| NOTE A - SUMMARY OF ACCOUNTING POLICIES AND NATURE OF OPERATIONS | NOTE A – SUMMARY OF ACCOUNTING POLICIES AND NATURE OF OPERATIONS A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows. Nature of Operations FullNet Communications, Inc. and Subsidiaries (“we”) is 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 services to individuals, businesses, organizations, educational institutions and governmental agencies. Through our subsidiaries, FullNet, Inc., FullTel, Inc., FullWeb, Inc. and CallMultiplier, Inc., we provide high quality, reliable and scalable Internet based advanced voice and data solutions designed to meet customer needs. Services offered include: • • • Consolidation The consolidated financial statements include the accounts of FullNet Communications, Inc. and its wholly owned subsidiaries FullNet, Inc., FullTel, Inc., FullWeb, Inc. and CallMultiplier, Inc. All material inter-company accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures; accordingly, actual results could differ from those estimates. Cash Equivalents Cash equivalents are represented by operating accounts or money market accounts maintained with insured financial institutions which consist of highly liquid investments that mature in three months or less from date of purchase. We have not experienced any losses in such accounts. We do not believe there is significant credit risk related to our cash and cash equivalents. Accounts Receivable We operate and grant credit, on an uncollateralized basis. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising our customer base and their dispersion across different industries as well as our emphasis on obtaining deposits and/or payment in advance for services from the majority of our customers. During the year ended December 31, 2022, we had no customers that comprised 10% or more of total revenues. During the year ended December 31, 2021, we had one customer that comprised approximately 10% of total revenues. Accounts receivable, other than certain large customer accounts which are evaluated individually, are considered past due for purposes of determining the allowances for doubtful accounts based on past experience of collectability as follows: 1 - 29 days 1.5% 30 - 59 days 30% 60 – 89 days 50% >90 days 100% In addition, if we become aware of a specific customer’s inability to meet our financial obligations, a specific reserve is recorded against amounts due to reduce the net recognized receivable to the amount reasonably expected to be collected. Total bad debt expense and direct write-off recovery for the year ended December 31, 2022 was $453. Total bad debt expense and direct write-off for the year ended December 31, 2021 was $1,024. Accounts receivable consist of the following at December 31: Schedule of Accounts Receivable 2022 2021 Accounts receivable $ 209,049 $ 238,078 Less allowance for doubtful accounts (207,465) (207,971) $ 1,584 $ 30,107 Property and Equipment Property and equipment are stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the related assets as follow: Software 3 years Computers and equipment 5 years Furniture and fixtures 7 years Leasehold improvements Shorter of estimated life of improvement or the lease term Property and equipment consist of the following at December 31: 2022 2021 Computers and equipment $ 315,542 $ 312,870 Leasehold improvements 961,506 1,067,934 Software - - Furniture and fixtures 33,929 33,929 1,310,977 1,414,733 Less accumulated depreciation (1,223,804) (1,356,132) $ 87,173 $ 58,601 Depreciation expense for the years ended December 31, 2022 and 2021, was $15,741 and $10,213, respectively. Long-Lived Assets All long-lived assets held and used by us, including intangible assets, are reviewed to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In accordance with ASC 360-10-35 “Impairment or Disposal of Long-lived Assets”, we base our evaluation on such impairment indicators as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, we determine whether impairment has occurred through the use of an undiscounted cash flows analysis of the asset. If impairment has occurred, we recognize a loss for the difference between the carrying amount and the estimated value of the asset. No intangible assets were purchased in 2022 or 2021. We incurred no impairment expense in 2022 or 2021. We incurred no amortization expense of intangible assets for the years ended December 31, 2022 and 2021, respectively. Revenue Recognition Revenue is recognized when control of the services sold by us is transferred to customers in an amount that reflects the consideration we expect to receive in exchange for those services. Revenue that is received in advance of the services provided is deferred until the services are provided by us. Revenue related to set up charges is also deferred and amortized over the life of the contract. Revenues are presented net of taxes and fees billed to customers and remitted to governmental authorities. We determine revenue recognition through the following steps: · · · · · Our revenue is derived from fees earned from customers utilizing our services. We have four streams of revenue as shown in the following table: Revenue Description For Year Ended December 31, 2022 % of Total Revenue For Year Ended December 31, 2021 % of Total Revenue Mass notification services using text messages and automated telephone calls $ 3,481,114 82% $ 3,258,095 78% Colocation and web hosting services 449,883 10% 445,816 11% Live help desk support services 314,182 7% 407,770 10% Internet access service 23,084 1% 23,835 1% Total revenue $ 4,268,263 100% $ 4,135,516 100% Revenue from our mass notification service and our access service is recognized as the services are provided pursuant to unwritten contracts created when our customers create an account on our website agreeing to be bound by our published Terms of Service when they purchase our service. Revenue from our colocation and web hosting services, its live help desk support services, and our internet access services is recognized as the services are provided pursuant to written contracts executed by us and our customers. Each of our services represent a single performance obligation consisting of a distinct service. All of our revenues are recognized as the services are provided over the life of the contract. Revenue that is received in advance of the services provided is deferred until the services are provided. None of our services have a transaction price which includes variable consideration, a significant financing component, any noncash consideration or consideration payable to a customer. The transaction price is the amount of consideration to which we expect to be entitled to in exchange for the service transferred to each customer. Each of our services represent a single performance obligation and the “stand-alone selling price” is the same as the contract selling price. All of our services are sold pursuant to written and unwritten contracts which require payment in advance for the services. Advertising We expense advertising production costs as they are incurred and advertising communication costs for the first time the advertisement takes place. Advertising expense for the years ended December 31, 2022 and 2021, was $628,716 and $477,565, respectively. Income Taxes We account for income taxes utilizing the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes, using enacted statutory tax rates in effect for the year in which the differences are expected to reverse. The effects of future changes in tax laws or rates are not included in the measurement. On a regular basis, we evaluate all available evidence, both positive and negative, regarding the ultimate realization of the tax benefits of our deferred tax assets and a valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. 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 from options and warrants calculated using the treasury stock method and the if-converted method for preferred stock. Reconciliation of basic and diluted income per share (“EPS”) are as follows: December 31, 2022 December 31, 2021 Net income: Net income $ 672,236 $ 892,977 Preferred stock dividends (64,256) (54,739) Net income available to common shareholders 607,980 838,238 Basic income per share: Weighted-average common shares outstanding used in income per share computations 18,401,789 16,698,620 Basic income per share 0.03 0.05 Diluted income per share: Shares used in diluted income per share computations 18,898,411 19,216,153 Diluted income per share 0.03 0.05 Computation of shares used in income per share: Weighted average shares and share equivalents outstanding - basic 18,401,789 16,698,620 Effect of dilutive stock options 496,622 2,229,933 Effect of dilutive warrants - 287,600 Weighted average shares and share equivalents outstanding – assuming dilution 18,898,411 19,216,153 Schedule of Anti-dilutive Securities Excluded: December 31, 2022 December 31, 2021 Convertible preferred stock 618,257 568,257 Total anti-dilutive securities excluded 618,257 568,257 Stock-Based Compensation We do not have a written employee stock option plan. We have historically generally granted employee stock options with an exercise price equal to the market price of our stock at the date of grant, a contractual term of ten years, and a vesting period of three years ratably on the first, second and third anniversaries of the date of grant (with limited exceptions). All employee stock options granted during 2022 and 2021 were nonqualified stock options. 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). Beneficial Conversion Features The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion. Related Parties A party is considered to be related to us if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with us. Related parties also include principal owners of us, our management, members of the immediate families of principal owners of us and our management and other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing our own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing our own separate interests is also a related party. At December 31, 2022, we had no related party accounts payable to officers and directors for unpaid expense reimbursements. Additionally, we had no related party accounts payable to officers and directors for unpaid expense reimbursements as of December 31, 2021. Fair Value Measurements We measure our financial assets and liabilities in accordance with the requirements of FASB ASC 820, “Fair Value Measurements and Disclosures”. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows: Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities. Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of December 31, 2022 and 2021, are based upon the short-term nature of the assets and liabilities. Recent Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes”, which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes. This guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows. 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. |
