1. UNAUDITED INTERIM FINANCIAL STATEMENTS

9 Months Ended

Sep. 30, 2022

Notes

1. UNAUDITED INTERIM FINANCIAL STATEMENTS

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:
Net income	$187,960	$188,004	$550,333	$736,026
Preferred stock dividends	(14,839)	(13,685)	(45,049)	(41,054)
Net income available to common shareholders	173,121	174,319	505,284	694,972
Basic income per share:
Weighted average common shares outstanding used in income per share	19,182,754	16,660,121	18,137,640	16,597,659
Basic income per share	0.01	0.01	0.03	0.04
Diluted income per share:
Shares used in diluted income per share	19,708,698	19,688,994	18,667,822	19,585,761
Diluted income per share	0.01	0.01	0.03	0.04
Computation of shares used in income per share:
Weighted average shares and share equivalents outstanding – basic	19,182,754	16,660,121	18,137,640	16,597,659
Effect of dilutive stock options	525,944	2,741,040	530,182	2,701,422
Effect of dilutive warrants	-	287,833	-	286,680
Weighted average shares and share equivalents outstanding – diluted	19,708,698	19,688,994	18,667,822	19,585,761

Schedule of Anti-dilutive Securities Excluded
	Three Months Ended		Nine Months Ended
	September 30, 2022	September 30, 2021	September 30, 2022	September 30, 2021
Preferred stock	568,257	568,257	568,257	568,257
Total anti-dilutive securities excluded	568,257	568,257	568,257	568,257

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.