SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X . QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
. 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: 112,743016 Class A common shares as of October 30, 2012.
FULLCIRCLE REGISTRY, INC.
Table of Contents
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets for September 30, 2012 (unaudited) and December 31, 2011
Consolidated Statements of Operations for the Three Months Ended September 30, 2012 and 2011, and Nine Months Ended September 30, 2012 and 2011 (unaudited)
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (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
Total current assets
Georgetown 14 property
Computers and Equipment
Total fixed assets
Total customer data Base after amortization
LIABILITIES AND EQUITY
Preferred dividends payable
Short term notes payable
Notes payable - related party
Current portion of long term debt
Accrued Property tax
Total current liabilities
Long term liabilities
Digital equipment note
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 112,743,016 and 110,130,620 shares, respectively
Additional paid-in capital
Total Stockholders' equity
Total liabilities and 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
Ended September 30,
For the Nine Months
Ended September 30
Cost of sales
Selling, general & administrative
Total operating expenses
Operating income (loss)
Other income (expense)
Total other income (expense)
Net loss before income taxes
Net basic and fully diluted loss per share
Weighted average shares outstanding
The accompanying notes are an integral part of these financial statements
FullCircle Registry, Inc.
Consolidated Statements of Cash Flows
For the Nine Months
Ended September 30,
Cash flows from operating activities
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Depreciation & amortization
Change in assets and liabilities
(Increase) decrease in prepaid expenses
(Increase) decrease in accounts receivable
Increase (decrease) in accounts payable
Increase (decrease) in accrued interest
Increase (decrease) in accrued expenses
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchase of digital equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities
Payments on mortgage payable
Payments on digital equipment financing payable
Proceeds from notes payable related parties
Proceeds from digital equipment loan
Proceeds from sale of common stock
Stock issued for services
Net cash provided by financing activities
Net increase (decrease) in cash
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information
Cash paid for:
Stock issued for accounts payable and accrued interest
Stock issued for notes payable and accrued interest
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 periods presented. The information presented is not necessarily indicative of the results from operations expected for the full fiscal year.
The accompanying unaudited 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, 2011, Annual Report on Form 10-K. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.
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 $8,712,266 and $8,443,723 as of September 30, 2012 and December 31, 2011, 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 ongoing sales and marketing initiatives and by raising additional capital from investors.
Management's plans with regards to these issues are as follows:
Locating and merging with other profitable private companies where the owners of these businesses are seeking liquidity and exit plans.
Expanding revenues by purchasing, or otherwise acquiring, profitable private businesses.
Continued development of Georgetown 14, our first acquisition, to increase revenues and profitability.
Locating and purchasing additional theaters.
Using the 68,000 name prescription customer database to provide the foundation of the FullCircle Prescription Service, Inc. business.
Attracting companies, contractors and agents to independently market our prescription services.
Attracting contractors and agents to independently market our services and assist in our search for business candidates for acquisition.
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 the Companys operating expenses on an ongoing basis.
The Company cannot ascertain the eventual success of management's plans with any degree of certainty. No assurances can be given that the Company will be successful in raising immediate capital or that the Company will achieve profitability or positive cash flows.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described above. The accompanying consolidated 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 three-month period ending September 30, 2012 the company issued 500,000 shares for services at $.01 per share and 610,396 shares were issued for services at $.04 per share. During the three-month period ending March 31, 2012 the Company issued 875,000 shares of common stock for operating capital, at $.04 per share, to accredited investors, and issued 627,000 restricted shares for services at $.04 per share.
NOTE 4. SIGNIFICANT ACCOUNTING POLICIES
Effective July 1, 2009, in accordance with the provisions of GAAP the Company has revised its estimate of the useful life of the database asset from 15 years to 5 years from the date the assets were originally placed into service. According to GAAP this revised life is to be amortized prospectively over its remaining useful life and, therefore, has no impact on prior periods. The result substantially increases our G&A expenditures by $15,364 per quarter to $21,510 and increases our annual amortization by $61,456 to $86,040 per year. In the quarter ending June 30, 2013 our database will be fully amortized.
Fair Value of Financial Instruments
On January 1, 2008, the Company adopted FASB ASC 820-10-50, Fair Value Measurements. This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.
The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of notes payable approximates fair value because negotiated terms and conditions are consistent with current market rates as of September 30, 2012 and December 31, 2011.
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 112,743,016 on October 30, 2012 and 110,130,620 on December 31, 2011. 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 managements estimates. Actual results could differ
from those estimates.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Where this Report on 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. 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; and
Competition in our market.
Our initial business began in 2000, with the formation of FullCircle Registry, Inc. We were initially a technology-based business that provided emergency document and information retrieval services. Our service included providing customers with secure storage and immediate access to their critical medical records, legal documents (living wills, powers of attorney, do not resuscitate orders, etc.), and emergency contact information.
In 2008 the CEO Norman Frohreich developed plans to place FullCircle Registry, Inc. into a holding company and began developing new totally held companies. Since that time the Company has established FullCircle Prescription Services, Inc., FullCircle Insurance Agency, Inc., and FullCircle Entertainment, Inc.
The ongoing mission is to merge with or acquire profitable businesses into our subsidiary companies that will continue on as separate businesses owned by FullCircle Registry, Inc.
Because of the unavailability of funds the Company has been forced to limit the expansion of the business model. We have had to be extremely conservative about spending Company funds on marketing, salaries and other expenses until more funds are available. The speed of expanding the business model depends principally upon the available capital to fund filing costs associated with the requirements of the SEC for us to acquire additional businesses.
The developments of all marketing expenditures, brochures, mailings, etc. have been discontinued for now because of the lack of capital. There may be some residual revenues from previous activities, but at this time the Company cannot move forward with the business plan until we receive additional funding. We have protected and preserved cash by eliminating all-unnecessary expenditures.
Our Corporate Information
Our principal executive offices are located at 161 Alpine Drive, Shelbyville, Kentucky, 40065, and our telephone number is (502) 410-4500. Our current website addresses are www.fullcircleregistry.com, www.fullcirclerx.com, and www.medshelp4U.com. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this report. Our websites will be revised and updated upon receipt of funds to reflect our new business model.
SEC compliance and Regulations
The requirements for regulatory compliance continue to be difficult, and we continue to receive new rules and changes. It is becoming most difficult for an emerging company to be able to afford all of the compliance costs.
Our Current Business:
Our current business plan involves the acquisition of small profitable businesses. FullCircle Registry, Inc. has become a holding company with currently three subsidiaries. They are FullCircle Entertainment, Inc., FullCircle Insurance Agency, Inc. and FullCircle Prescription Services, Inc. Target companies are those in search of exit plans for the owners and are intended to continue autonomous operations as current ownership is phased out over a period of 3-5 years.
FullCircle Entertainment, Inc.
In 2010 we established a new company, FullCircle Entertainment, Inc. for the purpose of acquiring movie theaters and other entertainment venues.
On December 31, 2010, we purchased Georgetown 14, a movie theater complex in Indianapolis, Indiana.
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.
This was an asset purchase only. No liabilities other than the mortgage were assumed.
Our intention is to expand our movie operations once a favorable economic environment returns.
As a result of the Companys movie theater activities and conversion of certain notes payable to equity, FullCircle Registry, Inc. has a positive net worth of $38,968as of September 30, 2012.
In 2011 the Georgetown 14 theater revenues were impacted by major street construction in the area. Our access six-lane street was at times reduced to one lane and the two exits of a major interstate were also under construction. At times we experienced a reduction of attendance of up to 50%. In late December 2011 the construction was completed, and in January 2012 our attendance and revenues returned to pre-construction levels.
Year to date our theater operations revenues have improved by approximately 40% and during the most recent quarter ended September 30, those revenues increased by 50% over the previous years period. During the most recent month of October 2012 the revenues increased by 70% over October 2011.
Additional theater acquisitions were suspended until the Georgetown 14 complex returns to profitability.
In January 2012 we received approval for $770,000 in loan funding to convert the remaining 12 screens at Georgetown 14 to digital from 35mm projection reels. The digital conversion brings a crisper view with the new silver screens, and allows the exhibition of 3D movies on all screens.
The screens and digital equipment were installed in late January 2012 and Georgetown 14 was fully operational with digital projection on February 1, 2012. The response of the digital screens is exceptional and the increase in revenues is breaking new records.
Our theater subsidiary, FullCircle Entertainment, Inc. realized revenues of $1,407,650 during the first nine months of 2012 compared to the first nine month period in 2011 of $983,708, which, was an increase of $423,942, or 43%. Due to the cost of financing our new equipment, we increased our concession prices. On August 1, 2012 we increased our movie ticket prices by $.50 in all pricing categories. Georgetown 14 has always been very competitive in pricing and generally below our competition in that area. We expect that this pricing increase will not have a material impact on our attendance.
The Board of Directors elected to increase our ticket and concession pricing beginning on November 9, 2012. Recent wholesale concession price increases of 20% have forced us into this move. The ticket rental fees from the movie companies have also increased. In some situations we have experienced movie rental fees as high as 70%; however, with some top releases we are unable to alter ticket pricing just based on the popularity of the movie. These increases should show positive results in the fourth quarter.
In August 2012 we re-negotiated our Georgetown property mortgage and have managed to reduce our interest cost from 6.0% to 5.25%, which will significantly reduce our interest expense. Our mortgage for the Georgetown property has been paid down to $4,850,357,726,668 as of September 30, 2012.
We expect our revenue increase to continue as long as our motion picture distributors continue to release high demand movies. The month of July and October have shown promising results.
On July 1, 2012 we moved all of our accounting and management into our corporate offices at Shelbyville. On July 1, we appointed Mitchell Bryson as COO of FullCircle Entertainment, Inc. Mr. Bryson has an extensive consulting history in movie theater management and owns his own theater in Shelbyville, Indiana. Mr. Frohreich will continue on as the CEO of FullCircle Entertainment, Inc.
Additional theater acquisitions are always under review. Any selection of a theater must have a competitive advantage. We consider a competitive advantage to have a history of profitability, considerable distance from a competitor, modern facilities, reasonable terms, acquisition for stock, and other important identified criteria.
FullCircle Insurance Agency, Inc.
The FullCircle Insurance Agency, Inc. was founded in August 2008. Until adequate funding is available, any operations of this company have been placed on hold. The infrastructure has been designed and we are currently negotiating and interviewing opportunities and individuals.
Currently we have three major focus directions for this company.
Provide exit plans for existing rural insurance agencies.
Provide a one-stop shop for all insurance products with the addition of new products.
Estate planning assistance and consulting services with attorneys.
Our target acquisition candidates will be:
An agency in a town with a population less than 50,000.
A profitable agency that has gross revenues of $50,000 to $250,000.
An agency owner that is over the age of 55.
Because of the current economic climate, additional capital has been difficult to obtain. All activities in FullCircle Insurance Agency, Inc. are on hold until our economic climate improves. Upon the completion of obtaining adequate working capital we plan to proceed with the FullCircle Insurance Agency business plan.
FullCircle Prescription Services, Inc.
In 2007, we acquired the assets of AMPO II, Inc. (AMPO II), a Kentucky corporation, including its 68,000 customer database. We own all of the database, software, equipment and the records.
We plan to utilize the database to be part of our prescription spoke in the FullCircle wheel of services in our new company, FullCircle Prescription Services, Inc. We have conducted a beta test of the 68,000 name database, which returned a good indication that the database was current.
FullCircle Prescription Services, Inc. was established for the purpose of handling our new prescription services program. The companys mission is to assist our customers to find medications at discounted rates worldwide in our Shop the World program. FullCircle Prescription Services, Inc. will not dispense any medications nor handle any prescriptions. We will be functioning only as a customer assistance program. FullCircle Prescription Services, Inc. has begun minimal operations.
Our web pages: www.fullcircleRx.com and www.medshelp4U.com have been launched and are operational. Our customers can Shop the World and subscribe to our services online.
FullCircle Prescription Services, Inc. has one full-time Officer and our Office Manager who are available for incoming calls. We expect to be retaining additional call center employees once the call traffic increases.
We have built the marketing programs and are ready for the expansion of this business however we must acquire additional capital to enable us to begin the marketing phase of our FullCircleRx.com business plan.
Our customers are serviced by Canada Drugs, the largest mail order pharmacy in Canada. Our Shop the World shopping cart takes our customers directly into contact with Canada Drugs where prescriptions are priced from several FDA approved manufacturers around the world. All prescriptions are priced on a daily basis to allow our customers to shop for the best pricing. By law in Canada, a licensed pharmacist reviews and approves each and every prescription.
Limited working capital has prevented us from opening up our own marketing channels for the prescription service assistance. Given the difficulties of the new government programs and regulations, and increased cost of prescriptions, we believe that our prescription service assistance has good potential. This business model may again be worth expansion, depending on the regulatory climate in our business.
The motion picture exhibition industry is fragmented and highly competitive. Our theater competes against regional and independent operators as well as the larger theater circuit operators.
Our operations are subject to varying degrees of competition with respect to film rental costs, 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 one of our existing theaters, which may have a material adverse effect on our theaters. 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.
FullCircle Registry, Inc., and its subsidiaries currently have 28 employees/officers. We have never experienced employment-related work stoppages and consider that we maintain good relations with our personnel.
Results of Operations for the Three-Month and Nine Months Periods Ended September 30, 2012 and 2011.
Revenues during the three months ended September 30, 2012 were $497,083, with a cost of sales of $227,525 yielding a gross profit of $269,558. This compares with $331,661 in revenues for the same period in 2011, with cost of sales of $165,071, yielding a gross profit of $166,590. Revenues during the nine months ended September 30, 2012 were $1,410,722, with a cost of sales of $624,930, yielding a gross profit of $785,792. This compares with $985,062 in revenues for the same period in 2011, with cost of sales of $443,358, yielding a gross profit of $541,704. The increased amounts in 2012 compared to 2011 are the direct result of our theater operations that have improved once the Lafayette Road construction was completed in December 2011. In addition we have experienced improved movie releases that have been more popular than the corresponding period last year.
Operating expenses and selling, general and administrative costs during the current three-month period were $312,166, resulting in an operating loss of $42,608, compared to operating expenses of $293,195 for the three months ended September 30, 2011, resulting in an operating loss of $126,605 in the same period in 2011. Operating expenses and selling, general and administrative costs during the current nine-month period were $802,895, resulting in an operating loss of $17,103, compared to operating expenses of $684,667 for the nine months ended September 30, 2011, resulting in an operating loss of $142,963 in the same period in 2011. Operating expenses for the nine-month period have increased because of the increased depreciation expense of our new digital equipment however; we are reducing our operating losses and expect further improvement in the fourth quarter. Additional operating expenses have been incurred with respect to SEC compliance as well.
Interest expense for the three months ended September 30, 2012 was $61,216, resulting in a net loss from continuing operations of $103,824. Interest expense has been reduced because of the favorable negotiation to reduce our mortgage interest rate in July this year. For the three months ended September 30, 2011 the Company had interest expense of $78,490 and recognized a net loss of $205,095. Interest expense for the nine months ended September 30, 2012 was $246,925, resulting in a net loss from continuing operations of $264,028. For the nine months ended September 30, 2011 the Company had interest expense of $236,988 and recognized a net loss of $379,951. Interest expense for 2012 is higher because the Company is servicing new debt of $755,971 as of January 27, 2012 with the purchase of the screens and digital equipment for our upgrade of Georgetown 14.
Summary of Operations
The P&L for the Georgetown 14 property investment is improving. We continue to have a strong relationship with Save-a-Lot Grocery store, our tenant, with annual revenue of $136,740 from our long-term lease. Concession and ticket pricing have been increased in the quarter beginning July 1, 2012 and will be increased again in November to be more consistent with surrounding competition and to be responsive to recent increases in ticket costs, concession supplies and property taxes. Early this year we were reluctant to increase pricing until after the city street construction projects were completed.
During the first nine months of 2012 our theater revenue increased by 43% over the corresponding period in 2011. Also, during the first nine months our operating loss for FullCircle Entertainment, Inc., was reduced by 88% from last year.
Non-cash expenses for the nine-month period are depreciation expense of $167,755 and amortization expense of 64,530 for a total of $232,285. With our YTD loss of $264,028 we are moving closer to a cash flow positive performance.
Liquidity and Capital Resources
At September 30, 2012 the Company had total assets of $6,188,631 compared to $5,579,290 at December 31, 2011. The Company had total assets consisting of $35,872 in cash, a $10,000 note receivable, $35,607 in accounts receivable, $6042,620 in fixed assets in the Georgetown property, and $64,532 in our customer database. Total assets at December 31, 2011 consisted of a note receivable of $10,000, $19,731 in cash, $5,881 in accounts receivable, $129,062 in our customer database, and fixed assets of $5,414,616.
At September 30, 2012 the Company had $6,149,664 in total liabilities. Total liabilities include $68,486 in accounts payable, $12475 in accrued expenses, $54,450 in accrued interest, $13,556 in preferred dividends payable, $40,000 in short term notes payable, $309,414 in notes payable to related party, $214,566 current portion of long term debt, $102,110 in accrued property taxes, $607,939 for digital equipment note, and $4,726,668 of mortgage payable. Total liabilities at December 31, 2011 were $5,355,495, which was comprised of $98,490 in accounts payable, $32,924 in accrued interest, $1,656 in accrued expenses, $9,043 in preferred dividends payable, $40,000 in short term notes payable, $172,626 in notes payable to a related party, $62,893 in accrued property taxes, and $4,937,863 of mortgage payable.
Net cash used in operating activities for the nine months ended September 30, 2012 was $19,914, compared to net cash used in operating activities for the nine months ended September 30, 2011 of $189,973. During the nine months ended September 30, 2012, $795,758 was in used in investing activities. During the nine months ended September 30, 2012, $831,813 was provided by financing activities. For the same period in 2011 financing activities provided $199,531.
As of September 30, 2012 we had capital commitments consisting of a mortgage for $4,850,357 for our Georgetown property and $607,939 for our digital equipment loan. 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 unencumbered securities purchases or from lenders offering favorable terms. No assurance can be given that we will be able to obtain the total capital necessary to fund our new business plans, which may have a materially adverse effect on our business, operating results and financial condition.
We require additional capital to supplement our anticipated revenues and fund our continuing operations. We have relied upon advances from officers and shareholders and we have issued stock to finance our operations to this point.
FullCircle currently owes $40,000 in notes payable and $309,414 notes payable to related parties. This increase in debt was a result of our sustaining operations at our Georgetown Theater during the street construction blocking access to our theater during 2011.
Our auditors have expressed concern that historically 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, 2012. These conditions raise 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. However, our Georgetown 14 Theatre is now producing a positive cash flow.
In the event we are unsuccessful in our efforts to raise additional funds, we will be required to significantly reduce cash outflows and, possibly, discontinue our operations. We need to raise capital to continue to be SEC compliant. Our failure to obtain financing, or inability to obtain financing on acceptable terms, could require us to limit our plans, incur indebtedness that has high rates of interest or substantial restrictive covenants, issue equity securities that will dilute shareholders, or discontinue all or a portion of our remaining operations.
The current expansion of the Companys business demands that some 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 Companys current business plan for the next twelve months. Consequently, the Company is currently seeking convertible debt and/or additional equity financing in the aggregate amount of at least $500,000, to fund the Companys acquisition related business plans. Management is currently negotiating with existing shareholders and other accredited investors in order to obtain working capital necessary to meet current and future obligations and commitments.
Management is confident that these efforts will produce financing to further the growth of the Company. Nevertheless, there can be no assurance that the Company will be able to raise additional capital on satisfactory terms or at all. In the event that the Company is unable to obtain capital on acceptable terms or in sufficient amounts, the impact thereof would have a material adverse impact on the Companys business, operating results, and financial condition as well as its ability to service debt requirements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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)), that such disclosure controls and procedures were 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 nine months ended September 30, 2012 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 March 31, 2012 the Company issued an aggregate amount of 875,000 restricted shares of the Companys common stock for operating capital at $.04 per share to accredited investors, and issued 627,000 restricted shares for services at $.04 per share in the same period.
We believe the foregoing transactions were exempt from the registration requirements of the Securities Act of 1933, as amended, under Section 4(2) thereof or Rule 506 of Regulation D promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
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: November 9, 2012
/s/ Norman L. Frohreich
Norman L. Frohreich
Chief Executive Officer
Chief Financial Officer