return the IPv4 Numbers to the Seller as per the terms in Appendix One. Buyer must pay the escrow fee.   

 

iii.Do nothing. When the inspection period expires payment is released to Broker and Seller, with escrow fees deducted by Escrow Agent. 

d.All brokerage fees payable to Broker will be the responsibility of the Seller. 

4.ARIN 8.3 TRANSFER PROCEDURE. 

a.Buyer is currently a member of ARIN (Org-ID: QUEBE-50) and Seller is recognized by ARIN as the authorized registrant of the IPv4 Numbers (Org-ID: FNET). 

 

b.Within two (2) Business Days of the Deposit Date Seller shall submit a transfer request via ARIN Online, using the information shown in Appendix Two.  

 

c.Buyer shall submit a request to receive the transfer via ARIN Online, using the ARIN ticket number provided upon completion of Clause 4 (b). 

 

d.The Parties shall respond to requests for information from ARIN in a timely manner and are each responsible for paying any fees assessed to them by ARIN.  

 

e.ARIN will complete the transfer of the IPv4 Numbers to the Buyer and update the Whois.   

 

f.Together Clauses 4 (a) to (e) are known as the “Transfer Process” and, when complete, the ARIN 8.3 transfer will be  


2



final, and the date completed will be known as the “Transfer Date”.

 

g.In the event ARIN does not approve the transfer for reasons attributable to the Buyer, the Buyer will use the Reject the IP’s feature of escrow.com, and the Broker will Accept the Return. The Buyer will therefore get the Purchase Amount back, less the escrow fee.  

 

h.In the event that, after the Effective Date, any policies or procedures of ARIN are amended such that it is no longer possible for the Parties to adhere to the ARIN 8.3 Transfer Procedure set out in Clause 4, the Parties shall negotiate in good faith to agree on the minimum modification necessary to give effect to the intent of this Agreement.  

 

i.In the event ARIN does not actually transfer the IPv4 Numbers within 45 calendar days of the Effective Date through no fault of either Party, the Parties agree that their obligations to sell and purchase the IPv4 Numbers shall be null and void and neither Party will have any continuing obligations under this Agreement. 

5.CLOSING. 

a.Closing shall be deemed to occur (and all of Seller’s right, title and interest to the IPv4 Numbers shall transfer fully) upon the receipt by the Seller of the portion of the Purchase Amount to which it is entitled.  

b.After the Transfer Date, and with Clause 5 (a) complete, the Seller shall provide Buyer an Invoice as set out in Appendix Three, marked PAID. The date of Closing shall be known as the “Closing Date”.   

c.After Closing, Seller shall promptly take all reasonable efforts to complete any documentation as may be requested or required by the Buyer to effect or memorialize the transfer of the IPv4 Numbers.  

d.Except for claims arising due to a breach of this Agreement, Seller shall not be liable or responsible for any liabilities or obligations of any kind or nature whatsoever arising out of, under, or related to the IPv4 Numbers from and after the Closing.   

6.REPRESENTATIONS AND WARRANTIES. 

a.Each Party represents and warrants that the execution of this Agreement and performance of its duties and obligations do not and will not violate any agreement to which it is a party or by which it is otherwise bound.  

b.Seller shall transfer the IPv4 Numbers to Buyer free and clear of any liens and claims. There is no suit, action or other proceeding threatened or pending before any court or governmental or regulatory authority which seeks to restrain or prohibit or to obtain damages or other relief in connection with the IPv4 Numbers. Seller further represents and warrants that the IPv4 Numbers is not currently leased or in use by any party, and that it has full power to transfer the IPv4 Numbers without delay. 

 

c.As of the Effective Date, there is no known ARIN condition on the IPv4 Numbers that would prevent it from being transferred to the Buyer. 

 

d.Except as otherwise provided herein, Buyer agrees that it is purchasing, and shall take possession of, the IPv4 Numbers in “AS IS” condition, and acknowledges that it has previously been given the opportunity to and has conducted such investigations and inspections of the IPv4 Numbers as it has deemed necessary and appropriate for the purposes of this Agreement. 

 

e.Except as expressly stated in this agreement, Seller does not make any express or implied representations, statements, warranties, or conditions of any kind or nature  


3



whatsoever concerning the IPv4 Numbers, including (without limiting the generality of the foregoing) any warranties regarding the condition and/or quality of any or all of the purchased assets. Any and all implied warranties of merchantability or fitness for a particular purpose are disclaimed.

7.   GENERAL PROVISIONS. 

a.Notices: Any notice required by this Agreement shall be in writing and delivered by e-mail. 

If to Seller:

FullNet Communications, Inc.

201 Robert S. Kerr Avenue, Suite 210,

Oklahoma City, OK 73102, USA

Jason Ayers

jason@fullnet.net

 

If to Buyer:  

 

EBOX Inc.

1225 St-Charles Ouest, Bureau 1100,

Longueuil, Quebec J4K 0B9, Canada

Eric Dugas

Eric.dugas@ebox.ca

 

b.Taxes: Each Party is responsible for paying its own taxes related to this transaction. All prices quoted in connection with this Agreement are exclusive of all applicable taxes. Any tax levied on a Party’s net income for doing business or operating in a tax jurisdiction are excluded from these transactions and will be solely borne by each Party. 

c.Confidentiality: The Parties shall not disclose the terms of this Agreement relating to the IPv4 Numbers or the other Party, except as may be required by law, or make any use of such information, other than to the extent necessary for the purpose of exercising or performing its rights and obligations under this Agreement. 

d.Due Authority:  Each individual signing this Agreement on behalf of a Party warrants and represents that he or she has the authority to execute this Agreement on such Party’s behalf and to bind such Party to the terms of the Agreement.  

e.Governing Law: The laws of the State of New York shall govern, construe and enforce all of the rights and duties of the Parties arising from or relating in any way to the subject matter of this Agreement. The Parties shall make commercially reasonable efforts to reach an amicable settlement. Provided that the Parties have failed to seek such amicable solution either Party may refer the dispute to court. For this purpose, the Parties hereby choose as their domicile the State of New York.  

f.Indemnification: Each Party shall defend and indemnify the other for any third-party claim, liability, loss, costs, expenses, or damages arising out of the indemnifying Party’s actions or failure to act in connection with this Agreement. Nothing herein is intended to nor shall it relieve either Party from liability for its own act, omission, or negligence. 

g.Severability: In the event any term or provision of this Agreement shall be determined by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason, that provision shall be severed from this Agreement and shall not affect the validity of the remainder of the Agreement. 

h.Amendment: This Agreement may be amended, modified or supplemented only by written agreement of the Parties. 

i.Entire Agreement: This Agreement sets forth all of the promises, covenants, agreements, conditions and undertakings between the Parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and undertakings. 


4



IN WITNESS WHEREOF, this Agreement has been executed by the Parties through their duly authorized representatives, as of the Effective Date.

 


FullNet Communications, Inc. (“Seller”)


EBOX Inc. (“Buyer”)


By: /s/ Roger Baresel


By: /s/ Eric Dugas


Name: Roger Baresel


Name: Eric Dugas


Title: CEO


Title: Director of Network Ops


Date: 2018-08-07


Date: 2018-08-06


5

 

EX-31.1 3 fn_ex31z1.htm CERTIFICATION Certification

EXHIBIT 31.1

CERTIFICATIONS

I, Roger P. Baresel, certify that:

 

1.

 

I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2018 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, 2018

 

 /s/ Roger P. Baresel,

 

 

 

 Chief Executive Officer and Chief Financial Officer


EX-32.1 4 fn_ex32z1.htm CERTIFICATION Certification

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. §1350 (as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Executive and Chief Financial and Accounting Officer of FullNet Communications, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2018 (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

 

Date: August 14, 2018 

/s/ Roger P. Baresel,  

 

Chief Executive Officer and Chief Financial Officer

 

 

 


EX-101.CAL 5 fulo-20180630_cal.xml XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT EX-101.DEF 6 fulo-20180630_def.xml XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT EX-101.LAB 7 fulo-20180630_lab.xml XBRL TAXONOMY EXTENSION LABELS LINKBASE DOCUMENT Total Assets of Discontinued Operations Total Assets of Discontinued Operations Represents the monetary amount of Total Assets of Discontinued Operations, as of the indicated date. Fiber strands Represents the monetary amount of Fiber strands, as of the indicated date. Expected volatility Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance Effect of dilutive stock options Represents the monetary amount of Effect of dilutive stock options, during the indicated time period. 3. CONVERTIBLE NOTES PAYABLE RELATED PARTY Accrued and other liabilities {1} Accrued and other liabilities Common Stock Gain from sale of discontinued asset Access service revenues Preferred Stock, Shares Outstanding Deferred revenue Local Phone Number Registrant Name Total basis Represents the monetary amount of Total basis, during the indicated time period. Amortization of Intangible Assets Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term Debt Instrument, Maturity Date Working Capital Deficit Represents the monetary amount of Working Capital Deficit, as of the indicated date. Net income (loss): Net cash used in financing activities {1} Net cash used in financing activities Net Income (Loss) from Discontinued Operations Total current liabilities Total current liabilities Accrued and other liabilities Assets of discontinued operations Represents the monetary amount of Assets of discontinued operations, as of the indicated date. Amendment Description Fiscal Year End Revenues included in discontinued operations Represents the description of Revenues included in discontinued operations, during the indicated time period. Prepaid expenses and other current assets {2} Prepaid expenses and other current assets Represents the monetary amount of Prepaid expenses and other current assets, as of the indicated date. Total consideration Total consideration Represents the monetary amount of Total consideration, as of the indicated date. Expected lives (in years) Debt Instrument, Name Debt Instrument [Axis] Warrants Represents the Warrants (number of shares), during the indicated time period. 8. DISCONTINUED OPERATIONS Increase (Decrease) in Operating Assets {1} Increase (Decrease) in Operating Assets Stock options compensation Depreciation and amortization {1} Depreciation and amortization Weighted average shares and share equivalents outstanding - diluted Shares used in diluted income (loss) per share Net income (loss) from continuing operations Net income (loss) from continuing operations Cash {1} Cash Cash and Cash Equivalents, at Carrying Value, Beginning Balance Cash and Cash Equivalents, at Carrying Value, Ending Balance Current with reporting Other Income included in discontinued operations Represents the description of Other Income included in discontinued operations, during the indicated time period. Total Liabilities of Discontinued Operations Total Liabilities of Discontinued Operations Represents the monetary amount of Total Liabilities of Discontinued Operations, as of the indicated date. Total assets sold Represents the description of Total assets sold, during the indicated time period. Debt Instrument, Payment Terms Diluted income (loss) per share: {1} Diluted income (loss) per share: CASH FLOWS FROM FINANCING ACTIVITIES Payments to Acquire Property, Plant, and Equipment Cash paid for property and equipment Prepaid expenses and other current assets {1} Prepaid expenses and other current assets Equity Balance, Starting Equity Balance, Starting Equity Balance, Ending Cost of co-location and other revenues Total revenues Total revenues Co-location and other revenues PROPERTY AND EQUIPMENT, net Net Income (Loss) per share from discontinued operations diluted Represents the per-share monetary value of Net Income (Loss) per share from discontinued operations diluted, during the indicated time period. Net Income (Loss) from Discontinued Operations {1} Net Income (Loss) from Discontinued Operations Represents the monetary amount of Net Income (Loss) from Discontinued Operations, during the indicated time period. Assumption of deferred revenue Represents the monetary amount of Assumption of deferred revenue, as of the indicated date. Amortization of the increasing dividend rate preferred stock discount Represents the monetary amount of Amortization of the increasing dividend rate preferred stock discount, during the indicated time period. Range Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance Short-term Debt, Fair Value Debt Instrument, Collateral Debt Instrument, Interest Rate, Stated Percentage Diluted income (loss) per share 5. SERIES A CONVERTIBLE PREFERRED STOCK Net cash used in operating activities Net cash provided by operating activities Net cash provided by operating activities Retained Earnings Common Stock, Par or Stated Value Per Share Preferred Stock, Par or Stated Value Per Share CURRENT LIABILITIES Entity Address, City or Town Accounts payable {2} Accounts payable Represents the monetary amount of Accounts payable, as of the indicated date. Customer CPE Represents the monetary amount of Customer CPE, as of the indicated date. Maximum Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number Debt Instrument, Description Schedule of Assets and Liabilities of Discontinued Operations Represents the textual narrative disclosure of Schedule of Assets and Liabilities of Discontinued Operations, during the indicated time period. Principal payments on borrowings under notes payable - related party Net cash used in investing activities Net cash used in investing activities Accounts receivable Accounts receivable Statement Continuing operations - basic and diluted Represents the per-share monetary value of Continuing operations - basic and diluted, during the indicated time period. Net Income (Loss) Attributable to Parent Net Income (Loss) Attributable to Parent Preferred Stock, Shares Authorized Preferred Stock, Value Period End date SEC Form Registrant CIK Details Net Income (Loss) per share from discontinued operations basic Represents the per-share monetary value of Net Income (Loss) per share from discontinued operations basic, during the indicated time period. Interest expense Represents the monetary amount of Interest expense, during the indicated time period. Net gain Represents the monetary amount of Net gain, during the indicated time period. Principal and interest payments Represents the monetary amount of Principal and interest payments, during the indicated time period. Total anti-dilutive securities excluded Income (Loss) from Continuing Operations, Per Diluted Share Basic income (loss) per share: Fair Value Assumptions for options granted Accounts payable {1} Accounts payable TOTAL ASSETS TOTAL ASSETS CURRENT ASSETS Entity Address, State or Province Amendment Flag Customer contracts Represents the monetary amount of Customer contracts, as of the indicated date. Effect of preferred stock Represents the monetary amount of Effect of preferred stock, during the indicated time period. Income (Loss) from Discontinued Operations and Disposal of Discontinued Operations, Net of Tax, Per Diluted Share Notes Cash paid for interest - discontinued operations Represents the monetary amount of Cash paid for interest - discontinued operations, during the indicated time period. Net cash provided by (used in) discontinued operations Net cash provided by (used in) discontinued operations Net cash used in financing activities Net cash used in financing activities Increase (Decrease) in Operating Liabilities {1} Increase (Decrease) in Operating Liabilities Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures Equity Component Preferred Stock INTEREST EXPENSE Common Stock, Value Accounts payable Filer Category Subsequent Event, Date Convertible notes payable, related party - less current portion Represents the monetary amount of Convertible notes payable, related party - less current portion, as of the indicated date. Transactional costs Represents the monetary amount of Transactional costs, during the indicated time period. Anti-dilutive Securities Excluded, Convertible Promissory Notes Represents the Anti-dilutive Securities Excluded, Convertible Promissory Notes (number of shares), during the indicated time period. Schedule of Assets and Consideration - Discontinued Operations Represents the textual narrative disclosure of Schedule of Assets and Consideration - Discontinued Operations, during the indicated time period. 6. PROPERTY AND EQUIPMENT NON-CASH INVESTING AND FINANCING ACTIVITIES Accounts payable - related party Amortization of increasing dividend rate preferred stock discount Statement [Line Items] Discontinued operations - basic and diluted Represents the per-share monetary value of Discontinued operations - basic and diluted, during the indicated time period. Net income (loss) per share: Common Stock, Shares Authorized Entity Address, Postal Zip Code Document Fiscal Year Focus Number of common stock shares outstanding Subsequent Event, Description Operating costs and expenses included in discontinued operations Represents the description of Operating costs and expenses included in discontinued operations, during the indicated time period. Carrying amounts of liabilities included in discontinued operations Represents the description of Carrying amounts of liabilities included in discontinued operations, during the indicated time period. Range [Axis] 7. INTANGIBLE ASSET Cash paid for interest - continuing operations Represents the monetary amount of Cash paid for interest - continuing operations, during the indicated time period. Adjustments to reconcile net income (loss) to net cash provided by operating activities Income (loss) from discontinued operations - See Note 8 (Income) loss from discontinued operations Net income (loss) - basic and diluted OTHER INCOME INCOME (LOSS) FROM OPERATIONS INCOME (LOSS) FROM OPERATIONS Cost of access service revenues REVENUES Preferred Stock, Shares Issued STOCKHOLDERS' DEFICIT LONG-TERM ASSETS DISCONTINUED OPERATIONS, net (Note 8) Accounts receivable, net Well-known Seasoned Issuer Total colocation and other revenues Represents the monetary amount of Total colocation and other revenues, during the indicated time period. Accrued and other liabilities {2} Accrued and other liabilities Represents the monetary amount of Accrued and other liabilities, as of the indicated date. Repayment of Secured Convertible Promissory Note Represents the monetary amount of Repayment of Secured Convertible Promissory Note, during the indicated time period. Allocated Share-based Compensation Expense Debt Instrument, Convertible, Terms of Conversion Feature Income (Loss) Per Share Stock Granted, Value, Share-based Compensation, Net of Forfeitures Equity Components [Axis] OPERATING COSTS AND EXPENSES Common Stock, Shares, Outstanding Prepaid expenses and other current assets ASSETS Entity Address, Address Line One Tax Identification Number (TIN) Total operating costs and expenses included in discontinued operations Total operating costs and expenses included in discontinued operations Represents the monetary amount of Total operating costs and expenses included in discontinued operations, during the indicated time period. Consideration Represents the description of Consideration, during the indicated time period. Dividend yield Convertible Note Payable - 1 Represents the Convertible Note Payable - 1, during the indicated time period. Income (Loss) from Discontinued Operations and Disposal of Discontinued Operations, Net of Tax, Per Basic Share Basic income (loss) per share: {1} Basic income (loss) per share: Schedule of Employee Stock Option Activity 4. STOCK BASED COMPENSATION Net cash provided by investing activities Additional Paid-in Capital Preferred stock dividends Preferred stock dividends Depreciation and amortization Common Stock, Shares, Issued TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT OTHER ASSETS AND INTANGIBLE ASSETS Total current assets Total current assets Trading Symbol Property and equipment, net Represents the monetary amount of Property and equipment, net, as of the indicated date. Fiber innerduct Represents the monetary amount of Fiber innerduct, as of the indicated date. Promissory Note Balance Represents the monetary amount of Promissory Note Balance, as of the indicated date. Risk free interest rate Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term Preferred stock Represents the Preferred stock (number of shares), during the indicated time period. Effect of dilutive warrants Represents the monetary amount of Effect of dilutive warrants, during the indicated time period. Income (Loss) from Continuing Operations, Per Basic Share 1. UNAUDITED INTERIM FINANCIAL STATEMENTS Net Income (Loss) Net income (loss) available to common stockholders Net income (loss) available to common stockholders Total operating costs and expenses Total operating costs and expenses Liabilities of Discontinued Operations Entity Listing, Par Value Per Share Public Float Convertible notes payable, related party - current portion {1} Convertible notes payable, related party - current portion Represents the monetary amount of Convertible notes payable, related party - current portion, as of the indicated date. Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price Anti-dilutive Securities Excluded, Stock Options Represents the Anti-dilutive Securities Excluded, Stock Options (number of shares), during the indicated time period. Schedule of Cash Flows from Discontinued Operations Represents the textual narrative disclosure of Schedule of Cash Flows from Discontinued Operations, during the indicated time period. NET INCREASE (DECREASE) IN CASH NET INCREASE (DECREASE) IN CASH Provision for uncollectible accounts receivable CASH FLOWS FROM OPERATING ACTIVITIES Shares Outstanding, Starting Shares Outstanding, Starting Shares Outstanding, Ending INCOME TAX EXPENSE INCOME TAX EXPENSE Total stockholders' deficit Total stockholders' deficit Liabilities of discontinued operations Represents the monetary amount of Liabilities of discontinued operations, as of the indicated date. Document Fiscal Period Focus Selling, general and administrative expenses {1} Selling, general and administrative expenses Represents the monetary amount of Selling, general and administrative expenses, during the indicated time period. Cash {3} Cash Represents the monetary amount of Cash, as of the indicated date. Waived service obligation for February 2018 Represents the monetary amount of Waived service obligation for February 2018, as of the indicated date. Discontinued operations, gain on sale Represents the monetary amount of Discontinued operations, gain on sale, during the indicated time period. Minimum Diluted income (loss) per share: Schedule of Operating Results of Discontinued Operations Represents the textual narrative disclosure of Schedule of Operating Results of Discontinued Operations, during the indicated time period. Schedule of Anti-dilutive Securities Excluded Represents the textual narrative disclosure of Schedule of Anti-dilutive Securities Excluded, during the indicated time period. Deferred revenue {1} Deferred revenue Selling, general and administrative expenses Accumulated deficit Total liabilities Total liabilities CONVERTIBLE NOTES PAYABLE, related party - less current portion Accounts payable, related party Entity Incorporation, State Country Name Voluntary filer Depreciation and amortization {2} Depreciation and amortization Represents the monetary amount of Depreciation and amortization, during the indicated time period. Cost of services Represents the monetary amount of Cost of services, during the indicated time period. Total assets Total assets Represents the monetary amount of Total assets, as of the indicated date. Cash {2} Cash Represents the monetary amount of Cash, as of the indicated date. Discontinued Operations, total basis in the assets sold and transactions costs Represents the monetary amount of Discontinued Operations, total basis in the assets sold and transactions costs, as of the indicated date. Depreciation Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price Schedule of Earnings Per Share, Basic and Diluted Tables/Schedules 9. SUBSEQUENT EVENT 2. GOING CONCERN AND MANAGEMENT'S PLANS CASH FLOWS FROM INVESTING ACTIVITIES Net income (loss) Weighted average common shares outstanding: Computation of shares used in income (loss) per share: Convertible notes payable, related party - current portion LIABILITIES AND STOCKHOLDERS' DEFICIT Gain on sale of assets Represents the monetary amount of Gain on sale of assets, during the indicated time period. 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