Fullnet Communications Inc 10-K for FY2022
Fullnet Communications Inc (FULO)
About this 10-K
Fullnet Communications Inc filed this 10-K on March 31, 2023, covering the fiscal year ended December 31, 2022 (FY2022).
Headline figures
Fiscal year ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.27M
- up 3.2% from $4.14M a year earlier
- Net income
- $672.24K
- down 24.7% from net income of $892.98K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the fiscal year ended
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the transition period from ___________________ to ___________________ |
Commission File Number:
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Common Stock, $0.00001 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Exchange Act.
Yes o
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants executive offi cers during the relevant recovery period pursuant to 240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
The aggregate market value of the Common Stock held by non-affiliates computed by reference to the price at which the Common Stock was last sold, or the average bid and asked price of the Common Stock, as of the last business day (June 30, 2022) of registrant’s completed second quarter was $
As of March 27, 2023,
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FULLNET COMMUNICATIONS, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2022
TABLE OF CONTENTS
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Throughout this Report the first personal plural pronoun in the nominative case form “we” and the objective case form “us”, the possessive and the intensive case forms “our” and “ourselves” and the reflexive form “ourselves” refer collectively to FullNet Communications, Inc. and its subsidiaries, and its and their executive officers and directors.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K and the information incorporated by reference may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, we direct your attention to Item 1. Business, Item 1A. Risk Factors, Item 2. Properties, Item 3. Legal Proceedings, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8. Financial Statements and Supplemental Data. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statement in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and the outcome of any contingencies are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “believe,” “plan,” “will,” “anticipate,” “estimate,” “expect,” “intend” and other phrases of similar meaning. Known and unknown risks, uncertainties and other factors could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions.
Although we believe that our expectations that are expressed in these forward-looking statements are reasonable, there is no assurance that our expectations will prove to be correct. Our actual results could be materially different from our expectations, including the following:
•We may lose customers or fail to grow our customer base;
•We may not successfully integrate new customers or assets obtained through acquisitions, if any;
•We may fail to compete with existing and new competitors;
•We may not adequately respond to technological developments impacting the Internet;
•We may not be successful in responding to new and modified industry standards, laws and regulations applying to our business;
•We may be significantly affected by adverse changes in the economy;
•We may experience a major system failure; and
•We may not be able to obtain needed capital resources.
This list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included elsewhere in this report. These factors are not intended to represent a complete list of all risks and uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionary statements included in this Report under the caption “Item 1A. Risk Factors,” our other Securities and Exchange Commission (“SEC”) filings and our press releases.
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PART I
Item 1. Business
General
We are an integrated communications provider. Through our subsidiaries, we have historically provided high quality, reliable and scalable Internet access, web hosting, local telephone service, equipment colocation, customized live help desk outsourcing services, mass notification services using text messages and automated telephone calls, as well as advanced voice and data solutions. As explained below, the majority of our focus going forward is on our revenue and customers coming from three primary types of service: 1) Mass notification services using text messages and automated telephone calls, 2) Equipment colocation and related services, and 3) Customized live help desk outsourcing service.
References to us in this Report include our subsidiaries: FullNet, Inc. (“FullNet”), FullTel, Inc. (“FullTel”), FullWeb, Inc. (“FullWeb”), and CallMultiplier, Inc. (“CallMultiplier”). Our principal executive offices are located at 201 Robert S. Kerr Avenue, Suite 210, Oklahoma City, Oklahoma 73102, and our telephone number is (405) 236-8200. We also maintain Internet sites on the World Wide Web (“WWW”) at www.fullnet.net and www.callmultiplier.com. Information contained on our Website is not, and should not be deemed to be, a part of this Report.
Company History
We were founded in 1995 as CEN-COM of Oklahoma, Inc., an Oklahoma corporation, to bring dial-up Internet access and education to rural locations in Oklahoma that did not have dial-up Internet access. We changed our name to FullNet Communications, Inc. in December 1995. Through a wholly-owned subsidiary, we started a competitive local exchange carrier (“CLEC”) in 2003 and later exited the retail telephone service business in early 2018. In response to the rapidly evolving Internet based telecommunications services environment, we have continued to expand and improve our service offerings.
Today we are an integrated communications provider primarily focused on providing mass notification services using text messages and automated telephone calls, equipment colocation and related services, and customized live help desk outsourcing service.
Through CallMultiplier, Inc., our wholly owned subsidiary, we offer a comprehensive cloud-based solution to consumers and businesses for automated mass texting and voice message delivery. We serve groups throughout the United States and Canada that come from a wide range of industries including religious groups, non-profit companies, schools and universities, businesses, sports groups, staffing companies, property management groups, government entities, and more. These customers use CallMultiplier to quickly send important and informational messages to groups ranging in size from five to more than 250,000 people. We exclusively focus on messages that recipients have asked for or otherwise desire to receive. Sending unsolicited marketing or any unlawful messages through CallMultiplier is a violation of our Terms of Service.
We market our carrier neutral colocation solutions in our data center to competitive local exchange carriers, Internet service providers and businesses that need a physical presence in the Oklahoma City market. Our colocation facility is carrier neutral, allowing customers to choose among competitive offerings rather than being restricted to one carrier. Our data center is telco-grade and provides customers a high level of operative reliability and security. We offer flexible space arrangements for customers and 24-hour onsite support with both battery and generator backup.
Our customized live help desk outsourcing service is used by companies that want the benefit of having someone answer the telephone and respond to email 24 hours a day, without wanting to incur the costs to maintain the necessary staff to do so themselves. This service complements our existing staff and leverages the resources we have in place 24 hours a day.
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Our common stock trades on the OTC Markets Group “Pink Sheets” under the symbol FULO. While our common stock trades on the OTC Markets Group “Pink Sheets”, it is very thinly traded, and there can be no assurance that our shareholders will be able to sell their shares should they so desire. Any market for our common stock that may develop, in all likelihood, will be a limited one, and if such a market does develop, the market price may be volatile.
Our Business Strategy
As an integrated communications provider, we intend to increase shareholder value by continuing to build scale through both internal growth and acquisitions and then leveraging increased revenues over our fixed-costs base. Our strategy is to meet the customer service requirements of retail, business, educational and government advanced voice and data solutions users in our target markets, while benefiting from the scale advantages of our existing infrastructure. The key elements of our overall strategy with respect to our principal business operations are described below.
Generate Internal Sales Growth
We intend to expand our customer base by increasing our marketing efforts. At December 31, 2022, our sales efforts are carried out primarily by our technical engineers and senior management. The majority of our existing advertising efforts consist of Pay-Per-Click (PPC) advertisements on multiple Internet search engines. We also have a robust Referral Rewards Program that encourages word-of-mouth referrals to our service.
Target Strategic Acquisitions
The goal of our acquisition strategy is to accelerate market penetration by acquiring competitors in the advanced voice and data solutions market. Our acquisition strategy is designed to leverage our existing infrastructure and internal operations to enable us to enter new markets, as well as to expand our presence in existing markets, and to benefit from economies of scale. We evaluate acquisition candidates based on their compatibility with our overall business plan. When assessing an acquisition candidate, we focus on the following criteria:
•Potential revenue and customer growth;
•Low customer turnover or churn rates;
•Favorable competitive environment; and
•Favorable consolidation savings.
Advanced Voice and Data Solutions
Our primary advanced voice and data solution is marketed under our CallMultiplier brand name. CallMultiplier is a comprehensive cloud-based solution to consumers and businesses for mass notification services using text messages and automated telephone calls. CallMultiplier streamlines and automates delivery of time sensitive voice and text messages to groups. Our customers include sports teams, businesses, religious groups, schools, staffing companies, government entities, property management groups, non-profit companies, clubs and civic groups throughout the United States and Canada.
Internet Access Services
We provide Internet access services to individual and small business customers located in Oklahoma on a retail basis. Under the FullNet brand, we provide our customers with Internet connectivity as well as direct access to a wide range of Internet applications and resources, including electronic mail. Through natural atrophy as customers move to other broadband solutions, this business line has become immaterial and will not be a focus for us going forward.
Competition
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The market for Internet-based services is extremely competitive. The tremendous growth and potential market size of the mass messaging market has attracted many new start-ups as well as existing businesses from a variety of industries. We believe extensive easy-to-use features, a reliable network, knowledgeable salespeople and the quality of technical support currently are the primary competitive factors in our targeted market and that price is usually secondary to these factors.
Mass Notification Service Providers
The market for mass text and voice message delivery service solutions is highly fragmented, intensely competitive and constantly evolving. We compete with a wide array of established and emerging companies. Notable competitors include Twilio, Inc., Everbridge, Inc., OnSolve, LLC, Call-Em-All, LLC, Callfire, Inc., OnTimeTelecom, Inc., and EZ Texting.
We believe that our ability to attract customers and to market value-added services is a key to our future success and profitability. However, there can be no assurance that our competitors will not introduce comparable services or products at similar or more attractive prices in the future or that we will not be required to reduce our prices to match competition. We want to emphasize that most, if not all, of our competitors have significantly greater market presence, brand recognition, financial, technical and personnel resources than us.
There can be no assurance that we will be able to offset the effects of any such competition or resulting price reductions. Increased competition could result in erosion of our market share and could have a material adverse effect on our business, financial condition and results of operations.
Employees
As of December 31, 2022, we had 15 employees employed in engineering, sales, marketing, customer support and related activities and general and administrative functions. None of our employees are represented by a labor union, and we consider our relations with our employees to be good. We also engage consultants from time to time with respect to various aspects of our business.
Item 1A. Risk Factors
This Report includes “forward looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. On August 27, 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s ability to Continue as a Going Concern, which requires management to assess a company’s ability to continue as a going concern within one year from financial statement issuance and to provide related footnote disclosures in certain circumstances.
Historical Losses: Turn-around Uncertain
We have historically experienced significant operating losses with cumulative losses from inception of approximately $8 million. However, we have been consistently profitable since 2018, and have reached a positive working capital position of approximately $1,162,000 at December 31, 2022, of which approximately $212,000 of our current liabilities is owed to our officers and directors, and approximately $1,001,000 of our current liabilities is deferred revenue. Our officers and directors, who are also major shareholders, have informally agreed not to seek payment of any of the amounts owed to them if such payment would jeopardize our ability to continue as a going concern. The deferred revenue represents advance payments for services from our customers which will be satisfied by our delivery of services in the normal course of business and will not require settlement in cash.
We started a number of initiatives in 2017 which included revenue enhancement initiatives, cost saving initiatives, the sale of excess assets and an orderly exit from the CLEC business. We were successful with our revenue enhancement and cost saving initiatives and in selling certain excess assets in the third quarter of 2018 and the first quarter of 2019, as well as effecting an orderly exit from the CLEC business through the sale of substantially all of our wholly owned subsidiary’s CLEC operating assets effective February 1, 2018.
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As a result of these initiatives, we generated positive cash flow from our operating activities of approximately $774,000 and $1,419,000, for the twelve months ended December 31, 2022 and 2021, respectively. In addition, we were able to generate net income of approximately $672,000 and $893,000, for the twelve months ended December 31, 2022 and 2021, respectively.
We expect that the success of these initiatives will provide us with sufficient liquidity to operate for the next 12 months.
As a result of the revenue enhancement initiatives, the cost saving initiatives, the excess asset sales and the successful exit from the CLEC business, we have been able to significantly improve our working capital position and alleviate any substantial doubt about our ability to continue as a going concern as defined by ASU 2014-15. We believe that the actions discussed above mitigate the substantial doubt raised by our prior operating losses and satisfy our estimated liquidity needs 12 months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to remain profitable and generate additional liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned. Additionally, a failure to generate additional liquidity could negatively impact our ability to effectively execute our business plan.
Limited Marketing Experience
We have limited experience in developing and commercializing new services based on innovative technologies, and there is limited information available concerning the potential performance of our hardware or market acceptance of our proposed services. There can be no assurance that unanticipated expenses, problems or technical difficulties will not occur which would result in material delays in product commercialization or that our efforts will result in successful product commercialization. Consequently, our limited marketing experience could have a material adverse effect on our business prospects, financial condition and results of operation.
Uncertainty of Products/Services Development
Although considerable time and financial resources were expended in the development of our services and products, there can be absolutely no assurance that problems will not develop which would have a material adverse effect on us. We will be required to commit considerable time, effort and resources to finalize our product/service development and adapt our products and services to satisfy specific requirements of potential customers. Continued system refinement, enhancement and development efforts are subject to all of the risks inherent in the development of new products/services and technologies, including unanticipated delays, expenses, technical problems or difficulties, as well as the possible insufficiency of funds to satisfactorily complete development, which could result in abandonment or substantial change in commercialization. There can be no assurance that development efforts will be successfully completed on a timely basis, or at all, that we will be able to successfully adapt our hardware or software to satisfy specific requirements of potential customers, or that unanticipated events will not occur which would result in increased costs or material delays in development or commercialization. In addition, the complex technologies planned to be incorporated into our products and services may contain errors that become apparent subsequent to commencement of commercial use. Remedying these errors could delay our plans and cause us to incur substantial additional costs. Consequently, the uncertainty of our products/services development could have a material adverse effect on our business prospects, financial condition and results of operation.
Competition; Technological Obsolescence
The markets for our products and services are characterized by intense competition and an increasing number of potential new market entrants who have developed or are developing potentially competitive products and services. We will face competition from numerous sources, certain of which have substantially greater financial, technical, marketing, distribution, personnel and other resources than us, permitting such companies to implement extensive marketing campaigns, both generally and in response to efforts by additional competitors to enter into new markets and market new products and services. In addition, our product and service markets are characterized by rapidly changing technology and evolving industry standards that could result in product obsolescence and short product life cycles. Accordingly, our ability to compete will be dependent upon our ability to complete the
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development of our products and to introduce our products and/or services into the marketplace in a timely manner, to continually enhance and improve our software and to successfully develop and market new products. There is no assurance that we will be able to compete successfully, that competitors will not develop technologies or products that render our products and/or services obsolete or less marketable or that we will be able to successfully enhance our products or develop new products and/or services. Consequently, our failure to successfully respond to the demands of competition and technological obsolescence could have a material adverse effect on our business prospects, financial condition and results of operation.
Risks Relating to the Internet
Businesses reliant on the Internet may be at risk due to the inadequate development of the necessary infrastructure, including reliable network backbones or complementary services, high-speed modems and security procedures. The Internet has experienced, and is expected to continue to experience, significant growth in the number of users and amount of traffic. There can be no assurance that the Internet infrastructure will continue to be able to support the demands placed on it by sustained growth. In addition, there may be delays in the development and adoption of new standards and protocols, the inability to handle increased levels of Internet activity or due to increased government regulation. If the necessary Internet infrastructure or complementary services are not developed to effectively support growth that may occur, our business, results of operations and financial condition would be materially adversely affected.
Risks Relating to Adverse Changes in the Economy
Our business may be affected by adverse changes in the economy generally, including any resulting effect on spending by our customers. While some of our customers may consider our services to be a cost-effective alternative, others may turn to our competitors during an economic downturn. During an economic downturn, we may experience such a reduction in demand and loss of customers, especially in the event of a prolonged recessionary period.
Risks Relating to COVID-19
While the level of disruption caused by, and the economic impact of, the COVID-19 pandemic lessened in 2022, there is no assurance that the pandemic will not return with new strains of the virus, or that another health-related emergency will not emerge. We believe that the COVID-19 pandemic, with its shifts in human interactions and communications, resulted for us in a net addition of new customers and the sale of additional services to existing customers and increased interest in our automated group text and voice message delivery services. As the COVID-19 pandemic subsides, it is possible that the increases we have experienced may slow, resulting in adverse effects on our business, results of operations and financial condition. The ultimate extent of its impact on us will depend on future developments, which are highly uncertain and cannot be predicted, including the extent to which people return to preexisting patterns of behavior when the COVID-19 pandemic subsides.
Risks Relating to Government Regulation
Our business is subject to a number of Federal and state laws and regulations. These laws and regulations may involve privacy, data protection, intellectual property, competition, consumer protection, corporate governance or other subjects. Many of the laws and regulations to which we are subject are still evolving and being tested in courts and could be interpreted in ways that could harm our business. In addition, the applications and interpretation of these laws and regulations often are uncertain, particularly in the rapidly evolving automated mass notification industry in which we operate. Future legislative or regulatory actions could adversely affect our business, results of operations and financial condition.
For example, the Telephone Consumer Protection Act of 1991, or TCPA, restricts telemarketing and the use of automated text and/or voice messages without proper consent and limits the use of automatic dialing systems, artificial or prerecorded voice messages, SMS text messages and fax machines. The scope and interpretation of the laws that are or may be applicable to the automated delivery of voice and text messages are continuously evolving and developing. If we do not comply with these laws or regulations or if we become liable under these
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laws or regulations due to the failure of our customers to comply with these laws by obtaining proper consent, we could face direct liability.
We face a risk of litigation resulting from customer misuse of our mass notification services, in violation of our published Terms of Service, to send unauthorized text and/or voice messages in violation of Federal and state laws and/or regulations. The actual or perceived improper sending of automated text and/or voice messages may subject us to potential risks, including liabilities or claims relating to consumer protection laws. This has resulted in civil claims against some of our former customers and requests for information through third-party subpoenas. The scope and interpretation of the laws that are or may be applicable to the delivery of automated text and voice messages are continuously evolving and developing. If we do not comply with these laws or regulations or if we become liable under these laws or regulations due to the failure of our customers to comply with these laws by obtaining proper consent, we could face direct liability.
In addition, Congress and the Federal Communications Commission are attempting to mitigate the scourge of robocalls by requiring participation in new technical standards including the Signature-based Handling of Asserted Information Using toKENs (“SHAKEN”) and Secure Telephone Identity Revisited (“STIR”) standards (together, “STIR/SHAKEN”) and other robocalling prevention and anti-spam standards. The implementation of these standards could increase our costs or limit our ability to grow. If we do not comply with any current or future rules or regulations that apply to our business, we could be subject to substantial fines and penalties, and we may have to restructure our offerings, exit certain markets or raise the price of our products. In addition, any uncertainty regarding whether particular regulations apply to our business, and how they apply, could increase our costs or limit our ability to grow.
Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions or other collateral consequences. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, reputation, results of operations and financial condition.
Risks Relating to rapidly changing technology, evolving industry standards, and changing regulations
The market for mass notification services using text messages and automated telephone calls is subject to rapid technological change, evolving industry standards, changing regulations, as well as changing customer needs, requirements and preferences. Our success will depend, to a significant degree, on our ability to adapt and respond effectively to these changes on a timely basis. If we are unable to develop new products that satisfy our customers and provide enhancements and new features for our existing products that keep pace with rapid technological and industry change, including but not limited to STIR/SHAKEN, our business, results of operations and financial condition could be adversely affected. If new technologies emerge that are able to deliver competitive products and services at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely impact our ability to compete effectively.
Our mass notification services must integrate with a variety of network, hardware, mobile and software platforms and technologies, and we need to continuously modify and enhance it to adapt to changes and innovation in these technologies. For example, Apple, Google and other cell-phone operating system providers or inbox service providers have developed and, may in the future develop, new applications or functions intended to filter spam and unwanted telephone calls, text messages or emails. Similarly, our network service providers may adopt new filtering technologies in an effort to combat spam or robocalling. Such technologies may inadvertently filter desired text messages or telephone calls to or from our customers. If cell-phone operating system providers, network service providers, our customers or their end users adopt new software platforms or infrastructure, we may be required to develop new versions of our solution to work with those new platforms or infrastructure. This development effort may require significant resources, which would adversely affect our business, results of operations and financial condition. Any failure of our solution to operate effectively with evolving or new platforms and technologies could reduce the demand for our solution. If we are unable to respond
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to these changes in a cost-effective manner, our solution may become less marketable and less competitive or obsolete, and our business, results of operations and financial condition could be adversely affected.
Dependence on Key Personnel
Our success depends in large part upon the continued successful performance of our current executive officers and key employees, Timothy J. Kilkenny, Roger P. Baresel and Jason C. Ayers, for our continued research, development, marketing and operation. Although we have employed, and will employ in the future, additional qualified employees as well as retaining consultants having significant experience, if Messrs. Kilkenny, Baresel or Ayers fail to perform any of their duties for any reason whatsoever, our ability to market, operate and support our products/services will be adversely affected. While we are located in areas where the available pool of people is substantial, there is also significant competition for qualified personnel. Consequently, our dependence on these key personnel could have a material adverse effect on our business prospects, financial condition and results of operation.
Limited Public Market
During February 2000, our common stock began trading on the OTC Bulletin Board under the symbol FULO. While our common stock currently trades on the OTC Markets Group “Pink Sheets”, there can be no assurance that our shareholders will be able to sell their shares should they so desire. Any market for our common stock that may develop, in all likelihood, will be a limited one, and if such a market does develop, the market price may be volatile. Consequently, the limited public market for our common stock could have a material adverse effect on our business prospects, financial condition and results of operation.
Public Company Regulation
As a public company, we are subject to the reporting requirements of the Exchange Act, the requirements of the OTC Markets Group, and other applicable securities rules and regulations. Complying with these rules and regulations has increased and will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time-consuming.
Penny Stock Regulation
Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are equity securities with a price of less than $5.00 that are generally quoted over-the-counter, such as on the OTC Bulletin Board (which is a facility of FINRA) or OTC Link LLC (which is a facility of the OTC Markets Group). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, broker-dealers who sell these securities to persons other than established customers and accredited investors (generally, those persons with net assets, excluding their primary residence, in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse), must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. Consequently, these requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that is or becomes subject to the penny stock rules. Our common stock is subject to the penny stock rules at the present time, and consequently our shareholders will find it more difficult to sell their shares. Consequently, the Penny Stock regulations could have a material adverse effect on our business prospects, financial condition and results of operation.
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Item 2. Properties
We maintain our executive office in approximately 8,699 square feet at 201 Robert S. Kerr Avenue, Suite 210 in Oklahoma City, at an effective annual rental rate of $17.50 per square foot. These premises are occupied pursuant to leases that expire on December 31, 2024.
Item 3. Legal Proceedings
We are not a party to any material legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded in the over-the-counter market and is quoted on the OTC Markets Group “Pink Sheets” under the symbol FULO. The closing sale prices reflect inter-dealer prices without adjustment for retail markups, markdowns or commissions and may not reflect actual transactions. The following table sets forth the high and low closing sale prices of our common stock during the calendar quarters presented as reported by the OTC Markets Group “Pink Sheets”.
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| Common Stock | ||
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| Closing Sale Prices | ||
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| High |
| Low |
2021 – Calendar Quarter Ended |
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March 31 |
| $.400 |
| $.110 |
June 30 |
| .550 |
| .210 |
September 30 |
| .860 |
| .250 |
December 31 |
| 1.600 |
| .570 |
2022 – Calendar Quarter Ended |
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March 31 |
| $.750 |
| $.420 |
June 30 |
| .650 |
| .360 |
September 30 |
| .610 |
| .330 |
December 31 |
| .530 |
| .280 |
Number of Shareholders
The number of beneficial holders of record of our common stock as of the close of business on March 27, 2023, was approximately 126.
Dividend Policy
Due to our improved financial results of operations and financial condition, we have accumulated significant excess cash reserves which we believe are not currently needed to provide funds for operations and the continued expansion of our business. Consequently, on May 13, 2022, we implemented a quarterly cash dividend program on our common stock with the intention of paying regular cash dividends as determined by our Board of Directors. However, any payment of future dividends will be at the discretion of our Board and will depend on, among other things, our future earnings, financial condition, cash flows, capital requirements, levels of indebtedness, prevailing business conditions and other considerations our Board may deem relevant.
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Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth, as of December 31, 2022, information related to each category of equity compensation plan approved or not approved by our shareholders, including individual compensation arrangements with our non-employee directors. We do not have any equity compensation plans that have been approved by our shareholders. All of our outstanding stock option grants and warrants were pursuant to individual compensation arrangements and exercisable for the purchase of our common stock shares.
Plan Category | Number of Shares Underlying Unexercised Options and Warrants | Weighted-Average Exercise Price of Outstanding Options and Warrants | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans |
Equity compensation plans approved by our shareholders: |
|
|
|
None | Not Applicable | Not Applicable | Not Applicable |
Equity compensation plans not approved by our shareholders |
|
|
|
Stock option grants to non-employee directors | - | $- | - |
Stock options granted to employees | 556,330 | $0.051 | - |
Warrants and certain stock options issued to non-employees | - | $- | - |
Total | 556,330 | $0.051 | - |
Unregistered Sales and Issuer Purchases of Equity Securities
In December 2022, we issued 50,000 shares of our Series A convertible preferred stock to settle a related party liability of $50,000.
In the year ended December 31, 2022, employee stock options for 1,746,633 shares of our common stock were exercised for $26,174. During the year ended December 31, 2021, employee stock options for 689,000 shares of our common stock were exercised $2,066.
In the issuances of our common stock, we relied on private offering exemptions from registration under Federal and state securities laws.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our Consolidated Financial Statements and notes thereto included in Part II, Item 8 of this Report. The results shown herein are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors. For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements, see “Item 1A. Risk Factors” and our other periodic reports and documents filed with the SEC.
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Overview
We are an integrated communications provider. Through our subsidiaries, we provide high quality, reliable and scalable Internet access, web hosting, equipment colocation, customized live help desk outsourcing services, mass notification services using text messages and automated telephone calls, as well as advanced voice and data solutions.
All of the markets in which we are active are extremely competitive. We anticipate that competition will continue to intensify. The tremendous growth and potential market size of these markets has attracted many new start-ups as well as existing businesses from a variety of industries. We believe that extensive easy-to-use features, a reliable network, knowledgeable salespeople and the quality of technical support are currently the primary competitive factors in our targeted market and that price is usually secondary to these factors.
As long as we are a provider of telecommunications related services, we are affected by regulatory proceedings in the ordinary course of our business at the state and Federal levels. These include proceedings before both the Federal Communications Commission and the Oklahoma Corporation Commission (“OCC”). In addition, in our operations we rely on obtaining many of our underlying telecommunications services and/or facilities from incumbent local exchange carriers or other carriers pursuant to interconnection or other agreements or arrangements.
Results of Operations
The following table sets forth certain statement of operations data as a percentage of revenues for the years ended December 31, 2022 and 2021:
|
| For the Years Ended December 31 | ||||||
|
| 2022 |
| 2021 | ||||
|
|
|
| Percentage |
|
|
| Percentage |
|
| Amount |
| of revenue |
| Amount |
| of revenue |
REVENUE |
| $4,268,263 |
| 100.0 |
| $4,135,516 |
| 100.0 |
COST OF REVENUE |
| 907,222 |
| 21.3 |
| 741,127 |
| 17.9 |
Gross Profit |
| 3,361,041 |
| 78.7 |
| 3,394,389 |
| 82.1 |
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
Sales and marketing |
| 628,716 |
| 14.7 |
| 488,065 |
| 11.8 |
General and administrative |
| 1,886,431 |
| 44.2 |
| 1,723,131 |
| 41.7 |
Depreciation and amortization |
| 15,741 |
| 0.4 |
| 10,213 |
| 0.2 |
|
|
|
|
|
|
|
|
|
Total operating expenses |
| 2,530,888 |
| 59.3 |
| 2,221,409 |
| 53.7 |
|
|
|
|
|
|
|
|
|
Income from operations |
| 830,153 |
| 19.4 |
| 1,172,980 |
| 28.4 |
Other Income |
| 72,605 |
| 1.7 |
| 20,835 |
| 0.5 |
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
| (230,522) |
| (5.4) |
| (300,838) |
| (7.3) |
Net income from operations |
| $672,236 |
| 15.7 |
| $892,977 |
| 21.6% |
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Revenue
Revenue increased $132,747 or 3.2% to $4,268,263 for the year 2022 from $4,135,516 for the year 2021. This increase was primarily attributable to the net addition of new customers and the sale of additional services to existing customers and reflects an increased interest in our automated group text and voice message delivery service, some of which may be attributable to changes in human interactions and communications during the COVID-19 pandemic. If so, this rate of increase may not continue once the COVID-19 pandemic subsides.
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In 2022, we had other income of $72,605, consisting of interest income of $40,833 and income from debt extinguishment of $31,772. In 2021, we had other income of $20,835, which consisted primarily of the settlement of a property damage claim.
Cost of Revenue
Cost of revenue increased $166,095 or 22.4% to $907,222 for the year 2022 from $741,127 for the year 2021. This increase was primarily related to price increases from our vendors and increases in costs of servicing new customers added through growth of business.
Gross Profit
Gross profit as a percentage of revenue decreased 3.4% to 78.7% for the year 2022 from 82.1% for the year 2021. This decrease was primarily related to price increases from our vendors combined with increased utilization of higher cost components of our service offerings.
Operating Expenses
Sales and marketing expenses increased $140,651 or 28.8% to $628,716 for the year 2022 from $488,065 for the year 2021. This increase was primarily a result of increases in advertising of $140,651. Sales and marketing expense as a percentage of total revenues increased to 14.7% for the year 2022 compared to 11.8% for the year 2021.
General and administrative expenses increased $163,300 or 9.5% to $1,886,431 for the year 2022 from $1,723,131 for the year 2021. This increase was primarily a result of increases in employee costs, professional services, and bank and credit card fees of $104,702, $25,213 and $17,702, respectively. General and administrative expenses as a percentage of total revenues increased to 44.2% for the year 2022 compared to 41.7% for the year 2021.
Depreciation and amortization expense increased $5,528 or 54.1% to $15,741 for the year 2022 from $10,213 for the year 2021, primarily related to the purchase of leasehold improvements in the second quarter of 2022.
Income Taxes
Our deferred tax asset balance of $38,359 at December 31, 2021, related primarily to net operating loss carryforwards for income tax purposes and were fully utilized in the 1st quarter of 2022. Income tax expense for the year ending December 31, 2022 was $230,522. Income tax expense for the year ending December 31, 2021 was $300,838.
Liquidity and Capital Resources
As of December 31, 2022, we had $2,753,551 in cash and $1,629,406 in current liabilities. Current liabilities consist primarily of $475,472 in accrued and other liabilities, of which $212,546 is owed to our officers and directors, and $1,001,298 represents deferred revenue. Our officers and directors, who are also major shareholders, have informally agreed to not seek payment of any of the amounts owed to them if such payment would jeopardize our ability to continue as a going concern. The deferred revenue represents advance payments for services from our customers which will be satisfied by our delivery of services in the normal course of business and will not require settlement in cash.
At December 31, 2022, we had positive working capital of $1,162,469. At December 31, 2021, we had positive working capital of $1,114,565. We do not have a line of credit or credit facility to serve as an additional source of liquidity. Historically we have relied on shareholder loans as an additional source of funds.
At December 31, 2022, of the $18,999 we owed to our trade creditors, $13,445 was past due. At December 31, 2022, no amounts were owed to related parties.
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Cash flows for the years ended December 31, 2022 and 2021, consist of the following:
| For the Years Ended December 31 | ||
| 2022 |
| 2021 |
Net cash flow provided by operating activities | $774,364 |
| $1,419,055 |
Net cash flow used in investing activities | (49,519) |
| (5,847) |
Net cash flow provided by (used in) financing activities | (626,407) |
| (166,013) |
Cash used for the purchase of property and equipment was $49,519 and $5,847, respectively, for the years ended December 31, 2022 and 2021.
No intangible assets were purchased in 2022 and 2021.
During the year ended December 31, 2022, we paid $51,143 in dividends on our Series A convertible preferred stock and $652,587 in dividends on our common stock. During the year ended December 31, 2021, we paid $168,079 in dividends on our Series A convertible preferred stock.
In December 2022, we issued 50,000 shares of our Series A convertible preferred stock to settle a related party liability of $50,000.
During the year ended December 31, 2022, employee stock options for 1,746,633 shares of our common stock were exercised for $26,174. During the year ended December 31, 2021, employee stock options for 689,000 shares of our common stock were exercised for $2,066.
Growth of our business and the anticipated continued payment of common stock dividends may require additional capital to fund capital expenditures. These additional capital expenditure requirements could include:
•Mergers and acquisitions;
•Improvement of existing services, development of new services; and
•Further development of operations support systems and other automated back-office systems.
Because our cost of developing new networks and services, funding other strategic initiatives, and operating our business depend on a variety of factors (including, among other things, the number of customers and the service for which they subscribe, the nature and penetration of services that may be offered by us, regulatory changes, and actions taken by competitors in response to our strategic initiatives), it is almost certain that actual costs and revenues will materially vary from expected amounts and these variations could increase our future capital requirements.
Our ability to fund these potential capital expenditures and other potential costs in the near term will depend upon, among other things, our ability to generate consistent net income and positive cash flow from operations as well as our ability to seek and obtain additional financing if necessary. Each of these factors is, to a large extent, subject to economic, financial, competitive, political, regulatory, and other factors, many of which are beyond our control.
As of December 31, 2022, our material contractual obligations and commitments were:
| Payments Due by Period | ||||
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years |
Operating leases | $304,466 | $152,234 | $152,232 | $- | $- |
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Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect certain reported amounts and disclosures. In applying these accounting principles, we must often make individual estimates and assumptions regarding expected outcomes or uncertainties. As might be expected, the actual results or outcomes are generally different than the estimated or assumed amounts. These differences are usually minor and are included in our consolidated financial statements as soon as they are known. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.
We periodically review the carrying value of our intangible assets when events and circumstances warrant such a review. One of the methods used for this review is performed using estimates of future cash flows. If the carrying value of our intangible assets is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the intangible assets exceeds the fair value. We believe that the estimates of future cash flows and fair value are reasonable. Changes in estimates of these cash flows and fair value, however, could affect the calculation and result in additional impairment charges in future periods.
We periodically review the carrying value of our property and equipment whenever business conditions or events indicate that those assets may be impaired. If the estimated future undiscounted cash flows to be generated by the property and equipment are less than the carrying value of the assets, the assets are written down to fair market value and a change is recorded to current operations. Significant and unanticipated changes in circumstances, including significant adverse changes in business climate, adverse actions by regulators, unanticipated competition, loss of key customers and/or changes in technology of markets, could require a provision for impairment in a future period.
We review loss contingencies and evaluate the events and circumstances related to these contingencies. We disclose material loss contingencies that are possible or probable, but cannot be estimated. For loss contingencies that are both estimable and probable the loss contingency is accrued and expense is recognized in the financial statements.
All of our revenues are recognized over the life of the contract as services are provided. Revenue that is received in advance of the services provided is deferred until the services are provided. Revenue related to set up charges is also deferred and amortized over the life of the contract. We classify certain taxes and fees billed to customers and remitted to governmental authorities on a net basis in revenue.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required and have not elected to report any information under this item.
Item 8. Financial Statements and Supplemental Data
Our financial statements, prepared in accordance with Regulation S-K, are set forth in this Report beginning on page [29].
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None that have not been previously reported.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as defined in Rules 13a-15© and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the
17
SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures.
Our principal executive officer, who is also our principal financial officer, evaluated the effectiveness of disclosure controls and procedures as of December 31, 2022, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our CEO/CFO concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO/CFO, as appropriate, to allow timely decisions regarding required disclosure.
A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Report of Management on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Our internal control system was designed to, in general, provide reasonable assurance to our management and board regarding the preparation and fair presentation of published financial statements, but because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. The framework used by our management in making that assessment was the criteria set forth in the document entitled “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on our assessment using those criteria, our management concluded that our internal control over financial reporting as of December 31, 2022, was effective.
This annual report does not include an attestation report of our public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC adopted as of September 2, 2010, that permit us to provide only our management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
No change in our system of internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
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PART III
Item 10. Directors, Executive Officers, and Corporate Governance
The following information is furnished as of March 20, 2023, for each person who serves on our Board of Directors or serves as one of our executive officers. Our Board of Directors currently consists of three members, although we intend to increase the size of the Board in the future. The directors serve one-year terms until their successors are elected. Our executive officers are elected annually by our Board. The executive officers serve terms of one year or until their death, resignation or removal by our Board. There are no family relationships between our directors and executive officers. In addition, there was no arrangement or understanding between any executive officer and any other person pursuant to which any person was selected as an executive officer.
Name | Age | Position |
Timothy J. Kilkenny | 64 | Chairman of the Board of Directors |
Roger P. Baresel | 67 | Chief Executive Officer, Chief Financial Officer and Secretary and Director |
Jason C. Ayers | 48 | President and Director |
Timothy J. Kilkenny has served as our Chairman of the Board of Directors since our inception in May 1995. He served as our Chief Executive Officer from May 1995 until June 6, 2016. Prior to that time, he spent 14 years in the financial planning business as a manager for both MetLife and Prudential. Mr. Kilkenny is a graduate of Central Bible College in Springfield, Missouri.
Roger P. Baresel became our Chief Executive Officer on June 6, 2016. He has been one of our directors and our Chief Financial Officer since November 2000, and served as our President from October 2003 until June 2016. Mr. Baresel is an experienced senior executive and consultant who has served at a variety of companies in a number of different industries. Mr. Baresel has the following degrees from the University of Central Oklahoma in Edmond, Oklahoma: BA Psychology, BS Accounting and MBA Finance, in which he graduated Summa Cum Laude. Mr. Baresel is also a certified public accountant.
Jason C. Ayers became our President on June 6, 2016. He has been one of our directors since May 2013 and served as our Vice President of Operations from December 2000 until June 2016. Prior to that he served as President of Animus, a privately-held web hosting company which we acquired in April 1998. Mr. Ayers received a BS degree from Southern Nazarene University in Bethany, Oklahoma in May 1996 with a triple major in Computer Science, Math and Physics. Upon graduating, he was a co-founder of Animus.
Audit Committee Financial Expert
Because our board of directors only consists of three directors, each of whom does not qualify as an independent director, our board performs the functions of an audit committee. Our board of directors has determined that Roger P. Baresel, our Chief Executive Officer and Chief Financial Officer, qualifies as a “financial expert”. This determination was based upon Mr. Baresel’s
•understanding of generally accepted accounting principles and financial statements;
•ability to assess the general application of generally accepted accounting principles in connection with the accounting for estimates, accruals and reserves;
•experience preparing, auditing, analyzing or evaluating financial statements that present the breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our financial statements, or experience actively supervising one or more persons engaged in such activities;
•understanding of internal controls and procedures for financial reporting; and
•understanding of audit committee functions.
Mr. Baresel’s experience and qualification as a financial expert were acquired through the active supervision of a principal financial officer, principal accounting officer, controller, public accountant, auditor or person
19
performing similar functions and overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements.
Mr. Baresel is not an independent director. We have been unable to attract a person to serve as one of our directors and that would qualify both as an independent director and as a financial expert because of the inability to compensate our directors and provide liability insurance protection.
Compliance with Section 16(a) of the Exchange Act, Beneficial Ownership Reporting Requirements
Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires our directors and executive officers and any persons who own more than 10% of a registered class of our equity securities to file with the SEC and each exchange on which our securities are listed, reports of ownership and subsequent changes in ownership of our common stock and our other securities. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on review of the copies of such reports furnished to us or written representations that no other reports were required, we believe that during 2022, all filing requirements applicable to our officers, directors and greater than 10% beneficial owners were met.
Code of Ethics
Our board of directors has adopted our code of ethics that applies to all of our employees and directors, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Our code of ethics may be found on our website at www.fullnet.net. We will describe the nature of amendments to the code on our website, except that we may not describe amendments that are purely technical, administrative, or otherwise non-substantive. We will also disclose on our website any waivers from any provision of the code that we may grant. We will also disclose on our website any violation of the code by our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Information about amendments and waivers to the code will be available on our website for at least 12 months, and thereafter, the information will be available upon request for five years.
Item 11. Executive Compensation
The following table sets forth, for the last two fiscal years, the cash compensation paid by us to our Chairman, Chief Executive Officer and Chief Financial Officer and President (the “Named Executive Officers”). None of our executive officers other than the named executive officers earned annual compensation in excess of $100,000 during 2022.
| Annual Compensation |
| Long-Term Compensation | |||
Name and Principal Position | Fiscal Year | Salary |
| Other Compensation |
| Securities Underlying Options and Warrants (#) (1) |
Timothy J. Kilkenny | 2022 | $72,373 | (2) | $22,967 | (3) | 83,333 |
Chairman | 2021 | $74,700 | (4) | $15,930 | (5) | 410,528 |
|
|
|
|
|
|
|
Roger P. Baresel | 2022 | $93,059 | (6) | $55,111 | (7) | 100,000 |
CEO and CFO | 2021 | $94,127 | (8) | $51,826 | (9) | 436,254 |
|
|
|
|
|
|
|
Jason C. Ayers | 2022 | $200,573 | (10) | $27,469 | (11) | 100,000 |
President | 2021 | $197,450 | (12) | $24,989 | (13) | 421,846 |
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(1) | Options are generally granted with an exercise price equal to the fair market value of our common stock on the date of the grant and are valued based on the Black-Scholes option pricing model. |
|
|
(2) | Includes no deferred compensation. |
|
|
(3) | Represents $2,100 of expense for business parking for Mr. Kilkenny, $11,460 of insurance premiums, $5,654 of special vacation cash-out, and $3,753 of post-retirement benefits paid by us for the benefit of Mr. Kilkenny. |
|
|
(4) | Includes no deferred compensation. |
|
|
(5) | Represents $2,100 of expense for business parking for Mr. Kilkenny, $10,322 of insurance premiums, and $3,508 of post-retirement benefits paid by us for the benefit of Mr. Kilkenny. |
|
|
(6) | Includes $63,273 of deferred compensation. |
|
|
(7) | Represents $9,600 of expense reimbursement for business use of Mr. Baresel’s automobile and parking, $5,550 of expense reimbursement for Mr. Baresel’s home office and cell phone, $38,556 of insurance premiums, and $1,405 of post-retirement benefits paid by us for the benefit of Mr. Baresel. |
|
|
(8) | Includes $59,616 of deferred compensation. |
|
|
(9) | Represents $9,600 of expense reimbursement for business use of Mr. Baresel’s automobile and parking, $5,535 of expense reimbursement for Mr. Baresel’s home office and cell phone, $35,288 of insurance premiums, and $1,403 of post-retirement benefits paid by us for the benefit of Mr. Baresel. |
|
|
(10) | Includes no deferred compensation. |
|
|
(11) | Represents $2,100 of expense reimbursement for Mr. Ayers’ parking, $1,500 of expense reimbursement for Mr. Ayers’ internet connection and cell phone, $17,558 of insurance premiums, and $6,311 of post-retirement benefits paid by us for the benefit of Mr. Ayers. |
|
|
(12) | Includes no deferred compensation. |
|
|
(13) | Represents $2,100 of expense reimbursement for Mr. Ayers’ parking, $1,500 of expense reimbursement for Mr. Ayers’ internet connection and cell phone, $15,277 of insurance premiums, and $6,112 of post-retirement benefits paid by us for the benefit of Mr. Ayers. |
Pay Versus Performance
Year | Summary Compensation Table Total for PEO | Compensation Actually Paid to PEO(1) | Average Summary Compensation Table Total for Non-PEO NEOs | Average Compensation Actually Paid to Non-PEO NEOs(1) | Value of Initial Fixed $100 Investment Based on Total Shareholder Return | Net Income |
2022 | $328,042 | $228,042 | $213,422 | $121,755 | $48 | $648,407 |
2021 | $644,285 | $222,439 | $541,683 | $118,292 | $550 | $892,977 |
(1)The compensation actually paid amounts are drawn from the Summary Compensation Table (above) and adjusted to deduct the values attributable to the stock options held by the PEOs and other NEOs.
The compensation of our PEO and other NEOs is determined by a subjective blend of our financial performance, the compensation received by similarly situated executives, and the individual’s contribution to our
21
success. The level of compensation is influenced by the fact that the NEOs, who also compose the Board of Directors, hold 55.5% of our outstanding stock and are our largest shareholders. The Board believes the stock ownership of the Board and NEOs creates a structural bias toward payment for performance. The Board does not have formal processes for fixing the levels or types of executive compensation and has not set performance benchmarks for the levels of compensation.
Stock Options Granted
All options granted during 2022 were nonqualified stock options. During 2022, 4,500 stock options were granted to one employee. No stock options were granted to Mr. Kilkenny, Mr. Baresel, and Mr. Ayers during 2022 or 2021. All options granted during 2021 were nonqualified stock options. During 2021, 90,000 stock options were granted to one employee.
Options granted generally become exercisable in part after one year from the date of grant and generally have a term of ten years following the date of grant, unless sooner terminated in accordance with the terms of the stock option agreement.
2022 Year-End Option Values
Our executive officers (Timothy J. Kilkenny, Chairman of the Board, Roger P. Baresel, Chief Executive Officer and Chief Financial Officer, and Jason C. Ayers, President) each held 83,333, 100,000, and 100,000, respectively, of outstanding options at December 31, 2022, of which none were exercisable.
Director Compensation
During the fiscal year ended December 31, 2022, our directors did not receive any compensation for serving in such capacities.
Employment Agreement and Lack of Keyman Insurance
On July 6, 2011, we entered into employment agreements with Timothy J. Kilkenny, Roger P. Baresel and Jason C. Ayers. Each agreement is effective July 1, 2011, and continued through an initial term ended December 31, 2018; however, the term was automatically extended for additional three-year terms, since neither we nor the employee gave a six-month advance notice of termination. These agreements provide, among other things, (i) an annual base salary of at least $61,656 for Mr. Kilkenny, $45,012 for Mr. Baresel and $68,436 for Mr. Ayers, (ii) bonuses at the discretion of the Board of Directors, (iii) entitlement to fringe benefits including medical and insurance benefits as may be provided to our other senior officers, and (iv) eligibility to participate in our incentive, bonus, benefit or similar plans. These agreements require the employee to devote the required time and attention to our business and affairs necessary to carry out his responsibilities and duties. These agreements may be terminated under certain circumstances and upon termination provide for (i) the employee to be released from personal liability for our debts and obligations, and (ii) the payment of any amounts we owe the employee. At December 31, 2022, we owed, including deferred compensation, $66,245, $95,125 and $51,176 to Mr. Kilkenny, Mr. Baresel and Mr. Ayers, respectively.
We do not maintain any keyman insurance covering the death or disability of our executive officers.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The following table sets forth information as of March 20, 2023, concerning the beneficial ownership of our Common Stock by each of our directors, each executive officer named in the table under the heading “Item 10. Directors and Executive Officers, and Corporate Governance” and all of our directors and executive officers as a group, as well as each person who is known by us to own more than 5% of the outstanding shares of our Common Stock. The non-employee beneficial owner information is based on Schedules 13D or 13G filed by the applicable beneficial owner with the SEC or other information provided to us by the beneficial owner or our stock transfer
22
agent. Unless otherwise indicated, the beneficial owner has sole voting and investment power with respect to such stock.
| Common Stock Beneficially Owned | |
Beneficial Owner (1) | Number of Shares | Percent of Class (1) |
Timothy J. Kilkenny (2)(3) | 4,254,917 | 21.9% |
Roger P. Baresel (2)(4) | 3,729,762 | 19.1% |
Jason C. Ayers (2)(5) | 3,143,424 | 16.3% |
|
|
|
All executive officers and directors as a group (3 individuals) | 11,128,103 | 55.5% |
|
|
|
High Capital Funding, LLC (6) | 1,678,250 | 8.8% |
(1) | Percent of class for any shareholder listed is calculated without regard to shares of common stock issuable to others upon exercise of outstanding stock options. Any shares a shareholder is deemed to own by having the right to acquire by exercise of an option or warrant are considered to be outstanding solely for the purpose of calculating that shareholder’s ownership percentage. We computed the percentage ownership amounts in accordance with the provisions of Rule 13d-3(d), which includes as beneficially owned all shares of common stock which the person or group has the right to acquire within the next 60 days, based upon 19,182,754 shares being outstanding at March 20, 2022. |
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(2) | Address is c/o 201 Robert S. Kerr Avenue, Suite 210, Oklahoma City, Oklahoma 73102. |
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(3) | Timothy J. Kilkenny and Barbara J. Kilkenny, husband and wife, hold 3,939,917 and 315,000 shares of our common stock, respectively. The number of shares includes 240,628 shares of our Series A convertible preferred stock held by Mr. Kilkenny that are currently convertible into common stock at the rate of one share of common stock per one share of Series A convertible preferred stock and 83,333 shares of our common stock that are subject to currently exercisable stock options at $.01 per share beginning February 28, 2023. |
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(4) | Roger P. Baresel and Judith A. Baresel, husband and wife, hold 5,600 and 3,724,162 shares of our common stock, respectively. The number of shares held by Mrs. Baresel includes 300,000 shares of our Series A convertible preferred stock that are currently convertible into common stock at the rate of one share of common stock per one share of Series A convertible preferred stock and 100,000 shares of our common stock that are subject to currently exercisable stock options at $.01 per share beginning February 28, 2023. Mr. Baresel disclaims any beneficial interest in the common stock, preferred stock and options held by Mrs. Baresel. |
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(5) | Jason C Ayers holds 3,143,424 shares of our common stock. The number of shares includes 77,629 shares of our Series A convertible preferred stock that are currently convertible into common stock at the rate of one share of common stock per one share of Series A convertible preferred stock and 100,000 shares of our common stock that are subject to currently exercisable stock options at $.01 per share beginning February 28, 2023. |
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(6) | High Capital Funding, LLC, 333 Sandy Springs Circle, Suite 230, Atlanta, Georgia 30328, the parent company of Generation Capital Associates, holds 940,642 shares of our common stock. Generation Capital Associates holds 737,608 shares of our common stock. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
As of December 31, 2022, we had no outstanding notes payable.
23
Item 14. Principal Accounting Fees and Services
The following table sets forth the aggregate fees, including expenses, billed to us for the years ended December 31, 2022 and 2021, by our principal accountant.
| 2022 | 2021 |
BF Borgers, CPA PC | $36,400 | $21,600 |
The audit fees include services rendered by our principal accountant for the audit of our financial statements, review of financial statements included in our quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements. Because our Board of Directors only consists of three directors, none of whom qualifies as an independent director, our Board of Directors performs the functions of an audit committee. It is our policy that the Board of Directors pre-approve all audit, tax and related services. All of the services described above in this Item 14 were approved in advance by our Board of Directors. No items were approved by the Board of Directors pursuant to paragraph (c)(7)(ii)(C) of Rule 2-01 of Regulations S-X.
24
PART IV
Item 15. Exhibits, Financial Statement Schedules
(10) The following exhibits are filed as part of this Report:
Exhibit Number | Exhibit |
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3.2 |
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3.3 |
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4.1 |
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4.3 |
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10.11 | Employment Agreement with Timothy J. Kilkenny dated July 6, 2011 (filed as Exhibit 10.47 to Form 10Q filed on November 15, 2011) |
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10.12 | Employment Agreement with Roger P. Baresel dated July 6, 2011 (filed as Exhibit 10.48 to Form 10Q filed on November 15, 2011) |
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10.13 | Employment Agreement with Jason Ayers dated July 6, 2011 (filed as Exhibit 10.49 to Form 10Q filed on November 15, 2011) |
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10.14 |
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10.15 |
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10.16 | Unregistered Sale of Equity Securities (filed as Item 3.02 on Form 8-K filed on May 18, 2022) |
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10.17 | Unregistered Sale of Equity Securities (filed as Item 3.02 on Form 8-K filed on May 25, 2022) |
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10.18 | Unregistered Sale of Equity Securities (filed as Item 3.02 on Form 8-K filed on May 26, 2022) |
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25
10.19 | Unregistered Sale of Equity Securities (filed as Item 3.02 on Form 8-K filed on December 22, 2022) |
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21 |
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31.1 | Certification pursuant to Rules 13a-14(a) and 15d-14(a) of Roger P. Baresel |
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31.2 | Certification pursuant to Rules 13a-14(a) and 15d-14(a) of Roger P. Baresel |
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101.INS | XBRL Instance Document |
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101.SCH | XBRL Taxonomy Extension Schema Document |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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# Incorporated by reference
* Filed herewith.
**In accordance with Rule 406T of Regulation S-T, the XBRL (Extensible Business Reporting Language) related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except to the extent expressly set forth by specific reference in such filing
Item 16. Form 10-K Summary
Not applicable.
26
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
REGISTRANT:
FULLNET COMMUNICATIONS, INC.
Date: March 31, 2023By: /s/ ROGER P. BARESEL
Roger P. Baresel
Chief Executive Officer and Chief Financial
and Accounting Officer
Date: March 31, 2023By: /s/ JASON C. AYERS
Jason C. Ayers
President
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: March 31, 2023By: /s/ TIMOTHY J. KILKENNY
Timothy J. Kilkenny
Chairman of the Board and Director
Date: March 31, 2023By: /s/ ROGER P. BARESEL
Roger P. Baresel
Director
27
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of FullNet Communications, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of FullNet Communications, Inc. as of December 31, 2022 and 2021, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
We determined that there are no critical audit matters.
/S/
We have served as the Company's auditor since 2021
March 31, 2023
28
FullNet Communications, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
| DECEMBER 31, |
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2022 |
| 2021 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents | $ |
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Accounts receivable, net |
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Prepaid expenses and other current assets |
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Total current assets |
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PROPERTY AND EQUIPMENT, net |
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OTHER ASSETS AND INTANGIBLE ASSETS |
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RIGHT OF USE LEASED ASSET |
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DEFERRED TAX ASSET |
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TOTAL ASSETS | $ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
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CURRENT LIABILITIES |
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Accounts payable | $ |
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Accrued and other liabilities |
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Operating lease liability – current portion |
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Deferred revenue |
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Total current liabilities |
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OPERATING LEASE LIABILITY – less current portion |
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Total liabilities |
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SHAREHOLDERS’ EQUITY (DEFICIT) |
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Preferred stock - $ |
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Common stock - $ |
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Additional paid-in capital |
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Accumulated deficit | ( |
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Total shareholders’ equity |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ |
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See accompanying notes to consolidated financial statements
29
FullNet Communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
| Years ended December 31, | ||
2022 |
| 2021 | |
REVENUE | $ |
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COST OF REVENUE |
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Gross profit |
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OPERATING EXPENSES |
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General and administrative expenses |
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Depreciation and amortization expenses |
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Total operating costs and expenses |
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INCOME FROM OPERATIONS |
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Other income |
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NET INCOME BEFORE INCOME TAX |
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Income tax expense | ( |
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NET INCOME | $ |
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Preferred stock dividends | ( |
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Net income available to common shareholders | $ |
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Net income per share: |
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Basic | $ |
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Diluted | $ |
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Weighted average shares outstanding |
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See accompanying notes to consolidated financial statements
30
FullNet Communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
Years Ended December 31,2022 and 2021
| Common stock | Preferred stock | Additional |
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Shares | Amount | Shares | Amount | Paid-in capital | Accumulated deficit | Total | |
Balance at January 1, 2021 | $ | $ | $ | $ ( | $ | ||
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Amortization of increasing dividend rate preferred stock discount | ( | ||||||
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Preferred stock dividends declared | ( | ( | |||||
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Net income | |||||||
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Balance at December 31, 2021 | ( | ||||||
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Common stock dividends paid | ( | ( | |||||
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Amortization of increasing dividend rate preferred stock discount | ( | ||||||
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Preferred stock dividends declared | ( | ( | |||||
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Balance at December 31, 2022 | $ | $ | $ | $ ( | $ | ||
See accompanying notes to consolidated financial statements
31
FullNet Communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years ended December 31, | ||
2022 |
| 2021 | |
CASH FLOWS FROM OPERTING ACTIVITIES |
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Net income | $ |
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Adjustments to reconcile net income to net cash provided by operating activities |
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Depreciation and amortization |
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Loss on disposal of assets |
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Noncash lease expense |
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Deferred tax expense |
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Stock options expense |
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Provision for uncollectible accounts receivable | ( |
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Changes in operating assets and liabilities |
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Accounts receivable |
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Prepaid expenses and other assets | ( |
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Accounts payable | ( |
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Accrued and other liabilities | ( |
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Deferred revenue |
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Operating lease liability | ( |
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Net cash provided by operating activities |
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Cash paid for property and equipment | ( |
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Net cash used in investing activities | ( |
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Proceeds from issuance of preferred stock for company liability |
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Payment of dividends payable – Preferred Stock | ( |
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Payment of dividends payable – Common Stock | ( |
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Net cash used in financing activities | ( |
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NET INCREASE IN CASH AND CASH EQUIVALENTS |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period | $ |
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NON-CASH INVESTING AND FINANCING ACTIVITIES |
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Preferred stock issued to settle related party liability | $ |
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Amortization of increasing dividend rate preferred stock discount | $ |
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Preferred stock dividend declared | $ |
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See accompanying notes to consolidated financial statements
32
FullNet Communications, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE A – SUMMARY OF ACCOUNTING POLICIES AND NATURE OF OPERATIONS
A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows.
Nature of Operations
FullNet Communications, Inc. and Subsidiaries (“we”) is an integrated communications provider primarily focused on providing mass notification services using text messages and automated telephone calls, equipment colocation and related services, and customized live help desk outsourcing services to individuals, businesses, organizations, educational institutions and governmental agencies. Through our subsidiaries, FullNet, Inc., FullTel, Inc., FullWeb, Inc. and CallMultiplier, Inc., we provide high quality, reliable and scalable Internet based advanced voice and data solutions designed to meet customer needs. Services offered include:
•Mass notification services using text messages and automated telephone calls;
•Carrier-neutral equipment colocation, web hosting and related services; and
•Customized live help desk outsourcing services.
Consolidation
The consolidated financial statements include the accounts of FullNet Communications, Inc. and its wholly owned subsidiaries FullNet, Inc., FullTel, Inc., FullWeb, Inc. and CallMultiplier, Inc. All material inter-company accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures; accordingly, actual results could differ from those estimates.
Cash Equivalents
Cash equivalents are represented by operating accounts or money market accounts maintained with insured financial institutions which consist of highly liquid investments that mature in three months or less from date of purchase.
We have not experienced any losses in such accounts. We do not believe there is significant credit risk related to our cash and cash equivalents.
Accounts Receivable
We operate and grant credit, on an uncollateralized basis. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising our customer base and their dispersion across different industries as well as our emphasis on obtaining deposits and/or payment in advance for services from the majority of our customers. During the year ended December 31, 2022, we had no customers that comprised 10% or more of total revenues. During the year ended December 31, 2021, we had one customer that comprised approximately 10% of total revenues.
33
Accounts receivable, other than certain large customer accounts which are evaluated individually, are considered past due for purposes of determining the allowances for doubtful accounts based on past experience of collectability as follows:
1 - 29 days | |
30 - 59 days | |
60 – 89 days | |
>90 days |
In addition, if we become aware of a specific customer’s inability to meet our financial obligations, a specific reserve is recorded against amounts due to reduce the net recognized receivable to the amount reasonably expected to be collected. Total bad debt expense and direct write-off recovery for the year ended December 31, 2022 was $453. Total bad debt expense and direct write-off for the year ended December 31, 2021 was $1,024.
Accounts receivable consist of the following at December 31:
Schedule of Accounts Receivable | ||
2022 | 2021 | |
Accounts receivable | $ | $ |
Less allowance for doubtful accounts | ( | ( |
$ | $ | |
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed primarily using the
Software | |
Computers and equipment | |
Furniture and fixtures | |
Leasehold improvements | Shorter of estimated life of improvement or the lease term |
Property and equipment consist of the following at December 31:
2022 | 2021 | |
Computers and equipment | $ | $ |
Leasehold improvements | ||
Software | ||
Furniture and fixtures | ||
Less accumulated depreciation | ( | ( |
$ | $ |
Depreciation expense for the years ended December 31, 2022 and 2021, was $
Long-Lived Assets
All long-lived assets held and used by us, including intangible assets, are reviewed to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In accordance with ASC 360-10-35 “Impairment or Disposal of Long-lived Assets”, we base our evaluation on such impairment indicators as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not
34
be recoverable, we determine whether impairment has occurred through the use of an undiscounted cash flows analysis of the asset. If impairment has occurred, we recognize a loss for the difference between the carrying amount and the estimated value of the asset. No intangible assets were purchased in 2022 or 2021. We incurred
Revenue Recognition
Revenue is recognized when control of the services sold by us is transferred to customers in an amount that reflects the consideration we expect to receive in exchange for those services. Revenue that is received in advance of the services provided is deferred until the services are provided by us. Revenue related to set up charges is also deferred and amortized over the life of the contract. Revenues are presented net of taxes and fees billed to customers and remitted to governmental authorities.
We determine revenue recognition through the following steps:
·Identification of the contract, or contracts, with a customer;
·Identification of the performance obligations in the contract;
·Determination of the transaction price;
·Allocation of the transaction price to the performance obligations in the contract; and
·Recognition of revenue when, or as, we satisfy a performance obligation.
Our revenue is derived from fees earned from customers utilizing our services. We have four streams of revenue as shown in the following table:
Revenue Description | For Year Ended December 31, 2022 | % of Total Revenue | For Year Ended December 31, 2021 | % of Total Revenue |
Mass notification services using text messages and automated telephone calls | $ | $ | ||
Colocation and web hosting services | ||||
Live help desk support services | ||||
Internet access service | ||||
Total revenue | $ | $ |
Revenue from our mass notification service and our access service is recognized as the services are provided pursuant to unwritten contracts created when our customers create an account on our website agreeing to be bound by our published Terms of Service when they purchase our service.
Revenue from our colocation and web hosting services, its live help desk support services, and our internet access services is recognized as the services are provided pursuant to written contracts executed by us and our customers.
Each of our services represent a single performance obligation consisting of a distinct service. All of our revenues are recognized as the services are provided over the life of the contract. Revenue that is received in advance of the services provided is deferred until the services are provided.
None of our services have a transaction price which includes variable consideration, a significant financing component, any noncash consideration or consideration payable to a customer. The transaction price is the amount of consideration to which we expect to be entitled to in exchange for the service transferred to each customer.
Each of our services represent a single performance obligation and the “stand-alone selling price” is the same as the contract selling price.
35
All of our services are sold pursuant to written and unwritten contracts which require payment in advance for the services.
Advertising
We expense advertising production costs as they are incurred and advertising communication costs for the first time the advertisement takes place. Advertising expense for the years ended December 31, 2022 and 2021, was $
Income Taxes
We account for income taxes utilizing the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes, using enacted statutory tax rates in effect for the year in which the differences are expected to reverse. The effects of future changes in tax laws or rates are not included in the measurement.
On a regular basis, we evaluate all available evidence, both positive and negative, regarding the ultimate realization of the tax benefits of our deferred tax assets and a valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions.
Income Per Share
Income per share – basic is calculated by dividing net income by the weighted average number of shares of stock outstanding during the year, including shares issuable without additional consideration. Income per share – assuming dilution is calculated by dividing net income by the weighted average number of shares outstanding during the year adjusted for the effect of dilutive potential shares from options and warrants calculated using the treasury stock method and the if-converted method for preferred stock.
Reconciliation of basic and diluted income per share (“EPS”) are as follows:
36
| December 31, 2022 | December 31, 2021 |
Net income: |
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Net income | $ | $ |
Preferred stock dividends | ( | ( |
Net income available to common shareholders | ||
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Basic income per share: |
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Weighted-average common shares outstanding used in income per share computations | ||
Basic income per share | ||
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Diluted income per share: |
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Shares used in diluted income per share computations | ||
Diluted income per share | ||
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Computation of shares used in income per share: |
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Weighted average shares and share equivalents outstanding - basic | ||
Effect of dilutive stock options | ||
Effect of dilutive warrants | ||
Weighted average shares and share equivalents outstanding – assuming dilution |
Schedule of Anti-dilutive Securities Excluded: |
| December 31, 2022 |
| December 31, 2021 |
Convertible preferred stock |
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Total anti-dilutive securities excluded |
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Stock-Based Compensation
We do not have a written employee stock option plan. We have historically generally granted employee stock options with an exercise price equal to the market price of our stock at the date of grant, a contractual term of ten years, and a vesting period of three years ratably on the first, second and third anniversaries of the date of grant (with limited exceptions).
All employee stock options granted during 2022 and 2021 were nonqualified stock options. Stock-based compensation is measured at the grant date, based on the calculated fair value of the option, and is recognized as an expense on a straight-line basis over the requisite employee service period (generally the vesting period of the grant).
Beneficial Conversion Features
The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.
Related Parties
A party is considered to be related to us if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with us. Related parties also include principal owners of us, our management, members of the immediate families of principal owners of us and our management and other parties with which we may deal if one party controls or can significantly influence the management or operating
37
policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing our own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing our own separate interests is also a related party.
At December 31, 2022, we had no related party accounts payable to officers and directors for unpaid expense reimbursements. Additionally, we had no related party accounts payable to officers and directors for unpaid expense reimbursements as of December 31, 2021.
Fair Value Measurements
We measure our financial assets and liabilities in accordance with the requirements of FASB ASC 820, “Fair Value Measurements and Disclosures”. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of December 31, 2022 and 2021, are based upon the short-term nature of the assets and liabilities.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes”, which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes. This guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. (“ASU”) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, “Revenue from Contracts with Customers.” At the acquisition date, an acquirer should account for the related revenue contracts as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree's
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financial statements, assuming the acquirer is able to assess and rely on how the acquiree applied ASC 606. ASU 2021-08 is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. We adopted ASU 2021-08 in the first quarter of 2022 with no material impact to our consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which clarifies and amends the guidance of measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of the equity securities. ASU 2022-03 is effective for interim and annual periods beginning after December 15, 2023, with early adoption permitted. We are evaluating the impact of the adoption of this guidance to our consolidated financial statements.
NOTE B – COMMITMENTS
Operating Leases
Under the new lease guidance (Topic 842), we recorded a ROU Lease Asset and associated Lease Liability for the Original Lease which as of December 31, 2019, had balances of $930,588 and $946,895, respectively. In recording the initial ROU Lease Asset and associated Lease Liability, we assumed that it would extend the lease for an additional five-year term at a rate per square foot which increased annually during the term. This lease was for 13,046 square feet at $17.00 per square foot and we assumed that the square footage would remain the same and the rate would increase by $.50 per square foot per year during the 5-year renewal period for purposes of calculating the ROU Lease Asset and associated Lease Liability.
We leased our offices and data center in the BOK Plaza Building on a lease originally executed on December 2, 1999 and expiring on December 31, 2019, with all additional options to renew having been previously exercised (the “Original Lease”). We subsequently negotiated and executed two new leases on November 22, 2019, covering our offices and data center which are effective January 1, 2020. One lease is an addendum to the Original Lease and covers only the office space (the “FN Lease”) and the other lease covers our data center and is with FullWeb, Inc., a wholly owned subsidiary (the “FW Lease”).
The combined square footage for the FN & FW Leases is 8,699 square feet, a reduction from the Original Lease of 4,347 square feet or approximately 33%. This reduction occurred in the office space with the data center space remaining the same. In addition, both leases are at the rate of $17.50 per square foot for 5 years and both contain two 5-year options to renew at the then fair market rate per square foot. Of not, the FW Lease contains the right for us to opt-out of the FW Lease without penalty at each annual anniversary.
We consider the execution of the two new leases to be a lease modification and have re-evaluated the effect of the lease modification on our conclusions under ASC 842 and determined that the leases should still be classified as operating leases.
As a result of the lease modification and the associated remeasurement of the lease liability, we used the same incremental borrowing rate of 8.5% as it used for the original lease calculations based on the fact that the nature of the underlying asset and our financial condition had not materially changed since the original lease calculation.
Amortization of the ROU Asset and payments of the associated Lease Liability for the year-ended December 31, 2022 was $
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Future minimum lease payments required at December 31, 2022, under non-cancelable operating leases that have initial lease terms exceeding one year are presented in the following table:
Year ending December 31 |
| |
2023 |
| $ |
2024 |
| |
Total |
| |
Present value of discount |
| ( |
Current portion lease liability |
| ( |
Long-term lease liability |
| $ |
Rental expense for all operating leases for the years ended December 31, 2022 and 2021, was approximately $
NOTE C – INCOME TAXES
We use the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.
On a regular basis, management evaluates all available evidence, both positive and negative, regarding the ultimate realization of the tax benefits of our deferred tax assets. Based upon the historical trend of increasing earnings management concluded that it is more likely than not that a tax benefit will be realized from our deferred tax assets and therefore eliminated the previously recorded valuation allowance for our deferred tax assets in the fourth quarter of 2020. Elimination of the valuation allowance resulted in a deferred tax asset at December 31, 2021, of approximately $38,000 which was fully utilized in the 1st quarter of 2022. At December 31, 2022, the net operating loss carry-forward was $140,537, and the deferred tax asset had no balance.
The Tax Cuts and Jobs Act (“TCJA”) was signed by the President of the United States and enacted into law on December 22, 2017. The TCJA significantly changed U.S. tax law by reducing the U.S. corporate income tax rate to 21.0% from 35.0%, adopting a territorial tax regime, creating new taxes on certain foreign sourced earnings and imposing a one-time transition tax on the undistributed earnings of certain non-U.S. subsidiaries.
NOTE D – COMMON STOCK AND STOCK-BASED COMPENSATION
COMMON STOCK
On
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DIVIDEND PAYMENTS
The following table summarizes the dividends paid by the Company on its outstanding common stock for the year ended December 31, 2022:
Amount |
| Dividend per share | |
Year Ended December 31, 2021 |
|
|
|
Total | $ |
|
|
Year Ended December 31, 2022 |
|
|
|
Second quarter | $ |
| $ |
Third quarter | $ |
| $ |
Fourth quarter | $ |
| $ |
Total | $ |
|
|
STOCK-BASED COMPENSATION
We do not have a written employee stock option plan. We have historically generally granted employee stock options with an exercise price equal to the market price of our stock at the date of grant, a contractual term of ten years, and a vesting period of three years ratably on the first, second and third anniversaries of the date of grant (with limited exceptions).
All employee stock options granted during 2022 and 2021 were nonqualified stock options. Stock-based compensation is measured at the grant date, based on the calculated fair value of the option, and is recognized as an expense on a straight-line basis over the requisite employee service period (generally the vesting period of the grant).
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The following table summarizes our employee stock option activity for the years ended December 31, 2022 and 2021:
Schedule of Employee Stock Option Activity | ||||
|
|
|
|
|
Options | Weighted average exercise price | Weighted average remaining contractual life (years) | Aggregate intrinsic value | |
Options outstanding, December 31, 2020 | $ |
| ||
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|
|
|
|
Options granted during the year |
|
| ||
|
|
|
|
|
Options exercised during the year | ( |
|
| |
|
|
|
|
|
Options forfeited during the year | ( |
|
| |
|
|
|
|
|
Options outstanding, December 31, 2021 | $ |
| ||
|
|
|
|
|
Options granted during the year |
|
| ||
|
|
|
|
|
Options exercised during the year | ( |
|
| |
|
|
|
|
|
Options expired during the year | ( |
|
| |
|
|
|
|
|
Options cancelled during the year | ( |
|
| |
|
|
|
|
|
Options outstanding, December 31, 2022 | $ | $184,485 | ||
|
|
|
|
|
Options exercisable, December 31, 2022 | $ | $ | ||
The following table summarizes our non-vested employee stock option activity for years ended December 31, 2022 and 2021:
2022 | 2021 | |
Non-vested options outstanding, beginning of year | ||
Options granted during the year | ||
Options vested during the year | ( | ( |
Non-vested options forfeited during the year | ( | |
Non-vested options outstanding, end of year |
The fair values of the granted options are estimated at the date of grant using the Black-Scholes option pricing model. In addition to the exercise and grant date prices of the options, certain weighted average assumptions that were used to estimate the fair value of stock option grants in the respective periods are listed in the table below:
2022 | 2021 | |
Risk free interest rate | ||
Expected lives (in years) | ||
Expected volatility | ||
Dividend yield |
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The following table shows total stock options compensation expense included in the Consolidated Statements of Operations and the effect on basic and diluted earnings per share for the years ended December 31:
2022 | 2021 | |
Stock options compensation | $ | $ |
Impact on income per share: |
|
|
Basic and diluted | $ | $ |
During the year 2022,
Common Stock Purchase Warrants – A summary of common stock purchase warrant activity for the years ended December 31, 2022 and 2021 follows:
| 2022 | Weighted Average Exercise Price | 2021 | Weighted Average Exercise Price |
Warrants outstanding, beginning of year | $ | $0.004 | ||
Warrants granted during the year | ||||
Warrants exercised during the year | ||||
Warrants outstanding, end of year | $ | $ |
On May 25, 2022, the
NOTE E – SERIES A CONVERTIBLE PREFERRED STOCK
The holders of shares of the Series A convertible preferred stock (the “Series A Preferred”) are entitled to receive, when and as declared by our board of directors, dividends in cash in the amount of
Due to the unstated dividend cost arising from the gradually increasing dividends on the Series A Preferred, we calculated a discount on the Series A Preferred at the time of issuance as the present value of the difference between (i) the dividends that are payable in the periods preceding commencement of the perpetual twelve cents per share per annum dividend; and (ii) the perpetual twelve cents per share per annum dividend for a corresponding number of periods; discounted at the market rate of 12% totaling $309,337. The Series A Preferred was valued at the market price on the respective date of issuance for a total value of $672,472. The discount will be amortized over the periods preceding commencement of the perpetual dividend, by charging imputed dividend cost against retained earnings and increasing the carrying amount of the Series A Preferred by a corresponding amount. The discount amortization for the years ended December 31, 2022 and 2021 was $
The Series A Preferred was originally issued as non-voting and provided that in the event that we failed, for any reason, to make a dividend payment as set forth above, then each share of the Series A Preferred shall thereafter be entitled to two votes upon any matter that the holders of our common stock are entitled to vote upon.
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The Series A Preferred may be redeemed at the option of our board of directors for one dollar per share plus all accrued and unpaid dividends thereon at the date of redemption. In addition, at any time after a change of our control, the holders of the Series A Preferred shall have the right, at the election of a majority of the holders, to require us to redeem all of the Series A Preferred for one dollar per share plus all accrued and unpaid dividends thereon at the date of redemption.
The Series A Preferred has a liquidation preference of one dollar per share plus all accrued and unpaid dividends thereon in the event of our liquidation, dissolution or winding up.
We analyzed the embedded conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option should be classified as equity.
We analyzed the conversion option for beneficial conversion features consideration under ASC 470-20 “Convertible Securities with Beneficial Conversion Features” and noted none.
On December 23, 2022, our board of directors declared a dividend on the Series A Preferred after making the determination that, among other things, on a consolidated basis that (a) our net income for the year ended December 31, 2021 and net income projected for the year ended December 31, 2022, was legally sufficient to pay the dividends declared below on our Series A Preferred, and (b) the declaration of the dividend was not likely to render us unable to meet, as they mature, those liabilities for which payment has not been otherwise adequately provided.
These dividends were paid on January 3, 2023, out of our net income for the years ended December 31, 2021, to the holders of record of the issued and outstanding shares of our Series A Preferred at the close of business on December 30, 2022. The dividend consisted of $0.10 per share, representing the cumulative unpaid dividends on the Series A Preferred through the year ended December 31, 2022, for a total dividend payment of $61,826.
On December 9, 2021, our board of directors declared a dividend on the Series A Preferred after making the determination that, among other things, on a consolidated basis that (a) our net income for the year ended December 31, 2020 and net income projected for the year ended December 31, 2021, was legally sufficient to pay the dividends declared below on our Series A Preferred, and (b) the declaration of the dividend was not likely to render us unable to meet, as they mature, those liabilities for which payment has not been otherwise adequately provided.
These dividends were paid on January 3, 2022, out of our net income for the years ended December 31, 2020, to the holders of record of the issued and outstanding shares of our Series A Preferred at the close of business on December 21, 2021. The dividend consisted of $0.09 per share, representing the cumulative unpaid dividends on the Series A Preferred through the year ended December 31, 2021, for a total dividend payment of $51,143.
As of December 31, 2022, there were 618,257 shares of Series A Preferred outstanding with voting power representing 6.1% of the total voting power of our outstanding stock.
NOTE F – SUBSEQUENT EVENTS
On
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Exhibit 21
FULLNET COMMUNICATIONS, INC.
SUBSIDIARIES
Name of Subsidiary | State of Organization |
1.FullNet, Inc. | Oklahoma |
2.FullTel, Inc. | Oklahoma |
3.FullWeb, Inc. | Oklahoma |
4.CallMultiplier, Inc. | Oklahoma |
Exhibit 31.1
CERTIFICATION
PURSUANT TO SECTION 13a-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Roger P. Baresel, certify that:
1.I have reviewed this annual report on Form 10-K of FullNet Communications, Inc.;
2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 31, 2023
/s/ Roger P. Baresel
Roger P. Baresel
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
PURSUANT TO SECTION 13a-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Roger P. Baresel, certify that:
1.I have reviewed this annual report on Form 10-K of FullNet Communications, Inc.;
2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; and
4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 31, 2023
/s/ Roger P. Baresel
Roger P. Baresel
Chief Accounting Office
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. 1350
(As adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002)
For the Annual Report of FullNet Communications, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2022 (the “Report”), the undersigned Chief Executive Officer and Chief Financial Officer of the Company hereby certify that:
(i)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(ii)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
Dated: March 31, 2023
/s/ Roger P. Baresel
Chief Executive Officer
/s/ Roger P. Baresel
Chief Accounting Officer