GALAXY NEXT GENERATION, INC. - Quarter Report: 2009 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
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| 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 333-51918
FULLCIRCLE REGISTRY, INC.
(Exact Name of Registrant as Specified in Its Charter)
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NEVADA |
| 87-0653761 |
161 Alpine Drive, Shelbyville, KY 40065
(Address of Principal Executive Offices) (Zip Code)
(502) 410-4500
(Registrant’s Telephone Number, Including Area Code)
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, as amended, (the “Exchange Act”) 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 S No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer £ | Accelerated filer £ | Non-accelerated filer £ | Smaller reporting company S |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 80,407,394 Class A common shares and 10,000 Class B preferred shares, as of September 30, 2009.
FORM 10-Q
FULLCIRCLE REGISTRY, INC.
Table of Contents
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PART I. Financial Information |
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Item 1. Unaudited Financial Statements | 3 |
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Consolidated Balance Sheets for September 30, 2009 (unaudited) |
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and December 31, 2008 | 4 |
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Consolidated Statements of Operations for the |
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Three Months and Nine Months Ended September 30, 2009 and 2008 (unaudited) | 5 |
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Consolidated Statements of Cash Flows for the |
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Nine Months Ended September 30, 2009 and 2008 (unaudited) | 6 |
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Notes to Consolidated Financial Statements (unaudited) | 7 |
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Item 2. Management’s Discussion and Analysis or Plan of Operation | 9 |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
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Item 4. Controls and Procedures |
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PART II. Other Information |
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Item 1. Legal Proceedings | 17 |
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Item 1A. Risk Factors | 17 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 17 |
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Item 3. Defaults Upon Senior Securities | 17 |
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Item 4. Submission of Matters to a Vote of Security Holders | 17 |
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Item 5. Other Information | 17 |
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Item 6. Exhibits | 17 |
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Signatures | 18 |
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PART I – FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS.
In the opinion of management, the accompanying unaudited financial statements of FullCircle Registry, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Regulation S-X for the three month period ended September 30, 2009. The financial statements reflect, in the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods.
The information furnished herein was taken from the books and records of the Company without audit. However, such information reflects all adjustments, which are, in the opinion of management, necessary to properly reflect the results of the interim period presented. The information presented is not necessarily indicative of the results from operations expected for the full fiscal year.
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The accompanying unaudited notes are an integral part of these consolidated financial statements.
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The accompanying unaudited notes are an integral part of these consolidated financial statements.
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FullCircle Registry, Inc. | ||||||
Consolidated Statements of Cash Flows | ||||||
(Unaudited) | ||||||
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| For the Nine Months | ||
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| Ended Sept 30, | ||
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| 2009 |
| 2008 |
Cash flows from operating activities |
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| Net loss | $ | (180,704) | $ | (211,205) | |
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| Adjustments to reconcile net loss to net cash |
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| Depreciation & amortization |
| 33,802 |
| 6,146 |
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| Stock issued for services |
| - |
| 12,000 |
| Change in assets and liabilities |
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| Increase (decrease) in accounts payable |
| 17,056 |
| 17,421 |
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| Increase (decrease) in accrued interest |
| 28,837 |
| 26,620 |
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| Increase (decrease) in accrued expenses |
| (1,844) |
| (16,348) |
| Net cash used by operating activities |
| (102,853) |
| (165,366) | |
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Cash flows from investing activities |
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| Net cash provided by investing activities in subsidiary |
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Cash flows from financing activities |
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| Proceeds from notes payable - related party |
| 22,000 |
| 150,000 | |
| Payments for notes payable |
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| (70,000) | |
| Proceeds from sale of stock |
| 60,000 |
| 80,000 | |
| Net cash provided by financing activities |
| 82,000 |
| 160,000 | |
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| Net increase (decrease) in cash |
| (20,853) |
| (5,366) | |
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Cash and cash equivalents at beginning of period |
| 22,331 |
| 10,068 | ||
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Cash and cash equivalents at end of period | $ | 1,478 | $ | 4,702 | ||
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Supplemental cash flow information |
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Cash paid for: |
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| Interest | $ | 1,600 | $ | 3,737 | |
| Taxes | $ | - | $ | - | |
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Non-cash transactions |
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| Stock issued for notes payable and accrued interest | $ | - | $ | - | |
| Stock issued for services | $ | - | $ | 12,000 | |
The accompanying unaudited notes are an integral part of these consolidated financial statements
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NOTE 1. BASIS OF FINANCIAL STATEMENT PRESENTATION.
FullCircle Registry, Inc. has elected to omit substantially all footnotes to the financial statements for the three months ended September 30, 2009 since there have been no material changes (other than indicated in other footnotes) to the information previously reported by the Company in their Annual Report filed on the Form 10-K for the twelve months ended December 31, 2008.
The information furnished herein was taken from the books and records of the Company without audit. However, such information reflects all adjustments which are, in the opinion of management, necessary to properly reflect the results of the interim period presented. The information presented is not necessarily indicative of the results from operations expected for the full fiscal year.
The accompanying un-audited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim financial statements be read in conjunction with the Company’s most recent audited financial statements and notes thereto included in its December 31, 2008, Annual Report on Form 10-K. Operating results for the three months and nine months ended September 30, 2009, are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.
NOTE 2. GOING CONCERN.
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.
However, the Company has incurred losses resulting in an accumulated deficit of approximately $7.5 million as of September 30, 2009.
Management's plans with regards to these issues are as follows:
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Expanding revenues by purchasing, or otherwise acquiring, independent insurance agencies.
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Using the 68,000 name prescription customer database to provide the foundation of the FullCircle Prescription Service business.
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Developing a new customer base from the recruitment of contractors/agents to market our FullCircleRx Relief prescription services.
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Acquiring new customers from internet marketing, and brochure distribution to assist people in the Donut Hole part of Medicare Part D and others that are un-insured and underinsured.
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Expanding revenues by finding new customers that can benefit by utilizing the Company’s information retrieval service.
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Raising new investment capital, either in the form of equity or loans, sufficient to meet the Company's operating expenses, until the revenues are sufficient to meet operating expenses on an ongoing basis.
Presently, the Company cannot ascertain the eventual success of management's plans with any degree of certainty. No assurances can be given that the Company will be successful in raising immediate capital or that the Company will achieve profitability or positive cash flows.
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NOTE 3. STOCKHOLDER’S EQUITY
During the nine month period ending September 30, 2009 the company issued an aggregate amount of 666,668 restricted shares of the Company’s common stock for operating capital at .03 per share to related parties. In addition the company issued a $2,000 note for working capital to a related party during the same period.
Also, during the nine month period ending September 30, 2009 the company converted 10,000 Class A Preferred shares issued in 2002 for 500,000 shares of Class A Common stock.
On May 18, 2009 the company issued an aggregate amount of 1,270,000 shares of the Company’s common stock for operating capital at .0315 per share to related parties.
NOTE 4. SIGNIFICANT ACCOUNTING POLICIES
Effective July 1, 2009, in accordance with the provisions of GAAP the Company has revised its estimate of the useful life of the database asset from 15 years to 5 years from the date the assets was originally placed into service. According to GAAP this revised life is to be amortized prospectively over its remaining useful life and, therefore, has no impact on prior periods. The result substantially increases our G&A expenditures by $15,364 per quarter and $61,456 per year.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
General
When used in this report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934 regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, operating results, and financial position. Persons reviewing this report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such factors are discussed under the “Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operations,” and also include general economic factors and conditions that may directly or indirectly impact the Company’s financial condition or results of operations.
Where this Form 10-Q includes “forward-looking” statements within the meaning of Section 27A of the Securities Act, we desire to take advantage of the “safe harbor” provisions thereof. Therefore, FullCircle Registry, Inc., is including this statement for the express purpose of availing itself of the protections of such safe harbor provisions with respect to all of such forward-looking statements. The forward-looking statements in this Form 10-Q reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ from those anticipated. In this Form 10-Q, the words “anticipates,” “believes,” “expects,” “intends,” “future” and similar expressions identify forward-looking statements. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that may arise after the date hereof. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section. We have based these forward-looking statements on our current expectations and projections about future events, including, among other things:
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Attracting immediate financing;
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Delivering a quality product that meets customer expectations;
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Obtaining and expanding market acceptance of the products we offer; and
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Competition in our market.
Our Business
Our initial business began in 2000, with the formation of FullCircle Registry, Inc. We were initially a technology-based business that provided emergency document and information retrieval services. Our service included, providing customers with secure storage and immediate access to their critical medical records, legal documents (living wills, powers of attorney, “do not resuscitate” orders, etc.), and emergency contact information.
In December 2006, our Directors unanimously consented that the Company should become an insurance agency. An application for a business entity license was submitted to the Department of Insurance in the Commonwealth of Kentucky. On February 27, 2007, a business entity license for Life and Health was issued to the Company. After March 1, 2007, appointment applications were submitted to various carriers and brokerage agencies.
Our Corporate Information
Our principal executive offices are located at 161 Alpine Drive, Shelbyville, Kentucky, 40065 and our telephone number is (502) 410-4500. Our current website addresses are www.fullcircleregistry.com, www.fullcirclerx.com, and www.medshelp4U.com. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this Prospectus or the registration statement of which it forms a part. Our website will be immediately revised and updated upon receipt of funds to reflect our new business model.
Since the current economic situation occurred last year, our insurance sales have dropped significantly. One of our major insurance companies has undergone a significant loss of popularity and the insurance industry has experienced a domino effect. We do not expect our industry to return to pre-depression levels near term but we do expect that the situation will provide additional opportunities with our agency merger plans because of their diminished revenues.
Because of the unavailability of funds the Company has refrained from expanding the business model. Funds are tightly held and we have had to be extremely conservative about expending Company funds on marketing, salaries and other expenses until funds are available.
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The developments of all marketing expenditures, brochures, mailings, etc. have been discontinued because of the lack of capital. There may be some residual revenues from previous activities but at this time the Company cannot move forward with the business plan until we receive additional funding. We are in a maintenance mode and have protected and preserved cash by eliminating all-unnecessary expenditures.
S-1 Application
In order to implement the following business plan and strategy we have submitted an S-1 registration statement to offer a new class of preferred shares for the required funding for our plans. We are requesting to offer One Million preferred Class B shares at the price of $1.00 per share with 2% yield and a conversion rate of .10 per share in two years. The conversion rate is an arbitrary rate selected by management was determined after taking into consideration of the $7.5 million loss carryfoward, the value of our appraised database, the low float in the market, the value of the business plan, and the experience of management.
Stock registration has proven to be a long and difficult process. It is the opinion of management that the S-1 application is a better alternative for funding than issuing shares under a Regulation D filing. In addition, the Company believes that it will be necessary to use this process to gain additional funding once we enter into the merger phase of our business model.
Our Business and Strategy
We have formed two new wholly-owned subsidiaries to begin the new business plan as specifically set forth beginning on page 12. Below, we have briefly summarized our business plan.
FullCircle Insurance Agency, Inc.
It is our plan to acquire, or otherwise merge with, small insurance agencies and incorporate them into the FullCircle family of businesses. We plan to offer a five to ten-year exit plan to agency owners, which may include issuance of shares of FullCircle Registry, Inc., to give them the ability to exit their business with the potential to meet or exceed the value of their business and participate financially in the growth of the Company. This plan should facilitate the transfer of loyalties from agency owner’s customers as well as provide the proper environment to attract new talent.
We are developing our plans and infrastructure for our new agencies. Initial plans for our FullCircle wheel of products and services that are in development are: Prescription assistance services, Life insurance, Health insurance (Group and Individual), Auto and Home insurance, Medical Record Storage and our ENC products. As our name, “FullCircle,” implies, we intend to become a full service, one-stop shop for all insurance needs of our clients.
As agencies are acquired, we will begin adding our products and services to their portfolios. By adding our additional products and services, we expect to increase the gross revenue with each new agency acquisition when assimilation is completed and new products are installed. With the additional sales force, we expect to experience higher commission rates because we will receive higher performance payout levels with each of our chosen insurance companies.
The number, diversity and sophistication of the insurance products available in the insurance marketplace have grown significantly in recent years. Our clients increasingly require sophisticated insurance planning services such as ours to support their complex needs. We believe we are well positioned for significant growth and have a multi-faceted growth strategy that builds on our new and existing client relationships, insurance products, brands and our role in the insurance process.
We have formed the FullCircle Insurance Agency, Inc. to be our vehicle for this business plan. At this time we have not begun operations since we are awaiting funding.
FullCircle Insurance Agency, Inc. Revenue Projections
The following projection timeline is based on the assumptions of available funding. The timeline begins when an offering of additional stock is completed or funding is otherwise available.
The five-year growth forecast assuming an average of $100,000 initial revenue from agencies after acquired, then expanding to an average of $200,000 revenue per agency after new products are introduced.
12 mos.
24 mos.
36 mos.
48 mos.
60 mos.
72 mos.
Agency Gross Rev
$200K
$3.0M
$9.37M
$18.75M
$35M
$40M
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Any financial projection discussion of FullCircle included in this Prospectus is based upon assumptions that we believe to be reasonable. Even if the assumptions underlying its plans prove to be correct, there can be no assurance that FullCircle will not incur substantial operating losses in attaining its goals. There can be no assurance that the objectives will be realized if any of the assumptions underlying its plans prove to be incorrect. The Directors of FullCircle have studied, and are familiar with, the current insurance market; however, investors should be aware that no independent market studies have been conducted by us regarding the proposed business plans, nor are any such studies currently planned.
FullCircle Prescription Services, Inc.
FullCircle Prescription Services, Inc. has been established for the purpose of handling our new prescription services program. We have, at very little expense, been contacting potential contractors and agents to help move the project forward but are limited as to how aggressive we can be given limited capital.
Our launch with our FullCircleRx plan has been delayed waiting on funds, but FullCircle Prescription Services, Inc. has begun limited operations.
We have entered into an arrangement with a worldwide pharmacy located in Canada to assist our customers in shopping the world. We have entered into agreements with 37 contractors and agents to find the customers that are in need of assistance in reducing the cost of their medications.
In summary the marketing of our FullCircleRx prescription assistance program is:
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AMPO client name database mailings.
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Churches as contractors for fund raising projects.
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Large marketing media like RV Trader, Auto Trader, etc.
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Database sharing with organizations that do similar medical marketing but not in our niche or do not have prescription assistance programs.
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Leasing or selling rights to our database as it continues to grow and evolve.
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Insurance agents and agencies.
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Small businesses without health benefits.
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Web marketing. Fertility drugs, birth control drugs, Medicare Donut Hole problems, etc.
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Word of mouth (incentives for existing customers to send us new customers).
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Contractor and agent campaign through mailings and advertising.
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Prescription gift card for friends and families to assist the elderly in the cost of their medications.
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City, County, and State government employees.
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Multipurpose FullCircle FullServices Health Card
We have entered into an agreement with Acap Security, Inc. (http://acapsecurity.com) for an exclusive co-branded FullCircle FullServices Health Card between PinPay, Global Health Management, and FullCircle. Global Health Management, LLC is the servicing company that provides our clients their medications. PinPay is owned by Acap Security.
We have also received an MISO agreement (Master Independent Sales Organization) from PinPay, Inc. PinPay is committed to provide significant focus support for FullCircle to bring the Health, Insurance and Pharmaceutical industries throughout the world to the PinPay program. www.pinpay.net is currently engaged in beta testing with banks and clients internationally. Once these beta tests are concluded, we will be released to begin approaching the health and insurance related companies worldwide. FullCircle currently has health industry professionals standing by to begin signing the health industry as merchants and agents as well.
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FullCircle FullServices Health Card
The expansion of Shop the World with PinPay will include a real card that can be loaded with a cafeteria of different plans and programs. Some could be free and we would experience revenue as they are used and some would be annual fee based. We are in the stages of finalizing this plan and will be able to begin when funding is available. The plan tentatively includes the addition of the following services:
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FullCircleRx Shop the World
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FullCircleRx Pharmacy Discount Plan (like other pharmacy cards that are sold for $25 to $30 per year memberships) this is for immediate need drugs like antibiotics, etc.)
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FullCircle Insurance Services Card (call for any quote on any kind of insurance and we will shop for our members)
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FullCircle PinPay card (transfer money anywhere internationally, payroll, merchants, etc. like a debit card) much lower cost than Western Union.
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FullCircle Mini-Med card (for those without insurance, it provides near insurance level costs for medical, dental, vision, hospitalization)
FullCircle Prescription Services, Inc. Revenue Projections
The following projection timeline is based on the assumptions of available funding. The timeline begins when an offering is completed or funding is otherwise made available to support brochures, websites, mailings and office infrastructure.
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| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
Total Revenue Projection FCPS all marketing segments | $ 736,700 | $1,473,400 | $2,623,720 | $4,924,360 | $8,879,480 | |
Any financial projection discussion of FullCircle included in this Prospectus is based upon assumptions that we believe to be reasonable. Even if the assumptions underlying its plans prove to be correct, there can be no assurance that FullCircle will not incur substantial operating losses in attaining its goals. There can be no assurance that the objectives will be realized if any of the assumptions underlying its plans prove to be incorrect. The Directors of FullCircle have studied, and are familiar with, the current insurance market; however, investors should be aware that no independent market studies have been conducted by us regarding the proposed business plans, nor are any such studies currently planned.
Current Status of Business Activity
The Company has been forced to discontinue the marketing of our plans because there are insufficient funds to fuel this development. We continue to work on back office infrastructure and materials to be ready to launch our plans once funding is available from a stock offering or other sources.
We are continuing to work with our business partners in the development of our materials. Once funding is available we will be ready to announce these developments and then engage the personnel that are ready to work with these partners.
We are continuing to work with our auditors, attorneys, and accountant to obtain funding. Our team provides immediate responses for any requests from our professional support team and the SEC. The process of the application is extremely cumbersome, complicated, detailed, and expensive.
On August 11, 2009, FullCircle Prescription Services, Inc. was informed that PinPay be ready and able to support the FullCircle Prescription Gift Card on October 1, 2009. At this time we do not have sufficient funds to launch the Prescription Gift Card. We are still targeting on hitting the Christmas Gift Card season by the end of November provided funds are available.
Risks Affecting Us
Our business is subject to numerous risks. We have a limited history of operations as an insurance agency, have a history of operating losses, and may not achieve or maintain profitability. We are dependent upon the sale of our products and services to generate a significant percentage of our revenue. The insurance industry is a highly competitive market, and we will be competing against companies that have much longer operating histories, more established brands and greater resources than we do. We rely on third party insurance companies in our marketing and selling of services to a significant portion of our client base.
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Our Strategy
Independent Insurance Agency Acquisitions
Norman L. Frohreich, President and CEO, has been retained to formulate and direct the expansion of the new insurance business model and the growth of FullCircle Registry, Inc. It is Mr. Frohreich’s vision to emulate the H&R Block and Edward Jones business models and launch an insurance agency merger plan in rural America. Thus, we plan to expand the business model to include markets outside the greater Louisville area.
It is our plan to acquire, or otherwise merge with, small insurance agencies with a five to ten-year exit plan as well as offer shares of FullCircle Registry, Inc. to these agency owners to give them the ability to exit their business with the potential to meet or exceed the value of their business and participate financially in the growth of the company.
The target model for an insurance agency acquisition is:
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Agency in a town with a population less than 40,000.
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Agency that has gross revenues of $50,000 to $150,000.
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Agency owner that is over the age of 55.
Our research suggests that these smaller agencies are not targets for acquisition by larger companies, and, therefore, their individual owners have limited options for an exit strategy.
We are planning on moving cautiously initially. We have only 10 agencies targeted for merger during the first year after funding is available. We will need ample time to develop the infrastructure and to train the individuals to manage these agencies once acquired. We expect that some of the owners will continue to work and will phase out over time; others will want to exit immediately. We will have to be flexible to move as needed as each situation emerges.
We have several strong licensed insurance industry veterans to provide the training and leadership for this task. We currently have the space in our corporate office to establish a training center for our initial needs. Initially we expect to operate in just a five state area: Kentucky, Indiana, Illinois, Ohio and Tennessee. Once the model is developed and operating, we expect to move into other regional offices so that we can service these agencies from a close proximity. We believe we can operate up to 25 agencies per regional office.
Once the agencies are acquired, we will begin the process of adding our products to their portfolios and services. We expect to receive additional income from our other core products.
We expect to receive assistance from our major insurance company executive — many have already indicated they are aware of agent-owners who are looking for exit strategies. Research shows that the average age of the owners of the independent insurance agencies in our country is 54 years old. Our information suggests that over 20% of the agencies nationally have no exit plan. Like other businesses, the independent insurance agents of rural America are having a problem “selling” their books of business. Many major insurance companies are beginning to acquire larger agencies but the smaller rural agencies are being passed over. Our goal is to merge with hundreds of these agencies over the next several years. We have been in contact with a number of agencies that are looking for an exit plan.
We believe we are well positioned for significant growth and have a multi-faceted growth strategy that builds on our new client relationships, insurance products, brands and integral role in the insurance and estate planning process. The number, diversity and sophistication of the insurance products available in the insurance marketplace have grown significantly in recent years. Our clients increasingly require sophisticated insurance and estate planning services such as ours to support their complex needs.
Employees, contractors, agents, and agreements
The Company currently has five employees, six independent contractors, thirty-nine agents and four company agreements.
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Results of Operations for the Three Month Periods Ended September 30, 2009 and 2008 and the Nine Month Period Ended September 30, 2009 and 2008
Revenues during the three months ended September 30, 2009 were $526 with a cost of sales of $0 yielding a gross profit of $526 compared to $8,956 in revenues for the same period in 2008 with cost of sales of $6,448 yielding a gross profit of $2,508 for the same period in 2008. Revenues during the nine months ended September 30, 2009 were $8,916 with a cost of sales of $146 yielding a gross profit of $8,770 compared to $111,226 in revenues for the same period in 2008 with cost of sales of $73,687 yielding a gross profit of $37,539 for the same period in 2008. In 2009 the reduction in revenues reflected the company’s transition into prescription services away from insurance sales for the near term because of the shortage of capital. Both segments of the Company’s business plan are currently not operational. Once funding is available both segments of our business should provide higher revenues.
Operating expenses and selling, general and administrative costs during the current three-month period were $40,227 resulting in an operating loss of $39,701 compared to operating expenses of $82,909 for the three months ended September 30, 2008 resulting in an operating loss of $80,401 in the same period in 2008. Operating expenses and selling, general and administrative costs during the current nine-month period were $159,036 resulting in an operating loss of $150,266 compared to operating expenses of $215,387 for the nine months ended September 30, 2008 resulting in an operating loss of $177,848 in the same period in 2008. Operating expenses have been much lower because of the lack of operations but continue to be high because of our new depreciation plan for our database and additional operating expenses that have occurred for SEC compliance.
Interest expense for the three months ended September 30, 2009 was $9,843 resulting in a net loss from continuing operations of $49,544. For the three months ended September 30, 2008 the Company had interest expense of $9,314 and recognized a net loss of $89,715. Interest expense for the nine months ended September 30, 2009 was $30,438 resulting in a net loss from continuing operations of $180,704. For the nine months ended September 30, 2008 the Company had interest expense of $33,357 and recognized a net loss of $211,205.
Liquidity and Capital Resources
At September 30, 2009 the Company had total assets of $324,130 compared to total assets of $378,785 at December 31, 2008. The Company had total assets consisting of $1,478 in cash, $0 in property and equipment, and $322,652 in our customer database. Total assets at December 31, 2008 consisted of $22,331 in cash, and $356,454 in our customer database.
At September 30, 2009, the Company had $734,096 in total liabilities. Total liabilities include $93,747 in accounts payable, $113,035 in accrued interest, $1,751 in accrued expenses, $105,000 in notes payable, $270,536 in notes payable to related parties and $150,000 long-term notes payable-related parties. Total liabilities at December 31, 2008 were $668,046, which were comprised of $76,690 in accounts payable, $84,198 in accrued interest, $3,595 in accrued expenses, $105,000 in notes payable and $248,563 in notes payable to related parties and $150,000 long-term notes payable-related parties.
Net cash used by operating activities for the nine months ended September 30, 2009 was $102,852
compared to $165,366 for the same period in 2008. During the nine months ended September 30, 2009, $0 was used for investments, and $82,000 was provided by financing activities. For the same period in 2008 $0 was used for investments and $160,000 was provided by financing activities.
As of September 30, 2009 we had no capital commitments. We are currently focused on increasing revenues from our operations and reducing debt through converting debentures and notes payable to common stock. We may also seek funding from unencumbered securities purchases or from lenders offering favorable terms. No assurance can be given that we will be able to obtain the total capital necessary to fund our new business plans. In such an event, this may have a materially adverse effect on our business, operating results and financial condition.
We require additional capital to supplement our anticipated revenues and fund our continuing operations. We have relied upon advances from officers and shareholders and we have issued stock to finance our operations to this point.
FullCircle currently owes $420,563 in notes payable to related parties, and other notes payable of $105,000. Our auditors have expressed concern that the Company has experienced losses from operations and negative cash flows from operations since inception. We have negative working capital and a capital deficiency at September 30, 2009. These conditions raise substantial doubt about our ability to continue as a going concern.
Late in 2007 and early in 2008 insurance sales revenue began as a result of our transition into the insurance business. The accounting process; revenue recognition, cost of sales, gross profit and operating expenses will fluctuate as we continue to evolve as an insurance agency.
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Commencing in the second half of 2008 and continuing through the September quarter of 2009 our insurance sales dropped because of the economic climate in the United States and the lack of funds to properly promote and support our activities in the insurance sales area. We do not expect insurance sales to increase in the near term until we can fund our agency and agent recruiting programs.
Factors That May Impact Future Results
At the time of this report, we had insufficient cash reserves and receivables necessary to meet forecast operating requirements. In the event we are unsuccessful in our efforts to raise additional funds, we will be required to significantly reduce cash outflows and, possibly, discontinue our operations. We need to raise immediate capital to continue our operations and implement our plans to respond to competitive pressures, or otherwise to respond to unanticipated requirements. Our failure to obtain immediate financing, or inability to obtain financing on acceptable terms, could require us to limit our plans, incur indebtedness that has high rates of interest or substantial restrictive covenants, issue equity securities that will dilute your holdings, or discontinue all or a portion of our remaining operations.
The current expansion of the Company’s business demands that significant financial resources be raised to fund capital expenditures, working capital needs, debt service and the cash flow deficits expected to be generated over the next nine months by operating losses. Current cash balances and the realization of accounts receivable will not be sufficient to fund the Company’s current business plan beyond the next three months. Consequently, the Company is currently seeking convertible debt and/or additional equity financing in the aggregate amount of at least $1,000,000, to fund the Company’s expansion needs. Management is currently negotiating with existing shareholders and other accredited investors in order to obtain working capital necessary to meet current and future obligations and commitments.
Management is confident that these efforts will produce financing to further the growth of the Company. Nevertheless, there can be no assurance that the Company will be able to raise additional capital on satisfactory terms or at all. In the event that the Company is unable to obtain capital on acceptable terms or in sufficient amounts, the impact thereof would have a material adverse impact on the Company’s business, operating results, and financial condition as well as its ability to service debt requirements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Critical Accounting Policies and Estimates
The Company’s discussion and analysis of its financial condition and results of operations are based upon its financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements may have required the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. On an ongoing basis, the Company evaluates estimates, including those related to bad debts, inventories, fixed assets, income taxes, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances; the results of which form the basis of the Company’s judgments on the carrying value of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Other Business Opportunities
Insurance Products
One significant aspect of our new focus and direction is our ability to generate new prospects and clients. One immediate opportunity is the marketing insurance products to existing clients of a Louisville area attorney who is also a licensed insurance agent. We expect to partner up with other local attorneys to expand this product offering. We have placed this segment of our business on hold needing funds to properly vitalize this part of our business plans.
We will continue to recruit independent licensed agents when funds are available through a stock offering or otherwise. We feel that we have a very unique recruiting proposition when it comes to obtaining quality agents for the company. We will be able to offer attractive commission rates while giving the agent the opportunity for ownership in the company through a company stock incentive plan. This ownership by the agent will also help serve as retention tool in an industry where turnover is the norm.
Inactive products and services
Our other products that have been previously discussed are currently inactive. We have elected to narrow our focus to utilize our limited people and financial resources to bring our best services to the surface for optimal revenues. Consequently, AskPhysicians, Spoken Data, Bright Star, MyClubCard, Living Wills, and Collar ID pet registry products and services are being reserved for later use once our strongest products, services and plans materialize.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
The Company’s chief executive officer and chief financial officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the regulations promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the most recent fiscal quarter covered by this quarterly report (the “Evaluation Date”), has concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls.
There were no changes in the Company’s internal control over financial reporting identified in connection with the Company’s evaluation of controls that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company’s attorney was notified on May 15, 2008 that FullCircle Registry had been named in a lawsuit against AMPOII, LLC. On August 12, 2009, the Court dismissed this case.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Unless otherwise noted, the following shares were issued to an accredited investor in a private transaction exempt under Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended.
During the three month period ending September 30, 2009, in an effort to secure additional operating capital, and to pay down accounts payable, the Company borrowed $2,000, with a Promissory Note from a major stockholder of the Company. This Note, together with interest accrued thereon at the rate of ten percent (10%) per annum, shall become due and payable in one lump sum on September 23, 2010. The Note was issued pursuant to an exemption from registration under Regulation S of the Securities Act of 1933, as amended.
In addition during the nine month period ending September 30, 2009, in an effort to secure additional operating capital the company borrowed $20,000, with a Promissory Note from a major stockholder of the Company. This Note, together with interest accrued thereon at the rate of ten percent (10%) per annum, shall become due and payable in one lump sum on March 27, 2010. The Note was issued pursuant to an exemption from registration under Regulation S of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SHAREHOLDERS.
No matters were submitted to security holders to be voted upon during the quarter ending September 30, 2009.
ITEM 5. OTHER INFORMATION.
There are no further disclosures. We are building the business model and as soon as relevant information on our progress becomes available we will issue the necessary Forms 8-K and issue press releases.
ITEM 6. EXHIBITS
Exhibit
Title
Location
Number
31.1
Certification of Chief Executive Officer/Chief Financial Officer
pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Attached
32.1
Certification of Chief Executive Officer/Chief Financial Officer
pursuant to section 906 of the Sarbanes-Oxley Act of 2002*
Attached
*The Exhibit attached to this Form 10-Q shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
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SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FULLCIRCLE REGISTRY, INC.
Date: November 16, 2009
/s/ Norman L. Frohreich
Norman L. Frohreich
President
Chief Executive Officer
Chief Financial Officer
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