10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2019

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

For the transition period from                      to                     

Commission File Number: 000-27031

FULLNET COMMUNICATIONS INC.

(Exact name of registrant as specified in its charter)

Oklahoma	73-1473361
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

201 Robert S. Kerr Avenue, Suite 210

Oklahoma City, Oklahoma 73102

(Address of principal executive offices)

(405) 236-8200

(Registrant’s telephone number)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.00001 per share	FULO	OTC Markets Group Pink

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No o

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

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

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

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

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

As of August 14, 2019, 14,539,675 shares of the registrant’s common stock, $0.00001 par value, were outstanding.

FORM 10-Q

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets — June 30, 2019 (Unaudited) and December 31, 2018		3
Condensed Consolidated Statements of Operations — Three and six months ended June 30, 2019 and 2018 (Unaudited)		4
Condensed Consolidated Statements of Stockholders’ Deficit — Three and six months ended June 30, 2019 and 2018 (Unaudited)		5
Condensed Consolidated Statements of Cash Flows — Six months ended June 30, 2019 and 2018 (Unaudited)		7
Notes to Condensed Consolidated Financial Statements (Unaudited)		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3. Quantitative and Qualitative Disclosures About Market Risk		19
Item 4. Controls and Procedures		19
PART II. OTHER INFORMATION
Item1. Legal Proceedings		20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		20
Item 5. Other Information		20
Item 6. Exhibits		21
Signatures		22
Exhibit 31.1
Exhibit 32.1

2

FullNet Communications, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2019 (Unaudited)	DECEMBER 31, 2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$479,998	$245,462
Accounts receivable, net	39	5,026
Prepaid expenses and other current assets	45,112	30,848
Total current assets	525,149	281,336
PROPERTY AND EQUIPMENT, net	47,403	51,267
OTHER ASSETS AND INTANGIBLE ASSETS	8,563	12,979
RIGHT OF USE LEASED ASSET	1,003,856	-
ASSETS OF DISCONTINUED OPERATIONS, net	854	775
TOTAL ASSETS	$1,585,825	$346,357
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable	$19,322	$18,428
Accounts payable, related party	-	4,000
Accrued and other liabilities	557,302	534,168
Convertible notes payable, related party - current portion	-	7,203
Operating lease liability – current portion	139,023	-
Deferred revenue	504,403	442,771
Total current liabilities	1,220,050	1,006,570
CONVERTIBLE NOTES PAYABLE, related party - less current portion	-	20,685
OPERATING LEASE LIABILITY – less current portion	872,987	-
LIABILITIES OF DISCONTINUED OPERATIONS (NOTE 10)	51,479	52,363
Total liabilities	2,144,516	1,079,618
STOCKHOLDERS’ DEFICIT
Preferred stock - $0.001 par value; authorized, 10,000,000 shares; Series A convertible; issued and outstanding, 987,102 shares in 2019 and 2018	645,573	638,849
Common stock - $0.00001 par value; authorized, 40,000,000 shares; issued and outstanding, 14,539,675 and 13,621,009 shares in 2019 and 2018, respectively	145	136
Additional paid-in capital	8,797,779	8,765,712
Accumulated deficit	(10,002,188)	(10,137,958)
Total stockholders’ deficit	(558,691)	(733,261)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$1,585,825	$346,357

See accompanying notes to unaudited condensed consolidated financial statements.

3

FullNet Communications, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
REVENUES
Total revenue	$557,981	$503,193	$1,157,812	$1,010,253
OPERATING COSTS AND EXPENSES
Cost of revenue	80,404	62,427	157,198	111,263
Selling, general and administrative expenses	458,668	418,122	948,201	968,479
Depreciation and amortization	4,100	4,095	8,280	8,484
Total operating costs and expenses	543,172	484,644	1,113,679	1,088,226
INCOME (LOSS) FROM OPERATIONS	14,809	18,549	44,133	(77,973)
OTHER INCOME	2,391	16,605	92,349	22,605
INTEREST EXPENSE	-	(166)	(277)	(496)
INCOME TAX EXPENSE	-	(7,334)	-	(12,000)
Net income (loss) from continuing operations	17,200	27,654	136,205	(67,864)
Gain from sale of discontinued asset	-	-	-	233,277
Net income (loss) from discontinued operations (NOTE 10)	44	(21,669)	(435)	(52,990)
NET INCOME	$17,244	$5,985	$135,770	$112,423
Preferred stock dividends	(3,362)	(3,363)	(6,724)	(10,087)
Net income available to common stockholders	$13,882	$2,622	$129,046	$102,336
Net income (loss) per share:
Continuing operations – basic and diluted	0.00	0.00	0.01	(0.01)
Discontinued operations – basic and diluted	0.00	(0.00)	(0.00)	0.02
Net income (loss) – basic and diluted	$0.00	$0.00	$0.01	$0.01
Weighted average common shares outstanding:
Basic	14,271,793	11,871,009	14,007,867	11,871,009
Diluted	16,876,730	14,753,128	16,594,615	11,871,009

See accompanying notes to unaudited condensed consolidated financial statements.

4

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT (UNAUDITED)

FullNet Communications, Inc. and Subsidiaries

Three Months Ended June 30, 2019

	Common stock		Preferred stock		Additional	Accumulated
	Shares	Amount	Shares	Amount	paid-in capital	deficit	Total
Balance at April 1, 2019	14,021,009	$140	987,102	$642,211	$8,797,535	$(10,019,432)	$(579,546)
Stock options compensation	-	-	-	-	2,055	-	2,055
Stock options exercised	38,666	-	-	-	116	-	116
Exercise of options by reducing deferred compensation payable	480,000	5	-	-	1,435	-	1,440
Amortization of increasing dividend rate preferred stock discount	-	-	-	3,362	(3,362)	-	-
Net income	-	-	-	-	-	17,244	17,244
Balance at June 30, 2019 – (unaudited)	14,539,675	$145	987,102	$645,573	$8,797,779	$(10,002,188)	$(558,691)

Six Months Ended June 30, 2019

	Common stock		Preferred stock		Additional	Accumulated
	Shares	Amount	Shares	Amount	paid-in capital	deficit	Total
Balance at January 1, 2019	13,621,009	$136	987,102	$638,849	$8,765,712	$(10,137,958)	$(733,261)
Stock options compensation	-	-	-	-	19,986	-	19,986
Stock options exercised	38,666	-	-	-	116	-	116
Exercise of options by reducing deferred compensation payable	480,000	5	-	-	1,435	-	1,440
Amortization of increasing dividend rate preferred stock discount	-	-	-	6,724	(6,724)	-	-
Warrants issued	-	-	-	-	15,358	-	15,358
Warrants exercised	400,000	4	-	-	1,896	-	1,900
Net income	-	-	-	-	-	135,770	135,770
Balance at June 30, 2019 – (unaudited)	14,539,675	$145	987,102	$645,573	$8,797,779	$(10,002,188)	$(558,691)

5

Three Months Ended June 30, 2018

	Common stock		Preferred stock		Additional	Accumulated
	Shares	Amount	Shares	Amount	paid-in capital	deficit	Total
Balance at April 1, 2018	11,871,009	$119	987,102	$625,399	$8,702,982	$(10,298,603)	$(970,103)
Stock options compensation	-	-	-	-	2,116	-	2,116
Amortization of increasing dividend rate preferred stock discount	-	-	-	3,363	(3,363)	-	-
Net income	-	-	-	-	-	5,985	5,985
Balance at June 30, 2018 – (unaudited)	11,871,009	$119	987,102	$628,762	$8,701,735	$(10,292,618)	$(962,002)

Six Months Ended June 30, 2018

	Common stock		Preferred stock		Additional	Accumulated
	Shares	Amount	Shares	Amount	paid-in capital	deficit	Total
Balance at January 1, 2018	11,871,009	$119	987,102	$618,675	$8,640,769	$(10,405,041)	$(1,145,478)
Stock options compensation	-	-	-	-	71,053	-	71,053
Amortization of increasing dividend rate preferred stock discount	-	-	-	10,087	(10,087)	-	-
Net income	-	-	-	-	-	112,423	112,423
Balance at June 30, 2018 – (unaudited)	11,871,009	$119	987,102	$628,762	$8,701,735	$(10,292,618)	$(962,002)

See accompanying notes to unaudited condensed consolidated financial statements.

6

FullNet Communications, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended
	June 30, 2019	June 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$135,770	$112,423
(Income) loss from discontinued operations	435	(180,287)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	8,280	8,484
Noncash lease expense	73,267	-
Stock options and warrants expense	35,344	71,053
Provision for uncollectible accounts receivable	(1,847)	(7,147)
Net (increase) decrease in
Accounts receivable	6,834	15,454
Prepaid expenses and other current assets	(14,264)	(24,641)
Net increase (decrease) in
Accounts payable	894	(19,057)
Accounts payable – related party	(4,000)	(2,876)
Accrued and other liabilities	24,574	26,114
Deferred revenue	61,632	24,919
Operating lease obligation	(65,113)	-
Net cash provided by operating activities	261,806	24,439
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment	-	(7,472)
Net cash used in investing activities	-	(7,472)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on borrowings under notes payable – related party	(27,888)	(2,637)
Exercise of warrants	1,900	-
Exercise of options	116	-
Net cash used in financing activities	(25,872)	(2,637)
DISCONTINUED OPERATIONS
Net cash used in operating activities	(1,398)	(26,246)
Net cash provided by investing activities	-	218,153
Net cash used in financing activities	-	(116,592)
Net cash provided by (used in) discontinued operations	(1,398)	75,315
NET INCREASE (DECREASE) IN CASH	234,536	89,645
Cash at beginning of period	245,462	29,399
Cash at end of period	$479,998	$119,044
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income tax	$-	$12,000
Cash paid for interest – continuing operations	277	964
Cash paid for interest – discontinued operations	-	51
NON-CASH INVESTING AND FINANCING ACTIVITIES
Right of use assets and operating lease liabilities recognized	$1,077,123	$-
Amortization of increasing dividend rate preferred stock discount	6,724	10,087
Exercise of options by reducing deferred compensation payable	1,440	-

7

See accompanying notes to the unaudited condensed consolidated financial statements.

FullNet Communications, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.     UNAUDITED INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto for the year ended December 31, 2018.

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

The information furnished reflects, in the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of the interim periods presented. Operating results of the interim period are not necessarily indicative of the amounts that will be reported for the year ending December 31, 2019.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02, Leases (Topic 842), which requires lessees to record assets and liabilities reflecting the leased assets and lease obligations, respectively, while following the dual model for recognition in statements of income requiring leases to be classified as either operating or finance.  Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases).  We adopted the new standard effective January 1, 2019, as allowed, using the modified retrospective approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods.  The only lease that we have is the real estate lease for our headquarters facility.  As of January 1, 2019, the adoption of the standard resulted in recognition of an operating right-of-use, or ROU, liability of approximately $1,077,123 and an operating ROU asset of $1,077,123.  These amounts are based on the present value of such commitments using the Company’s incremental borrowing rate.  The standard does not materially affect our results of operations, cash flows and liquidity.  See Note 9 for further information.

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

Income (Loss) Per Share

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

8

Schedule of Income (Loss) Per Share
	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Net income (loss):
Income (loss) from continuing operations	$17,200	$27,654	$136,205	$(67,864)
Income (loss) from discontinued operations – See Note 10	44	(21,669)	(435)	180,287
Net income (loss)	17,244	5,985	135,770	112,423
Preferred stock dividends	(3,362)	(3,363)	(6,724)	(10,087)
Net income (loss) available to common shareholders	$13,882	$2,622	$129,046	$102,336
Basic income (loss) per share:
Weighted average common shares outstanding used in income (loss) per share	14,271,793	11,871,009	14,007,867	11,871,009
Basic income (loss) per share:
Continuing operations	0.00	0.00	0.01	(0.01)
Discontinued operations – See Note 10	0.00	(0.00)	(0.00)	0.02
Basic income (loss) per share	0.00	0.00	0.01	0.01
Diluted income (loss) per share:
Shares used in diluted income (loss) per share	16,876,730	14,753,128	16,594,615	11,871,009
Diluted income (loss) per share:
Continuing operations	0.00	0.00	0.01	(0.01)
Discontinued operations – See Note 10	0.00	(0.00)	(0.00)	0.02
Diluted income (loss) per share	0.00	0.00	0.01	0.01
Computation of shares used in income (loss) per share:
Weighted average shares and share equivalents outstanding – basic	14,271,793	11,871,009	14,007,867	11,871,009
Effect of preferred stock	987,102	987,102	987,102	-
Effect of dilutive stock options	1,351,658	1,670,017	1,335,155	-
Effect of dilutive warrants	266,177	225,000	264,491	-
Weighted average shares and share equivalents outstanding – diluted	16,876,730	14,753,128	16,594,615	11,871,009

Schedule of Anti-dilutive Securities Excluded
	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Preferred stock	-	-	-	987,102
Stock options	-	2,043,000	-	4,117,834
Warrants	3,000	-	3,000	250,000
Convertible promissory notes	-	30,605	27,888	30,605
Total anti-dilutive securities excluded	3,000	2,073,605	30,888	5,385,541

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

9

2.     MANAGEMENT'S PLANS

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

The Company has historically experienced significant operating losses with cumulative losses from inception of approximately $10 million. These losses have resulted in a negative working capital position of approximately $695,000 at June 30, 2019, of which approximately $409,000 of the Company’s current liabilities is owed to its officers and directors, and approximately $504,403 of the Company’s current liabilities is deferred revenue.  The Company’s officers and directors, who are also major shareholders, have agreed to not seek payment of any of the amounts owed to them if such payment would jeopardize the Company’s ability to continue as a going concern.  The deferred revenue represents advance payments for services from the Company’s customers which will be satisfied by its delivery of services in the normal course of business and will not require settlement in cash.

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

As a result of these initiatives, the Company generated positive cash flow from its operating activities of approximately $260,000 and $24,000, for the six months ending June 30, 2019 and 2018, respectively.  In addition, the Company was able to generate net income of approximately $136,000 and $112,000, for the six months ending June 30, 2019 and 2018, respectively.

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

As a result of the revenue enhancement initiatives, the cost saving initiatives, the excess asset sales and the successful exit from the CLEC business, the Company has been able to significantly improve its working capital position and alleviate any substantial doubt about the Company’s ability to continue as a going concern as defined by ASU 2014-15.  We believe that the actions discussed above mitigate the substantial doubt raised by our prior operating losses and satisfy our estimated liquidity needs 12 months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate additional liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned. Additionally, a failure to generate additional liquidity could negatively impact our ability to effectively execute our business plan.

3.     CONVERTIBLE NOTES PAYABLE RELATED PARTY

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

10

4.     STOCK BASED COMPENSATION

The following table summarizes the Company’s employee stock option activity for the six months ended June 30, 2019:

Schedule of Employee Stock Option Activity
	Options	Weighted average exercise price	Weighted average remaining contractual life (yrs)	Aggregate Intrinsic value
Options outstanding, December 31, 2018	2,370,834	$0.010	7.45
Options exercisable, December 31, 2018	1,126,167	$0.005	6.39	$ 34,623
Options issued during the period	480,000	$0.003
Options expired during the period	-	-
Options exercised during the period	518,666	$0.003
Options outstanding June 30, 2019	2,332,168	$0.010	6.93
Options exercisable June 30, 2019	1,584,832	$0.007	6.46	$ 49,227

During the six months ended June 30, 2019, 480,000 nonqualified employee stock options were granted with an exercise price of $0.003 per option.  The options were valued using Black-Scholes option pricing model on the respective date of issuance and the fair value of the shares was determined to be $15,875 of which $15,875 was recognized as stock-based compensation expense for the six months ended June 30, 2019.  These stock options vested immediately upon grant (February 19, 2019) and will expire one year from the date of the grant.  On May 17, 2019, certain employees, officers and directors of the Company and their family members exercised options to purchase 518,666 restricted shares of the Company’s common stock.  Proceeds from the exercise of the Options were $1,556, of which $1,440 was derived from the reduction of deferred compensation payable the Company owed to these officers and directors.  The common shares were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506 of Regulation D thereunder without payment of any form of commissions or other remuneration.  

Total stock-based compensation expense for the six months ended June 30, 2019 was $19,986, of which $15,876 was related to options issued during the six months ended June 30, 2019 and $4,110 was related to options issued in prior years.  Stock-based compensation is measured at the grant date, based on the calculated fair value of the option, and is recognized as an expense on a straight-line basis over the requisite employee service period (generally the vesting period of the grant).  

The Black-Scholes option pricing model was used with the following weighted-average assumptions for options granted during the six   months ended June 30, 2019:

	2019
Risk free interest rate	2.51%
Expected lives (in years)	1
Expected volatility	36%
Dividend yield	0%

11

5.     WARRANT ACTIVITY

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

Schedule of Warrant Activity
	Warrants	Weighted average exercise price	Weighted average remaining contractual life (yrs)	Aggregate Intrinsic value
Warrants outstanding December 31, 2018	250,000	$0.003	5.32
Warrants exercisable December 31, 2018	250,000	$0.003	4.32	$ 8,250
Warrants issued during the period	440,000	$0.005
Warrants exercised during the period	400,000	$0.005
Warrants outstanding June 30, 2019	290,000	$0.004	3.92
Warrants exercisable June 30, 2019	290,000	$0.004	3.92	$ 9,899

During the six months ended June 30, 2019, 300,000 and 140,000 common stock purchase warrants were granted with exercise prices of $0.003 and $0.01, respectively, per option.  The warrants were valued using Black-Scholes warrant pricing model on the respective date of issuance and the fair value of the shares was determined to be $15,358, which was recognized as expense for the six months ended June 30, 2019.  These warrants vested immediately upon grant (January 2, 2019) and will expire five years from the date of the grant.  

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

The Black-Scholes pricing model was used with the following weighted-average assumptions for warrants granted during the six   months ended June 30, 2019:

	2019
Risk free interest rate	2.51%
Expected lives (in years)	5
Expected volatility	146%
Dividend yield	0%

6.     SERIES A CONVERTIBLE PREFERRED STOCK

On March 9, 2019 the Company’s board of directors determined that it was in the best interest of the Company and its stockholders to conserve the Company’s working capital at this time and not make the annual dividend payment for the year ending December 31, 2018, on its Series A Convertible Preferred Stock.  The Company has never made an annual dividend payment on its Series A convertible preferred stock.  As of June 30, 2019, the aggregate outstanding accumulated arrearages of cumulative dividend was $182,614 or if issued in common shares, 4,793,015 shares.

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

7.      PROPERTY AND EQUIPMENT

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

8.     INTANGIBLE ASSETS

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

12

9.     LEASES

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

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

We used our incremental borrowing rate (8.5%), based on the information available at the date of adoption in determining the present value of the lease payments and a lease expiration date of December 31, 2024.  At June 30, 2019, the remaining future cash payments under our lease total approximately $1,317,647.

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

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

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

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

Year ending December 31,
2019 (excluding the six months ended June 30, 2019)	$110,891
2020	228,305
2021	234,828
2022	241,351
2023	247,874
Thereafter	254,398
Total future minimum lease payments	1,317,647
Less imputed interest	(305,637)
Total liability	$1,012,010

10.     DISCONTINUED OPERATIONS

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

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

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

13

Consideration:
Cash	$	246,500
Assumption of deferred revenue		8,366
Waived service obligation for February 2018		10,006
Total consideration	$	264,872
Total assets sold:
Customer contracts	$	-
Fiber innerduct		3,248
Fiber strands		-
Customer CPE		-
Total assets		3,248
Transactional costs		28,347
Total basis	$	31,595
Net gain	$	233,277

Assets and Liabilities of Discontinued Operations

	June 30, 2019	December 31, 2018
Carrying amounts of assets included in discontinued operations
Cash	$854	$775
Total Assets of Discontinued Operations	$854	$775
Carrying amounts of liabilities included in discontinued operations
Accounts payable	$43,270	$42,905
Accrued and other liabilities	8,209	9,458
Total Liabilities of Discontinued Operations	$51,479	$52,363

Operating Results of Discontinued Operations

	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Revenues included in discontinued operations
Total colocation and other revenues	$-	$-	$-	$28,091
Operating costs and expenses included in discontinued operations
Cost of services	$-	$18,660	$-	$72,546
Selling, general and administrative expenses	479	691	958	3,848
Depreciation and amortization	-	2,318	-	4,636
Interest expense	-	-	-	51
Total operating costs and expenses discontinued operations	$479	$21,669	$958	$81,081
Other Income included in discontinued operations
Gain on sale of assets	-	-	-	233,277
Other income from applied customer deposits	523	-	523	-
Net Income (Loss) from Discontinued Operations	$44	$(21,669)	$(435)	$180,287
Net Income (Loss) per share from discontinued operations basic and diluted	$0.00	$(0.00)	$(0.00)	$0.02

Cash Flows from Discontinued Operations

	June 30, 2019	June 30, 2018
Net cash used in operating activities	$ (1,398)	$(26,246)
Net cash provided by investing activities	-	218,153
Net cash used in financing activities	-	(116,592)
Net cash provided by (used in) discontinued operations	$ (1,398)	$75,315

14

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

The following discussion is qualified in its entirety by the more detailed information in our 2018 Annual Report on Form 10-K and the financial statements contained therein, including the notes thereto, and our other periodic reports filed with the Securities and Exchange Commission since December 31, 2018 (collectively referred to as the “Disclosure Documents”). Certain forward-looking statements contained in this Report and in the Disclosure Documents regarding our business and prospects are based upon numerous assumptions about future conditions which may ultimately prove to be inaccurate and actual events and results may materially differ from anticipated results described in such statements. Our ability to achieve these results is subject to certain risks and uncertainties, including those inherent risks and uncertainties generally in the Internet service provider and group message delivery industries, the impact of competition and pricing, changing market conditions, and other risks. Any forward-looking statements contained in this Report represent our judgment as of the date of this Report. We disclaim, however, any intent or obligation to update these forward-looking statements. As a result, the reader is cautioned not to place undue reliance on these forward-looking statements.

Overview

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

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

Company History

We were founded in 1995 as CEN-COM of Oklahoma, Inc., an Oklahoma corporation, to bring dial-up Internet access and education to rural locations in Oklahoma that did not have dial-up Internet access. We changed our name to FullNet Communications, Inc. in December 1995. Today we are an integrated communications provider.

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

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

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

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

15

Results of Operations

The following table, which includes both continuing and discontinued operations (see Note 10 – Discontinued Operations of the financial statement appearing elsewhere in this Report), sets forth certain statement of operations data as a percentage of revenues for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	Amount	Percent	Amount	Percent	Amount	Percent	Amount	Percent
Revenue:
Total revenue	557,981	100.0	$503,193	100.0	1,157,812	100.0	$1,010,253	100.0
Cost of revenue	80,404	14.4	62,427	12.4	157,198	13.6	111,263	11.0
Selling, general and administrative expenses	458,668	82.2	418,122	83.1	948,201	81.9	968,479	95.9
Depreciation and amortization	4,100	0.7	4,095	0.8	8,280	0.7	8,484	0.8
Total operating costs and expenses	543,172	97.3	484,644	96.3	1,113,679	96.2	1,088,226	107.7
Income (loss) from operations	14,809	2.7	18,549	3.7	44,133	3.8	(77,973)	(7.7)
Other income	2,391	0.4	16,605	3.3	92,349	7.9	22,605	2.2
Interest expense	-	-	(166)	(0.1)	(277)	(0.0)	(496)	(0.1)
Income tax expense	-	-	(7,334)	(1.4)	-	-	(12,000)	(1.1)
Net income (loss) from continuing operations	17,200	3.1	27,654	5.5	136,205	11.7	(67,864)	(6.7)
Gain from sale of discontinued asset	-	-	-	-	-	-	233,277	23.0
Net income (loss) from discontinued operations	44	0.0	(21,669)	(4.3)	(435)	(0.0)	(52,990)	(5.2)
Net income (loss)	17,244	3.1	5,985	1.2	135,770	11.7	112,423	11.1
Preferred stock dividends	(3,362)	(0.6)	(3,363)	(0.7)	(6,724)	(0.6)	(10,087)	(1.0)
Net income available to common stockholders	13,882	2.5	$2,622	0.5	129,046	11.1	$102,336	10.1

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

Revenues

Total revenue increased $54,788 or 10.9% to $557,981 for the 2019 2nd Quarter from $503,193 for the same period in 2018. This increase was primarily attributable to the net addition of new customers and the sale of additional services to existing customers.

In the 2019 2nd Quarter, we had interest income of $2,391.  In the 2018 2nd Quarter, we had other income of $16,605 from the refund of overpayment of 2012 property taxes.

Operating Costs and Expenses

Cost of revenue increased $17,977 or 28.8% to $80,404 for the 2019 2nd Quarter from $62,427 for the same period in 2018.  This increase was primarily related to servicing new customers added through growth of business. Cost of revenue as a percentage of total revenue increased to 14.4% during the 2019 2nd Quarter, compared to 12.4% during the same period in 2018, as a result of increased utilization of higher cost components of our service offerings combined with price increases from our vendors.

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

16

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

  Interest Expense

Interest expense decreased $166 or 100% to $0 for the 2019 2nd Quarter compared to $166 for the same period in 2018.  This decrease was primarily related to the payoff of the related-party notes payable made during the 1st Quarter of 2019 and 2018.

Net Income

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

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

Revenues

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

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

Operating Costs and Expenses

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

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

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

Interest Expense

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

Net Income

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

Liquidity and Capital Resources

As of June 30, 2019, we had $479,998 in cash and $45,151 in current assets and $1,220,050 in current liabilities.  Current liabilities consist primarily of $557,302 in accrued and other liabilities, of which $409,112 is owed to our officers and directors, and $504,403 in deferred revenue.  Our officers and directors, who are also major shareholders, have agreed to not seek payment of any of the amounts owed to them if such payment would jeopardize our ability to continue as a going concern.  The deferred revenue represents advance payments for services from our customers which will be satisfied by our delivery of services in the normal course of business and will not require settlement in cash.

17

At June 30, 2019 and December 31, 2018, we had working capital deficits of $694,901 and $725,234, respectively. We do not have a line of credit or credit facility to serve as an additional source of liquidity. Historically we have relied on shareholder loans as an additional source of funds.

As of June 30, 2019, $15,979 of the $19,322 we owed to our trade creditors was past due. We have no formal agreements regarding payment of these amounts.

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

	For the Six-Month Period Ended June 30,
	2019	2018
Net cash flows provided by operating activities	$261,806	$24,439
Net cash flows used in investing activities	-	(7,472)
Net cash flows used in financing activities	(25,872)	(2,637)

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

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

Cash used for the payoff of the note payable in the six months ended June 30, 2019 was $27,888, and principal payments on notes payable were $2,637 for the six months ended June 30, 2018.      

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

• mergers and acquisitions and

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

Because our cost of developing new networks and services, funding other strategic initiatives, and operating our business depend on a variety of factors (including, among other things, the number of customers and the service for which they subscribe, the nature and penetration of services that may be offered by us, regulatory changes, and actions taken by competitors in response to our strategic initiatives), it is almost certain that actual costs and revenues will materially vary from expected amounts and these variations are likely to increase our future capital requirements. There can be no assurance that our current cash balances will be sufficient to fund our current business plan beyond the next few months. As a consequence, we are currently focusing on revenue enhancement and cost cutting opportunities as well as working to sell non-core assets.

Our ability to fund the capital expenditures and other costs contemplated by our business plan in the near term will depend upon, among other things, primarily our ability to generate consistent net income and positive cash flow from operations. Capital will be needed in order to implement our business plan, deploy our network, expand our operations and obtain and retain a significant number of customers in our target markets. Each of these factors is, to a large extent, subject to economic, financial, competitive, political, regulatory, and other factors, many of which are beyond our control.

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

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

Financing Activities

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

18

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

Critical Accounting Policies and Estimates

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

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

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

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

Access service revenues are recognized on a monthly basis over the life of each contract as services are provided. Contract periods range from monthly to yearly. Carrier-neutral telecommunications colocation revenues, traditional telephone services and advanced voice and data services are recognized on a monthly basis over the life of the contract as services are provided. Revenue that is received in advance of the services provided is deferred until the services are provided by us. Revenue related to set up charges is also deferred and amortized over the life of the contract. We classify certain taxes and fees billed to customers and remitted to governmental authorities on a net basis in revenue.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.     Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Our principal executive officer, who is also our principal financial officer, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2019 pursuant to Rule 13a-15(b) under the Exchange Act.  Based upon that evaluation, our CEO/CFO concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO/CFO, as appropriate, to allow timely decisions regarding required disclosure, due to the following material weakness:

19

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

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

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

Changes in Internal Control over Financial Reporting

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

PART II—OTHER INFORMATION

Item 1.  Legal Proceedings

We are not a party to any material legal proceedings.

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

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

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

On May 17, 2019, we agreed to sell 518,666 restricted shares of its common stock, par value $0.00001 per share pursuant to the exercise of previously issued and outstanding common stock purchase options (the “Options”) held by various employees, our officers and directors and their family members.  Proceeds from the exercise of the Options were $1,556.  The common shares were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended without payment of any form of commissions or other remuneration.

Immediately following the exercise of the Options, we had 14,539,675 shares of common stock issued and outstanding, and 290,000 Warrants remaining outstanding, 250,000 with an exercise price of $.003 per share and 40,000 with an exercise price of $.01 per share.

Item 5.     Other Information

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

20

Item 6.     Exhibits

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

Exhibit
Number			Exhibit
	2.1		Asset Purchase Agreement dated February 1, 2018, by and among FullTel, Inc. and Dobson Technologies – Transport and Telecom Solutions, LLC		1
	4.18		Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock of FullNet Communications, Inc.		2
	10.23		IPv4 Numbers Purchase Agreement executed February 4, 2019, by and between FullNet Communications, Inc. and Paycom Payroll, LLC.		3
	31.1		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of Roger P. Baresel	*
	32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Roger P. Baresel	*
	101.INS		XBRL Instance Document	**
	101.SCH		XBRL Taxonomy Extension Schema Document	**
	101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document	**
	101.DEF		XBRL Taxonomy Extension Definition Linkbase Document	**
	101.LAB		XBRL Taxonomy Extension Label Linkbase Document	**
	101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document	**
1		Incorporated by reference to Exhibit 2.1 to the Form 8-K filed February 6, 2018
2		Incorporated by reference to Exhibit 4.18 to the Form 8-K filed June 7, 2013
3		Incorporated by reference to Exhibit 10.23 to the Form 10-K filed April 1, 2019
*		Filed herewith.
**		In accordance with Rule 406T of Regulation S-T, the XBRL (Extensible Business Reporting Language) related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except to the extent expressly set forth by specific reference in such filing.

21

SIGNATURES

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

	REGISTRANT: FULLNET COMMUNICATIONS, INC.
Date: August 14, 2019	By:	/s/ ROGER P. BARESEL
		Roger P. Baresel
		Chief Executive Officer and Chief Financial Officer

22

EX-31.1

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, 2019, 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, 2019			/s/ Roger P. Baresel,
			Chief Executive Officer and Chief Financial Officer

EX-32.1

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, 2019 (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, 2019	/s/ Roger P. Baresel,
	Chief Executive Officer and Chief Financial Officer

XML

Document and Entity Information - $ / shares		6 Months Ended
	Aug. 14, 2019	Jun. 30, 2019
Details
Registrant CIK		0001092570
Fiscal Year End		--12-31
Document Type		10-Q
Document Quarterly Report		true
Document Period End Date		Jun. 30, 2019
Document Transition Report		false
Entity File Number		000-27031
Entity Registrant Name		FULLNET COMMUNICATIONS INC.
Entity Incorporation, State or Country Code		OK
Entity Tax Identification Number		73-1473361
Entity Address, Address Line One		201 Robert S. Kerr Avenue, Suite 210
Entity Address, City or Town		Oklahoma City
Entity Address, State or Province		OK
Entity Address, Postal Zip Code		73102
City Area Code		405
Local Phone Number		236-8200
Entity Current Reporting Status		Yes
Entity Interactive Data Current		Yes
Entity Filer Category		Non-accelerated Filer
Entity Small Business		true
Entity Emerging Growth Company		false
Entity Shell Company		false
Entity Common Stock, Shares Outstanding	14,539,675
Entity Listing, Par Value Per Share	$ 0.00001
Amendment Flag		false
Document Fiscal Year Focus		2019
Document Fiscal Period Focus		Q2

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (June 30, 2019 Unaudited) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
CURRENT ASSETS
Cash and cash equivalents	$ 479,998	$ 245,462
Accounts receivable, net	39	5,026
Prepaid expenses and other current assets	45,112	30,848
Total current assets	525,149	281,336
PROPERTY AND EQUIPMENT, net	47,403	51,267
OTHER ASSETS AND INTANGIBLE ASSETS	8,563	12,979
RIGHT OF USE LEASED ASSET	1,003,856	0
ASSETS OF DISCONTINUED OPERATIONS, net	854	775
TOTAL ASSETS	1,585,825	346,357
CURRENT LIABILITIES
Accounts payable	19,322	18,428
Accounts payable, related party	0	4,000
Accrued and other liabilities	557,302	534,168
Convertible notes payable, related party - current portion	0	7,203
Operating lease liability - current portion	139,023	0
Deferred revenue	504,403	442,771
Total current liabilities	1,220,050	1,006,570
CONVERTIBLE NOTES PAYABLE, related party - less current portion	0	20,685
OPERATING LEASE LIABILITY - less current portion	872,987	0
LIABILITIES OF DISCONTINUED OPERATIONS (NOTE 10)	51,479	52,363
Total liabilities	2,144,516	1,079,618
STOCKHOLDERS' DEFICIT
Preferred Stock, Value	645,573	638,849
Common Stock, Value	145	136
Additional paid-in capital	8,797,779	8,765,712
Accumulated deficit	(10,002,188)	(10,137,958)
Total stockholders' deficit	(558,691)	(733,261)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 1,585,825	$ 346,357

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (June 30, 2019 Unaudited) - Parenthetical - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Details
Preferred Stock, Par or Stated Value Per Share	$ 0.001	$ 0.001
Preferred Stock, Shares Authorized	10,000,000	10,000,000
Preferred Stock, Shares Issued	987,102	987,102
Preferred Stock, Shares Outstanding	987,102	987,102
Common Stock, Par or Stated Value Per Share	$ 0.00001	$ 0.00001
Common Stock, Shares Authorized	40,000,000	40,000,000
Common Stock, Shares, Issued	14,539,675	13,621,009
Common Stock, Shares, Outstanding	14,539,675	13,621,009

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)		3 Months Ended		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
REVENUES
Total revenue		$ 557,981	$ 503,193	$ 1,157,812	$ 1,010,253
OPERATING COSTS AND EXPENSES
Cost of revenue		80,404	62,427	157,198	111,263
Selling, general and administrative expenses		458,668	418,122	948,201	968,479
Depreciation and amortization		4,100	4,095	8,280	8,484
Total operating costs and expenses		543,172	484,644	1,113,679	1,088,226
INCOME (LOSS) FROM OPERATIONS		14,809	18,549	44,133	(77,973)
OTHER INCOME		2,391	16,605	92,349	22,605
INTEREST EXPENSE		0	(166)	(277)	(496)
INCOME TAX EXPENSE		0	(7,334)	0	(12,000)
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent		17,200	27,654	136,205	(67,864)
Gain from sale of discontinued asset		0	0	0	233,277
Discontinued Operation, Income (Loss) from Discontinued Operation, before Income Tax	[1]	44	(21,669)	(435)	(52,990)
Net Income (Loss) Attributable to Parent		17,244	5,985	135,770	112,423
Preferred stock dividends		(3,362)	(3,363)	(6,724)	(10,087)
Net income available to common stockholders		$ 13,882	$ 2,622	$ 129,046	$ 102,336
Earnings Per Share
Earnings Per Share, Basic and Diluted		$ 0.00	$ 0.00	$ 0.01	$ 0.01
Weighted Average Number of Shares Outstanding, Basic		14,271,793	11,871,009	14,007,867	11,871,009
Weighted Average Number of Shares Outstanding, Diluted		16,876,730	14,753,128	16,594,615	11,871,009
Continuing operations - basic and diluted		$ 0.00	$ 0.00	$ 0.01	$ (0.01)
Discontinued operations - basic and diluted		$ 0.00	$ (0.00)	$ (0.00)	$ 0.02

[1] See Note 10

XML

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED) - USD ($)	Common Stock	Preferred Stock	Additional Paid In Capital	Accumulated Deficit	Total
Equity Balance, Starting at Dec. 31, 2017	$ 119	$ 618,675	$ 8,640,769	$ (10,405,041)	$ (1,145,478)
Shares Outstanding, Starting at Dec. 31, 2017	11,871,009	987,102
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture	$ 0	$ 0	71,053	0	71,053
Stock Issued During Period, Value, Stock Options Exercised					0
Exercise of options by reducing deferred compensation payable, amount					0
Amortization of increasing dividend rate preferred stock discount	0	10,087	(10,087)	0	0
Net Income (Loss)	$ 0	$ 0	0	112,423	112,423
Shares Outstanding, Ending at Jun. 30, 2018	11,871,009	987,102
Equity Balance, Ending at Jun. 30, 2018	$ 119	$ 628,762	8,701,735	(10,292,618)	(962,002)
Equity Balance, Starting at Mar. 31, 2018	$ 119	$ 625,399	8,702,982	(10,298,603)	(970,103)
Shares Outstanding, Starting at Mar. 31, 2018	11,871,009	987,102
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture	$ 0	$ 0	2,116	0	2,116
Amortization of increasing dividend rate preferred stock discount	0	3,363	(3,363)	0	0
Net Income (Loss)	$ 0	$ 0	0	5,985	5,985
Shares Outstanding, Ending at Jun. 30, 2018	11,871,009	987,102
Equity Balance, Ending at Jun. 30, 2018	$ 119	$ 628,762	8,701,735	(10,292,618)	(962,002)
Equity Balance, Starting at Dec. 31, 2018	$ 136	$ 638,849	8,765,712	(10,137,958)	(733,261)
Shares Outstanding, Starting at Dec. 31, 2018	13,621,009	987,102
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture	$ 0	$ 0	19,986	0	19,986
Stock Issued During Period, Value, Stock Options Exercised	$ 0	$ 0	116	0	116
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	38,666	0
Exercise of options by reducing deferred compensation payable, amount	$ 5	$ 0	1,435	0	1,440
Exercise of options by reducing deferred compensation payable, shares	480,000	0
Amortization of increasing dividend rate preferred stock discount	$ 0	$ 6,724	(6,724)	0	0
Warrants issued, amount	$ 0	$ 0	15,358	0	15,358
Warrants issued, shares	0	0
Warrants exercised, amount	$ 4	$ 0	1,896	0	1,900
Warrants exercised, shares	400,000	0
Net Income (Loss)	$ 0	$ 0	0	135,770	135,770
Shares Outstanding, Ending at Jun. 30, 2019	14,539,675	987,102
Equity Balance, Ending at Jun. 30, 2019	$ 145	$ 645,573	8,797,779	(10,002,188)	(558,691)
Equity Balance, Starting at Mar. 31, 2019	$ 140	$ 642,211	8,797,535	(10,019,432)
Shares Outstanding, Starting at Mar. 31, 2019	14,021,009	987,102
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture	$ 0	$ 0	2,055	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures	0	0
Stock Issued During Period, Value, Stock Options Exercised	$ 0	$ 0	116	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	38,666	0
Exercise of options by reducing deferred compensation payable, amount	$ 5	$ 0	1,435	0
Exercise of options by reducing deferred compensation payable, shares	480,000	0
Amortization of increasing dividend rate preferred stock discount	$ 0	$ 3,362	(3,362)	0
Net Income (Loss)	$ 0	$ 0	0	17,244
Shares Outstanding, Ending at Jun. 30, 2019	14,539,675	987,102
Equity Balance, Ending at Jun. 30, 2019	$ 145	$ 645,573	$ 8,797,779	$ (10,002,188)	$ (558,691)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 135,770	$ 112,423
(Income) loss from discontinued operations	435	(180,287)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	8,280	8,484
Noncash lease expense	73,267	0
Stock options and warrants expense	35,344	71,053
Provision for uncollectible accounts receivable	(1,847)	(7,147)
Net (increase) decrease in
Accounts receivable	6,834	15,454
Prepaid expenses and other current assets	(14,264)	(24,641)
Accounts payable	894	(19,057)
Accounts payable - related party	(4,000)	(2,876)
Accrued and other liabilities	24,574	26,114
Deferred revenue	61,632	24,919
Operating lease obligation	(65,113)	0
Net cash provided by operating activities	261,806	24,439
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment	0	(7,472)
Net cash used in investing activities	0	(7,472)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on borrowings under notes payable - related party	(27,888)	(2,637)
Exercise of warrants	1,900	0
Stock Issued During Period, Value, Stock Options Exercised	116	0
Net cash used in financing activities	(25,872)	(2,637)
DISCONTINUED OPERATIONS
Net cash used in operating activities	(1,398)	(26,246)
Net cash provided by investing activities	0	218,153
Net cash used in financing activities	0	(116,592)
Net cash provided by (used in) discontinued operations	(1,398)	75,315
NET INCREASE (DECREASE) IN CASH	234,536	89,645
Cash and Cash Equivalents, at Carrying Value, Beginning Balance	245,462	29,399
Cash and Cash Equivalents, at Carrying Value, Ending Balance	479,998	119,044
Supplemental Cash Flow Information
Cash paid for income tax	0	12,000
Interest Paid, Including Capitalized Interest, Operating and Investing Activities	277	964
Interest Paid, Discontinued Operations	0	51
Cash Flow, Noncash Investing and Financing Activities Disclosure
Right of use assets and operating lease liabilities recognized	1,077,123	0
Amortization of increasing dividend rate preferred stock discount	6,724	10,087
Exercise of options by reducing deferred compensation payable, amount	$ 1,440	$ 0

XML

1. UNAUDITED INTERIM FINANCIAL STATEMENTS

6 Months Ended

Jun. 30, 2019

Notes

1. UNAUDITED INTERIM FINANCIAL STATEMENTS

1.     UNAUDITED INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto for the year ended December 31, 2018.

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

The information furnished reflects, in the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of the interim periods presented. Operating results of the interim period are not necessarily indicative of the amounts that will be reported for the year ending December 31, 2019.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02, Leases (Topic 842), which requires lessees to record assets and liabilities reflecting the leased assets and lease obligations, respectively, while following the dual model for recognition in statements of income requiring leases to be classified as either operating or finance.  Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases).  We adopted the new standard effective January 1, 2019, as allowed, using the modified retrospective approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods.  The only lease that we have is the real estate lease for our headquarters facility.  As of January 1, 2019, the adoption of the standard resulted in recognition of an operating right-of-use, or ROU, liability of approximately $1,077,123 and an operating ROU asset of $1,077,123.  These amounts are based on the present value of such commitments using the Company’s incremental borrowing rate.  The standard does not materially affect our results of operations, cash flows and liquidity.  See Note 9 for further information.

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

Income (Loss) Per Share

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

Schedule of Income (Loss) Per Share
	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Net income (loss):
Income (loss) from continuing operations	$17,200	$27,654	$136,205	$(67,864)
Income (loss) from discontinued operations – See Note 10	44	(21,669)	(435)	180,287
Net income (loss)	17,244	5,985	135,770	112,423
Preferred stock dividends	(3,362)	(3,363)	(6,724)	(10,087)
Net income (loss) available to common shareholders	$13,882	$2,622	$129,046	$102,336
Basic income (loss) per share:
Weighted average common shares outstanding used in income (loss) per share	14,271,793	11,871,009	14,007,867	11,871,009
Basic income (loss) per share:
Continuing operations	0.00	0.00	0.01	(0.01)
Discontinued operations – See Note 10	0.00	(0.00)	(0.00)	0.02
Basic income (loss) per share	0.00	0.00	0.01	0.01
Diluted income (loss) per share:
Shares used in diluted income (loss) per share	16,876,730	14,753,128	16,594,615	11,871,009
Diluted income (loss) per share:
Continuing operations	0.00	0.00	0.01	(0.01)
Discontinued operations – See Note 10	0.00	(0.00)	(0.00)	0.02
Diluted income (loss) per share	0.00	0.00	0.01	0.01
Computation of shares used in income (loss) per share:
Weighted average shares and share equivalents outstanding – basic	14,271,793	11,871,009	14,007,867	11,871,009
Effect of preferred stock	987,102	987,102	987,102	-
Effect of dilutive stock options	1,351,658	1,670,017	1,335,155	-
Effect of dilutive warrants	266,177	225,000	264,491	-
Weighted average shares and share equivalents outstanding – diluted	16,876,730	14,753,128	16,594,615	11,871,009

Schedule of Anti-dilutive Securities Excluded
	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Preferred stock	-	-	-	987,102
Stock options	-	2,043,000	-	4,117,834
Warrants	3,000	-	3,000	250,000
Convertible promissory notes	-	30,605	27,888	30,605
Total anti-dilutive securities excluded	3,000	2,073,605	30,888	5,385,541

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

XML

2. MANAGEMENT'S PLANS

6 Months Ended

Jun. 30, 2019

Notes

2. MANAGEMENT'S PLANS

2.     MANAGEMENT'S PLANS

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

The Company has historically experienced significant operating losses with cumulative losses from inception of approximately $10 million. These losses have resulted in a negative working capital position of approximately $695,000 at June 30, 2019, of which approximately $409,000 of the Company’s current liabilities is owed to its officers and directors, and approximately $504,403 of the Company’s current liabilities is deferred revenue.  The Company’s officers and directors, who are also major shareholders, have agreed to not seek payment of any of the amounts owed to them if such payment would jeopardize the Company’s ability to continue as a going concern.  The deferred revenue represents advance payments for services from the Company’s customers which will be satisfied by its delivery of services in the normal course of business and will not require settlement in cash.

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

As a result of these initiatives, the Company generated positive cash flow from its operating activities of approximately $260,000 and $24,000, for the six months ending June 30, 2019 and 2018, respectively.  In addition, the Company was able to generate net income of approximately $136,000 and $112,000, for the six months ending June 30, 2019 and 2018, respectively.

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

As a result of the revenue enhancement initiatives, the cost saving initiatives, the excess asset sales and the successful exit from the CLEC business, the Company has been able to significantly improve its working capital position and alleviate any substantial doubt about the Company’s ability to continue as a going concern as defined by ASU 2014-15.  We believe that the actions discussed above mitigate the substantial doubt raised by our prior operating losses and satisfy our estimated liquidity needs 12 months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate additional liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned. Additionally, a failure to generate additional liquidity could negatively impact our ability to effectively execute our business plan.

XML

3. CONVERTIBLE NOTES PAYABLE RELATED PARTY

6 Months Ended

Jun. 30, 2019

Notes

3. CONVERTIBLE NOTES PAYABLE RELATED PARTY

3.     CONVERTIBLE NOTES PAYABLE RELATED PARTY

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

XML

4. STOCK BASED COMPENSATION

6 Months Ended

Jun. 30, 2019

Notes

4. STOCK BASED COMPENSATION

4.     STOCK BASED COMPENSATION

The following table summarizes the Company’s employee stock option activity for the six months ended June 30, 2019:

Schedule of Employee Stock Option Activity
	Options	Weighted average exercise price	Weighted average remaining contractual life (yrs)	Aggregate Intrinsic value
Options outstanding, December 31, 2018	2,370,834	$0.010	7.45
Options exercisable, December 31, 2018	1,126,167	$0.005	6.39	$ 34,623
Options issued during the period	480,000	$0.003
Options expired during the period	-	-
Options exercised during the period	518,666	$0.003
Options outstanding June 30, 2019	2,332,168	$0.010	6.93
Options exercisable June 30, 2019	1,584,832	$0.007	6.46	$ 49,227

During the six months ended June 30, 2019, 480,000 nonqualified employee stock options were granted with an exercise price of $0.003 per option.  The options were valued using Black-Scholes option pricing model on the respective date of issuance and the fair value of the shares was determined to be $15,875 of which $15,875 was recognized as stock-based compensation expense for the six months ended June 30, 2019.  These stock options vested immediately upon grant (February 19, 2019) and will expire one year from the date of the grant.  On May 17, 2019, certain employees, officers and directors of the Company and their family members exercised options to purchase 518,666 restricted shares of the Company’s common stock.  Proceeds from the exercise of the Options were $1,556, of which $1,440 was derived from the reduction of deferred compensation payable the Company owed to these officers and directors.  The common shares were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506 of Regulation D thereunder without payment of any form of commissions or other remuneration.  

Total stock-based compensation expense for the six months ended June 30, 2019 was $19,986, of which $15,876 was related to options issued during the six months ended June 30, 2019 and $4,110 was related to options issued in prior years.  Stock-based compensation is measured at the grant date, based on the calculated fair value of the option, and is recognized as an expense on a straight-line basis over the requisite employee service period (generally the vesting period of the grant).  

The Black-Scholes option pricing model was used with the following weighted-average assumptions for options granted during the six   months ended June 30, 2019:

	2019
Risk free interest rate	2.51%
Expected lives (in years)	1
Expected volatility	36%
Dividend yield	0%

XML

5. Warrant Activity

6 Months Ended

Jun. 30, 2019

Warrants

5. Warrant Activity

 

Schedule of Warrant Activity
	Warrants	Weighted average exercise price	Weighted average remaining contractual life (yrs)	Aggregate Intrinsic value
Warrants outstanding December 31, 2018	250,000	$0.003	5.32
Warrants exercisable December 31, 2018	250,000	$0.003	4.32	$ 8,250
Warrants issued during the period	440,000	$0.005
Warrants exercised during the period	400,000	$0.005
Warrants outstanding June 30, 2019	290,000	$0.004	3.92
Warrants exercisable June 30, 2019	290,000	$0.004	3.92	$ 9,899

During the six months ended June 30, 2019, 300,000 and 140,000 common stock purchase warrants were granted with exercise prices of $0.003 and $0.01, respectively, per option.  The warrants were valued using Black-Scholes warrant pricing model on the respective date of issuance and the fair value of the shares was determined to be $15,358, which was recognized as expense for the six months ended June 30, 2019.  These warrants vested immediately upon grant (January 2, 2019) and will expire five years from the date of the grant.  

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

The Black-Scholes pricing model was used with the following weighted-average assumptions for warrants granted during the six   months ended June 30, 2019:

	2019
Risk free interest rate	2.51%
Expected lives (in years)	5
Expected volatility	146%
Dividend yield	0%

XML

6. SERIES A CONVERTIBLE PREFERRED STOCK

6 Months Ended

Jun. 30, 2019

Notes

6. SERIES A CONVERTIBLE PREFERRED STOCK

6.     SERIES A CONVERTIBLE PREFERRED STOCK

On March 9, 2019 the Company’s board of directors determined that it was in the best interest of the Company and its stockholders to conserve the Company’s working capital at this time and not make the annual dividend payment for the year ending December 31, 2018, on its Series A Convertible Preferred Stock.  The Company has never made an annual dividend payment on its Series A convertible preferred stock.  As of June 30, 2019, the aggregate outstanding accumulated arrearages of cumulative dividend was $182,614 or if issued in common shares, 4,793,015 shares.

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

XML

7. PROPERTY AND EQUIPMENT

6 Months Ended

Jun. 30, 2019

Notes

7. PROPERTY AND EQUIPMENT

7.      PROPERTY AND EQUIPMENT

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

XML

8. INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2019

Notes

8. INTANGIBLE ASSETS

8.     INTANGIBLE ASSETS

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

XML

9. LEASES

6 Months Ended

Jun. 30, 2019

Notes

9. LEASES

9.     LEASES

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

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

We used our incremental borrowing rate (8.5%), based on the information available at the date of adoption in determining the present value of the lease payments and a lease expiration date of December 31, 2024.  At June 30, 2019, the remaining future cash payments under our lease total approximately $1,317,647.

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

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

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

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

Year ending December 31,
2019 (excluding the six months ended June 30, 2019)	$110,891
2020	228,305
2021	234,828
2022	241,351
2023	247,874
Thereafter	254,398
Total future minimum lease payments	1,317,647
Less imputed interest	(305,637)
Total liability	$1,012,010

XML

10. DISCONTINUED OPERATIONS

6 Months Ended

Jun. 30, 2019

Notes

10. DISCONTINUED OPERATIONS

10.     DISCONTINUED OPERATIONS

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

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

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

Consideration:
Cash	$	246,500
Assumption of deferred revenue		8,366
Waived service obligation for February 2018		10,006
Total consideration	$	264,872
Total assets sold:
Customer contracts	$	-
Fiber innerduct		3,248
Fiber strands		-
Customer CPE		-
Total assets		3,248
Transactional costs		28,347
Total basis	$	31,595
Net gain	$	233,277

Assets and Liabilities of Discontinued Operations

	June 30, 2019	December 31, 2018
Carrying amounts of assets included in discontinued operations
Cash	$854	$775
Total Assets of Discontinued Operations	$854	$775
Carrying amounts of liabilities included in discontinued operations
Accounts payable	$43,270	$42,905
Accrued and other liabilities	8,209	9,458
Total Liabilities of Discontinued Operations	$51,479	$52,363

Operating Results of Discontinued Operations

	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Revenues included in discontinued operations
Total colocation and other revenues	$-	$-	$-	$28,091
Operating costs and expenses included in discontinued operations
Cost of services	$-	$18,660	$-	$72,546
Selling, general and administrative expenses	479	691	958	3,848
Depreciation and amortization	-	2,318	-	4,636
Interest expense	-	-	-	51
Total operating costs and expenses discontinued operations	$479	$21,669	$958	$81,081
Other Income included in discontinued operations
Gain on sale of assets	-	-	-	233,277
Other income from applied customer deposits	523	-	523	-
Net Income (Loss) from Discontinued Operations	$44	$(21,669)	$(435)	$180,287
Net Income (Loss) per share from discontinued operations basic and diluted	$0.00	$(0.00)	$(0.00)	$0.02

Cash Flows from Discontinued Operations

	June 30, 2019	June 30, 2018
Net cash used in operating activities	$ (1,398)	$(26,246)
Net cash provided by investing activities	-	218,153
Net cash used in financing activities	-	(116,592)
Net cash provided by (used in) discontinued operations	$ (1,398)	$75,315

XML

1. UNAUDITED INTERIM FINANCIAL STATEMENTS: Recently Issued Accounting Pronouncements (Policies)

6 Months Ended

Jun. 30, 2019

Policies

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02, Leases (Topic 842), which requires lessees to record assets and liabilities reflecting the leased assets and lease obligations, respectively, while following the dual model for recognition in statements of income requiring leases to be classified as either operating or finance.  Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases).  We adopted the new standard effective January 1, 2019, as allowed, using the modified retrospective approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods.  The only lease that we have is the real estate lease for our headquarters facility.  As of January 1, 2019, the adoption of the standard resulted in recognition of an operating right-of-use, or ROU, liability of approximately $1,077,123 and an operating ROU asset of $1,077,123.  These amounts are based on the present value of such commitments using the Company’s incremental borrowing rate.  The standard does not materially affect our results of operations, cash flows and liquidity.  See Note 9 for further information.

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

XML

1. UNAUDITED INTERIM FINANCIAL STATEMENTS: Income (Loss) Per Share (Policies)

6 Months Ended

Jun. 30, 2019

Policies

Income (Loss) Per Share

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.

Schedule of Income (Loss) Per Share
	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Net income (loss):
Income (loss) from continuing operations	$17,200	$27,654	$136,205	$(67,864)
Income (loss) from discontinued operations – See Note 10	44	(21,669)	(435)	180,287
Net income (loss)	17,244	5,985	135,770	112,423
Preferred stock dividends	(3,362)	(3,363)	(6,724)	(10,087)
Net income (loss) available to common shareholders	$13,882	$2,622	$129,046	$102,336
Basic income (loss) per share:
Weighted average common shares outstanding used in income (loss) per share	14,271,793	11,871,009	14,007,867	11,871,009
Basic income (loss) per share:
Continuing operations	0.00	0.00	0.01	(0.01)
Discontinued operations – See Note 10	0.00	(0.00)	(0.00)	0.02
Basic income (loss) per share	0.00	0.00	0.01	0.01
Diluted income (loss) per share:
Shares used in diluted income (loss) per share	16,876,730	14,753,128	16,594,615	11,871,009
Diluted income (loss) per share:
Continuing operations	0.00	0.00	0.01	(0.01)
Discontinued operations – See Note 10	0.00	(0.00)	(0.00)	0.02
Diluted income (loss) per share	0.00	0.00	0.01	0.01
Computation of shares used in income (loss) per share:
Weighted average shares and share equivalents outstanding – basic	14,271,793	11,871,009	14,007,867	11,871,009
Effect of preferred stock	987,102	987,102	987,102	-
Effect of dilutive stock options	1,351,658	1,670,017	1,335,155	-
Effect of dilutive warrants	266,177	225,000	264,491	-
Weighted average shares and share equivalents outstanding – diluted	16,876,730	14,753,128	16,594,615	11,871,009

Schedule of Anti-dilutive Securities Excluded
	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Preferred stock	-	-	-	987,102
Stock options	-	2,043,000	-	4,117,834
Warrants	3,000	-	3,000	250,000
Convertible promissory notes	-	30,605	27,888	30,605
Total anti-dilutive securities excluded	3,000	2,073,605	30,888	5,385,541

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

XML

1. UNAUDITED INTERIM FINANCIAL STATEMENTS: Income (Loss) Per Share: Schedule of Earnings Per Share, Basic and Diluted (Tables)

6 Months Ended

Jun. 30, 2019

Tables/Schedules

Schedule of Earnings Per Share, Basic and Diluted

Schedule of Income (Loss) Per Share
	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Net income (loss):
Income (loss) from continuing operations	$17,200	$27,654	$136,205	$(67,864)
Income (loss) from discontinued operations – See Note 10	44	(21,669)	(435)	180,287
Net income (loss)	17,244	5,985	135,770	112,423
Preferred stock dividends	(3,362)	(3,363)	(6,724)	(10,087)
Net income (loss) available to common shareholders	$13,882	$2,622	$129,046	$102,336
Basic income (loss) per share:
Weighted average common shares outstanding used in income (loss) per share	14,271,793	11,871,009	14,007,867	11,871,009
Basic income (loss) per share:
Continuing operations	0.00	0.00	0.01	(0.01)
Discontinued operations – See Note 10	0.00	(0.00)	(0.00)	0.02
Basic income (loss) per share	0.00	0.00	0.01	0.01
Diluted income (loss) per share:
Shares used in diluted income (loss) per share	16,876,730	14,753,128	16,594,615	11,871,009
Diluted income (loss) per share:
Continuing operations	0.00	0.00	0.01	(0.01)
Discontinued operations – See Note 10	0.00	(0.00)	(0.00)	0.02
Diluted income (loss) per share	0.00	0.00	0.01	0.01
Computation of shares used in income (loss) per share:
Weighted average shares and share equivalents outstanding – basic	14,271,793	11,871,009	14,007,867	11,871,009
Effect of preferred stock	987,102	987,102	987,102	-
Effect of dilutive stock options	1,351,658	1,670,017	1,335,155	-
Effect of dilutive warrants	266,177	225,000	264,491	-
Weighted average shares and share equivalents outstanding – diluted	16,876,730	14,753,128	16,594,615	11,871,009

XML

1. UNAUDITED INTERIM FINANCIAL STATEMENTS: Income (Loss) Per Share: Schedule of Anti-dilutive Securities Excluded (Tables)

6 Months Ended

Jun. 30, 2019

Tables/Schedules

Schedule of Anti-dilutive Securities Excluded

Schedule of Anti-dilutive Securities Excluded
	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Preferred stock	-	-	-	987,102
Stock options	-	2,043,000	-	4,117,834
Warrants	3,000	-	3,000	250,000
Convertible promissory notes	-	30,605	27,888	30,605
Total anti-dilutive securities excluded	3,000	2,073,605	30,888	5,385,541

XML

4. STOCK BASED COMPENSATION: Schedule of Employee Stock Option Activity (Tables)

6 Months Ended

Jun. 30, 2019

Tables/Schedules

Schedule of Employee Stock Option Activity

Schedule of Employee Stock Option Activity
	Options	Weighted average exercise price	Weighted average remaining contractual life (yrs)	Aggregate Intrinsic value
Options outstanding, December 31, 2018	2,370,834	$0.010	7.45
Options exercisable, December 31, 2018	1,126,167	$0.005	6.39	$ 34,623
Options issued during the period	480,000	$0.003
Options expired during the period	-	-
Options exercised during the period	518,666	$0.003
Options outstanding June 30, 2019	2,332,168	$0.010	6.93
Options exercisable June 30, 2019	1,584,832	$0.007	6.46	$ 49,227

XML

4. STOCK BASED COMPENSATION: Fair Value Assumptions for options granted (Tables)

6 Months Ended

Jun. 30, 2019

Tables/Schedules

Fair Value Assumptions for options granted

	2019
Risk free interest rate	2.51%
Expected lives (in years)	1
Expected volatility	36%
Dividend yield	0%

XML

5. Warrant Activity: Schedule of Warrant Activity (Tables)

6 Months Ended

Jun. 30, 2019

Tables/Schedules

Schedule of Warrant Activity

Schedule of Warrant Activity
	Warrants	Weighted average exercise price	Weighted average remaining contractual life (yrs)	Aggregate Intrinsic value
Warrants outstanding December 31, 2018	250,000	$0.003	5.32
Warrants exercisable December 31, 2018	250,000	$0.003	4.32	$ 8,250
Warrants issued during the period	440,000	$0.005
Warrants exercised during the period	400,000	$0.005
Warrants outstanding June 30, 2019	290,000	$0.004	3.92
Warrants exercisable June 30, 2019	290,000	$0.004	3.92	$ 9,899

XML

5. Warrant Activity: Fair Value Assumptions for Warrants (Tables)

6 Months Ended

Jun. 30, 2019

Tables/Schedules

Fair Value Assumptions for Warrants

	2019
Risk free interest rate	2.51%
Expected lives (in years)	5
Expected volatility	146%
Dividend yield	0%

XML

9. LEASES: Schedule of Future Minimum Rental Payments for Operating Leases (Tables)

6 Months Ended

Jun. 30, 2019

Tables/Schedules

Schedule of Future Minimum Rental Payments for Operating Leases

Year ending December 31,
2019 (excluding the six months ended June 30, 2019)	$110,891
2020	228,305
2021	234,828
2022	241,351
2023	247,874
Thereafter	254,398
Total future minimum lease payments	1,317,647
Less imputed interest	(305,637)
Total liability	$1,012,010

XML

10. DISCONTINUED OPERATIONS: Schedule of Assets and Consideration - Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2019

Tables/Schedules

Schedule of Assets and Consideration - Discontinued Operations

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

XML

10. DISCONTINUED OPERATIONS: Schedule of Assets and Liabilities of Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2019

Tables/Schedules

Schedule of Assets and Liabilities of Discontinued Operations

Assets and Liabilities of Discontinued Operations

	June 30, 2019	December 31, 2018
Carrying amounts of assets included in discontinued operations
Cash	$854	$775
Total Assets of Discontinued Operations	$854	$775
Carrying amounts of liabilities included in discontinued operations
Accounts payable	$43,270	$42,905
Accrued and other liabilities	8,209	9,458
Total Liabilities of Discontinued Operations	$51,479	$52,363

XML

10. DISCONTINUED OPERATIONS: Schedule of Operating Results of Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2019

Tables/Schedules

Schedule of Operating Results of Discontinued Operations

Operating Results of Discontinued Operations

	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Revenues included in discontinued operations
Total colocation and other revenues	$-	$-	$-	$28,091
Operating costs and expenses included in discontinued operations
Cost of services	$-	$18,660	$-	$72,546
Selling, general and administrative expenses	479	691	958	3,848
Depreciation and amortization	-	2,318	-	4,636
Interest expense	-	-	-	51
Total operating costs and expenses discontinued operations	$479	$21,669	$958	$81,081
Other Income included in discontinued operations
Gain on sale of assets	-	-	-	233,277
Other income from applied customer deposits	523	-	523	-
Net Income (Loss) from Discontinued Operations	$44	$(21,669)	$(435)	$180,287
Net Income (Loss) per share from discontinued operations basic and diluted	$0.00	$(0.00)	$(0.00)	$0.02

XML

10. DISCONTINUED OPERATIONS: Schedule of Cash Flows from Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2019

Tables/Schedules

Schedule of Cash Flows from Discontinued Operations

Cash Flows from Discontinued Operations

	June 30, 2019	June 30, 2018
Net cash used in operating activities	$ (1,398)	$(26,246)
Net cash provided by investing activities	-	218,153
Net cash used in financing activities	-	(116,592)
Net cash provided by (used in) discontinued operations	$ (1,398)	$75,315

XML

1. UNAUDITED INTERIM FINANCIAL STATEMENTS: Income (Loss) Per Share: Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($)		3 Months Ended		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net income (loss):
Income (Loss) from Continuing Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest		$ 17,200	$ 27,654	$ 136,205	$ (67,864)
Income (Loss) from Discontinued Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest	[1]	44	(21,669)	(435)	180,287
Net Income (Loss) Attributable to Parent		17,244	5,985	135,770	112,423
Preferred stock dividends		(3,362)	(3,363)	(6,724)	(10,087)
Net income available to common stockholders		$ 13,882	$ 2,622	$ 129,046	$ 102,336
Basic income (loss) per share:
Weighted average shares and share equivalents outstanding - basic		14,271,793	11,871,009	14,007,867	11,871,009
Basic income (loss) per share:
Income (Loss) from Continuing Operations, Per Basic Share		$ 0.00	$ 0.00	$ 0.01	$ (0.01)
Income (Loss) from Discontinued Operations and Disposal of Discontinued Operations, Net of Tax, Per Basic Share	[1]	0.00	(0.00)	(0.00)	0.02
Earnings Per Share, Basic		$ 0.00	$ 0.00	$ 0.01	$ 0.01
Diluted income (loss) per share:
Shares used in diluted income (loss) per share		16,876,730	14,753,128	16,594,615	11,871,009
Diluted income (loss) per share:
Income (Loss) from Continuing Operations, Per Diluted Share		$ 0.00	$ 0.00	$ 0.01	$ (0.01)
Income (Loss) from Discontinued Operations and Disposal of Discontinued Operations, Net of Tax, Per Diluted Share	[1]	0.00	(0.00)	(0.00)	0.02
Earnings Per Share, Diluted		$ 0.00	$ 0.00	$ 0.01	$ 0.01
Computation of shares used in income (loss) per share:
Weighted Average Number of Shares Outstanding, Basic		14,271,793	11,871,009	14,007,867	11,871,009
Effect of preferred stock		$ 987,102	$ 987,102	$ 987,102	$ 0
Effect of dilutive stock options		1,351,658	1,670,017	1,335,155	0
Effect of dilutive warrants		$ 266,177	$ 225,000	$ 264,491	$ 0
Weighted Average Number of Shares Outstanding, Diluted		16,876,730	14,753,128	16,594,615	11,871,009

[1] See Note 10

XML

1. UNAUDITED INTERIM FINANCIAL STATEMENTS: Income (Loss) Per Share: Schedule of Anti-dilutive Securities Excluded (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Details
Preferred stock	0	0	0	987,102
Anti-dilutive Securities Excluded, Stock Options	0	2,043,000	0	4,117,834
Warrants	3,000	0	3,000	250,000
Anti-dilutive Securities Excluded, Convertible Promissory Notes	0	30,605	27,888	30,605
Total anti-dilutive securities excluded	3,000	2,073,605	30,888	5,385,541

XML

3. CONVERTIBLE NOTES PAYABLE RELATED PARTY (Details) - Convertible Note Payable - 1 - USD ($)	6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Debt Instrument, Description	a secured convertible promissory note from a shareholder
Long-term Debt		$ 27,888
Debt Instrument, Interest Rate, Stated Percentage		6.00%
Debt Instrument, Payment Terms	$600
Debt Instrument, Maturity Date	May 31, 2023
Debt Instrument, Collateral	secured by certain equipment of the Company
Debt Instrument, Convertible, Terms of Conversion Feature	The note holder had the right to convert the note, in its entirety or in part, into common stock of the Company at the rate of $1.00 per share

XML

4. STOCK BASED COMPENSATION: Schedule of Employee Stock Option Activity (Details) - Employee stock options - USD ($)			6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance			2,370,834
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance			$ 0.010
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	6 years 11 months 4 days	7 years 5 months 12 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number			1,126,167
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price			$ 0.005
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term	6 years 5 months 15 days	6 years 4 months 20 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value			$ 34,623
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			480,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price			$ 0.003
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period			0
Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price			$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period			518,666
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price			$ 0.003
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	2,332,168	2,370,834	2,332,168
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance	$ 0.010	$ 0.010	$ 0.010
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	1,584,832	1,126,167	1,584,832
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 0.007	$ 0.005	$ 0.007
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	$ 49,227	$ 34,623	$ 49,227

XML

4. STOCK BASED COMPENSATION (Details)	6 Months Ended
	Jun. 30, 2019 USD ($) $ / shares shares
Share-based Payment Arrangement, Expense | $	$ 19,986
Employee stock options
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | shares	480,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price | $ / shares	$ 0.003

XML

4. STOCK BASED COMPENSATION: Fair Value Assumptions for options granted (Details) - Employee stock options	6 Months Ended
	Jun. 30, 2019
Risk free interest rate	0.0251
Expected lives (in years)	1 year
Expected volatility	0.36
Dividend yield	0

XML

5. Warrant Activity: Schedule of Warrant Activity (Details) - Warrants - USD ($)			6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance			250,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance			$ 0.003
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	3 years 11 months 1 day	5 years 3 months 25 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number			250,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price			$ 0.003
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term	3 years 11 months 1 day	4 years 3 months 25 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value			$ 8,250
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			440,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price			$ 0.005
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period			400,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price			$ 0.005
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	290,000	250,000	290,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance	$ 0.004	$ 0.003	$ 0.004
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	290,000	250,000	290,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 0.004	$ 0.003	$ 0.004
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	$ 9,899	$ 8,250	$ 9,899

XML

5. Warrant Activity (Details)	6 Months Ended
	Jun. 30, 2019 $ / shares shares
Warrant 1
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | shares	300,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price | $ / shares	$ 0.003
Warrant 2
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | shares	140,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price | $ / shares	$ 0.01

XML

5. Warrant Activity: Fair Value Assumptions for Warrants (Details) - Warrants	6 Months Ended
	Jun. 30, 2019
Risk free interest rate	0.0251
Expected lives (in years)	5 years
Expected volatility	1.46
Dividend yield	0

XML

6. SERIES A CONVERTIBLE PREFERRED STOCK (Details)	6 Months Ended
	Jun. 30, 2019 USD ($) shares
Details
Aggregate outstanding accumulated arrearages of cumulative dividend	$ 182,614
Aggregate outstanding accumulated arrearages of cumulative dividend, Shares | shares	4,793,015
Amortization of the increasing dividend rate preferred stock discount	$ 6,724

XML

7. PROPERTY AND EQUIPMENT (Details) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Details
Payments to Acquire Property, Plant, and Equipment	$ 0	$ 7,472
Depreciation	$ 3,864

XML

8. INTANGIBLE ASSETS (Details)	6 Months Ended
	Jun. 30, 2019 USD ($)
Details
Amortization expense	$ 4,416

XML

9. LEASES (Details) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Details
Noncash lease expense	$ 73,267	$ 0
Operating lease obligation	(65,113)	$ 0
Fixed operating lease cost	119,045
Cash paid for amounts included in the measurement of lease liability	$ 110,891

XML

9. LEASES: Schedule of Future Minimum Rental Payments for Operating Leases (Details)	Jun. 30, 2019 USD ($)
Details
2019 (excluding the six months ended June 30, 2019)	$ 110,891
2020	228,305
2021	234,828
2022	241,351
2023	247,874
Thereafter	254,398
Total future minimum lease payments	1,317,647
Less imputed interest	(305,637)
Total liability	$ 1,012,010

XML

10. DISCONTINUED OPERATIONS (Details)	6 Months Ended
	Jun. 30, 2019 USD ($)
Details
Discontinued operations, gain on sale	$ 233,277
Total consideration	264,872
Discontinued Operations, total basis in the assets sold and transactions costs	$ 31,595

XML

10. DISCONTINUED OPERATIONS: Schedule of Assets and Consideration - Discontinued Operations (Details)	6 Months Ended
	Jun. 30, 2019 USD ($)
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	0
Fiber innerduct	3,248
Fiber strands	0
Customer CPE	0
Total assets	3,248
Transactional costs	28,347
Total basis	31,595
Net gain	$ 233,277

XML

10. DISCONTINUED OPERATIONS: Schedule of Assets and Liabilities of Discontinued Operations (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Carrying amounts of assets included in discontinued operations
Cash	$ 854	$ 775
Total Assets of Discontinued Operations	854	775
Carrying amounts of liabilities included in discontinued operations
Accounts payable	43,270	42,905
Accrued and other liabilities	8,209	9,458
Total Liabilities of Discontinued Operations	$ 51,479	$ 52,363

XML

10. DISCONTINUED OPERATIONS: Schedule of Operating Results of Discontinued Operations (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenues included in discontinued operations
Total colocation and other revenues	$ 0	$ 0	$ 0	$ 28,091
Operating costs and expenses included in discontinued operations
Cost of services	0	18,660	0	72,546
Selling, general and administrative expenses	479	691	958	3,848
Depreciation and amortization	0	2,318	0	4,636
Interest expense	0	0	0	51
Total operating costs and expenses included in discontinued operations	479	21,669	958	81,081
Other Income included in discontinued operations
Gain on sale of assets	0	0	0	233,277
Other income from applied customer deposits	523	0	523	0
Net Income (Loss) from Discontinued Operations	$ 44	$ (21,669)	$ (435)	$ 180,287
Net Income (Loss) per share from discontinued operations basic and diluted	$ 0.00	$ (0.00)	$ (0.00)	$ 0.02

XML

10. DISCONTINUED OPERATIONS: Schedule of Cash Flows from Discontinued Operations (Details) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Details
Net cash used in operating activities	$ (1,398)	$ (26,246)
Net cash provided by investing activities	0	218,153
Net cash used in financing activities	0	(116,592)
Net cash provided by (used in) discontinued operations	$ (1,398)	$ 75,315