Fullnet Communications Inc 10-Q/A for FY2022 Q3
Fullnet Communications Inc (FULO)
About this 10-Q/A
Fullnet Communications Inc filed this 10-Q/A on November 10, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $187.96K
- unchanged from net income of $188K a year earlier
- Diluted EPS
- $0.01
- unchanged from $0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Amendment No. 1
(Mark One)
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| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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incorporation or organization) |
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(Address of principal executive offices)
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(Registrant’s telephone number)
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
Large accelerated filer o |
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Emerging-growth company |
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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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 7, 2022,
EXPLANATORY NOTE
Fullnet Commnications, Inc. (the "Company") is filing this Amendment No. 1 (the "Amended 10-Q") to the 10-Q for the quarterly period ending September 30, 2022 filed on November 10, 2022 (the Original 10-Q), in order
FORM 10-Q
TABLE OF CONTENTS
2
FullNet Communications, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, 2022 (Unaudited) | December 31, 2021 | |
ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents | $ | $ |
Accounts receivable, net | ||
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 |
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CURRENT LIABILITIES |
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Accounts payable | $ | $ |
Accrued and other liabilities | | |
Dividends payable | ||
Operating lease liability – current portion | | |
Deferred revenue | | |
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Total current liabilities | | |
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OPERATING LEASE LIABILITY – net of current portion | | |
Total liabilities | | |
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SHAREHOLDERS’ EQUITY |
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Preferred stock - $ | | |
Common stock - $ | ||
Additional paid-in capital | ||
Accumulated deficit | ( | ( |
Total shareholders’ equity | ||
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ |
See accompanying notes to unaudited condensed consolidated financial statements.
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FullNet Communications, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Three Months Ended | Nine Months Ended | ||
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |
REVENUE | $ | $ | $ | $ |
COST OF REVENUE | ||||
Gross profit | ||||
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OPERATING EXPENSES |
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Sales and marketing | ||||
General and administrative expenses | ||||
Depreciation and amortization | ||||
Total operating 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 | ( | ( | ( | ( |
NET INCOME | $ | $ | $ | $ |
Preferred stock dividends | ( | ( | ( | ( |
Net income available to common shareholders | $ | $ | $ | $ |
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Net income per share: |
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Basic | $ | $ | $ | $ |
Diluted | $ | $ | $ | $ |
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Weighted average common shares outstanding: |
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Basic | ||||
Diluted | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
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FullNet Communications, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
Three Months Ended September 30, 2022
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Shares |
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Balance at July 1, 2022 |
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Stock options expense |
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Common stock dividends |
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Amortization of increasing dividend rate preferred stock discount | - |
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Net income |
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Balance at September 30, 2022 – (unaudited) |
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Nine Months Ended September 30, 2022
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| Common stock | Preferred stock | Additional | Accumulated |
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Shares |
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| Amount | paid-in capital | deficit | Total | |
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Balance at January 1, 2022 |
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Stock options expense |
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Stock options exercised |
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Warrants exercised |
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Common stock dividends paid |
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Amortization of increasing dividend rate preferred stock discount | - |
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Net income |
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Balance at September 30, 2022 – (unaudited) |
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Three Months Ended September 30, 2021
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| Common stock | Preferred stock | Additional | Accumulated |
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Shares |
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Balance at July 1, 2021 |
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Stock options expense |
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Amortization of increasing dividend rate preferred stock discount | - |
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Net income |
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Balance at September 30, 2021 – (unaudited) |
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Nine Months Ended September 30, 2021
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| Common stock | Preferred stock | Additional | Accumulated |
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Shares |
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Balance at January 1, 2021 |
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Stock options expense |
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Stock options exercised |
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Amortization of increasing dividend rate preferred stock discount | - |
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Net income |
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Balance at September 30, 2021 – (unaudited) |
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See accompanying notes to unaudited condensed consolidated financial statements.
6
FullNet Communications, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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| Nine Months Ended | ||
September 30, 2022 |
| September 30, 2021 | |
CASH FLOWS FROM OPERATING 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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Provision for 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 FLOWS FROM INVESTING 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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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from exercise of options |
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Proceeds from exercise of warrants |
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Payment of dividends payable – common stock | ( |
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Payment of dividends payable - preferred 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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Amortization of increasing dividend rate preferred stock discount | $ |
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See accompanying notes to the unaudited condensed consolidated financial statements.
7
FullNet Communications, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements and related notes of FullNet Communications, Inc. and its subsidiaries (“we”, “our”, collectively, the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with our audited consolidated financial statements of and notes thereto for the year ended December 31, 2021.
The information furnished reflects, in the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of the interim periods presented. Operating results of the interim period are not necessarily indicative of the amounts that will be reported for the year ending December 31, 2022.
Recently Adopted 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. We adopted this guidance effective January 1, 2021. The adoption of ASU No. 2019-12 did not have a material impact on our consolidated financial statements.
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 calculated using the treasury stock method for options and warrants and the “if converted” method for convertible preferred stock.
The reconciliation of basic and diluted income per share are as follows:
| Three Months Ended | Nine Months Ended | ||
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 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 | ||||
Basic income per share | ||||
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Diluted income per share: |
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Shares used in diluted income per share | ||||
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 – diluted | ||||
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Schedule of Anti-dilutive Securities Excluded | ||||
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| Three Months Ended | Nine Months Ended | ||
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |
Preferred stock | ||||
Total anti-dilutive securities excluded | ||||
Anti-dilutive securities consist of stock options and convertible preferred stock whose exercise price or conversion price, respectively, was greater than the average market price of the common stock.
2. STOCK BASED COMPENSATION
The following table summarizes our employee stock option activity for the nine months ended September 30, 2022:
Schedule of Employee Stock Option Activity | |||||||
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Options |
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| Aggregate Intrinsic value | |
Options outstanding, December 31, 2021 | |
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Options exercised during the period | |
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Options canceled during the period | |
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Options issued during the period |
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Options outstanding September 30, 2022 | |
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Options exercisable September 30, 2022 | |
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During the nine months ended September 30, 2022,
During the nine months ended September 30, 2022, certain employees of ours exercised options to purchase
On June 15, 2022, we paid the May 13, 2022 dividends declared on our common stock of $537,425, to shareholders of record on May 31, 2022. On September 15, 2022, we paid the August 15, 2022 dividends declared on our common stock of $
Total stock-based compensation expense for the nine months ended September 30, 2022 was $
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3. WARRANT ACTIVITY
The following table summarizes our warrant activity for the nine months ended September 30, 2022:
Schedule of Warrant Activity | ||||
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Warrants | Weighted average exercise price | Weighted average remaining contractual life (yrs) | Aggregate intrinsic value | |
Warrants outstanding December 31, 2021 | $ | $ | ||
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Warrants exercised during the period | $ | - | - | |
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Warrants outstanding September 30, 2022 | $ |
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During the nine months ended September 30, 2022,
During the nine months ended September 30, 2022, 250,000 warrants with an exercise price of $.003 per share, and 40,000 warrants with an exercise price of $.01 per share, were exercised for
4. SERIES A CONVERTIBLE PREFERRED STOCK
On January 3, 2022, we paid the December 9, 2021 dividends declared on our Series A Convertible Preferred Stock of $
The amortization of the increasing dividend rate preferred stock discount for the nine months ended September 30, 2022 was $
5. LEASES
We determine if a contract contains a lease by evaluating the nature and substance of the agreement. The only lease that we have is the real estate lease for our headquarters facility, which was originally executed on December 2, 1999, and which has been extended several times. This lease was renewed for a term of five additional years. We recognize lease expense for this lease on a straight-line basis over the lease term.
We used our incremental borrowing rate (8.5%) in determining the present value of the lease payments over the lease expiration date of December 31, 2024. At September 30, 2022, the remaining future cash payments under our lease total to $
For the nine months ended September 30, 2022, we amortized $
For the nine months ended September 30, 2022 and 2021, our fixed operating lease cost was $
Future minimum lease payments under non-cancellable operating lease as of September 30, 2022, were as follows:
Year ending December 31, | |
2022 (three months remaining) | $ |
2023 | |
2024 | |
Total future minimum lease payments | |
Present value of discount | ( |
Current portion lease liability | ( |
Long-term lease liability | $ |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is qualified in its entirety by the more detailed information in our 2021 Annual Report on Form 10-K and the financial statements contained therein, including the notes thereto, and our other periodic reports filed with the Securities and Exchange Commission since December 31, 2021 (collectively referred to as the “Disclosure Documents”). Certain forward-looking statements contained in this Report and in the Disclosure Documents regarding our business and prospects are based upon numerous assumptions about future conditions which may ultimately prove to be inaccurate and actual events and results may materially differ from anticipated results described in such 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. Our ability to achieve these results is subject to certain risks and uncertainties, including those inherent risks and uncertainties generally in the Internet service provider and group message delivery industries, the impact of competition and pricing, changing market conditions, and other risks. Any forward-looking statements contained in this Report represent our judgment as of the date of this Report. We disclaim, however, any intent or obligation to update these forward-looking statements. As a result, the reader is cautioned not to place undue reliance on these forward-looking statements.
Overview
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, www.fulltel.com and www.callmultiplier.com. Information contained on our Web sites is not, and should not be deemed to be, a part of this Report.
COVID-19 Pandemic
The global outbreak of the coronavirus disease (COVID-19) continues to rapidly evolve, and it presents material uncertainty and risk with respect to our business, financial condition, and results of operations. The pandemic, and its attendant economic damage, has impacted market segments in different ways, with industries experiencing significant losses while others actually gained. 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.
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.
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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.
Our common stock trades on the OTC “Pink Sheets” under the symbol FULO. While our common stock trades on the OTC “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 the 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.
Results of Operations
The following table sets forth certain statement of operations data as a percentage of revenues for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended |
| Nine Months Ended | ||||||
| September 30, 2022 | September 30, 2021 |
| September 30, 2022 | September 30, 2021 | ||||
| Amount | Percent | Amount | Percent |
| Amount | Percent | Amount | Percent |
REVENUE | $1,052,408 | 100.0 | $1,015,779 | 100.0 |
| $3,231,267 | 100.0 | $3,036,654 | 100.0 |
COST OF REVENUE | 229,197 | 21.8 | 198,144 | 19.5 |
| 671,807 | 20.8 | 514,105 | 16.9 |
Gross Profit | 823,211 | 78.2 | 817,635 | 80.5 |
| 2,559,460 | 79.2 | 2,522,549 | 83.1 |
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OPERATING EXPENSES |
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Sales and marketing | 138,681 | 13.2 | 140,220 | 13.8 |
| 469,714 | 14.5 | 342,750 | 11.3 |
General and administrative | 440,748 | 41.9 | 420,302 | 41.4 |
| 1,356,812 | 42.0 | 1,198,097 | 39.4 |
Depreciation and amortization | 4,397 | 0.4 | 2,556 | 0.2 |
| 11,304 | 0.4 | 7,669 | 0.3 |
Total operating expenses | 583,826 | 55.5 | 563,078 | 55.4 |
| 1,837,830 | 56.9 | 1,548,516 | 51.0 |
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Income from operations | 239,385 | 22.7 | 254,557 | 25.1 |
| 721,630 | 22.3 | 974,033 | 32.1 |
Other income | 12,720 | 1.2 | 143 | 0.0 |
| 17,016 | 0.5 | 20,678 | 0.6 |
Income tax expense | (64,145) | (6.1) | (66,696) | (6.6) |
| (188,313) | (5.8) | (258,685) | (8.5) |
Net income | 187,960 | 17.8 | 188,004 | 18.5 |
| 550,333 | 17.0 | 736,026 | 24.2 |
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Preferred stock dividends | (14,839) | (1.4) | (13,685) | (1.3) |
| (45,049) | (1.4) | (41,054) | (1.3) |
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Net income available to common shareholders | $173,121 | 16.4 | $174,319 | 17.2 |
| $505,284 | 15.6 | $694,972 | 22.9 |
Three Months Ended September 30, 2022 (the “2022 3rd Quarter”) Compared to Three Months Ended September 30, 2021 (the “2021 3rd Quarter”)
Revenue
Total revenue increased $36,629 or 3.6% to $1,052,408 for the 2022 3rd Quarter from $1,015,779 for the same period in 2021. This increase was primarily attributable to the net addition of new customers and the sale of additional services to existing customers.
In the 2022 3rd Quarter, we had interest income of $12,720. In the 2021 3rd Quarter, we had interest income of $143.
Cost of Revenue
Cost of revenue increased $31,053 or 15.7% to $229,197 for the 2022 3rd Quarter from $198,144 for the same period in 2021. This increase was primarily related to servicing new customers added through growth of business and price increases from our vendors. Cost of revenue as a percentage of total revenue increased to 21.8% during the 2022 3rd Quarter, compared to 19.5% during
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the same period in 2021, as a result of increased utilization of higher cost components of our service offerings combined with price increases from our vendors.
Gross Profit
Gross profit as a percentage of revenue decreased 2.3% to 78.2% for the 2022 3rd Quarter from 80.5% for the same period in 2021. This decrease was primarily related to increased utilization of higher cost components of our services offerings combined with price increases from our vendors.
Operating Expenses
Sales and marketing expenses decreased $1,539 or 1.1% to $138,681 for the 2022 3rd Quarter from $140,220 for the 3rd Quarter of 2021. This decrease was primarily a result of decreases in advertising expense. Sales and marketing expense as a percentage of total revenues decreased to 13.2% for the 3rd Quarter of 2022 compared to 13.8% for the 3rd Quarter of 2021.
General and administrative expenses increased $20,446 or 4.9% to $440,748 for the 2022 3rd Quarter compared to $420,302 for the same period in 2021. This increase was primarily related to increases in employee costs and bank and credit card fees of $17,203 and $3,134, respectively. General and administrative expenses as a percentage of total revenues increased to 41.9% during the 2022 3rd Quarter from 41.4% during the same period in 2021.
Depreciation and amortization expense increased $1,841 or 72.0% to $4,397 for the 2022 3rd Quarter compared to $2,556 for the same period in 2021. This increase was related to depreciation associated with assets purchased during 2021 and 2022.
Income Taxes
Our deferred tax asset related primarily to net operating loss carryforwards for income tax purposes which were fully utilized during the 1st Quarter of 2022. Income tax expense for the 3rd Quarter of 2022 was $64,145.
Net Income
For the 2022 3rd Quarter, we realized net income of $187,960 compared to net income of $188,004 for the same period in 2021. The decrease was due primarily to the decline in our gross profit as a percentage of revenue.
Nine Months Ended September 30, 2022 (the”2022 Period”) Compared to Nine Months Ended September 30, 2021 (the “2021 Period”)
Revenues
Total revenue increased $194,613 or 6.4% to $3,231,267 for the 2022 Period from $3,036,654 for the same period in 2021. This increase was primarily attributable to the net addition of new customers and the sale of additional services to existing customers.
In the 2022 Period, we had interest income of $17,016. In the 2021 Period, we had interest income of $678 and other income of $20,000 from the settlement of a property damage claim.
Cost of Revenue
Cost of revenue increased $157,702 or 30.7% to $671,807 for the 2022 Period from $514,105 for the same period in 2021. This increase was primarily related to servicing new customers added through growth of business and price increases from our vendors. Cost of revenue as a percentage of total revenue increased to 20.8% during the 2022 Period, compared to 16.9% during the same period in 2021, as a result of increased utilization of higher cost components of our service offerings combined with price increases from our vendors.
Gross Profit
Gross profit as a percentage of revenue decreased 3.9 % to 79.2% for the 2022 Period from 83.1% for the same period in 2021. This decrease was primarily related to increased utilization of higher cost components of our services offerings combined with price increases from our vendors.
Operating Expenses
Sales and marketing expenses increased $126,964 or 37.0% to $469,714 for the 2022 Period from $342,750 for the same period of 2021. This increase was primarily a result of increases in advertising expense. Sales and marketing expense as a percentage in total revenues increased to 14.5% for the 2022 Period compared to 11.3% for the same period in 2021.
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General and administrative expenses increased $158,715 or 13.2% to $1,356,812 for the 2022 Period compared to $1,198,097 for the same period in 2021. This increase was primarily related to increases in employee costs and bank and credit card fees of $132,440 and $12,200, respectively. General and administrative expenses as a percentage of total revenues increased to 42.0% during the 2022 Period from 39.4% during the same period in 2021.
Depreciation and amortization expense increased $3,635 or 47.4% to $11,304 for the 2022 Period compared to $7,669 for the same period in 2021. This increase was related to depreciation associated with assets purchased during 2021 and 2022.
Income Taxes
Our deferred tax asset related primarily to net operating loss carryforwards for income tax purposes which were fully utilized during the 1st Quarter of 2022. Income tax expense for the 2022 Period was $188,313.
Net Income
For the 2022 Period, we realized net income of $550,333 compared to net income of $736,026 for the same period in 2021. The decrease was due primarily to the decline in our gross profit as a percentage of revenue combined with a 37.0% increase in sales and marketing expense, and a 13.2% increase in general and administrative expenses.
Liquidity and Capital Resources
As of September 30, 2022, we had $2,736,299 in cash and $2,796,272 in current assets and $1,688,694 in current liabilities. Current liabilities consist primarily of $478,672 in accrued and other liabilities, of which $263,068 is owed to our officers and directors, and $1,027,439 is deferred revenue. Our officers and directors, who are also major shareholders, have 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 September 30, 2022 and December 31, 2021, we had positive working capital of $1,107,578 and $1,114,565, respectively.
As of September 30, 2022, $45,217 of the $51,746 we owed to our trade creditors was past due. We have no formal agreements regarding payment of these amounts.
Cash flow for the nine-month periods ended September 30, 2022 and 2021 consist of the following:
| For the Nine-Month Period Ended September 30,
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| 2022 |
| 2021 |
Net cash flows provided by operating activities | $747,902 |
| $1,230,907 |
Net cash flows used in investing activities | (47,889) |
| (5,847) |
Net cash flows used in financing activities | (618,826) |
| (167,470) |
Cash used for the purchase of property and equipment was $47,889 and $5,847 in the nine months ended September 30, 2022 and 2021, respectively.
No intangible assets were purchased in the nine months ended September 30, 2022 and 2021.
On January 1, 2022, we paid the December 9, 2021, preferred stock dividends declared of $51,143.
On June 15, 2022, we paid the May 13, 2022, common stock dividends declared of $537,425. On September 15, 2022, we paid the August 15, 2022 common stock dividends declared of $57,581.
Growth of our business and the anticipated continued payment of common stock dividends (at a rate substantially less than the initial special common stock dividend paid on May 13, 2022), may require additional capital to fund capital expenditures and working capital needs. These additional capital expenditure requirements could include:
·mergers and acquisitions;
·improvements 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 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
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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.
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 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 charge 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 or 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 3. 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 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) 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 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 September 30, 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.
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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.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceedings.
Item 5. Other Information
During the nine months ended September 30, 2022, all events reportable on Form 8-K were reported.
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Item 6. Exhibits
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| Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock of FullNet Communications, Inc. (filed as Exhibit 4.18 to the Form 8-K filed June 7, 2013, and incorporated herein by reference) |
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| Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of Roger P. Baresel |
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| XBRL Instance Document |
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| XBRL Taxonomy Extension Presentation Linkbase Document |
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| Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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| In accordance with Rule 406T of Regulation S-T, the XBRL (Extensible Business Reporting Language) related information in Exhibit 101 to this Quarterly Report on Form 10-Q 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.
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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.
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| REGISTRANT: FULLNET COMMUNICATIONS, INC.
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Date: November 10, 2022 | By: | /s/ ROGER P. BARESEL |
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| Roger P. Baresel |
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| Chief Executive Officer and Chief Financial Officer |
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EXHIBIT 31.1
CERTIFICATIONS
I, Roger P. Baresel, certify that:
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| I have reviewed this quarterly report on Form 10-Q/A for the period ended September 30, 2022, of FullNet Communications, Inc.; | |||||
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| Based on my knowledge, this 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 report; | |||||
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| Based on my knowledge, the financial statements, and other financial information included in this 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 report; | |||||
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| The registrant’s other certifying officer(s) 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: | |||||
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| 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 report is being prepared; | ||||
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| 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; | ||||
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| 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 | ||||
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| 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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | ||||
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| The registrant’s other certifying officer(s) 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 the registrant’s board of directors (or persons performing the equivalent functions): | |||||
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| All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||||
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| 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. | ||||
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Date: November 10, 2022 |
| /s/ Roger P. Baresel, |
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| Chief Executive Officer and Chief Financial Officer | |||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. §1350 (as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Executive and Chief Financial and Accounting Officer of FullNet Communications, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q/A of the Company for the period ended September 30,2022 (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: November 10, 2022 | /s/ Roger P. Baresel, |
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| Chief Executive Officer and Chief Financial Officer |
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