FULLNET COMMUNICATIONS, INC. The following discussion is qualified in its entirety by the more detailed
information in our 2022 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
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 experienced in 2020 and 2021 are slowing, 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
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
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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 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 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 months ended
Three Months Ended
March 31, 2023 March 31, 2022
Amount Percent Amount Percent
REVENUE $1,046,873 100.0 $1,116,446 100.0
COST OF REVENUE 244,554 23.4 227,467 20.4
Gross Profit 802,319 76.6 888,979 79.6
OPERATING EXPENSES
Sales and marketing 179,611 17.2 162,287 14.5
General and administrative 447,577 42.7 457,460 41.0
Depreciation and amortization 4,410 0.4 2,554 0.2
Total operating expenses 631,598 60.3 622,301 55.7
Income from operations 170,721 16.3 266,678 23.9
Other income 28,857 2.8 385 0.0
Income tax expense (50,924) (4.9) (68,002) (6.1)
Net income 148,654 14.2 199,061 17.8
Preferred stock dividends (17,002) (1.6) (15,105) (1.3)
Net income available to common
shareholders $131,652 12.6 $183,956 16.5
Three Months Ended
Revenue
Total revenue decreased
In the 2023 1st Quarter, we had interest income of
Cost of Revenue
Cost of revenue increased
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Gross Profit
Gross profit as a percentage of revenue decreased 3.0 % to 76.6% for the 2023 1st Quarter from 79.6% for the same period in 2022. 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 decreased
Depreciation and amortization expense increased
Income Taxes
In the 2023 1st Quarter, we had income tax expense of
Net Income
For the 2023 1st Quarter, we realized net income of
Liquidity and Capital Resources
As of
At
As of
Cash flow for the three-month periods endedMarch 31, 2023 and 2022 consist of the following: For the Three-Month Period Ended March 31, 2023 2022 Net cash flows provided by operating activities$255,899 $361,213 Net cash flows used in investing activities - (1,043) Net cash flows used in financing activities (125,165) (51,143)
No property and equipment were purchased in the three months ended
No intangible assets were purchased in the three months ended
On
Growth of our business and the anticipated continued payment of common stock dividends may require additional capital to fund capital expenditures and working capital needs. These additional capital expenditure requirements could include:
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• 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 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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