1. UNAUDITED INTERIM FINANCIAL STATEMENTS

3 Months Ended

Mar. 31, 2021

Notes

1. UNAUDITED INTERIM FINANCIAL STATEMENTS

1.     UNAUDITED INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements and related notes of FullNet Communications 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 the audited consolidated financial statements of the Company and notes thereto for the year ended December 31, 2020.

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, 2021.

COVID-19 Pandemic

The global outbreak of the coronavirus disease (COVID-19), which the World Health Organization has characterized as a “pandemic”, has resulted in a crisis affecting economies and financial markets worldwide. The pandemic, and its attendant economic damage, has impacted market segments in different ways, with industries experiencing significant losses while others actually gained. 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 have experienced may slow, 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.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, "Simplifying the Accounting for Income Taxes", which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes. This guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company adopted this guidance effective January 1, 2021. The adoption of ASU No. 2019-12 did not have a material impact on the Company’s consolidated financial statements.

Income (Loss) Per Share

Income (loss) per share – basic is calculated by dividing net income (loss) 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
	March 31, 2021	March 31, 2020
Net income:
Net income	$275,934	$50,607
Preferred stock dividends	(13,685)	(20,375)
Net income available to common shareholders	262,249	30,232
Basic income per share:
Weighted average common shares outstanding used in income per share	16,470,654	14,539,675
Basic income per share	0.02	0.00

Diluted income per share:
Shares used in diluted income per share	19,341,419	16,501,851
Diluted income per share	0.01	0.00
Computation of shares used in income per share:
Weighted average shares and share equivalents outstanding – basic	16,470,654	14,539,675
Effect of dilutive stock options	2,586,500	1,741,198
ct of dilutive warrants	284,265	220,978
Weighted average shares and share equivalents outstanding – diluted	19,341,419	16,501,851

Schedule of Anti-dilutive Securities Excluded
	Three Months Ended
	March 31, 2021	March 31, 2020
Stock options	-	300,000
Preferred stock	568,257	875,054
Total anti-dilutive securities excluded	568,257	1,175,054

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.