On April 6, 2023, we issued 382,333 restricted shares of our common stock for cash proceeds of $5,383 pursuant to the exercise of previously issued and outstanding common stock purchase options held by various officers, directors, and employees. Immediately following the issuance, we had 19,565,087 shares of common stock outstanding.
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 ended March 31, 2023 and 2022:
| 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 March 31, 2023 (the “2023 1st Quarter”) Compared to Three Months Ended March 31, 2022 (the “2022 1st Quarter”)
Revenue
Total revenue decreased $69,573 or 6.2% to $1,046,873 for the 2023 1st Quarter from $1,116,446 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 1st Quarter, we had interest income of $28,857. In the 2022 1st Quarter, we had interest income of $385. The increase was primarily the result of interest rate increases resulting from actions taken by the Federal Reserve.
Cost of Revenue
Cost of revenue increased $17,087 or 7.5% to $244,554 for the 2023 1st Quarter from $227,467 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 23.4% during the 2023 1st Quarter, compared to 20.4% during the same period in 2022, as a result of increased utilization of higher cost components of our service offerings combined with price increases from our vendors.
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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 $17,324 or 10.7% to $179,611 for the 2023 1st Quarter from $162,287 for the 1st 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 17.2% for the 1st Quarter of 2023 compared to 14.5% for the 1st Quarter of 2022.
General and administrative expenses decreased $9,883 or 2.2% to $447,577 for the 2023 1st Quarter compared to $457,460 for the same period in 2022. This decrease was primarily related to a decrease in employee costs of $11,077. General and administrative expenses as a percentage of total revenues increased to 42.7% during the 2023 1st Quarter from 41.0% during the same period in 2022 due to a decline in total revenue.
Depreciation and amortization expense increased $1,856 or 72.7% to $4,410 for the 2023 1st Quarter compared to $2,554 for the same period in 2022. This increase was related to depreciation associated with assets purchased during the 2022 1st Quarter.
Income Taxes
In the 2023 1st Quarter, we had income tax expense of $50,924. In the 2022 1st Quarter, we had income tax expense of $68,002.
Net Income
For the 2023 1st Quarter, we realized net income of $148,654 compared to net income of $199,061 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 March 31, 2023, we had $2,884,285 in cash and $2,928,858 in current assets and $1,680,159 in current liabilities. Current liabilities consist primarily of $435,444 in accrued and other liabilities, of which $215,978 is owed to our officers and directors, and $1,087,854 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 March 31, 2023 and December 31, 2022, we had positive working capital of $1,248,699 and $1,162,469, respectively.
As of March 31, 2023, $13,445 of the $20,364 we owed to our trade creditors was past due. We have no formal agreements regarding payment of these amounts.
Cash flow for the three-month periods ended March 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 March 31, 2023. Cash used for the purchase of property and equipment was $1,043 in the three months ended March 31, 2022.
No intangible assets were purchased in the three months ended March 31, 2023 and 2022.
On January 3, 2023, we paid the December 23, 2022, preferred stock dividends declared of $61,826.
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: