10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q  

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ 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: 000-27031

FULLNET COMMUNICATIONS INC.

(Exact name of registrant as specified in its charter)

Oklahoma	73-1473361
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

201 Robert S. Kerr Avenue, Suite 210

Oklahoma City, Oklahoma 73102

(Address of principal executive offices)

(405) 236-8200

(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. Yes þ  No o

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). Yes þ  No o

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.

Large accelerated filer o		Accelerated filer o	Non-accelerated filer þ	Smaller reporting company ☑
Emerging-growth company	☐

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 ☐  No þ

As of November 9, 2023, 19,565,087 shares of the registrant’s common stock, $0.00001 par value, were outstanding.

FORM 10-Q

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets — September 30, 2023 (Unaudited) and December 31, 2022		3
Condensed Consolidated Statements of Operations — Three and nine months ended September 30, 2023 and 2022 (Unaudited)		4
Condensed Consolidated Statements of Shareholders’ Equity — Nine months ended September 30, 2023 and 2022 (Unaudited)		5
Condensed Consolidated Statements of Cash Flows —Nine months ended September 30, 2023 and 2022 (Unaudited)		6
Notes to Condensed Consolidated Financial Statements (Unaudited)		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		14
Item 4. Controls and Procedures		14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		15
Item 5. Other Information		15
Item 6. Exhibits		15
Signatures		16
Exhibit 31.1
Exhibit 32.1

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FullNet Communications, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2023 (Unaudited)	December 31, 2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$3,076,180	$2,753,551
Accounts receivable, net	956	1,584
Prepaid expenses and other current assets	25,636	36,740
Total current assets	3,102,772	2,791,875
PROPERTY AND EQUIPMENT, net	74,603	87,173
OTHER ASSETS AND INTANGIBLE ASSETS	20,236	18,250
RIGHT OF USE LEASED ASSET	179,927	279,086
TOTAL ASSETS	$3,377,538	$3,176,384
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$15,131	$18,999
Accrued and other liabilities	438,170	413,646
Dividends payable	-	61,826
Operating lease liability – current portion	142,402	133,637
Deferred revenue	1,092,895	1,001,298
Total current liabilities	1,688,598	1,629,406
OPERATING LEASE LIABILITY – net of current portion	37,525	145,449
Total liabilities	1,726,123	1,774,855
SHAREHOLDERS’ EQUITY
Preferred stock - $0.001 par value; authorized, 10,000,000 shares; Series A convertible; issued and outstanding, 618,257 shares in 2023 and 2022, respectively	409,531	409,531
Common stock - $0.00001 par value; authorized, 40,000,000 shares; issued and outstanding, 19,565,087 shares and 19,182,754 shares in 2023 and 2022, respectively	196	192
Additional paid-in capital	9,120,032	9,108,410
Accumulated deficit	(7,878,344)	(8,116,604)
Total shareholders’ equity	1,651,415	1,401,529
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$3,377,538	$3,176,384

See accompanying notes to unaudited condensed consolidated financial statements.

3

FullNet Communications, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended		Nine Months Ended
	September 30, 2023	September 30, 2022	September 30, 2023	September 30, 2022
REVENUE	$1,040,853	$1,052,408	$3,141,594	$3,231,267
COST OF REVENUE	274,476	229,197	769,764	671,807
Gross profit	766,377	823,211	2,371,830	2,559,460
OPERATING EXPENSES
Sales and marketing	190,725	138,681	551,844	469,714
General and administrative expenses	454,808	440,748	1,337,151	1,356,812
Depreciation and amortization	4,027	4,397	12,570	11,304
Total operating expenses	649,560	583,826	1,901,565	1,837,830
INCOME FROM OPERATIONS	116,817	239,385	470,265	721,630
OTHER INCOME	38,161	12,720	108,088	17,016
NET INCOME BEFORE INCOME TAX	154,978	252,105	578,353	738,646
Income tax expense	(39,780)	(64,145)	(147,588)	(188,313)
NET INCOME	$115,198	$187,960	$430,765	$550,333
Preferred stock dividends	(17,002)	(14,839)	(51,006)	(45,049)
Net income available to common shareholders	$98,196	$173,121	$379,759	$505,284
Net income per share:
Basic	$0.01	$0.01	$0.02	$0.03
Diluted	$0.01	$0.01	$0.02	$0.03
Weighted average common shares outstanding:
Basic	19,565,087	19,182,754	19,431,552	18,137,640
Diluted	19,744,026	19,708,698	19,611,889	18,667,822

See accompanying notes to unaudited condensed consolidated financial statements.

4

FullNet Communications, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

Nine Months Ended September 30, 2023

	Common stock		Preferred stock		Additional	Accumulated
	Shares	Amount	Shares	Amount	paid-in capital	deficit	Total
Balance at January 1, 2023	19,182,754	$192	618,257	$409,531	$9,108,410	$(8,116,603)	$1,401,530
Stock options expense	-	-	-	-	6,243	-	6,243
Stock options exercised	382,333	4	-	-	5,379	-	5,383
Common stock dividends paid	-	-	-	-	-	(192,506)	(192,506)
Net income	-	-	-	-	-	430,765	430,765
Balance at September 30, 2023 – (unaudited)	19,565,087	$196	618,257	$409,531	$9,120,032	$(7,878,344)	$1,651,415

Nine Months Ended September 30, 2022

	Common stock		Preferred stock		Additional	Accumulated
	Shares	Amount	Shares	Amount	paid-in capital	deficit	Total
Balance at January 1, 2022	17,146,121	$171	568,257	$357,101	$9,072,109	$(8,074,427)	$1,354,954
Stock options expense	-	-	-	-	9,041	-	9,041
Stock options exercised	1,746,633	18	-	-	26,156	-	26,174
Warrants exercised	290,000	3	-	-	1,147	-	1,150
Common stock dividends paid	-	-	-	-	-	(595,006)	(595,006)
Amortization of increasing dividend rate preferred stock discount	-	-	-	2,430	(2,430)	-	-
Net income	-	-	-	-	-	550,333	550,333
Balance at September 30, 2022 – (unaudited)	19,182,754	$192	568,257	$359,531	$9,106,023	$(8,119,100)	$1,346,646

See accompanying notes to unaudited condensed consolidated financial statements.

5

FullNet Communications, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended
	September 30, 2023	September 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$430,765	$550,333
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	12,570	11,304
Loss on disposal of assets	-	5,205
Noncash lease expense	99,159	91,106
Provision for deferred tax expense	-	38,359
Stock options expense	6,243	9,041
Provision for uncollectible accounts receivable	1,190	(398)
Changes in operating assets and liabilities
Accounts receivable	(562)	29,308
Prepaid expenses and other assets	9,118	(31,441)
Accounts payable	(3,868)	(1,402)
Accrued and other liabilities	24,524	15,650
Deferred revenue	91,598	121,943
Operating lease liability	(99,159)	(91,106)
Net cash provided by operating activities	571,578	747,902
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment	-	(47,889)
Net cash used in investing activities	-	(47,889)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options	5,383	26,173
Proceeds from exercise of warrants	-	1,150
Payment of dividends payable – preferred stock	(61,826)	(51,143)
Payment of dividends payable – common stock	(192,506)	(595,006)
Net cash used in financing activities	(248,949)	(618,826)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	322,629	81,187
Cash and cash equivalents at beginning of period	2,753,551	2,655,112
Cash and cash equivalents at end of period	$3,076,180	$2,736,299
NON-CASH INVESTING AND FINANCING ACTIVITIES
Amortization of increasing dividend rate preferred stock discount	$-	$2,430

See accompanying notes to the unaudited condensed consolidated financial statements.

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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, 2022.

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, 2023.

Recently Adopted Accounting Pronouncements

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 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.

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.

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The reconciliation of basic and diluted income per share are as follows:

	Three Months Ended		Nine Months Ended
	September 30, 2023	September 30, 2022	September 30, 2023	September 30, 2022
Net income:
Net income	$115,198	$187,960	$430,765	$550,333
Preferred stock dividends	(17,002)	(14,839)	(51,006)	(45,049)
Net income available to common shareholders	98,196	173,121	379,759	505,284
Basic income per share:
Weighted average common shares outstanding used in income per share	19,565,087	19,182,754	19,431,552	18,137,640
Basic income per share	0.01	0.01	0.02	0.03
Diluted income per share:
Shares used in diluted income per share	19,744,026	19,708,698	19,611,889	18,667,822
Diluted income per share	0.01	0.01	0.02	0.03
Computation of shares used in income per share:
Weighted average shares and share equivalents outstanding – basic	19,565,087	19,182,754	19,431,552	18,137,640
Effect of dilutive stock options	178,939	525,944	180,337	530,182
Weighted average shares and share equivalents outstanding – diluted	19,744,026	19,708,698	19,611,889	18,667,822

Schedule of Anti-dilutive Securities Excluded
	Three Months Ended		Nine Months Ended
	September 30, 2023	September 30, 2022	September 30, 2023	September 30, 2022
Preferred stock	618,257	568,257	618,257	568,257
Total anti-dilutive securities excluded	618,257	568,257	618,257	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.

2.     STOCK BASED COMPENSATION

The following table summarizes our employee stock option activity for the nine months ended September 30, 2023:

Schedule of Employee Stock Option Activity
	Options	Weighted average exercise price	Weighted average remaining contractual life (yrs)	Aggregate Intrinsic value
Options outstanding, December 31, 2022	556,330	$0.051	6.74	$184,485
Options exercised during the period	382,333	$0.014
Options granted during the period	45,000	$0.010
Options forfeited during the period	33,000	$0.003
Options outstanding September 30, 2023	185,997	$0.010	7.77	$44,673
Options exercisable September 30, 2023	77,997	$0.010	6.37	$18,753

During the nine months ended September 30, 2023, 45,000 nonqualified employee stock options were granted with an exercise price of $0.010 per option. The options were valued using the Black-Scholes option pricing model on the date of issuance, and the fair value of the options was determined to be $4,430 of which $123 was recognized as stock-based compensation expense for the nine months ended September 30, 2023. The 45,000 options will vest one-third on each anniversary of the vesting period. During the nine months ended September 30, 2023, the exercise price of 49,500 employee stock options with exercise prices ranging from $0.20 to $0.47 was reduced

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to $0.01. The Company performed an analysis under ASC 718-20 “stock compensation” and recorded an incremental expense of $286. During the nine months ended September 30, 2023, 33,000 employee stock options were forfeited that were related to options granted in prior years.

During the nine months ended September 30, 2023, certain employees of ours exercised options to purchase 382,333 restricted shares of our common stock, par value $0.00001 per share. Proceeds from the exercise of the Options were $5,383. The common shares were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, without payment of any form of commissions or other remuneration.

On September 15, 2023, we paid the August 15, 2023 dividends declared on our common stock of $64,565, to shareholders of record on August 31, 2023. On June 15, 2023, we paid the May 15, 2023 dividends declared on our common stock of $64,602, to shareholders of record on May 31, 2023. On March 15, 2023, we paid the February 15, 2023 dividends declared on our common stock of $63,339, to shareholders of record on February 28, 2023.

Total stock-based compensation expense for the nine months ended September 30, 2023 was $6,243, of which $123 is related to options issued during the nine months ended September 30, 2023, $5,834 is related to options issued in prior years, and $286 is related to the repricing of options issued in prior years. 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).  

3.     WARRANT ACTIVITY

During the nine months ended September 30, 2023, no warrants were issued or exercised.

4.     SERIES A CONVERTIBLE PREFERRED STOCK

On January 3, 2023, we paid the December 23, 2022 dividends declared on our Series A Convertible Preferred Stock of $61,826. As of September 30, 2023, the aggregate outstanding accumulated arrearages of cumulative dividend was $51,006 or if issued in common shares, 204,025 shares.

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, 2023, the remaining future cash payments under our lease total to $190,290.

For the nine months ended September 30, 2023, we amortized $99,159 of our operating right-of-use, or ROU, asset and made payments of the associated lease liability for the same amount. At September 30, 2023, an operating ROU asset and liability of $179,927, each, are included on our condensed consolidated balance sheet.

For the nine months ended September 30, 2023 and 2022, our fixed operating lease cost was $114,174, which is included within operating costs and expenses in our condensed consolidated statements of operations.

Future minimum lease payments under non-cancellable operating lease as of September 30, 2023, were as follows:

Year ending December 31,
2023 (three months remaining)	$38,058
2024	152,232
Total future minimum lease payments	190,290
Present value of discount	(10,363)
Current portion lease liability	(142,402)
Long-term lease liability	$37,525

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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 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 Securities and Exchange Commission since December 31, 2022 (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

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 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,

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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 and nine months ended September 30, 2023 and 2022:

	Three Months Ended				Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
	Amount	Percent	Amount	Percent	Amount	Percent	Amount	Percent
REVENUE	$1,040,853	100.0	$1,052,408	100.0	$3,141,594	100.0	$3,231,267	100.0
COST OF REVENUE	274,476	26.4	229,197	21.8	769,764	24.5	671,807	20.8
Gross Profit	766,377	73.6	823,211	78.2	2,371,830	75.5	2,559,460	79.2
OPERATING EXPENSES
Sales and marketing	190,725	18.3	138,681	13.2	551,844	17.5	469,714	14.5
General and administrative	454,808	43.7	440,748	41.9	1,337,151	42.6	1,356,812	42.0
Depreciation and amortization	4,027	0.4	4,397	0.4	12,570	0.4	11,304	0.4
Total operating expenses	649,560	62.4	583,826	55.5	1,901,565	60.5	1,837,830	56.9
Income from operations	116,817	11.2	239,385	22.7	470,265	15.0	721,630	22.3
Other income	38,161	3.6	12,720	1.2	108,088	3.4	17,016	0.5
Income tax expense	(39,780)	(3.8)	(64,145)	(6.1)	(147,588)	(4.7)	(188,313)	(5.8)
Net income	115,978	11.0	187,960	17.8	430,765	13.7	550,333	17.0
Preferred stock dividends	(17,002)	(1.6)	(14,839)	(1.4)	(51,006)	(1.6)	(45,049)	(1.4)
Net income available to common shareholders	$ 98,196	9.4	$173,121	16.4	$379,759	12.1	$505,284	15.6

Three Months Ended September 30, 2023 (the “2023 3rd Quarter”) Compared to Three Months Ended September 30, 2022 (the “2022 3rd Quarter”)

Revenue

Total revenue decreased $11,555 or 1.1% to $1,040,853 for the 2023 3rd Quarter from $1,052,408 for the same period in 2022. This decrease was primarily attributable to the loss of a customized live help-desk outsourcing service customer.

In the 2023 2nd Quarter, we had interest income of $38,161. In the 2022 3rd Quarter, we had interest income of $12,720. The increase in interest income was primarily the result of interest rate increases resulting from actions taken by the Federal Reserve.

Cost of Revenue

Cost of revenue increased $45,279 or 19.8% to $274,476 for the 2023 3rd Quarter from $229,197 for the same period in 2022. This increase was primarily due to price increases from our vendors. Cost of revenue as a percentage of total revenue increased to 26.4% during the 2023 3rd Quarter, compared to 21.8% during the same period in 2022, as a result of price increases from our vendors combined with increased utilization of higher cost components of our service offerings.

11

Gross Profit

Gross profit as a percentage of revenue decreased 4.6 % to 73.6% for the 2023 3rd Quarter from 78.2% for the same period in 2022. This decrease was primarily related to price increases from our vendors combined with increased utilization of higher cost components of our services offerings.

Operating Expenses

Sales and marketing expenses increased $52,044 or 37.5% to $190,725 for the 2023 3rd Quarter from $138,681 for the 3rd Quarter of 2022. This increase was primarily a result of increases in advertising expense. Sales and marketing expense as a percentage of total revenues increased to 18.3% for the 3rd Quarter of 2023 compared to 13.2% for the 3rd Quarter of 2022.

General and administrative expenses increased $14,060 or 3.2% to $454,808 for the 2023 3rd Quarter compared to $440,748 for the same period in 2022. This increase was primarily related to an increase in employee costs. General and administrative expenses as a percentage of total revenues increased to 43.7% during the 2023 3rd Quarter from 41.9% during the same period in 2022 due to the increase in employee costs.

Depreciation and amortization expense decreased $370 or 8.4% to $4,027 for the 2023 3rd Quarter compared to $4,397 for the same period in 2022. This decrease was related to several assets reaching full depreciation during the 2023 3rd Quarter.

  Income Taxes

In the 2023 3rd Quarter, we had income tax expense of $39,780. In the 2022 3rd Quarter, we had income tax expense of $64,145.

  Net Income

For the 2023 3rd Quarter, we realized net income of $115,978 compared to net income of $187,960 for the same period in 2022. The decrease was due primarily to the decline in our gross profit as a percentage of revenue. 

Nine Months Ended September 30, 2023 (the”2023 Period”) Compared to Nine Months Ended September 30, 2022 (the “2022 Period”)

Revenues

Total revenue decreased $89,673 or 2.8% to $3,141,594 for the 2023 Period from $3,231,267 for the same period in 2022. This decrease was primarily attributable to the loss of a customized live help-desk outsourcing service customer.

In the 2023 Period, we had interest income of $101,663 and other income of $6,425. In the 2022 Period, we had interest income of $17,016. The increase in interest income was primarily the result of interest rate increases resulting from actions taken by the Federal Reserve, and the increase in other income was primarily due to income from debt extinguishment.

Cost of Revenue

Cost of revenue increased $97,957 or 14.6% to $769,764 for the 2023 Period from $671,807 for the same period in 2022. This increase was primarily related to price increases from our vendors. Cost of revenue as a percentage of total revenue increased to 24.5% during the 2023 Period, compared to 20.8% during the same period in 2022, as a result of price increases from our vendors combined with increased utilization of higher cost components of our service offerings.

Gross Profit

Gross profit as a percentage of revenue decreased 3.7 % to 75.5% for the 2023 Period from 79.2 for the same period in 2022. This decrease was primarily related to price increases from our vendors combined with increased utilization of higher cost components of our services offerings.

Operating Expenses

Sales and marketing expenses increased $82,130 or 17.5% to $551,844 for the 2023 Period from $469,714 for the same period of 2022. This increase was primarily a result of increases in advertising expense. Sales and marketing expense as a percentage in total revenues increased to 17.5% for the 2023 Period compared to 14.5% for the same period in 2022.

General and administrative expenses decreased $19,661 or 1.4% to $1,337,151 for the 2023 Period compared to $1,356,812 for the same period in 2022. This decrease was primarily related to a decrease in employee costs, professional services, and supplies of $10,877, $4,217, and $3,021, respectively. General and administrative expenses as a percentage of total revenues increased to 42.6%

12

during the 2023 Period from 42.0% during the same period in 2022.

Depreciation and amortization expense increased $1,266 or 11.2% to $12,570 for the 2023 Period compared to $11,304 for the same period in 2022. This increase was related to depreciation associated with assets purchased during 2022.

  Income Taxes

Income tax expense for the 2023 Period was $147,588. Income tax expense for the 2022 Period was $188,313.

  Net Income

For the 2023 Period, we realized net income of $430,765 compared to net income of $550,333 for the same period in 2022. The decrease was due primarily to the decline in our gross profit as a percentage of revenue. 

Liquidity and Capital Resources

As of September 30 2023, we had $3,076,180 in cash and $3,102,772 in current assets and $1,688,598 in current liabilities. Current liabilities consist primarily of $438,170 in accrued and other liabilities, of which $156,796 is owed to our officers and directors, and $1,092,895 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 direct settlement in cash.

At September 30, 2023 and December 31, 2022, we had positive working capital of $1,414,174 and $1,162,469, respectively.

As of September 30, 2023, $7,019 of the $15,131 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 period ended September 30, 2023 and 2022 consist of the following:

	For the Nine-Month Period Ended September 30,
	2023	2022
Net cash flows provided by operating activities	$571,578	$747,902
Net cash flows used in investing activities	-	(47,889)
Net cash flows used in financing activities	(248,949)	(618,826)

No property and equipment were purchased in the nine months ended September 30, 2023. Cash used for the purchase of property and equipment was $47,889 in the nine months ended September 30, 2022.

No intangible assets were purchased in the nine months ended September 30, 2023 and 2022.  

On January 3, 2023, we paid the December 23, 2022, preferred stock dividends declared of $61,826.

On March 15, 2023, we paid the February 15, 2023, common stock dividends declared of $63,339. On June 15, 2023, we paid the May 15, 2023, common stock dividends declared of $64,602. On September 15, 2023, we paid the August 15, 2023, common stock dividends declared of $64,565.

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:

• 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

13

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, 2023 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.

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.

14

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, 2023, all events reportable on Form 8-K were reported.

Item 6.     Exhibits

			The following exhibits are either filed as part of or are incorporated by reference in this Report:
Exhibit
Number				Exhibit
	3.2			Bylaws (filed as Exhibit 2.2 to Registrant’s Registration Statement on Form 10-SB, file number 000-27031 filed on August 13, 1999, and incorporated herein by reference)
	3.3			Amended and Restated Certificate of Incorporation of FullNet Communications, Inc. (filed as Exhibit 3.3 to Registrant’s Form 8-K, file number 000-27031 filed on June 7, 2013, and incorporated herein by reference)
	4.4			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)
	31.1			Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of Roger P. Baresel	*
	32.1			Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Roger P. Baresel	*
	101.INS			XBRL Instance Document	**
	101.SCH			XBRL Taxonomy Extension Schema Document	**
	101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document	**
	101.DEF			XBRL Taxonomy Extension Definition Linkbase Document	**
	101.LAB			XBRL Taxonomy Extension Label Linkbase Document	**
	101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document	**
	104			Cover Page Interactive Data File (embedded within the Inline XBRL document)
*		Filed herewith.
**		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.

15

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: November 14, 2023	By:	/s/ ROGER P. BARESEL
		Roger P. Baresel
		Chief Executive Officer and Chief Financial Officer

16

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Roger P. Baresel, certify that:

1.	I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2023, of FullNet Communications, Inc.;
2.	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;
3.	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;
4.	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:
	(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 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 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 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):
	(a)	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
	(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: November 14, 2023			/s/ Roger P. Baresel,
			Chief Executive Officer and Chief Financial Officer

EX-32.1

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 of the Company for the period ended September 30, 2023 (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.

Date: November 14, 2023	/s/ Roger P. Baresel,
	Chief Executive Officer and Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2023	Nov. 09, 2023
Details
Registrant CIK	0001092570
Fiscal Year End	--12-31
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2023
Document Transition Report	false
Entity File Number	000-27031
Entity Registrant Name	FULLNET COMMUNICATIONS INC.
Entity Incorporation, State or Country Code	OK
Entity Tax Identification Number	73-1473361
Entity Address, Address Line One	201 Robert S. Kerr Avenue, Suite 210
Entity Address, City or Town	Oklahoma City
Entity Address, State or Province	OK
Entity Address, Postal Zip Code	73102
City Area Code	405
Local Phone Number	236-8200
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		19,565,087
Amendment Flag	false
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q3

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (September 30, 2023 Unaudited) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
CURRENT ASSETS
Cash and cash equivalents	$ 3,076,180	$ 2,753,551
Accounts receivable, net	956	1,584
Prepaid expenses and other current assets	25,636	36,740
Total current assets	3,102,772	2,791,875
PROPERTY AND EQUIPMENT, net	74,603	87,173
OTHER ASSETS AND INTANGIBLE ASSETS	20,236	18,250
RIGHT OF USE LEASED ASSET	179,927	279,086
TOTAL ASSETS	3,377,538	3,176,384
CURRENT LIABILITIES
Accounts payable	15,131	18,999
Accrued and other liabilities	438,170	413,646
Dividends payable	0	61,826
Operating lease liability - current portion	142,402	133,637
Deferred revenue	1,092,895	1,001,298
Total current liabilities	1,688,598	1,629,406
OPERATING LEASE LIABILITY - net of current portion	37,525	145,449
Total liabilities	1,726,123	1,774,855
SHAREHOLDERS' EQUITY
Preferred Stock, Value	409,531	409,531
Common Stock, Value	196	192
Additional paid-in capital	9,120,032	9,108,410
Accumulated deficit	(7,878,344)	(8,116,604)
Total shareholders' equity	1,651,415	1,401,529
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 3,377,538	$ 3,176,384

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (September 30, 2023 Unaudited) - Parenthetical - $ / shares	Sep. 30, 2023	Dec. 31, 2022
CONDENSED CONSOLIDATED BALANCE SHEETS (September 30, 2023 Unaudited)
Preferred Stock, Par or Stated Value Per Share	$ 0.001	$ 0.001
Preferred Stock, Shares Authorized	10,000,000	10,000,000
Preferred Stock, Shares Issued	618,257	618,257
Preferred Stock, Shares Outstanding	618,257	618,257
Common Stock, Par or Stated Value Per Share	$ 0.00001	$ 0.00001
Common Stock, Shares Authorized	40,000,000	40,000,000
Common Stock, Shares, Issued	19,565,087	19,182,754
Common Stock, Shares, Outstanding	19,565,087	19,182,754

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
REVENUE	$ 1,040,853	$ 1,052,408	$ 3,141,594	$ 3,231,267
COST OF REVENUE	274,476	229,197	769,764	671,807
Gross profit	766,377	823,211	2,371,830	2,559,460
OPERATING EXPENSES
Sales and marketing	190,725	138,681	551,844	469,714
General and administrative expenses	454,808	440,748	1,337,151	1,356,812
Depreciation and amortization	4,027	4,397	12,570	11,304
Total operating expenses	649,560	583,826	1,901,565	1,837,830
INCOME FROM OPERATIONS	116,817	239,385	470,265	721,630
OTHER INCOME	38,161	12,720	108,088	17,016
NET INCOME BEFORE INCOME TAX	154,978	252,105	578,353	738,646
Income tax expense	(39,780)	(64,145)	(147,588)	(188,313)
Net Income (Loss) Attributable to Parent	115,198	187,960	430,765	550,333
Preferred stock dividends	(17,002)	(14,839)	(51,006)	(45,049)
Net income available to common shareholders	$ 98,196	$ 173,121	$ 379,759	$ 505,284
Earnings Per Share
Basic income per share	$ 0.01	$ 0.01	$ 0.02	$ 0.03
Diluted income per share	$ 0.01	$ 0.01	$ 0.02	$ 0.03
Weighted Average Number of Shares Outstanding, Basic	19,565,087	19,182,754	19,431,552	18,137,640
Weighted Average Number of Shares Outstanding, Diluted	19,744,026	19,708,698	19,611,889	18,667,822

XML

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($)	Common Stock	Preferred Stock	Additional Paid In Capital	Accumulated Deficit	Total
Equity Balance, Starting at Dec. 31, 2021	$ 171	$ 357,101	$ 9,072,109	$ (8,074,427)	$ 1,354,954
Shares Outstanding, Starting at Dec. 31, 2021	17,146,121	568,257
Shares Granted, Value, Share-Based Payment Arrangement, after Forfeiture	$ 0	$ 0	9,041	0	9,041
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Net of Forfeitures	0	0
Stock Issued During Period, Value, Stock Options Exercised	$ 18	$ 0	26,156	0	26,174
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercises in Period	1,746,633	0
Dividends	$ 0	$ 0	0	(595,006)	(595,006)
Net Income (Loss)	0	0	0	550,333	550,333
Equity Balance, Ending at Sep. 30, 2022	$ 192	$ 359,531	9,106,023	(8,119,100)	1,346,646
Shares Outstanding, Ending at Sep. 30, 2022	19,182,754	568,257
Warrants exercised, value	$ 3	$ 0	1,147	0	1,150
Warrants exercised, shares	290,000	0
Amortization of increasing dividend rate preferred stock discount	$ 0	$ 2,430	(2,430)	0	0
Equity Balance, Starting at Dec. 31, 2022	$ 192	$ 409,531	9,108,410	(8,116,603)	1,401,530
Shares Outstanding, Starting at Dec. 31, 2022	19,182,754	618,257
Shares Granted, Value, Share-Based Payment Arrangement, after Forfeiture	$ 0	$ 0	6,243	0	6,243
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Net of Forfeitures	0	0
Stock Issued During Period, Value, Stock Options Exercised	$ 4	$ 0	5,379	0	5,383
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercises in Period	382,333	0
Dividends	$ 0	$ 0	0	(192,506)	(192,506)
Net Income (Loss)	0	0	0	430,765	430,765
Equity Balance, Ending at Sep. 30, 2023	$ 196	$ 409,531	$ 9,120,032	$ (7,878,344)	$ 1,651,415
Shares Outstanding, Ending at Sep. 30, 2023	19,565,087	618,257

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 430,765	$ 550,333
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	12,570	11,304
Loss on disposal of assets	0	5,205
Noncash lease expense	99,159	91,106
Provision for deferred tax expense	0	38,359
Stock options expense	6,243	9,041
Provision for uncollectible accounts receivable	1,190	(398)
Changes in operating assets and liabilities
Accounts receivable	(562)	29,308
Prepaid expenses and other assets	9,118	(31,441)
Accounts payable	(3,868)	(1,402)
Accrued and other liabilities	24,524	15,650
Deferred revenue	91,598	121,943
Operating lease liability	(99,159)	(91,106)
Net cash provided by operating activities	571,578	747,902
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment	0	(47,889)
Net cash used in investing activities	0	(47,889)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options	5,383	26,173
Proceeds from exercise of warrants	0	1,150
Payment of dividends payable - preferred stock	(61,826)	(51,143)
Payment of dividends payable –common stock	(192,506)	(595,006)
Net cash used in financing activities	(248,949)	(618,826)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	322,629	81,187
Cash and cash equivalents at beginning of period	2,753,551	2,655,112
Cash and cash equivalents at end of period	3,076,180	2,736,299
NON-CASH INVESTING AND FINANCING ACTIVITIES
Amortization of increasing dividend rate preferred stock discount	$ 0	$ 2,430

XML

1. UNAUDITED INTERIM FINANCIAL STATEMENTS

9 Months Ended

Sep. 30, 2023

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, 2022.

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, 2023.

Recently Adopted Accounting Pronouncements

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 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.

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, 2023	September 30, 2022	September 30, 2023	September 30, 2022
Net income:
Net income	$115,198	$187,960	$430,765	$550,333
Preferred stock dividends	(17,002)	(14,839)	(51,006)	(45,049)
Net income available to common shareholders	98,196	173,121	379,759	505,284
Basic income per share:
Weighted average common shares outstanding used in income per share	19,565,087	19,182,754	19,431,552	18,137,640
Basic income per share	0.01	0.01	0.02	0.03
Diluted income per share:
Shares used in diluted income per share	19,744,026	19,708,698	19,611,889	18,667,822
Diluted income per share	0.01	0.01	0.02	0.03
Computation of shares used in income per share:
Weighted average shares and share equivalents outstanding – basic	19,565,087	19,182,754	19,431,552	18,137,640
Effect of dilutive stock options	178,939	525,944	180,337	530,182
Weighted average shares and share equivalents outstanding – diluted	19,744,026	19,708,698	19,611,889	18,667,822

Schedule of Anti-dilutive Securities Excluded
	Three Months Ended		Nine Months Ended
	September 30, 2023	September 30, 2022	September 30, 2023	September 30, 2022
Preferred stock	618,257	568,257	618,257	568,257
Total anti-dilutive securities excluded	618,257	568,257	618,257	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.

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2. STOCK BASED COMPENSATION

9 Months Ended

Sep. 30, 2023

Notes

2. STOCK BASED COMPENSATION

2.     STOCK BASED COMPENSATION

The following table summarizes our employee stock option activity for the nine months ended September 30, 2023:

Schedule of Employee Stock Option Activity
	Options	Weighted average exercise price	Weighted average remaining contractual life (yrs)	Aggregate Intrinsic value
Options outstanding, December 31, 2022	556,330	$0.051	6.74	$184,485
Options exercised during the period	382,333	$0.014
Options granted during the period	45,000	$0.010
Options forfeited during the period	33,000	$0.003
Options outstanding September 30, 2023	185,997	$0.010	7.77	$44,673
Options exercisable September 30, 2023	77,997	$0.010	6.37	$18,753

During the nine months ended September 30, 2023, 45,000 nonqualified employee stock options were granted with an exercise price of $0.010 per option. The options were valued using the Black-Scholes option pricing model on the date of issuance, and the fair value of the options was determined to be $4,430 of which $123 was recognized as stock-based compensation expense for the nine months ended September 30, 2023. The 45,000 options will vest one-third on each anniversary of the vesting period. During the nine months ended September 30, 2023, the exercise price of 49,500 employee stock options with exercise prices ranging from $0.20 to $0.47 was reduced

to $0.01. The Company performed an analysis under ASC 718-20 “stock compensation” and recorded an incremental expense of $286. During the nine months ended September 30, 2023, 33,000 employee stock options were forfeited that were related to options granted in prior years.

During the nine months ended September 30, 2023, certain employees of ours exercised options to purchase 382,333 restricted shares of our common stock, par value $0.00001 per share. Proceeds from the exercise of the Options were $5,383. The common shares were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, without payment of any form of commissions or other remuneration.

On September 15, 2023, we paid the August 15, 2023 dividends declared on our common stock of $64,565, to shareholders of record on August 31, 2023. On June 15, 2023, we paid the May 15, 2023 dividends declared on our common stock of $64,602, to shareholders of record on May 31, 2023. On March 15, 2023, we paid the February 15, 2023 dividends declared on our common stock of $63,339, to shareholders of record on February 28, 2023.

Total stock-based compensation expense for the nine months ended September 30, 2023 was $6,243, of which $123 is related to options issued during the nine months ended September 30, 2023, $5,834 is related to options issued in prior years, and $286 is related to the repricing of options issued in prior years. 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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3. WARRANT ACTIVITY

9 Months Ended

Sep. 30, 2023

Notes

3. WARRANT ACTIVITY

3.     WARRANT ACTIVITY

During the nine months ended September 30, 2023, no warrants were issued or exercised.

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4. SERIES A CONVERTIBLE PREFERRED STOCK

9 Months Ended

Sep. 30, 2023

Notes

4. SERIES A CONVERTIBLE PREFERRED STOCK

4.     SERIES A CONVERTIBLE PREFERRED STOCK

On January 3, 2023, we paid the December 23, 2022 dividends declared on our Series A Convertible Preferred Stock of $61,826. As of September 30, 2023, the aggregate outstanding accumulated arrearages of cumulative dividend was $51,006 or if issued in common shares, 204,025 shares.

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5. LEASES

9 Months Ended

Sep. 30, 2023

Notes

5. LEASES

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, 2023, the remaining future cash payments under our lease total to $190,290.

For the nine months ended September 30, 2023, we amortized $99,159 of our operating right-of-use, or ROU, asset and made payments of the associated lease liability for the same amount. At September 30, 2023, an operating ROU asset and liability of $179,927, each, are included on our condensed consolidated balance sheet.

For the nine months ended September 30, 2023 and 2022, our fixed operating lease cost was $114,174, which is included within operating costs and expenses in our condensed consolidated statements of operations.

Future minimum lease payments under non-cancellable operating lease as of September 30, 2023, were as follows:

Year ending December 31,
2023 (three months remaining)	$38,058
2024	152,232
Total future minimum lease payments	190,290
Present value of discount	(10,363)
Current portion lease liability	(142,402)
Long-term lease liability	$37,525

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1. UNAUDITED INTERIM FINANCIAL STATEMENTS: Recently Adopted Accounting Pronouncements (Policies)

9 Months Ended

Sep. 30, 2023

Policies

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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 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.

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1. UNAUDITED INTERIM FINANCIAL STATEMENTS: Income Per Share (Policies)

9 Months Ended

Sep. 30, 2023

Policies

Income Per Share

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, 2023	September 30, 2022	September 30, 2023	September 30, 2022
Net income:
Net income	$115,198	$187,960	$430,765	$550,333
Preferred stock dividends	(17,002)	(14,839)	(51,006)	(45,049)
Net income available to common shareholders	98,196	173,121	379,759	505,284
Basic income per share:
Weighted average common shares outstanding used in income per share	19,565,087	19,182,754	19,431,552	18,137,640
Basic income per share	0.01	0.01	0.02	0.03
Diluted income per share:
Shares used in diluted income per share	19,744,026	19,708,698	19,611,889	18,667,822
Diluted income per share	0.01	0.01	0.02	0.03
Computation of shares used in income per share:
Weighted average shares and share equivalents outstanding – basic	19,565,087	19,182,754	19,431,552	18,137,640
Effect of dilutive stock options	178,939	525,944	180,337	530,182
Weighted average shares and share equivalents outstanding – diluted	19,744,026	19,708,698	19,611,889	18,667,822

Schedule of Anti-dilutive Securities Excluded
	Three Months Ended		Nine Months Ended
	September 30, 2023	September 30, 2022	September 30, 2023	September 30, 2022
Preferred stock	618,257	568,257	618,257	568,257
Total anti-dilutive securities excluded	618,257	568,257	618,257	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.

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1. UNAUDITED INTERIM FINANCIAL STATEMENTS: Income Per Share: Schedule of Earnings Per Share, Basic and Diluted (Tables)

9 Months Ended

Sep. 30, 2023

Tables/Schedules

Schedule of Earnings Per Share, Basic and Diluted

	Three Months Ended		Nine Months Ended
	September 30, 2023	September 30, 2022	September 30, 2023	September 30, 2022
Net income:
Net income	$115,198	$187,960	$430,765	$550,333
Preferred stock dividends	(17,002)	(14,839)	(51,006)	(45,049)
Net income available to common shareholders	98,196	173,121	379,759	505,284
Basic income per share:
Weighted average common shares outstanding used in income per share	19,565,087	19,182,754	19,431,552	18,137,640
Basic income per share	0.01	0.01	0.02	0.03
Diluted income per share:
Shares used in diluted income per share	19,744,026	19,708,698	19,611,889	18,667,822
Diluted income per share	0.01	0.01	0.02	0.03
Computation of shares used in income per share:
Weighted average shares and share equivalents outstanding – basic	19,565,087	19,182,754	19,431,552	18,137,640
Effect of dilutive stock options	178,939	525,944	180,337	530,182
Weighted average shares and share equivalents outstanding – diluted	19,744,026	19,708,698	19,611,889	18,667,822

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1. UNAUDITED INTERIM FINANCIAL STATEMENTS: Income Per Share: Schedule of Anti-dilutive Securities Excluded (Tables)

9 Months Ended

Sep. 30, 2023

Tables/Schedules

Schedule of Anti-dilutive Securities Excluded

Schedule of Anti-dilutive Securities Excluded
	Three Months Ended		Nine Months Ended
	September 30, 2023	September 30, 2022	September 30, 2023	September 30, 2022
Preferred stock	618,257	568,257	618,257	568,257
Total anti-dilutive securities excluded	618,257	568,257	618,257	568,257

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5. LEASES: Schedule of Future Minimum Rental Payments for Operating Leases (Tables)

9 Months Ended

Sep. 30, 2023

Tables/Schedules

Schedule of Future Minimum Rental Payments for Operating Leases

Year ending December 31,
2023 (three months remaining)	$38,058
2024	152,232
Total future minimum lease payments	190,290
Present value of discount	(10,363)
Current portion lease liability	(142,402)
Long-term lease liability	$37,525

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1. UNAUDITED INTERIM FINANCIAL STATEMENTS: Income Per Share: Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Net income
Income (Loss) from Continuing Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest	$ 115,198	$ 187,960	$ 430,765	$ 550,333
Preferred stock dividends	(17,002)	(14,839)	(51,006)	(45,049)
Net income available to common shareholders	$ 98,196	$ 173,121	$ 379,759	$ 505,284
Basic income per share
Weighted Average Number of Shares Outstanding, Basic	19,565,087	19,182,754	19,431,552	18,137,640
Basic income per share	$ 0.01	$ 0.01	$ 0.02	$ 0.03
Diluted income per share
Shares used in diluted income per share	19,744,026	19,708,698	19,611,889	18,667,822
Diluted income per share	$ 0.01	$ 0.01	$ 0.02	$ 0.03
Computation of shares used in income per share
Weighted Average Number of Shares Outstanding, Basic	19,565,087	19,182,754	19,431,552	18,137,640
Effect of dilutive stock options	$ 178,939	$ 525,944	$ 180,337	$ 530,182
Weighted Average Number of Shares Outstanding, Diluted	19,744,026	19,708,698	19,611,889	18,667,822

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1. UNAUDITED INTERIM FINANCIAL STATEMENTS: Income Per Share: Schedule of Anti-dilutive Securities Excluded (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Details
Preferred stock	618,257	568,257	618,257	568,257
Total anti-dilutive securities excluded	618,257	568,257	618,257	568,257

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2. STOCK BASED COMPENSATION (Details) - USD ($)						9 Months Ended
	Sep. 30, 2023	Sep. 15, 2023	Jun. 15, 2023	Mar. 15, 2023	Dec. 31, 2022	Sep. 30, 2023	Sep. 30, 2022
Common Stock, Par or Stated Value Per Share	$ 0.00001				$ 0.00001	$ 0.00001
Proceeds from exercise of options						$ 5,383	$ 26,173
Dividends and Interest Paid		$ 64,565	$ 64,602	$ 63,339
Shares Granted, Value, Share-Based Payment Arrangement, after Forfeiture						6,243	9,041
Additional Paid In Capital
Shares Granted, Value, Share-Based Payment Arrangement, after Forfeiture						$ 6,243	$ 9,041
Employee stock options
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Number, Beginning Balance						556,330
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance						$ 0.051
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	7 years 9 months 7 days				6 years 8 months 26 days
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Intrinsic Value						$ 184,485
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercises in Period						382,333
Share-Based Compensation Arrangements by Share-Based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price						$ 0.014
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross						45,000
Share-Based Compensation Arrangements by Share-Based Payment Award, Options, Grants in Period, Weighted Average Exercise Price						$ 0.010
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Forfeitures in Period						33,000
Share-Based Compensation Arrangements by Share-Based Payment Award, Options, Forfeitures in Period, Weighted Average Exercise Price						$ 0.003
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Number, Ending Balance	185,997				556,330	185,997
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance	$ 0.010				$ 0.051	$ 0.010
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Intrinsic Value	$ 44,673				$ 184,485	$ 44,673
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercisable, Number	77,997					77,997
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 0.010					$ 0.010
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term	6 years 4 months 13 days
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercisable, Intrinsic Value	$ 18,753					$ 18,753
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Method Used						Black-Scholes option pricing model
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Vested in Period, Fair Value						$ 4,430
Share-Based Payment Arrangement, Expense						$ 123

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3. WARRANT ACTIVITY (Details) - Warrants	9 Months Ended
	Sep. 30, 2023 shares
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross	0
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercises in Period	0

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4. SERIES A CONVERTIBLE PREFERRED STOCK (Details) - USD ($)		9 Months Ended
	Jan. 03, 2023	Sep. 30, 2023	Sep. 30, 2022
Details
Payments of Ordinary Dividends, Preferred Stock and Preference Stock	$ 61,826	$ 61,826	$ 51,143
Aggregate outstanding accumulated arrearages of cumulative dividend		$ 51,006
Aggregate outstanding accumulated arrearages of cumulative dividend, Shares		204,025

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5. LEASES (Details) - USD ($)	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Details
Operating Lease, Liability	$ 190,290
Noncash lease expense	99,159	$ 91,106
RIGHT OF USE LEASED ASSET	179,927		$ 279,086
Cash paid for amounts included in the measurement of lease liability	$ 114,174

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5. LEASES: Schedule of Future Minimum Rental Payments for Operating Leases (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Details
2023 (three months remaining)	$ 38,058
2024	152,232
Total future minimum lease payments	190,290
Present value of discount	(10,363)
Operating lease liability - current portion	(142,402)	$ (133,637)
OPERATING LEASE LIABILITY - net of current portion	$ 37,525	$ 145,449