GALAXY NEXT GENERATION, INC. - Quarter Report: 2015 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X . QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
. 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)
NEVADA (State or Other Jurisdiction of Incorporation or Organization) |
| 87-0653761 (I.R.S. Employer Identification No.) |
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.
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 X . 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 | . (Do not check if a smaller reporting company) | Smaller reporting company | X . |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes . No X .
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 179,621,950 Class A common shares as of November 12, 2015.
FORM 10-Q
FULLCIRCLE REGISTRY, INC.
Table of Contents
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PART I. | Financial Information |
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| Item 1. | Unaudited Consolidated Financial Statements | 3 |
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| Consolidated Balance Sheets for September 30, 2015 (unaudited) and December 31, 2014 | 3 |
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| Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2015 and 2014 (unaudited) | 4 |
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| Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (unaudited) | 5 |
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| Notes to Consolidated Financial Statements (unaudited) | 6 |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 8 |
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| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 16 |
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| Item 4. | Controls and Procedures | 16 |
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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. | Mine Safety Disclosures | 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. FINANCIAL STATEMENTS.
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FullCircle Registry, Inc. | ||||||||||
Consolidated Statements of Operations | ||||||||||
(Unaudited) | ||||||||||
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| For the Three Months |
| For the Nine Months | ||||
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| Ended September 30, |
| Ended September 30, | ||||
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| 2015 |
| 2014 |
| 2015 |
| 2014 |
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Revenues |
| $ | 287,858 | $ | 401,023 | $ | 918,407 | $ | 1,168,196 | |
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Cost of sales |
| 80,159 |
| 154,285 |
| 303,276 |
| 458,157 | ||
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Gross profit |
| 207,699 |
| 246,738 |
| 615,131 |
| 710,039 | ||
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Operating expenses |
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| Selling, general & administrative |
| 3,981 |
| 266,249 |
| 501,144 |
| 709,002 | |
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| Total operating expenses |
| 3,981 |
| 266,249 |
| 501,144 |
| 709,002 |
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Income (loss) before depreciation and amortization |
| 203,718 |
| (19,511) |
| 113,987 |
| 1,037 | ||
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Depreciation and Amortization |
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| Depreciation expense |
| (66,599) |
| (63,252) |
| (199,798) |
| (189,756) | |
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Operating income (loss) |
| 137,119 |
| (82,763) |
| (85,811) |
| (188,719) | ||
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Other expense |
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| Interest expense |
| (90,535) |
| (82,010) |
| (267,364) |
| (237,073) | |
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| Total other expense |
| (90,535) |
| (82,010) |
| (267,364) |
| (237,073) | |
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Income (loss) before income taxes |
| 46,584 |
| (164,773) |
| (353,175) |
| (425,792) | ||
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Income taxes |
| - |
| - |
| - |
| - | ||
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Net income (loss) | $ | 46,584 | $ | (164,773) | $ | (353,175) | $ | (425,792) | ||
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Net basic and fully diluted income (loss) per share | $ | 0.000 | $ | (0.001) | $ | (0.002) | $ | (0.003) | ||
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Weighted average shares outstanding - Basic |
| 174,117,482 |
| 136,750,030 |
| 166,840,797 |
| 134,120,709 | ||
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Weighted average shares outstanding - Diluted |
| 195,838,857 |
| 156,004,489 |
| 187,842,954 |
| 151,531,442 | ||
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The accompanying notes are an integral part of these financial statements | ||||||||||
4
FullCircle Registry, Inc. | ||||||
Consolidated Statements of Cash Flows | ||||||
Unaudited | ||||||
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| For the Nine Months | ||
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| Ended September 30, | ||
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| 2015 |
| 2014 |
Cash flows from operating activities |
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| Net loss | $ | (353,175) | $ | (425,792) | |
| Adjustments to reconcile net loss to net cash provided by |
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| Depreciation |
| 199,798 |
| 189,756 |
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| Stock issued for services |
| 162,117 |
| 75,701 |
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| Stock returned to treasury |
| (25) |
| - |
| Change in assets and liabilities |
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| Decrease in prepaid expenses |
| 694 |
| 3,736 |
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| Decrease in accounts receivable |
| 5,740 |
| 2,874 |
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| Increase in inventory |
| (1,576) |
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| Decrease in accounts payable |
| (2,286) |
| (6,424) |
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| Increase in accrued interest |
| 67,409 |
| 46,606 |
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| Increase (decrease) in accrued expenses and other current liabilities |
| (156,035) |
| 100,967 |
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| Net cash provided by (used in) operating activities |
| (77,339) |
| (12,576) |
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Cash flows from investing activities |
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| Purchase of fixed assets |
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| (945) | |
| Net cash used in investing activities |
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| (945) | |
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Cash flows from financing activities |
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| Payments on mortgage payable |
| (98,092) |
| (119,949) | |
| Payments on digital equipment financing payable |
| (78,752) |
| (74,786) | |
| Payments on notes payable |
| - |
| (5,000) | |
| Proceeds from notes payable related parties |
| 192,252 |
| 173,803 | |
| Proceeds from sale of common stock |
| 62,500 |
| 45,000 | |
| Net cash provided by financing activities |
| 77,908 |
| 19,068 | |
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| Net increase in cash |
| 569 |
| 5,547 | |
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Cash at beginning of period |
| 6,316 |
| 14,267 | ||
Cash at end of period | $ | 6,885 | $ | 19,814 | ||
Supplemental cash flow information |
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Cash paid for: |
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| Interest | $ | 199,955 | $ | 190,467 | |
Non-cash transactions |
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| Stock issued for services | $ | 162,117 | $ | 75,701 | |
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The accompanying notes are an integral part of these consolidated financial statements. | ||||||
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NOTE 1. BASIS OF FINANCIAL STATEMENT PRESENTATION.
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 (“SEC”). 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, 2014, Annual Report on Form 10-K. Operating results for the nine months ended September 30, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
NOTE 2. GOING CONCERN.
The accompanying Consolidated Financial Statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has suffered recurring losses, negative working capital and is dependent upon raising capital to continue operations. The Company has incurred losses resulting in an accumulated deficit of $10,290,796 and $9,933,124 as of September 30, 2015 and December 31, 2014, respectively.
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is management’s plan to generate additional working capital by increasing revenue as a result of new sales and marketing initiatives and by raising additional capital from investors.
Management's plans with regards to these issues are as follows:
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Improving our Georgetown 14 Cinemas investment.
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Expanding revenues by purchasing, or otherwise acquiring, independent businesses.
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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.
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Locating and merging with other profitable private companies where the owners are seeking liquidity and exit plans.
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Maintaining the Company mission of minimal overheads while sourcing services in consulting roles to keep overheads at a minimum.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
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NOTE 3. STOCKHOLDERS’ EQUITY
During the nine-month period ended September 30, 2015 the Company issued an aggregate amount of 36,016,556 shares of common stock. The following is a listing of the common stock transactions.
12,153,358 shares of Common Stock were issued for $47,500 in cash, at $.00391 per share, for working capital.
7,504,468 shares of Common Stock were issued for $37,522, or $.005 per share, for consulting services.
2,500 shares of Common Stock were returned to treasury at $.01 per share.
738,280 shares of Common Stock were issued at $.02 per share, or $14,765 for consulting services.
1,000,000 shares of Common Stock were issued at $.01 per share in cash, or $10,000, for working capital.
8,122,950 shares of Common Stock were issued at $.01 per share, or $81,230, for consulting services.
5,500,000 shares of Common Stock were issued at $.0052 per share, or $28,600, for consulting services.
1,000,000 shares of Common Stock were issued at $.005 per share or $5,000.00, for working capital
NOTE 4. SIGNIFICANT ACCOUNTING POLICIES
Capital Structure
In accordance with ASC 505, “Equity,” the Company’s capital structure is as follows:
Preferred Stock, authorized 10,000,000 shares of $.001 par value. Class A issued and outstanding is 10,000. The Class A preferred shares have no voting rights. Class B issued and outstanding is 300,600 shares. The Class B shares have voting rights of 10 votes for each Preferred B share. There is no publicly traded market for our preferred shares.
Common Stock, authorized 200,000,000 shares of $.001 par value, issued and outstanding 179,621,950 on September 30, 2015 and 143,605,394 on December 31, 2014. The common stock has one vote per share. The common stock is traded on the OTCBB under the symbol FLCR.
The Company has not paid, nor declared, any dividends since its inception and does not intend to declare any such dividends in the foreseeable future. The Company's ability to pay dividends is subject to limitations imposed by Nevada law. Under Nevada law, dividends may be paid to the extent that the corporation's assets exceed its liabilities and it is able to pay its debts as they become due in the usual course of business.
Class B Preferred shares have a 2% preferred dividend, payable annually.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and expenses during the reporting period. In these Consolidated Financial Statements, assets, liabilities and expenses involve extensive reliance on management’s estimates. Actual results could differ from those estimates.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
General
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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Merging with or acquiring profitable private businesses.
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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.
History
Our initial business began in 2000 with the formation of FullCircle Registry, Inc (“FullCircle” or the “Company”). We were a technology-based business that provided emergency document and information retrieval services. The system was designed to allow medical personnel to quickly obtain critical information. We provided these services directly to subscribers and through strategic alliances with health care providers.
Our Current Business:
Our current business plan targets the acquisition of small profitable businesses with the following mission statement:
FullCircle Registry, Inc.’s, mission is to provide exit capabilities for small to medium sized private profitable, companies through acquisition, to improve our stockholder value while leaving those companies autonomous where possible to continue to be managed by the team that founded them, and subsequently providing liquidity and increased returns for the founder(s).
We have entered the “analysis” and “selection” phase of our M&A activities and will be announcing any major activities through PR newswire releases. However, with recent rule changes we are now permitted to release news via our Announcements page on our web site: www.fullcircleregistry.com. Watch for updates on progress on our business model change on our web site. These will also be broadcast via our email blasts to those stockholders who have registered their name and email address with the company.
New Business plan and new direction
In recent years we have established four operating subsidiaries. In addition to the parent company, FullCircle Registry, Inc., we have added companies in the following business sectors: distribution of medical supplies, entertainment, insurance agency and prescription assistance services. In 2010 we purchased our first property, in Indianapolis, Indiana, that contains the Georgetown 14 Digital Cinemas. Revenues for 2011, 2012, 2013, 2014 and 2015 were predominantly from the movie theater operations. Our medical supplies distribution company, FullCircle Medical Supplies, Inc., plans to commence operations in 2016 when funding is available. FullCircle Insurance Agency, Inc. and FullCircle Prescriptions, Inc. are currently inactive, pending national economic improvements and changes in the healthcare sector.
Funding for acquisitions, theater improvements and operating capital
On January 3rd, 2015 we issued a put for $100,000 to Kodiak Capital under our Stock Purchase Agreement with that firm. During the subsequent five-day pricing period our stock dropped from $.0465 to $.0035. Consequently the put price of our shares was lowered to $.00391, which provided only $47,500 in funding.
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Based on this difficult situation with the market price of our stock, and the effect of possible short selling activity, we have refrained from further action regarding any additional funding requests from Kodiak Capital. We engaged a PR company for the purpose of distributing information about our company with a goal to improve the market value of our stock. Unfortunately, we received no activity from them and our agreement was terminated.
FullCircle Entertainment, Inc.
In 2010 we established FullCircle Entertainment, Inc. (“FullCircle Entertainment”) for the purpose of acquiring movie theaters and other entertainment venues. We were initially considering the opportunity to purchase up to six theaters from one independent company.
On December 31, 2010, FullCircle Entertainment purchased Georgetown 14 Cinemas, a movie theater complex property at 3898 Lafayette Road, Indianapolis, Indiana 46224.
A summary of the Georgetown 14 acquisition follows:
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The 8-acre property purchase price was $5.5 million.
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The appraised value was $7.85 million, which included a lease for the theater to a third party operator.
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Assumed mortgage was $5,047,841, with issuance of Company stock valued at $452,159.
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24 employees.
In January 2012 we converted all of our screens to a digital format and installed 3D capability at a cost of $790,000, which we financed with a secured loan. The digital format offers a crisper view and allows the exhibition of 3D movies on three of our screens. Two of our theaters had been previously converted to digital prior to 2012. We assumed the obligation to continue servicing those two older lease payments.
In June 2012 Republic Theaters vacated the operations and we began the management of the theater ourselves. At that time we increased our activity to find a theater company to lease the theater. Our original purchase intent was to have a positive cash flow investment with the property totally leased.
In 2012 we renegotiated the mortgage on the property, resulting in a reduction of ¾ percentage point in the interest rate. In March 2013 we again renegotiated the mortgage, resulting in a further reduction of ¼ percentage point. We are currently at a 4 ¾ interest rate on our mortgage. Because of the poor movie revenues, we fell behind in our mortgage payments with our bank. In June, the bank assisted in changing to interest-only payments for six months to allow us time to finalize funding from our grant application with LISC.
During 2013 we increased pricing of our tickets and concessions to be in line with other competing full service digital theaters in our area.
We also developed a new web page for the Georgetown 14 Digital Cinemas allowing for a more complete patron information center. The new site is: www.georgetowncinemas.com. Our patrons can now find us on Facebook and Twitter, and sign up for our weekly newsletter keeping them informed about the upcoming movies and news about our Georgetown improvements and community events.
In 2013, we began a major upgrade to the Georgetown 14 Digital Cinemas, as well as providing new uniforms for our employees. Funding for these improvements has been difficult, but we have managed to begin the process with the assistance from major stockholders. Our plans include new furniture in the lobby area, which will allow a place for our patrons to meet and enjoy our enhanced food and beverage menu, as well as enjoy our new WiFi hot spot in the lobby area of the theater.
We launched a gift card program as well as a Customer Rewards program. Since its inception in January 2014 more than 500 patrons have enrolled in the Customer Rewards program. This will allow us to identify the zip codes of our patrons, so that we can target specialized marketing materials and monitor our growth outside our immediate area.
We also added uniformed security from dusk to close on weekends, and increased our management compensation to be more commensurate with other local theaters. We also improved our maintenance operations with a Maintenance Manager to improve the patron experience. We moved our cleaning activity to our employees from an outside agency to improve our control and improve the theater cleanliness.
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During 2015-2016 we plan, if financing is available, to improve our theater operations to allow us to offer:
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Free viewing of U.S. popular sporting events, such as the Major League Baseball World Series, NFL playoffs, NCAA Basketball and Football playoffs and NBA playoffs. These would be primarily marketing events to increase concession revenue.
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Viewing of popular international sporting events, to serve our local international community.
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Business meetings requiring high-speed internet upload and download capabilities
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Private party functions
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Adult beverages and increase food selections with our menu
In 2015, nationwide theater revenues were down again compared to the preceding year, due principally to a series of poorly reviewed and disappointing movies that were released. We experienced a decline in attendance, so our ticket sale revenues are below 2014 levels.
During the quarter ended September 30, 2015 we experienced further reduction in our attendance compared to the September quarter in 2014. The quality of the movies during the quarter has been disappointing; however the industry as a whole is expecting some improved releases in November and December this year.
In early 2014 we received a letter of intent for the purpose of leasing our Georgetown 14 Theater. We negotiated and accepted reasonable terms of a lease and after six months the company terminated the LOI. The prospective purchaser’s broker informed us that they were unable to obtain the funds necessary for their planned $2.7 million conversion into an “in theater dining” theater/restaurant.
We have been actively seeking a theater operating company to lease or purchase the property, and have been in active discussions with several operators. However, the negative perception of the Indianapolis neighborhood in which the theater is located has hindered these discussions. We continue to be engaged in discussions with several theater companies.
The interest we received from other theater chains resulted from our CEO’s solicitation of 34 national theater companies beginning in 2012 with multiple emails and conversations with most of them. At this time we do not believe we can operate just one theater in a cost-efficient manner without a major business model correction.
New direction business model for Georgetown 14 Cinemas
In general, we do not receive the best first run movies anymore. The cost of renting movies from Hollywood continues to increase. However, the quantity of major new releases each week has declined.
On the other hand, the casual restaurant business has been on the upswing in recent years, and consumer demand for restaurant meals has increased.
Because of these trends, we have been attempting to refinance the theater or acquire other funding to finance the conversion of the theater into an “In Theater Dining” experience and replace the stadium seating with recliner lounge seating. As a result of changes in Hollywood’s direction and the popularity of Netflix and other movie aftermarket activity, the theater business model is changing, and many theater companies are converting to enhanced food and beverage services. In addition, many theaters are transforming their auditoriums to luxury reclining seating. Fortunately, as of this date only two theaters in our marketplace have converted, so we believe that we need to move quickly to protect our investment.
We believe we have an ideal theater footprint for us to do a complete conversion, including a nice area for a lounge and a lobby large enough to install a destination area as well. The plan would be to convert the smallest auditorium into a kitchen. In our phase one plans we would convert four auditoriums into luxury recliner seating and begin serving an expanded menu and beverages. In phase two more theaters would be converted as well.
Because of the increases in the restaurant business we believe that this trend will continue. Economically, if a person and their spouse want to do a dinner and a movie it takes about four hours to do and if they have children the babysitting cost is very high. Combining the theater and the restaurant reduces the time to about two hours and becomes more economically attractive.
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Since October 2014 we have been working with agencies that are involved in economic development in the lower economic areas of Indianapolis. We have had two meetings with representatives of the Mayor of Indianapolis, and a meeting with Mayor Ballard on July 28th. The Mayor’s office introduced us to Local Initiatives Support Corporation (“LISC”), which provides grants and financing for redevelopment of urban commercial properties and we are requesting a grant to provide the funding to convert the theater. Indianapolis has expressed interest in improving the Georgetown 14 area, and members of the city’s economic development staff are assisting us in our campaign. Our applications for the conversion grant and the refinancing of the property have been submitted.
The area has been economically damaged by the problems with the Lafayette Square Mall, adjacent to us, along with the recession. Currently, Lafayette Square Mall is less than 50% occupied. LISC is interested in helping the area to improve the business climate and begin a recovery. Another mall area, Lafayette Shoppes, which is adjacent to our property, has also experienced a decline in tenants. Currently that center’s shops are only approximately 50% occupied.
Among other activities, we have been engaged in a property tax appeal since May 2012 to correct our valuations, back to 2011. In late August we made a presentation to the Tax Review Board of Marion County for the purpose of evaluation of our historical assessments and taxes on the theater property. We won this appeal and consequently, we have received credits of $190,000 dating back to the assessments in 2011. We have engaged in a payment plan to clear the remaining property tax balance in monthly payments of $4,010 through June of 2016. We are still in the process of appealing the 2014 and 2015 assessments.
Since we have resolved the valuation and tax issues, we became cleared to submit our LISC application. All of the required information, financial history and pro formas, along with details of the five phases of our plan, have been submitted to LISC.
If we receive a favorable response from LISC, it is our goal that LISC would provide the funding for the theater conversion and upgrade. We are requesting a grant sufficient to complete the conversion. Our pro forma with the conversion is estimated to take our FullCircle Entertainment revenues to the $2.7 to $3.0 million level in the first year after conversion, which is approximately double our current revenue. Performances of other existing theaters that have made this conversion have had even greater percentages increases. However, we cannot be assured that we will receive any grant or funding from LISC
No assurances can be made at this time as to the success of our plan to acquire the funding and lease or sell the property.
At this time, we have no contracts, agreements, or understandings for additional funding, nor can any assurance be given that we will be able to obtain this capital on acceptable terms. In such an event, this may have a materially adverse effect on our business, operating results and financial condition. 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.
A portion of the building housing the Georgetown Digital Cinemas also includes a grocery store space, which we lease to an independent operator. In 2014 we renewed our lease to Save-A-Lot Stores, a grocery store operator, for another seven years with three five year options.
FullCircle Medical Supplies, Inc.
In 2013 we established a new company, FullCircle Medical Supplies, Inc. (“FullCircle Medical”), for the purpose of entering into the durable medical equipment (“DME”) supply business sector, for the purpose of acquiring medical supply businesses and other related medical supply services in the Sun Belt states.
If the theater lease in 2014 had been consummated then we would have been able to proceed with our FullCircle Medical Supplies, Inc. plans. We have a number of interested DME owners that are interested in our plans and if our theater issues are resolved we should be able to once again begin those merger activities. At such time as the theater operational and financing issues are resolved, we plan to again proceed with the proposed acquisition of DME businesses in Louisiana.
This plan is to acquire or establish DME businesses throughout the state of Louisiana with up to twelve DME locations, utilizing centralized warehousing, billing, and purchasing, and to provide all related DME services in each location.
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Acquiring these businesses and covering the whole state should provide:
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Economies of scale, reducing costs of inventory and operational expenses
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Central warehousing, providing prompt supply to all stores and internet sales, and reducing obsolete inventory write-downs
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Smaller vehicle fleets
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Improved buying power by purchasing in volume
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Reduced insurance expense
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Improved individual store web sites
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Internet marketing allowing the stores to reach out to the entire country with product catalogues and shopping carts
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Social media marketing
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Centralized billing and insurance claim processing
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Improved receivables controls
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Increased selection of products
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Operational synergies between all stores
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Improved margins and profitability
We are continuing to communicate with these DME candidates.
We have signed consulting agreements with two Acquisition Managers for the purpose of assisting in our acquisition process in Louisiana and South Carolina and to assist the CEO in the due diligence requirements necessary to determine each DME’s suitability to become part of our mission.
Many of these businesses are still owned by their founders, who are looking for an exit strategy to realize a gain for their life’s work. Most have employees with ten to fifteen years’ experience, who are solid contributors to these businesses. Most are contributors to civic activities in their communities, which provides them a business connection within their marketing area. Our intent is to allow them to continue to operate autonomously, to continue to be profitable, and to improve net income with increased product selection, improved synergies, and Internet and social media exposure. We have entered the “analysis” and “selection” phase of our acquisition activities, and our executives have made multiple trips to Louisiana for the purpose of collecting and analyzing information, reviewing each business, observing employees, and understanding the focus and strengths of each business. In some cases we are negotiating letters of intent for these proposed acquisitions, and in the process of financial evaluations of those businesses.
We have been engaged in several acquisition negotiations and expect to execute purchase agreements as soon as our theater plans are working and our stock price returns to respectable levels.
Typically, most DME businesses do not market on the Internet and many do not have websites. Once we complete the first acquisition, we plan to create a web site introducing a products catalogue and shopping cart. As acquisitions continue, we plan to “clone” the website for each location, connecting to our products catalogue and shopping carts. This would allow each DME to market nationally as well as internationally and ship out of a central warehouse. We believe that revenues from these businesses can be expanded by approximately 50% over the first two-year period through Internet and social media marketing.
In general, applicable SEC rules require that the financial statements of these businesses be audited by an independent certified public accountant, so the purchase of these businesses cannot be completed until the auditors complete the audit and provide their opinion.
Candidates to operate the proposed Louisiana company have been interviewed and, following acquisition of DME companies in the state, will be phased in with consulting arrangements and eventually assume management positions in the company. We believe our consultants will assist in providing a full range of products and services for each market.
Once we establish consolidated operations in Louisiana, and the infrastructure and operations are tested and functioning, we plan to utilize this same rollup approach in additional southern states.
FullCircle Insurance Agency, Inc.
The FullCircle Insurance Agency, Inc. was founded in August 2008, but is currently inactive. In the past few years the insurance industry has experienced difficulties flowing from the financial problems of AIG and other major industry players, and the enactment of the Affordable Care Act has produced significant uncertainty in the healthcare insurance field. Until these matters are stabilized, we have placed operations of this company on hold. We believe that this industry will thrive once the Affordable Care Act is fully implemented, improved, and finalized. Increased agency knowledge and professionalism will be necessary to help businesses and individuals understand the new laws. We believe there are opportunities to “roll up” several independent local agencies into regional agencies, for economies of scale in providing these professional services.
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FullCircle Prescription Services, Inc.
FullCircle Prescription Services, Inc. was established for the purpose of handling our prescription assistance services program. Its mission is to assist consumers in finding medications at discounted rates worldwide in our “Shop the World” program. When it becomes operational, FullCircle Prescription Services, Inc. will not dispense any medications nor handle any prescriptions, but will function only as a customer assistance program.
Until a more favorable political climate exists we have placed the marketing efforts for the advancement of FullCircle Prescription Services, Inc. on hold. Up until 2009 the political trend was to support the re-importation of generic drugs to assist in combating the increasing expense of prescription medications most importantly for senior citizens. However, since that time the political trend has reversed largely influenced by large pharmaceutical companies. The U.S. Government currently disfavors the re-importation of generic drugs manufactured by U.S. companies, which is essential to the business strategy of FullCircle Prescription Services, Inc. Pending a change in this policy, we are still operational but have elected to not expend any operational or marketing funds at this time.
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 address is www.fullcircleregistry.com. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this report.
Competition
Movie Theater Entertainment:
The motion picture exhibition industry is fragmented and highly competitive. Our theaters compete against regional and independent operators as well as the larger theatre circuit operators. The major movie theater companies have very strong marketing clout.
One of our advantages is that we have a radius of 7.5 miles without a competitive theater. In a five-mile radius we have an estimated 240,000 wall-to-wall people available taken from the 2010 census. No other theater location in Indianapolis has the exclusive large market area that we hold.
Our operations are subject to varying degrees of competition with respect to film licensing, attracting customers, and obtaining new theater sites. In those areas where real estate is readily available, there are few barriers preventing competing companies from opening theaters near our existing theater, which may have a material adverse effect on our revenues. Demographic changes and competitive pressures can also lead to a theater location becoming impaired.
In addition to competition with other motion picture exhibitors, our theaters face competition from a number of alternative motion picture exhibition delivery systems, such as cable television, satellite and pay-per-view services and home video systems. The expansion of such delivery systems could have a material adverse effect upon our business and results of operations. We also compete for the public’s leisure time and disposable income with all forms of entertainment, including sporting events, concerts, live theaters and restaurants.
The movie theater industry is dependent upon the timely release of first run movies. Ticket sales and concession sales are influenced by the availability of top producing movies. At times, our revenues are impacted by the shortage of first run movies. During the year we have experienced “slow” releases from the movie companies.
Durable Medical Equipment (DME):
The durable medical equipment supply business is highly fragmented, consisting mainly of local pharmacies, small pharmacy chains, and local distributors and retail outlets. As a result, the business is not overly price competitive, and prices are generally comparable market to market and state to state. Pricing is predominantly controlled by insurance companies and by Medicare / Medicaid reimbursement policies. Revenue improvement depends on additional services and Internet marketing. According to Forbes Magazine, in 2012 the medical supply business was the second most profitable of the top 20 small businesses in the United States. Since this time the Medicare and other insurance programs have been reducing the compensation for the DME services and products. Many DME businesses have become unprofitable and are closing. We believe that the rollup of these businesses is the only solution to this loss in revenue.
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Successful medical supply businesses often are profitable because the founders or managers devote their attention to customer service and inventory management, to ensure quick delivery to their patrons. We plan to maintain this performance in the businesses we acquire with a statewide distribution system, but to reduce expenses and overheads with centralized purchasing, billings, and inventory.
Recently, Medicare has developed a competitive bidding process in larger cities that is squeezing margins of many DME businesses. We believe this trend will continue, and consequently will require better management and control of expenses to maintain profitability. We believe this situation will provide us an opportunity to acquire some of these businesses, and to provide the synergies to remain competitive and improve profits.
Employees
FullCircle Registry, Inc., and its subsidiaries have employee levels generally ranging between 22 to 35 employees/officers depending on seasonal needs. We have never experienced employment-related work stoppages and focus on good relations with our personnel and are continuing to attract stronger talent.
Results of Operations for the Three-Month and Nine-Month Periods Ended September 30, 2015 and 2014.
Revenues during the three months ended September 30, 2015 were $287,858 with a cost of sales of $80,159, yielding a gross profit of $207,699 or 72.2%. This compares to $401,023 in revenues for the same period in 2014, with a cost of sales of $154,285, yielding a gross profit of $246,738 or 61.5%. Revenues during the nine months ended September 30, 2015 were $918,407, with a cost of sales of $303,276, yielding a gross profit of $615,131 or 67.0%. This compares with $1,168,196 in revenues for the same period in 2014, with cost of sales of $458,157, yielding a gross profit of $710,039 or 60.8%.
Selling, general, and administrative expenses during the three-month period ended September 30, 2015 were $3,981, resulting in a profit before depreciation of $203,718, compared to selling, general and administrative expenses during the three month period ended September 30, 2014 of $266,249, resulting in operating loss before depreciation of $19,511.
During the quarter ended September 30, 2015 we had a major shift in our selling, general and administrative expenses due to the large credits received on our accrued property taxes as a result of successfully appealing our assessment with the Tax Review Board of Marion County.
Selling, general, and administrative expenses during the nine-month period ended September 30, 2015 were $501,144, resulting in a profit before depreciation of $113,987, compared to selling, general and administrative expenses during the nine-month period ended September 30, 2014 of $709,002, resulting in income before depreciation of $1,037.
Operating expenses for the nine-month period have decreased because of the accrued property tax adjustments of our property in Indianapolis.
Depreciation expense totaled $66,599, resulting in operating income of $137,119, in the three-month period ended September 30, 2015. Depreciation expense in the same period in 2014 was $63,252, resulting in an operating loss of $82,763. Depreciation expense during the nine-month period ended September 30, 2015 was $199,798, resulting in an operating loss of $85,811. Depreciation expense in the same period in 2014 was $189,756, resulting in an operating loss of $188,719.
Interest expense for the three months ended September 30, 2015 was $90,535, producing a net profit for the period of $46,584 compared to interest expense of $82,010, resulting in a net loss of $164,773 during the same period in 2014. Interest expense during the nine months ended September 30, 2015 was $267,364, producing a net loss for the period of $353,175 compared to interest expense of $237,073, resulting in a net loss of $425,792 during the same period in 2014.
Aside from the direct theater operation expenses of FullCircle Entertainment, Inc., our depreciation, interest, SEC compliance cost for auditors, accountants and attorneys continue to be the major part of our expenses.
Industry revenues are contracting for those theaters that have not converted to luxury seating, and enhanced food and beverage. Faster releases after the first run dates, to the public through Netflix and other offerings, have also had an impact on national theater revenues.
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Liquidity and Capital Resources
At September 30, 2015 the Company had total assets of $5,509,469 compared to $5,713,556 on December 31, 2014. The Company had total assets consisting of $6,885 in cash, $4,159 in inventory, $22,844 in accounts receivable, $264 in prepaid expenses, $10,870 in utility deposits, $5,464,447 of net fixed assets in Georgetown 14, which includes accumulated depreciation of $1,098,830.
Total assets at December 31, 2014 consisted of $6,316 in cash, $2,583 in inventory, $28,584 accounts receivable, $10,870 in utility deposits, $958 prepaid expenses, $5,664,245 of net fixed assets in Georgetown 14, which includes accumulated depreciation of $899,032.
At September 30, 2015 the Company had $6,256,436 in total liabilities. Total liabilities include $77,710 in accounts payable, $13,373 in deferred income, $8,326 in accrued expenses, $207,733 in accrued interest, $31,625 in preferred dividends payable, $30,000 in notes payable, $1,028,563 notes payable-related party, $243,865 current portion of long-term debt, $107,809 accrued property taxes, $272,899 digital equipment note and $4,234,533 mortgage payable.
Total liabilities at December 31, 2014 were $6,327,444, which was comprised of $79,997 in accounts payable, $13,373 in deferred income, $5,543 accrued expenses, $140,324 accrued interest, $27,128 in preferred dividends payable, $30,000 in notes payable, $836,311 note payable related party, current portion of long term debt $312,593, accrued property tax of $266,627, digital equipment note $348,087 and $4,267,461 mortgage payable.
Net cash used by operating activities for the nine months ended September 30, 2015 was $77,339 compared to net cash used by operating activities for the nine months ended September 30, 2014 of $12,576. During the nine months ended September 30, 2015, $0 was used on investing activities, and $77,908 was provided by financing activities. For the same period in 2014, $945 was used in investing activities and $19,068 was provided by financing activities.
As of September 30, 2015 we had capital commitments of a mortgage and the digital equipment loan for $4,571,297 for Georgetown 14 Theater. Due to the Company’s operating difficulties, the Company negotiated a change in terms agreement with the Company’s bank, which as a result of the agreement allowed us to make interest only payments monthly from June 2015 through November 2015. The monthly payment is scheduled to revert to the original principal plus interest payment on December 15, 2015. We have no knowledge that the bank will call the debt. We are focused on increasing revenues from our operations and reducing debt through converting notes payable to common stock. We may also seek funding from 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 and theater conversion. We have relied upon advances from directors, officers and shareholders and we have issued stock to finance our operations to this point.
FullCircle currently owes $30,000 in notes payable and $1,028,563 notes payable to related parties. 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, 2015. As of September 30, 2015 the stockholders deficit is $746,967 compared to a deficit of $613,888 on December 31, 2014. These conditions raise substantial doubt about our ability to continue as a going concern.
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 for FullCircle Registry, Inc.
The current expansion of the Company’s business demands that significant financial resources be raised to fund capital expenditures, working capital needs, and debt service. Current cash balances and the realization of accounts receivable will not be sufficient to fund the Company’s current business plan for the next twelve months. Consequently, the Company is currently seeking funds to provide the necessary capital to meet the Company’s expansion needs. Management continues to negotiate with existing shareholders, financial institutions, new investors, economic development organizations, and other accredited investors in order to obtain working capital necessary to meet current and future obligations and commitments.
Management is optimistic 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.
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Critical Accounting Policies and Estimates
The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s President and Chief Financial Officer have concluded, based on an evaluation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15(d)-15(e)), which such disclosure controls and procedures were not effective as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the nine months ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no pending legal proceedings.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the nine-month period ended September 30, 2015 the company issued an aggregate amount of 19,168,668 unregistered shares of common stock.
The following is a listing of the unregistered common stock transactions.
7,504,468 shares of Common Stock were issued for $37,522, or $.005 per share, for consulting services.
2,500 shares of restricted Common Stock were returned to treasury at $.01 or $25.00.
1,000,000 shares of Common Stock were issued at $.01 per share for cash, or $10,000, for working capital.
6,166,700 shares of Common Stock were issued at $.01 per share, or $61,667, for consulting services.
3,500,000 shares of Common Stock were issued at $.0052 per share or $18,200, for consulting services.
1,000,000 shares of Common Stock were issued at $.005 per share or $5,000, for working capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
Exhibit |
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| Location |
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31.1 |
| Certification of Chief Executive Officer/Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |
| Attached |
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32.1 |
| Certification of Chief Executive Officer/Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
| Attached |
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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 20, 2015
/s/ Norman L. Frohreich
Norman L. Frohreich
President
Chief Executive Officer
Chief Financial Officer
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