FULLNET COMMUNICATIONS, INC. 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
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:
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
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
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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
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 six months endedJune 30, 2022 and 2021: Three Months Ended Six Months Ended June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Amount Percent Amount Percent Amount Percent Amount Percent REVENUE$1,062,413 100.0$994,891 100.0$2,178,859 100.0$2,020,875 100.0 COST OF 442,610 20.3 315,961 15.6 REVENUE 215,143 20.3 167,088 16.8 Gross Profit 847,270 79.7 827,803 83.2 1,736,249 79.7 1,704,914 84.4 OPERATING EXPENSES Sales and 331,033 15.2 202,530 10.0 marketing 168,746 15.9 93,139 9.4 General and 916,064 42.1 777,795 38.5 administrative 458,604 43.2 384,822 38.7 Depreciation 6,907 0.3 5,113 0.3 and amortization 4,353 0.4 2,643 0.2 Total 1,254,004 57.6 985,438 48.8 operating expenses 631,703 59.5 480,604 48.3 Income from 482,245 22.1 719,476 35.6 operations 215,567 20.3 347,199 34.9 Other income 3,911 0.4 20,209 2.0 4,296 0.2 20,535 1.0 Income tax (124,168) (5.7) (191,989) (9.5) expense (56,166) (5.3) (95,320) (9.6) Net income 163,312 15.4 272,088 27.3 362,373 16.6 548,022 27.1 Preferred (30,210) (1.4) (27,369) (1.4) stock dividends (15,105) (1.4) (13,684) (1.4) Net income available to common shareholders$ 148,207 14.0$258,404 25.9$332,163 15.2$520,653 25.7
Three Months Ended
Revenue
Total revenue increased
In the 2022 2nd Quarter, we had interest income of
Cost of Revenue
Cost of revenue increased
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vendors. Cost of revenue as a percentage of total revenue increased to 20.3% during the 2022 2nd Quarter, compared to 16.8% 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 3.5% to 79.7% for the 2022 2nd Quarter from 83.2% 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
General and administrative expenses increased
Depreciation and amortization expense increased
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 2nd Quarter of 2022 was
Net Income
For the 2022 2nd Quarter, we realized net income of
Six Months Ended
Revenues
Total revenue increased
In the 2022 Period, we had interest income of
Cost of Revenue
Cost of revenue increased
Gross Profit
Gross profit as a percentage of revenue decreased 4.7 % to 79.7% for the 2022 Period from 84.4% 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
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total revenues increased to 15.2% for the 2022 Period compared to 10.0% for the same period in 2021.
General and administrative expenses increased
Depreciation and amortization expense increased
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
Net Income
For the 2022 Period, we realized net income of
Liquidity and Capital Resources
As of
At
As of
Cash flow for the six-month periods endedJune 30, 2022 and 2021 consist of the following: For the Six-Month Period Ended June 30, 2022 2021 Net cash flows provided by operating activities$568,366 $862,262 Net cash flows used in investing activities (47,889) (5,847) Net cash flows used in financing activities (561,245) (167,470)
Cash used for the purchase of property and equipment was
No intangible assets were purchased in the six months ended
On
On
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
·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 --------------------------------------------------------------------------------
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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.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with accounting
principles generally accepted in
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.
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