1. UNAUDITED INTERIM FINANCIAL STATEMENTS

9 Months Ended

Sep. 30, 2021

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 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.

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 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, 2021	September 30, 2020	September 30, 2021	September 30, 2020
Net income:
Net income	$188,004	$298,290	$736,026	$490,522
Preferred stock dividends	(13,685)	(13,163)	(41,054)	(46,701)
Net income available to common shareholders	174,319	285,127	694,972	443,821
Basic income per share:
Weighted average common shares outstanding used in income per share	16,660,121	15,034,706	16,597,659	14,707,561
Basic income per share	0.01	0.02	0.04	0.03
Diluted income per share:
Shares used in diluted income per share	19,688,994	18,876,162	19,585,761	17,957,425
Diluted income per share	0.01	0.02	0.04	0.02
Computation of shares used in income per share:
Weighted average shares and share equivalents outstanding – basic	16,660,121	15,034,706	16,597,659	14,707,561
Effect of dilutive stock options	2,741,040	3,568,267	2,701,422	2,989,353
Effect of dilutive warrants	287,833	273,189	286,680	260,511
Weighted average shares and share equivalents outstanding – diluted	19,688,994	18,876,162	19,585,761	17,957,425

Schedule of Anti-dilutive Securities Excluded
	Three Months Ended		Nine Months Ended
	September 30, 2021	September 30, 2020	September 30, 2021	September 30, 2020
Stock options	-	-	45,000	263,000
Preferred stock	568,257	568,257	568,257	568,257
Total anti-dilutive securities excluded	568,257	568,257	613,257	831,257

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.