SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
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)
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
161 Alpine Drive, Shelbyville, KY 40065
(Address of Principal Executive Offices) (Zip Code)
(Registrants 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 X . No .
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
. (Do not check if a smaller reporting company)
Smaller reporting company
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 issuers classes of common equity, as of the latest practicable date: 187,443,238 Class A common shares as of August 15, 2016.
FULLCIRCLE REGISTRY, INC.
Table of Contents
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets for June 30, 2016 (unaudited) and December 31, 2015
Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2016 and 2015 (unaudited)
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Managements Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Controls and Procedures
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
FullCircle Registry, Inc.
Consolidated Balance Sheets
Accounts receivable, net
Total Current Assets
Property and equipment
Total Fixed Assets
LIABILITIES & STOCKHOLDERS' DEFICIT
Current portion of long term debt
Deferred rental income
Accrued property taxes
Other accrued expenses
Preferred dividends payable
Note payable related parties
Total Current Liabilities
Long Term Liabilities
Equipment note payable, less current portion
Total Long Term Liabilities
Preferred stock, authorized 10,000,000 shares of $.001 par value
Preferred A, issued and outstanding is 10,000
Preferred B, issued and outstanding is 300,600
Common stock, authorized 200,000,000 shares of $.001 par value, issued and outstanding shares of 187,443,238 and 185,754,300 shares, respectively
Total Stockholders' Deficit
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT
The accompanying notes are an integral part of these consolidated financial statements.
FullCircle Registry, Inc.
Consolidated Statements of Operations
For the Three Months
For the Six Months
Ended June 30,
Ended June 30,
Cost of sales
Selling, general & administrative
Total operating expenses
Income (loss) before depreciation and amortization
Operating income (loss)
Total other expense
Net loss before income taxes
Net basic and fully diluted loss per share
Weighted average shares outstanding - Basic
Weighted average shares outstanding - Diluted
The accompanying notes are an integral part of these financial statements
FullCircle Registry, Inc.
Consolidated Statements of Cash Flows
For the Six Months
Ended June 30,
Cash flows from operating activities
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Stock issued for services
Stock returned to treasury
Change in assets and liabilities
Decrease in prepaid expenses
Decrease in accounts receivable
Increase in inventory
Increase in accounts payable
Increase in accrued interest
Increase (decrease) in accrued expenses and other current liabilities
Increase (decrease) in prepaid rental income
Net cash provided by (used in) operating activities
Cash flows from financing activities
Payments on mortgage payable
Payments on digital equipment financing payable
Proceeds from notes payable related parties
Proceeds from sale of common stock
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash at beginning of period
Cash at end of period
Supplemental cash flow information
Cash paid for:
Stock issued for services
The accompanying notes are an integral part of these consolidated financial statements.
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 Companys most recent audited financial statements and notes thereto included in its December 31, 2015, Annual Report on Form 10-K. Operating results for the three-months and six-months ended June 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
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 $10,855,823 and $10,634,797 as of June 30, 2016 and December 31, 2015, respectively.
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is managements 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:
Improving our Georgetown 14 Cinemas investment.
Expanding revenues by purchasing, or otherwise acquiring, independent businesses.
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.
Leasing or developing our Georgetown 14 Cinema, or selling or developing a portion of its parking area.
Locating and merging with other profitable private companies where the owners are seeking liquidity and exit plans.
Maintaining the Company mission of minimal overhead costs while sourcing services in consulting roles to keep overhead costs 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 Companys President and Chief Financial Officer, Norman Frohreich, died on August 16, 2016, and Mr. Frohreich was our only executive actively involved in pursuing many of the plans described above. His death may have a material effect on our ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3. STOCKHOLDERS EQUITY
During the six-month period ended June 30, 2016 the company issued an aggregate amount of 1,688,938 shares of common stock. The following is a listing of the common stock transactions.
1,000,000 shares of Common Stock were issued for $5,000 in cash, at $.005 per share, for working capital.
528,768 shares of Common Stock were issued for $2,644, or $.005 per share, for consulting services.
160,170 shares of Common Stock were issued for $1,601, or $.01 per share, for consulting services.
NOTE 4. SIGNIFICANT ACCOUNTING POLICIES
In accordance with ASC 505, Equity, the Companys capital structure is as follows:
Preferred stock, authorized 10,000,000 shares of $.001 par value. Class A issued and outstanding is 10,000. 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 1 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 187,443,238 on June 30, 2016 and 185,754,300 on December 31, 2015. The common stock has one vote per share. The common stock is traded on the OTCBB (now OTC Pink) 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 managements estimates. Actual results could differ from those estimates.
NOTE 5. SUBSEQUENT EVENT.
Norman Frohreich, the Companys President and Chief Financial Officer, died on August 16, 2016. The Companys Board of Directors appointed Matthew T. Long as Acting President and Chief Financial Officer, and plans to seek a permanent replacement to fill these positions.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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:
Attracting immediate financing;
Merging with or acquiring profitable private businesses.
Delivering a quality product that meets customer expectations;
Obtaining and expanding market acceptance of the products we offer;
Competition in our market; and
Identifying and hiring a replacement for our recently deceased President and Chief Financial Officer, Norman Frohreich.
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 progress through PR newswire releases.
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 established companies to operate 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, 2015 and 2016 were predominantly from the movie theater operations. Our medical supplies distribution company, FullCircle Medical Supplies, Inc., plans to commence operations 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
In July 2015 we entered into discussions with Local Initiatives Support Corporation (LISC) for the purpose of receiving funding assistance for the business model change of our theater in Indianapolis. Additional information regarding those activities is reported under New direction business model for Georgetown 14 Cinemas, below.
We continue to receive additional requirements to qualify for consideration of funding from LISC. Our LISC application is not dead but it is just taking too long to move through the bureaucracy to be considered for our funding requirements. We are burdened with lengthy bureaucratic and committee schedules. We have recently received communication from LISC that they wished for us to again revise some of our applications content. We have provided information and application amendments since July 2015 and have had multiple meetings with the LISC management.
This has been a very difficult process as there has been no assistance on how to proceed with the application. There are specialists that perform these functions for companies; however, FullCircle does not have sufficient capital to hire these services so our CEO has had to perform these application revisions himself along with the tax appeal process, SEC filings and the general management of the Company.
Most of our professional consulting services have been paid for with our Common Stock. We are nearing the 200 million authorized share amount and will need to increase that level to enable us to continue to issue shares for services.
We are proceeding with counsel to process the increase in authorized shares according to our bylaws and Articles of Incorporation.
FullCircle Entertainment, Inc.
In 2010 we established FullCircle Entertainment, Inc. (FullCircle Entertainment) for the purpose of acquiring movie theaters and other entertainment venues.
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:
The 8-acre property purchase price was $5.5 million.
The appraised value was $7.85 million.
Assumed mortgage was $5,047,841 with issuance of Company stock valued at $452,159.
15 to 22 employees depending on season.
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.
Our mortgage is currently at a 4 ¾ % interest rate. Due to the decline in movie revenues and related decline in operating cash flows, in 2015 it was difficult for us to maintain the current level of principal and interest payments. On July 31, 2015, we entered into a change in terms agreement with our lender whereby our lender agreed to modify our payment schedule from a monthly fixed principal and interest payment in the amount of $34,435 to interest only payments beginning with payment due date of June 15, 2015 thru November 15, 2015. The normal payment of principal and interest of $34,435 was to resume on December 15, 2015.
In late 2015, the mortgage on our property was transferred to another lender, and we negotiated a mortgage payment moratorium until July 31, 2016. The revenues from the theater are not sufficient for us to remain current with our mortgage payments. Subsequent to June 30, 2016, as of August 1, 2016 we are delinquent in payment of our real estate note, but we continue negotiations with the lender.
We have a web page for the Georgetown 14 Digital Cinemas allowing for a more complete patron information center. The site is: www.georgetowncinemas.com. Our patrons can 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.
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, and increased our management compensation to be more commensurate with other local theaters. We also improved our maintenance operations to improve the patron experience.
During 2016, contingent on our funding status, we plan to improve our theater operations to allow us to offer:
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.
Viewing of popular international sporting events, to serve our local international community.
Business meetings requiring high-speed internet upload and download capabilities
Private party functions
Adult beverages and in-theater dining
New recliner seating
Wide release of first run new movies have been declining over the last several years. In 2016 we are still experiencing declines. Our ticket sales are down by 23.9% for the six month period ended June 30, 2016 compared to the same period in 2015. Revised menus and efforts to up sale our concession products have proved to be encouraging as we have increased our per person concession revenue over last year. The ticket sales are down by 23.9% as described above, however, our concession revenues are down by only 11.9% for the six month period ended June 30, 2016 as compared to the same period in 2015. The quality of the movies during the June quarter continues to be disappointing. Our concession sales per ticket sold has increased from $3.50 to $3.90 over the past two years.
In October 2014 we once again returned to seeking a theater company to lease or purchase our property. Those conversations continued throughout 2015 and we remain active at the time of this filing. We continue to discuss leasing opportunities with major theater companies. Several have visited but have declined due to the high crime image in our area next to the Lafayette Square Mall, which is predominately vacant and in disrepair.
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.
We received a new real estate tax assessment for 2016 that did not take into consideration our 2015 assessment adjustment so we have started the appeal process again. Working on these appeals for each year since 2011 is extremely time consuming and frustrating. Due to the degree of difficulty working with a bureaucracy requires engaging an experienced tax attorney. Given that there is insufficient funding to hire those services the CEO has been required to perform all of those appeals for each year since 2011. The savings has been substantial with approximately $200,000 in tax savings with the 2016 appeal remaining.
New direction business model for Georgetown 14 Cinemas
The cost of renting movies from studios and filmmakers continues to increase. In addition, the quantity of major new releases each week has declined. In general, we do not receive the best first run movies anymore.
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 Hollywoods direction and the popularity of Netflix and other movie aftermarket activity, the theater business model is changing, and many theater companies are starting to convert 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. Studio Movie Grill converted a facility 10 miles from us to full in-dining services and Circle Center has converted to just luxury recliners. 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 food or beverage 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. Initially, before the kitchen is installed we plan to obtain catering services from local restaurants and set up a destination area with tables and chairs in our lobby. In phase two more theaters would be converted as well.
Because of the improved performance in the casual restaurant sector in past years, we believe that this trend will continue. Economically, if a person and their spouse wish to do a dinner and a movie it takes about four hours 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.
Since October 2014 we have been working with agencies that are involved in economic development in the depressed areas of Indianapolis. We have had multiple meetings with city representatives attempting to acquire some assistance since we are located in an economically depressed area. In two years we have been unable to attract any interest in our area from the city. Most of the economic funding is installed in downtown Indianapolis to attract businesses and conventions.
The area continues to be economically depressed with the adjacent Lafayette Shoppes at 50% occupancy and the Lafayette Square Mall across the Lafayette Road from us is less than 50% occupied.
FullCircle Entertainment, Inc. has recently engaged the services of Jon Findley of Stage1 Development, LLC in Indianapolis to assist us in creating development plans for our Movie Theater and property. Mr. Findley has considerable experience with developmental activities in our immediate area and will be helping us coordinate the extensive down the stretch activities to proceed with our plans.
Our continued goal is to change our business model and convert the theater into a restaurant and lounge with entertainment (movies). The plans include substantial remodeling events including turning our parking lot into daylight at night to help with our security issues. Mr. Findley will be assisting the Company with detailed planning related to these initiatives along with our search for funding.
These plans were originally developed in 2013 and we have been attempting to source funding since then. The only interruption in this mission was when we believed that the theater would be leased by a movie theater company that did not materialize.
Our LISC application for funding is still pending, but we have decided to forge ahead independently, seeking capital by offering investors an opportunity to purchase up to 25% of FullCircle Entertainment, Inc.
This investment will allow us to begin converting our auditoriums to the dine-in cinema model that is beginning to become so successful nationwide.
The reason for this major change is:
Restaurant attendance and revenue is increasing nationally. Less and less families are dining at home.
Theaters that have converted to recliner seating have doubled their attendance,
Theaters that have converted to recliner seating AND began in-theater food and beverage service have realized increases of 400% to 700% in ticket sales and higher levels in total revenues.
We believe that in just a few years the theater business model that we know today will be gone or drastically changed.
We need to be proactive to deal with the movie companies releasing the movies for distribution to satellite, Cable, Netflix, etc. earlier every year.
The plans for conversion of the theaters to the dine-in cinema model include:
Converting nine of our auditoriums from stadium seating to recliner seating, one auditorium at a time. Given the size of the recliner space required, we will be dropping our current 1,839 seats to approximately 1,145 seats.
Changing our #4 auditorium into a full service kitchen.
Adding a cocktail lounge.
Adding a separate restaurant.
A major remodel of the theater with increased lighting and new glow in the dark carpet in our auditoriums for safety issues.
Upgrade all sound systems to current technology.
Substantially increase our lighting in and around our facility. We wish to turn our parking lot into daylight to improve our security image.
Modernize the face of our theater and tie in an apartment complex and retail shops to present a new look to our area.
Change the name of the theater to identify our restaurant and lounge services.
Even with doing one auditorium at a time we believe that this movement will generate improved attendance sufficient to enable us to work on some of the remodeling plans with our operations cash flow along with the lighting project which will also add to the area image correction. We believe that once a few of the auditoriums are converted, the results will generate a snowball effect for additional funding.
Moving forward, our plans combines two industries (restaurant and theater) into one. This provides us with two different marketing and revenue directions with one overhead structure.
One competitor, Studio Movie Grill, has experienced a 700% increase in revenues from their conversion in 2013 of a theater on 86th street, just ten miles from us. This theater did a complete revision to not only recliner seating but added a kitchen and provides in-theater dining and beverage services. Another example is Circle Center in downtown Indianapolis, seven miles from us, which experienced a 200% increase in revenues after just a conversion from standard stadium seating to recliner seating in late 2014. At this time these are the only two theaters in greater Indianapolis that have made any substantial changes.
A key point to consider is that Studio Movie Grill has experienced this revenue increase with a total of four theaters inside five miles. Georgetown 14 has no competition within 7.5 miles, servicing a population of 240,000 according to the 2010 census.
According to our forecasts, once we convert the theaters to a dine-in model similar to Studio Movie Grill, FullCircle Entertainment Inc. revenue is forecasted to increase to approximately $4.5 million, with forecasted net income of approximately $870,000 in 2018 after a full year of operating as a restaurant with entertainment.
Recently we have had meetings with a locally owned bank that wishes to have a presence on the west side of Indianapolis.
Our meetings have been focused on four activities:
They have interest in purchasing our mortgage so that they are involved on the ground floor of our conversion.
They wish to locate a small bank branch on our property so they can have a presence on the west side of Indianapolis.
They have interest in participating in our private memorandum to assist in the initial funding to begin the conversions.
They have interest in providing funding for the building conversion to a restaurant and some additional shops.
We have scheduled another meeting to take place within the next 30 days after they have completed their due diligence and have reviewed our financial documents.
We continue to struggle with theater attendance especially at night since our area still has a high crime image. Actually, the crime in the area is very low compared to the past because of the new developments, but the image lingers.
It is important to note that as part of our property renewal plans we will substantially increase the lighting and camera surveillance of our parking lot. To properly identify the turning our parking lot into daylight this would be similar to the many car dealerships around the country that are very bright at night. We wish to provide the most secure parking area of any theater in Indianapolis.
Performances of other existing theaters that have made this conversion have had even greater percentages increases. Of course, these forecasted estimates depend on a number of assumptions.
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.
On February 20, 2016 we received a Letter of Intent (LOI) for the purpose of leasing or purchasing a portion of our parking lot. The LOI purpose is to use the south end of the parking lot for a mixed-use building housing retail shops and millennium apartments. At this time the developer is engaged in a feasibility study. If this purchase for the development moves forward it will provide some working capital as well as improve the value of our remaining property. The area being discussed is approximately one acre in size.
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.
At the time we started to move into the DME acquisition direction we believed that the theater would be leased out which would free up our time and financial resources to begin that project. Unfortunately this company development had to be placed on hold until we can get out from under the financial burden of the theater.
Our current 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.
Acquiring these businesses and covering the whole state should provide:
Economies of scale, reducing costs of inventory and operational expenses
Central warehousing, providing prompt supply to all stores and internet sales, and reducing obsolete inventory write-downs
Smaller vehicle fleets
Improved buying power by purchasing in volume
Reduced insurance expense
Improved individual store web sites
Internet marketing allowing the stores to reach out to the entire country with product catalogues and shopping carts
Social media marketing
Centralized billing and insurance claim processing
Improved receivables controls
Increased selection of products
Operational synergies between all stores
Improved margins and profitability
Once we can begin we are considering several existing DME businesses, with an average of approximately $1.1 million in revenues. At such time as we complete some acquisitions, we plan to employ a state manager with experience in the medical supply industry to supervise the managers of the purchased stores and to manage the operations in the state.
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 DMEs suitability to become part of our mission. Obviously, we cannot be in two places at once so everything with our Louisiana Medical is primed ready to go but we cannot move forward with this plan until the theater has become profitable.
Many of these businesses are still owned by their founders, who are looking for an exit strategy to realize a gain for their lifes 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.
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 local agencies into regional agencies, for economies of scale in providing these professional services.
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.
SEC Compliance and Regulations:
The requirements for regulatory compliance continue to be difficult. The HTML and the XBRL filing format are now both required by the SEC, which is expensive. FullCircle has been filing in both formats for the last two years. Both formats can be viewed on our web page under the Announcements Tab per SEC rules.
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.
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 publics leisure time and disposable income with all forms of entertainment, including sporting events, concerts, live theatre 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 experience slow releases from the movie companies in January through March and then again during the late summer from August through October.
We plan to expand into the exhibition of live sporting events such as world soccer, cricket, and possibly NFL playoff games and the World Series to provide large screen viewing of these sporting events. We are also taking an aggressive posture to expand into business conference sessions during dead screen time to facilitate the anticipated increase in demand for upload and download communication with enhanced WiFi and dish communication systems.
The theater business is changing. With the new access to movies for home viewing shortly after new releases occur more people are viewing these releases four to five weeks after the theater has shown those released. We believe that this is causing some of the decline in attendance as well as the poor movies being released.
A new business model is emerging. We have witnessed a theater in the Indianapolis market do a theater conversion to provide VIP seating (luxury recliners), and serve food and adult beverages in the auditoriums during the movie. This theater was converted and we can see that it experienced a 700% increase in revenues since 2013. Another theater converted to recliner seating without a kitchen and has experienced a 300% increase in ticket sales since December 2014. We are working in the direction to provide this capability. Given the limited capital we cannot convert the whole theater but may be able to accomplish one or two auditoriums at a time.
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 improved 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.
Successful medical supply businesses 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 businesses we acquire
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.
We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business. As of June 30, 2015, we have approximately $1,151,000 in unsecured notes payable. The majority of our unsecured notes are with insiders of the company and does not require any debt maintenance at this time, as interest is accrued.
We have a mortgage of approximately $4,373,000 for our property in Indianapolis and approximately $301,000 of an outstanding balance on our digital equipment lease, which is also secured.
Our amount of indebtedness could have important consequences. For example, it could:
increase our vulnerability to adverse economic, industry or competitive developments;
require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our mortgage indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;
increase our cost of borrowing;
restrict us from making strategic acquisitions;
limit our ability to service our indebtedness;
limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions or general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate, placing us at a competitive disadvantage to less highly leveraged competitors who may be able to take advantage of opportunities that our leverage prevents us from exploiting; and
prevent us from raising the funds necessary to proceed with planned acquisitions in our Medical Supplies business model.
FullCircle Registry, Inc., and its subsidiaries have employee levels generally ranging between 18 to 28 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 Six-Month Periods Ended June 30, 2016 and 2015.
Revenues during the three months ended June 30, 2016 were $303,015 with a cost of sales of $91,246, yielding a gross profit of $211,769 or 70%. This compares to $314,470 in revenues for the same period in 2015, with a cost of sales of $114,319, yielding a gross profit of $200,151 or 64%.
Revenues during the six months ended June 30, 2016 were $559,099, with a cost of sales of $155,280, yielding a gross profit of $403,819 or 72%. This compares with $630,549 in revenues for the same period in 2015, with cost of sales of $223,117, yielding a gross profit of $407,432 or 65%.
Selling, general, and administrative expenses during the current three-month period ended June 30, 2016 were $104,529, resulting in an income before depreciation of $107,240, compared to selling, general and administrative expenses during the three month period ended June 30, 2015 of $228,329, resulting in an operating loss before depreciation and amortization of $28,178. Operating expenses have decreased in 2016 because of the credits received on our property taxes from our appeals.
Depreciation expense totaled $75,126 resulting in operating income of $32,114 for the three-month period ended June 30, 2016. Depreciation expense in the same period in 2015 was $66,599 resulting in an operating loss of $94,777. Depreciation expense during the six-month period ended June 30, 2016 was $150,252, resulting in an operating loss of $40,584. Depreciation expense in the same period in 2015 was $133,199, resulting in an operating loss of $222,930.
Interest expense for the three months ended June 30, 2016 was $90,573, producing a net loss for the period of $58,460, compared to interest expense of $90,353, resulting in a net loss of $185,130 during the same period in 2015. Interest expense during the six months ended June 30, 2016 was $177,674, producing a net loss for the period of $218,258 compared to interest expense of $176,829, resulting in a net loss of $399,759 during the same period in 2015.
Outside the direct theater operation expenses of FullCircle Entertainment, Inc., depreciation, interest expense, SEC compliance cost for auditors, accountants, consultants and attorneys continue to be the major part of our expenses.
The theater industry typically does well during the May and June months because local schools are out during these months with July being considered our high season. However, again this year we did not receive any strong movies which severely impacted our revenues during the high season.
Liquidity and Capital Resources
At June 30, 2016 the Company had total assets of $5,150,253 compared to $5,315,979 on December 31, 2015. The Company had total assets consisting of $4,759 in cash, $4,892 in inventory, $24,256 in accounts receivable, $10,870 in utility deposits, $5,105,476 of net fixed assets in Georgetown 14, which includes accumulated depreciation of $1,457,801. Total assets at December 31, 2015 consisted of $17,313 in cash, $3,267 in inventory, $28,496 accounts receivable, $10,870 in utility deposits, $305 in prepaid expenses, and $5,255,728 of net fixed assets in Georgetown 14, which includes accumulated depreciation of $1,307,549.
At June 30, 2016 the Company had $6,420,234 in total liabilities. Total liabilities include $94,487 in accounts payable, $5,931 in accrued expenses, $361,399 in accrued interest, $35,891 in preferred dividends payable, $30,000 in notes payable, $1,121,273 of notes payable-related party, $4,500,182 of current portion of long-term debt, $96,822 in accrued property taxes and $174,249 of the long term portion of our digital equipment note.
Total liabilities at December 31, 2015 were $6,374,179, which was comprised of $90,111 in accounts payable, $13,373 in deferred income, $8,845 in accrued expenses, $234,588 in accrued interest, $33,124 in preferred dividends payable, $30,000 in notes payable, $1,081,653 of notes payable-related party, $4,477,921 of current portion of long-term debt, $148,190 in accrued property taxes and $256,374 of the long term portion of our digital equipment note.
Net cash provided by operating activities for the six months ended June 30, 2016 was $2,690 compared to net cash used by operating activities for the six months ended June 30, 2015 of $56,616. During the six months ended June 30, 2016, $0 was used on investing activities, and $15,244 was used by financing activities. For the same period in 2015, $0 was used in investing activities and $53,068 was provided by financing activities.
As of June 30, 2016 we had capital commitments of a mortgage and the digital equipment loan for $4,674,431 for Georgetown 14 Theater. We are currently 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. We have relied upon advances from directors, officers and shareholders and we have issued stock to finance our operations to this point.
The Company also currently owes $30,000 in notes payable and $1,121,273 in 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 June 30, 2016. As of June 30, 2016 the stockholders deficit is $1,269,981 compared to a deficit of $1,058,200 on December 31, 2015. 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 forecasted operating requirements for FullCircle Registry, Inc.
The current expansion of the Companys business demands that significant financial resources be raised to fund capital expenditures, working capital needs, conversion of the theater into a restaurant with entertainment and debt service. Current cash balances and the realization of accounts receivable will not be sufficient to fund the Companys current business plan for the next twelve months. Consequently, the Company is currently seeking funds to provide the necessary capital to meet the Companys expansion needs. Management continues to negotiate with existing shareholders, financial institutions, new investors, 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.
Critical Accounting Policies and Estimates
The Companys 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 Companys 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
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Companys President and Chief Financial Officer have concluded, based on an evaluation of the Companys 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 Companys internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART IIOTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no pending legal proceedings.
ITEM 1A. RISK FACTORS.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the three-month period ending June 30, 2016 the company issued no shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
We have been delinquent in payments on the first mortgage on our property; however, we negotiated a mortgage payment moratorium until July 31, 2016. The revenues from the theater are not sufficient for us to remain current with our mortgage payments. As of the date of this Report we are delinquent in payment of our real estate note, but we continue negotiations with the lender.
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS
Certification of Chief Executive Officer/Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer/Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002*
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: August 22, 2016
/s/ Matthew T. Long
Matthew T. Long
Acting President and Acting Chief Financial Officer
Chief Executive Officer
Chief Financial Officer