Attached files
| file | filename |
|---|---|
| EX-32 - EXHIBIT 32 - KonaTel, Inc. | exhibit32.htm |
| EX-31.2 - EXHIBIT 31.2 - KonaTel, Inc. | exhibit312.htm |
| EX-31.1 - EXHIBIT 31.1 - KonaTel, Inc. | exhibit311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
________________
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to____________
Commission File No. 001-10171
KonaTel, Inc.
(Exact name of the issuer as specified in its charter)
| Delaware | 80-0000245 | |
| (State or Other Jurisdiction of incorporation or organization) | (I.R.S. Employer I.D. No.) |
13601 Preston Road, # E816
Dallas, Texas 75240
(Address of Principal Executive Offices)
214-323-8410
(Registrant Telephone Number)
The Registrant does not have any securities registered pursuant to Section 12(b) of the Exchange Act.
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 x No o
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “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 x | Smaller reporting company x |
| Emerging Growth company x |
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. x
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Our website is www.konatel.com.
Our common stock is quoted on the OTC Markets Group, Inc. (“OTC Markets”) “OTC Pink Tier” under the symbol “KTEL.”
APPLICABLE ONLY TOCORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.
The number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date:
| Common Capital Voting Stock, $0.001 par value per share | 40,692,286 shares | |
| Class | Outstanding as of June 5, 2020 |
References
In this Quarterly Report, references to “KonaTel, Inc.,” “KonaTel,” the “Company,” “we,” “our,” “us” and words of similar import, refer to KonaTel, Inc., a Delaware corporation, formerly named “Dala Petroleum Corp.,” which is the Registrant; and our wholly-owned subsidiaries, KonaTel, Inc., a Nevada corporation (“KonaTel Nevada”), Apeiron Systems, Inc., a Nevada corporation doing business as “Apeiron” (“Apeiron”), and IM Telecom, LLC, an Oklahoma limited liability company doing business as “Infiniti Mobile” (“Infinite Mobile”).
Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Quarterly Report. We cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate, and therefore, prospective investors are encouraged not to place undue reliance on forward-looking statements. You should carefully read this Quarterly Report completely, and it should be read and considered with all other reports filed by us with the United States Securities and Exchange Commission (the “SEC”) that are contained in the SEC Edgar Archives. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.
Explanatory Note
We are relying on the SEC’s “Order under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions From the Reporting and Proxy Delivery Requirements for Public Companies,” which is dated March 25, 2020, in Release No. 34-88465 (the “COVID-19 Revised Order”), which has exempted certain issuers impacted by COVID-19 from meeting certain filing deadlines for filing their reports under the Exchange Act for the period from March 1, 2020, to July 1, 2020. The current outbreak of COVID-19 has posed a significant impact on the Company to file, on a timely basis, its Quarterly Report that was due May 14, 2020 (the “Original Due Date”). Considering the lack of time for the compilation, dissemination and review of the information required to be presented and the importance of markets and investors to receive materially accurate information in the Quarterly Report, we determined to rely on the COVID-19 Revised Order to delay the filing of this Quarterly Report to no later than 45 days after the Original Due Date.
The COVID-19 pandemic has had a significant impact on our resources to communicate with our employees and those of our auditor’s personnel to timely complete, review and file of our 10-Q Quarterly Report for the quarter ended March 31, 2020.
In light of the current COVID-19 pandemic, the Company included the “Risk Factor” set forth in Part II, Item 1A, below, into its 10-K Annual Report for the year ended December 31, 2019, which was filed with the SEC on May 11, 2020.
| 2 |
KONATEL, INC.
FORM 10-Q
MARCH 31, 2020
INDEX
March 31, 2020
Table of Contents
| 3 |
Condensed Consolidated Balance Sheets
(Unaudited)
| March 31, 2020 | December 31, 2019 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | 227,269 | $ | 191,474 | ||||
| Accounts Receivable, net | 339,524 | 377,485 | ||||||
| Inventory, Net | 4,960 | 4,659 | ||||||
| Prepaid Expenses | 1,611 | 1,743 | ||||||
| Total Current Assets | 573,364 | 575,361 | ||||||
| Fixed Asset | ||||||||
| Property and Equipment, Net | 98,641 | 102,689 | ||||||
| Right of Use Assets, Net | 142,148 | 78,584 | ||||||
| Total Fixed Assets | 240,789 | 181,273 | ||||||
| Other Assets | ||||||||
| Intangible Assets, Net | 2,038,336 | 2,238,918 | ||||||
| Other Assets | 172,065 | 207,740 | ||||||
| Total Other Assets | 2,210,401 | 2,446,658 | ||||||
| Total Assets | $ | 3,024,554 | $ | 3,203,292 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable and Accrued Expenses | $ | 1,275,300 | $ | 1,223,195 | ||||
| Amount Due to Stockholder | 102,313 | 151,357 | ||||||
| Revolving Line of Credit | — | 12,237 | ||||||
| Note Payable - current portion | 81,905 | 75,905 | ||||||
| Lease Liabilities - current portion | 108,645 | 69,148 | ||||||
| Deferred Revenue | 38,094 | 53,074 | ||||||
| Customer Deposits | 544 | 31,087 | ||||||
| Total Current Liabilities | 1,606,801 | 1,616,003 | ||||||
| Long Term Liabilities | ||||||||
| Lease Liabilities - long term | 73,422 | 12,942 | ||||||
| Note Payable - long term | 19,626 | 50,603 | ||||||
| Total Long Term Liabilities | 93,048 | 63,545 | ||||||
| Total Liabilities | 1,699,849 | 1,679,548 | ||||||
| Stockholders’ Equity | ||||||||
| Common stock, $.001 par value, 50,000,000 shares authorized, 40,692,286 outstanding and issued at March 31, 2020 and December 31, 2019 | 40,692 | 40,692 | ||||||
| Additional Paid In Capital | 7,390,286 | 7,380,029 | ||||||
| Accumulated Deficit | (6,106,273 | ) | (5,896,977 | ) | ||||
| Total Stockholders’ Equity | 1,324,705 | 1,523,744 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 3,024,554 | $ | 3,203,292 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 4 |
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenue | $ | 1,957,355 | $ | 2,640,296 | ||||
| Cost of Revenue | 1,192,177 | 1,503,460 | ||||||
| Gross Profit | 765,178 | 1,136,836 | ||||||
| Operating Expenses | ||||||||
| Payroll and Related Expenses | 448,149 | 471,305 | ||||||
| Operating and Maintenance | 193,852 | 557,100 | ||||||
| Bad Debt | 1,500 | — | ||||||
| Utilities and Facilities | 8,867 | 35,819 | ||||||
| Depreciation and Amortization | 270,300 | 251,116 | ||||||
| General and Administrative | 12,743 | 41,902 | ||||||
| Marketing and Advertising | 944 | 21,614 | ||||||
| Taxes and Insurance | 18,814 | 45,070 | ||||||
| Total Operating Expenses | 955,169 | 1,423,926 | ||||||
| Operating Loss | (189,991 | ) | (287,090 | ) | ||||
| Other Income and Expense | ||||||||
| Interest Income | 1 | 676 | ||||||
| Other Income | 301,372 | — | ||||||
| Interest Expense | (10,549 | ) | (11,379 | ) | ||||
| Total Other Income and Expenses | 290,824 | (10,703 | ) | |||||
| Net Income (Loss) | $ | 100,833 | $ | (297,793 | ) | |||
| Net Income (Loss) per Share | $ | 0.00 | $ | (0.01 | ) | |||
| Weighted Average Outstanding Shares | 40,692,286 | 40,692,286 | ||||||
| Diluted Net Income (Loss) per Share | $ | 0.00 | $ | (0.01 | ) | |||
| Weighted Average Outstanding Shares | 44,092,286 | 43,067,286 | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 5 |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Common Shares | Additional | Accumulated | |||||||||||||||
| Shares | Amount | Paid-in Capital | Deficit | Total | |||||||||||||
| Balances as of January 1, 2020 | 40,692,286 | $ | 40,692 | $ | 7,380,029 | $ | (5,896,977 | ) | $ | 1,523,744 | |||||||
| Stock Based Compensation | — | — | 10,257 | — | 10,257 | ||||||||||||
| Dividends Paid to Apeiron Systems shareholders | — | — | — | (310,129 | ) | (310,129 | ) | ||||||||||
| Net Income | — | — | — | 100,833 | 100,833 | ||||||||||||
| Balances as of March 31, 2020 | 40,692,286 | $ | 40,692 | $ | 7,390,286 | $ | (6,106,273 | ) | $ | 1,324,705 | |||||||
| Common Shares | Additional | Accumulated | |||||||||||||||
| Shares | Amount | Paid-in Capital | Deficit | Total | |||||||||||||
| Balances as of January 1, 2019 | 40,692,286 | $ | 40,692 | $ | 7,041,696 | $ | (4,352,073 | ) | $ | 2,730,315 | |||||||
| Value of Options Issued as Part of IM Telecom Acquisition | — | — | 98,482 | — | 98,482 | ||||||||||||
| Stock Based Compensation | — | — | 141,356 | — | 141,356 | ||||||||||||
| Net Loss | — | — | — | (297,793 | ) | (297,793 | ) | ||||||||||
| Balances as of March 31, 2019 | 40,692,286 | $ | 40,692 | $ | 7,281,534 | $ | (4,649,866 | ) | $ | 2,672,360 | |||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 6 |
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Income (Loss) | $ | 100,833 | $ | (297,793 | ) | |||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and Amortization | 270,300 | 251,116 | ||||||
| Bad Debt | 1,500 | — | ||||||
| Stock-based Compensation | 10,257 | 141,356 | ||||||
| Changes in Operating Assets and Liabilities, net of effects of acquisition: | ||||||||
| Accounts Receivable | 36,461 | 203,712 | ||||||
| Inventory | (301 | ) | 135 | |||||
| Prepaid Expenses | 132 | 3,461 | ||||||
| Accounts Payable and Accrued Expenses | (2,012 | ) | (44,541 | ) | ||||
| Deferred Revenue | (14,980 | ) | (10,154 | ) | ||||
| Customer Deposits | (30,543 | ) | — | |||||
| Other Assets | 35,675 | (199,573 | ) | |||||
| Net cash provided by operating activities | 407,322 | 47,719 | ||||||
| Cash Flows from Investing Activities | ||||||||
| Cash Received in Acquisition of IM Telecom | — | 14,318 | ||||||
| Purchase of Assets | (3,168 | ) | — | |||||
| Asset Purchase of IM Telecom | — | (56,611 | ) | |||||
| Net cash (used in) investing activities | (3,168 | ) | (42,293 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Payments received on Notes Receivables | — | 25,001 | ||||||
| Payments on Operating Lease Liabilities | (26,089 | ) | (17,517 | ) | ||||
| Repayment of Revolving Lines of Credit | (12,237 | ) | (22,147 | ) | ||||
| Repayment of Notes Payable | (24,977 | ) | — | |||||
| Advances made by Stockholder | — | 200,000 | ||||||
| Repayments of amounts due to Related Party and Seller | (49,044 | ) | (27,564 | ) | ||||
| Dividends Paid to Apeiron shareholders | (256,012 | ) | — | |||||
| Net cash provided by (used in) financing activities | (368,359 | ) | 157,773 | |||||
| Net Change in Cash | 35,795 | 163,199 | ||||||
| Cash - Beginning of Year | 191,474 | 56,510 | ||||||
| Cash - End of Period | $ | 227,269 | $ | 219,709 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid for interest | $ | 7,201 | $ | 14,297 | ||||
| Cash paid for taxes | $ | — | $ | — | ||||
| Non-cash investing and financing activities: | ||||||||
| Asset Purchase of IM Telecom | ||||||||
| Accounts Receivable | $ | — | $ | 63,764 | ||||
| Prepaid Expense | $ | — | $ | 950 | ||||
| Furniture and Equipment at Fair Market Value | $ | — | $ | 1,309 | ||||
| Other Assets | $ | — | $ | 1,450 | ||||
| Accounts Payable and Accrued Expenses, net of cash | $ | — | $ | (23,870 | ) | |||
| License | $ | — | $ | 658,452 | ||||
| Value of Options | $ | — | $ | 98,482 | ||||
| Right of use assets obtained in exchange for new operating lease liabilities | $ | 129,108 | $ | 113,035 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 7 |
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview of Company
KonaTel Nevada (as defined below) was organized under the laws of the State of Nevada on October 14, 2014, by its founder and then sole shareholder, D. Sean McEwen, to conduct the business of a full-service MVNO (“Mobile Virtual Network Operator”) provider that delivered cellular products and services to individual and business customers in various retail and wholesale markets.
KonaTel Inc., formerly known as Dala Petroleum Corp. (the “Company,” “we,” “our,” or “us”), also formerly known as “Westcott Products Corporation,” was incorporated as “Light Tech, Inc.” under the laws of the State of Nevada on May 24, 1984. A subsidiary in the name “Westcott Products Corporation” was organized by us under the laws of the State of Delaware on June 24, 1986, for the purpose of changing our name and domicile to the State of Delaware. On June 27, 1986, we merged with the Delaware subsidiary, with the survivor being Westcott Products Corporation, a Delaware corporation (“Westcott”). On December 18, 2017, we acquired KonaTel, Inc, a Nevada sub S-Corporation (“KonaTel Nevada”), in a merger with our acquisition subsidiary under which KonaTel Nevada became our wholly-owned subsidiary.
On December 31, 2018, we acquired Apeiron Systems, Inc., a Nevada corporation d/b/a “Apeiron” (“Apeiron Systems”), which is also our wholly-owned subsidiary. Apeiron Systems was organized in 2013 and is an international hosted services CPaaS (“Communications Platform as a Service”) provider that designed, built, owns and operates its private core network, supporting a suite of real-time business communications services and Applications Programming Interfaces (“APIs”). As an Internet Telephony Service Provider (“ITSP”), Apeiron Systems holds a Federal Communications Commission (the “FCC”) numbering authority license. Some of Apeiron Systems’ hosted services include SIP/VoIP services, SMS/MMS processing, BOT integration, NLP (“Natural Language Processing”), ML (“Machine Learning”), number services including mobile, toll free and DID landline numbers, SMS to Email services, Database Dip services, SD-WAN, voice termination, and numerous API driven services including voice, messaging, and network management.
On January 31, 2019, we acquired IM Telecom, LLC, an Oklahoma limited liability company, d/b/a “Infiniti Mobile” (“IM Telecom”), which became our wholly-owned subsidiary. Infiniti Mobile is an FCC licensed ETC (“Eligible Telecommunications Carrier”) and is one of 22 FCC licensed carriers to hold an FCC approved Lifeline Compliance Plan in the United States. Under the Lifeline program, Infiniti Mobile is currently authorized to provide government subsidized mobile telecommunications services to eligible low-income Americans currently in eight (8) states.
Basis of Presentation
Interim Financial Statements
The accompanying unaudited condensed interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2019.
The accompanying financial statements have been prepared using the accrual basis of accounting.
| 8 |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include the allowance for doubtful receivables, allowance for inventory obsolescence, the estimated useful lives of property and equipment, and customer lists. Actual results could differ from those estimates.
Basis of Consolidation
The condensed consolidated financial statements include the Company and three (3) wholly-owned corporate subsidiaries, KonaTel Nevada, Apeiron Systems and IM Telecom. The condensed consolidated balance sheet for year ended December 31, 2019, includes the Company and the wholly-owned corporate subsidiaries, KonaTel Nevada Apeiron Systems and IM Telecom. The condensed consolidated statements of operations, cash flows, and stockholders’ equity (deficit) for the three-month period ended March 31, 2019, include the Company and the three (3) wholly owned subsidiaries, KonaTel Nevada, Apeiron Systems and IM Telecom (February and March). All significant intercompany transactions are eliminated.
Net Income/(Loss) Per Share
Basic loss per common share calculations are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share calculations are determined by dividing net loss by the weighted average number of common shares and dilutive common share equivalents outstanding. As of March 31, 2020, and March 31, 2019, there are 3,400,000 potentially dilutive common shares. The dilutive common shares are not included in the computation of diluted earnings per share, because to do so would be anti-dilutive.
The following table reconciles the shares outstanding and net income (loss) used in the computations of both basic and diluted earnings per share of common stockholders:
Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Net income (loss) | $ | 100,833 | $ | (297,793 | ) | |||
| Weighted average shares outstanding during period on which basic earnings per share is calculated | 40,692,286 | 40,692,286 | ||||||
| Effect of dilutive shares | ||||||||
| Incremental shares under stock-based compensation | 3,400,000 | 2,375,000 | ||||||
| Weighted average shares outstanding during period on which diluted earnings per share is calculated | 44,092,286 | 43,067,286 | ||||||
| Earnings per share attributable to common stockholders | ||||||||
| Basic earnings (loss) per share | $ | 0.00 | $ | (0.01 | ) | |||
| Diluted earnings (loss) per share | $ | 0.00 | $ | (0.01 | ) | |||
Basic loss per common share calculations are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share calculations are determined by dividing net loss by the weighted average number of common shares and dilutive common share equivalents outstanding.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of receivables, cash, and cash equivalents.
All cash and cash equivalents and restricted cash and cash equivalents are held at high credit financial institutions. These deposits are generally insured under the FDIC’s deposit insurance coverage; however, from time to time, the deposit levels may exceed FDIC coverage levels.
| 9 |
The Company has a concentration of risk with respect to trade receivables from customers and cellular providers. As of March 31, 2020, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from one (1) customer in the amount of $53,649, or 15.8%, of accounts receivables. As of December 31, 2019, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from three (3) customers in the amounts of $89,078, or 24.4%, $77,662, or 21.3% and $48,475, or 13.3%, respectively.
Concentration of Major Customer
A significant amount of the revenue is derived from contracts with major customers and cellular partners. For the three months ended March 31, 2020, the Company had one (1) wholesale customer that accounted for $555,826, or 28.4%, of revenue. For the three months ended March 31, 2019, the Company had one (1) cellular partner that accounted for $728,649, in contractually obligated commission payments or 27.6% of revenue.
Effect of Recent Accounting Pronouncements
The Company has evaluated all other recent accounting pronouncements and believes that none will have a significant effect on the Company’s financial statement.
Emerging Growth Company
The Company is an emerging growth company and 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.
NOTE 2 – TRANSACTIONS
January 2019 Transaction – IM Telecom Acquisition
Effective February 7, 2018, we entered into an Agreement for the Purchase and Sale of Membership Interest (the “PMSI”) dated as of February 5, 2018, with the transaction documents being deposited in escrow on February 7, 2018, respecting the acquisition of 100% of the membership interest in IM Telecom from its sole owner, Trevan Morrow. The principal asset of IM Telecom was a “Lifeline Program” license (an FCC approved Compliance Plan), the transfer of ownership of which required prior approval of the FCC. Following the FCC approval of the transfer of the Lifeline Program license to us on October 23, 2018, the PSMI was completed on January 31, 2019. At the closing, we also engaged Mr. Morrow as an independent consultant for ninety (90) days in consideration of $100 and granted him an incentive stock option to purchase 500,000 shares of our common stock at an exercise price of $0.20 per share. The incentive stock option to purchase 500,000 shares was cancelled under a Settlement Agreement and Release between the Company and Mr. Morrow dated September 4, 2019, under the indemnifying obligations of Mr. Morrow under the PSMI, as amended, by reason of an overpayment made to IM Telecom of $168,677.
The purchase price of $617,920 consisted of payments of debt and accounts payable made by the company on behalf of IM Telecom from the PMSI effective date of February 7, 2018, until January 31, 2019, the closing date. The purchase price allocation included the FCC license valued at $634,252, cash of $14,318, accounts receivable of $123,959, prepaid other assets of $2,400, furniture and equipment of $1,309. As part of the transaction, the Company also agreed to assume accounts payable of $24,271.
The transaction was accounted for under the purchase method. The purchase price allocation to assets and liabilities assumed in the transaction was:
| Cash | $ | 14,318 | ||
| Accounts Receivable | 123,959 | |||
| Prepaid Expenses and Deposits | 2,400 | |||
| Furniture and Equipment at Fair Value | 1,309 | |||
| License | 634,252 | |||
| Accounts Payable | (24,271 | ) | ||
| Note Payable | (168,277 | ) | ||
| Net Assets Acquired | $ | 583,690 |
| 10 |
The following table provides unaudited proforma results, prepared in accordance with ASC 805, for the three months ended March 31, 2020, and 2019 respectively, as if IM Telecom and Apeiron Systems had been acquired on January 1, 2018:
For the Three Months Ended March 31, 2020 | For the Three Months Ended March 31, 2019 | |||||||
| Net Sales | $ | 1,957,355 | $ | 2,706,577 | ||||
| Net Profit (Loss) | $ | 100,833 | $ | (262,939 | ) | |||
| Net profit (loss) per share, basic and diluted | $ | 0.00 | $ | (0.01 | ) | |||
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following major classifications as of March 31, 2020, and December 31, 2019:
| March 31, 2020 | December 31, 2019 | |||||||
| Leasehold Improvements | $ | 46,950 | $ | 46,950 | ||||
| Furniture and Fixtures | 102,946 | 102,946 | ||||||
| Billing Software | 217,163 | 217,163 | ||||||
| Office Equipment | 90,055 | 86,887 | ||||||
| 457,114 | 453,946 | |||||||
| Less: Accumulated Depreciation and Amortization | (358,473 | ) | (351,257 | ) | ||||
| Property and equipment, net | $ | 98,641 | $ | 102,689 | ||||
Depreciation and amortization amounted to $7,215 and $7,216 for the three months ended March 31, 2020, and 2019, respectively. Depreciation and amortization expense are included as a component of operating expenses in the accompanying statements of operations.
NOTE 4 – RIGHT-OF-USE ASSETS
Right-of-Use Assets consist of assets accounted for under ASC 842. The assets are recorded at present value using implied interest rates between 5.29% and 5.34%.
| March 31, 2020 | December 31, 2019 | |||||||
| Right-of-Use Assets | $ | 261,476 | $ | 151,472 | ||||
| Less: Accumulated Depreciation | (119,328 | ) | (72,888 | ) | ||||
| Right-of-Use, net | $ | 142,148 | $ | 78,584 | ||||
Depreciation amounted to $62,502 and $18,140 for the three months ended March 31, 2020, and 2019, respectively. Depreciation expense is included as a component of operating expenses in the accompanying statements of operations.
The Company has right-of-use assets through leases of property under three non-cancelable leases with terms in excess of one (1) year. The current lease liabilities expire January 1, 2021, December 1, 2021, and May 15, 2022. Future lease liability payments under the terms of these leases are as follows:
| 2020 | $ | 90,987 | |||
| 2021 | $ | 70,613 | |||
| 2022 | $ | 20,467 | |||
| Total | $ | 182,067 | |||
| Less Current Maturities | $ | 108,645 | |||
| Long Term Maturities | $ | 73,422 |
The Company also leases two (2) office spaces on a month-to-month basis. Total lease expense for the three months ended March 31, 2020, and 2019 amounted to $3,468 and $21,028, respectively.
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NOTE 5 – INTANGIBLE ASSETS
Intangible Assets with definite useful like consist of licenses, customer lists and software that were acquired through acquisitions.
Intangible Assets with indefinite useful life consist of a license granted by the FCC.
The License, because of the nature of the asset and the limitation on the number of granted licenses by the FCC, will not be amortized. The License was acquired through an acquisition. The fair market value of the License as of March 31, 2020 was $634,252.
| March 31, 2020 | December 31, 2019 | |||||||
| Customer Lists | $ | 1,135,961 | $ | 1,135,961 | ||||
| Software | 2,407,001 | 2,407,001 | ||||||
| License | 634,252 | 634,252 | ||||||
| Less: Accumulated Amortization | (2,138,878 | ) | (1,938,296 | ) | ||||
| Intangible Assets, net | $ | 2,038,336 | $ | 2,238,918 | ||||
Amortization expense amounted to $200,583 and $225,760 for the three months ended March 31, 2020, and 2019, respectively. Amortization expense is included as a component of operating expenses in the accompanying statements of operations. Amortization expense is expected to be as follows:
| 2020 | $ | 601,751 |
| 2021 | $ | 802,332 |
NOTE 6 – AMOUNT DUE TO STOCKHOLDER
During 2019, Joshua Ploude, CEO of Apeiron Systems, advanced the Company $200,000. The amount was used to provide a vendor security deposit. The note bears a 10% per annum interest rate until May 1, 2019, at which time, the interest rate will increase to 12% per annum. The note had an original maturity date of July 10, 2019. The loan has been extended without a defined maturity end date. The amount due as of March 31, 2020, was $102,313.
NOTE 7 – CONTINGENCIES AND COMMITMENTS
Litigation
From time to time, the Company may be subject to legal proceedings and claims which arise in the ordinary course of business. As of March 31, 2020, there are no legal proceedings, except the following:
In August, 2019, the Company won an arbitration award (ratified by the court) from Mr. Glosser in the amount of $357,914, together with arbitrator’s compensation of $4,957, for a total award of $362,871; and Mr. Glosser’s counterclaim was found to be without merit. The Company and Mr. Glosser entered into a Settlement Agreement and Mutual Release on February 24, 2020, pursuant to which this matter was fully settled, resolving all claims, and Mr. Glosser paid the Company $300,000. The settlement amount was recorded and reported as other income.
Contract Contingency
The Company has the normal obligation for the completion of its cellular provider contracts in accordance with the appropriate standards of the industry and that may be provided in the contractual agreements.
Letters of Credit
The Company maintains irrevocable standby letter of credit arrangements with certain cellular carriers in the aggregate amount of $60,000. The letters of credit serve as collateral and security for various resale contracts the Company has with their suppliers. The letters of credit are unused as of March 31, 2020, and December 31, 2019. The letters of credit are not considered in the financial statements.
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NOTE 8 – SEGMENT REPORTING
The Company operates within four (4) reportable segments. The Company’s management evaluates performance and allocates resources based on the profit or loss from operations. Because the Company is a service business with very few physical assets, management does not use total assets by segment to make decisions regarding operations, and therefore, the total assets disclosure by segment has not been included.
The reportable segments consist of Hosted Services, Mobile Services, Lifeline ETC and Lifeline VETC.
Hosted Services – This segment includes a suite of hosted CPaaS services including SIP/VoIP services, SMS/MMS, BOT integration, mobile numbers, toll free numbers, DID landline numbers, SMS to Email, Database Dip, SD-WAN, voice termination and numerous API driven services. Apeiron Systems developed, owns and supports its services through its dedicated national telecommunications network. Apeiron Systems provides telecommunications services to application developers, call centers and small and medium size businesses and markets these services through its website, independent sales agents, ISOs and SCOs.
Mobile Services – This segment includes retail and wholesale cellular voice/text/data services and mobile data (IoT or “Internet of Things”) services. The Company consolidated its wholesale and retail services with Apeiron Systems’ hosted CPaaS services, providing Apeiron Systems with an expanded portfolio of mobile services to bundle with its existing services. Apeiron Systems’ mobile voice/text/data and mobile data services are supported by a blend of reseller agreements with selected national wireless carriers and national wireless wholesalers. A wireless communications service reseller does not own the wireless network infrastructure over which services are provided to its customers. Apeiron Systems’ mobile voice/text/data and mobile data solutions are generally sold as traditional post-paid or pre-paid service plans that may include voice/text/data or wireless data only plans. Sometimes equipment is provided, which can include, but is not limited to, phones, tablets, modems, routers and accessories. Apeiron Systems primarily markets its mobile services through independent sales agents and ISOs via the “Apeiron” brand. These agents and ISOs generally market to small and medium sized businesses throughout the United States. This type of marketing is also considered B2B (“Business to Business”) sales.
Lifeline ETC – This segment operates under its own FCC approved Compliance Plan and FCC wireless ETC designation in eight (8) states which currently include Georgia, Kentucky, Maryland, Nevada, Oklahoma, South Carolina, Vermont and Wisconsin. IM Telecom, operating under its Infiniti Mobile brand, currently markets its Lifeline service through its Internet presence, its storefront in Tulsa, Oklahoma, and through ISOs that specialize in the distribution of Lifeline services. These ISOs typically support teams of field agents who market directly to Lifeline eligible individuals requesting Lifeline service. We provide phones and wireless voice/text/data service to Lifeline eligible individuals requesting Lifeline service. In some states, and depending on government requirements, we may only provide voice/text service with no mobile data.
Lifeline VETC – This segment operates through a single VETC agent agreement with another ETC. We no longer distribute Lifeline service under this single VETC agent agreement; however, we continue to collect monthly commissions for those Lifeline lines that we distributed and which remain active under this single VETC agent agreement.
The following table reflects the result of operations of the Company’s reportable segments:
| Hosted Services | Mobile Services | Lifeline ETC | Lifeline VETC | Total | ||||||||||||||||
| For the three-month period ended March 31, 2020 | ||||||||||||||||||||
| Revenue | $ | 978,675 | $ | 500,251 | $ | 326,341 | $ | 152,088 | $ | 1,957,355 | ||||||||||
| Net Income | $ | 63,092 | $ | (42,254 | ) | $ | 30,065 | $ | 49,930 | $ | 100,833 | |||||||||
| Depreciation and amortization | $ | 10,584 | $ | 17,217 | $ | 10,739 | $ | 31,760 | $ | 270,300 | ||||||||||
| Additions to property and equipment | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| For the three-month period ended March 31, 2019 | ||||||||||||||||||||
| Revenue | $ | 715,664 | $ | 726,188 | $ | 169,471 | $ | 1,028,973 | $ | 2,640,296 | ||||||||||
| Net Loss | $ | 24,178 | $ | (31,010 | ) | $ | (135,192 | ) | $ | (107,414 | ) | $ | (297,794 | ) | ||||||
| Depreciation and amortization | $ | 68,066 | $ | 69,067 | $ | 16,118 | $ | 97,865 | $ | 251,116 | ||||||||||
| Additions to property and equipment | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
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NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock
The Company has not issued any common stock through March 31, 2020, nor for the year ended December 31, 2019.
Stock Compensation
The Company offers stock option equity awards to directors and key employees. Options vested in tranches and expire in five (5) years. During the three months ended March 31, 2020, and 2019, the Company recorded vested options expense of $10,257 and $141,356, respectively. The option expense not taken as of March 31, 2020, is $954,900, with a weighted average term of 2.9 years.
The following table represents stock option activity as of and for the three months ended March 31, 2020:
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Life | Aggregate Intrinsic Value | ||||||||||||
| Options Outstanding – December 31, 2019 | 3,800,000 | $ | 0.21 | 3.0 | $ | — | |||||||||
| Granted | — | — | — | — | |||||||||||
| Exercised | — | — | — | — | |||||||||||
| Forfeited | — | — | — | — | |||||||||||
| Options Outstanding – March 31, 2020 | 3,800,000 | $ | 0.21 | 3.0 | $ | — | |||||||||
| Exercisable and Vested, March 31, 2020 | 3,400,000 | $ | 0.21 | 2.9 | $ | — | |||||||||
NOTE 10 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date of this filing, and with the exception of the following, no material subsequent events have occurred:
Euler Hermes/Sky Phone Settlement
Between March and July 2019, IM Telecom purchased wireless handsets from Sky Phone, LLC in the amount of $192,293.34. Subsequently, a dispute arose between the parties regarding the amount of the debt, a lack of sufficient transaction documentation and problems with some of the handsets. On or about December, 2019, the debt was transferred to Euler Hermes North America Insurance Company. On April 22, 2020, the parties entered into an agreement to settle the matter whereby IM Telecom agreed to pay $80,000 in monthly payments of $4,000 over twenty (20) months. The first payment was made on April 28, 2020.
SBA Paycheck Protection Program
On April 14, 2020, the operating companies of KonaTel made loan applications to participate in the Small Business Administration’s (the “SBA”) Paycheck Protection Program created as a result of the COVID-19 pandemic. On April 15, 2020, the loan applications of Apeiron Systems, IM Telecom and KonaTel Nevada were approved and loan proceeds in the amounts of $101,800, $20,900 and $186,300, respectively, were received. The Company intends to follow all prescribed loan forgiveness guidelines provided by our local bank and the SBA by using these loan proceeds to fund employee payrolls through the 56-day period ending on June 10, 2020.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
When used in this Quarterly Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act regarding events, conditions and financial trends that may affect our future plans of operations, business strategy, operating results and financial position. Persons reviewing this Quarterly Report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such factors are discussed further below under “Trends and Uncertainties,” and also include general economic factors and conditions that may directly or indirectly impact our financial condition or results of operations.
Overview of Current and Planned Business Operations
Our Hosted Services (“CPaaS or Communications Platform as a Service”) include SIP/VoIP services, SMS/MMS, BOT integration, mobile numbers, toll free numbers, DID landline numbers, SMS to Email, Database Dip, SD-WAN, voice termination and numerous API driven services. Apeiron Systems developed, owns and supports its services through its dedicated national telecommunications network. Apeiron Systems provides telecommunications services to application developers, call centers and small and medium size businesses. It markets these services through the Apeiron Systems website, independent sales agents, ISOs (Independent Sales Organizations) and Social Media Optimization (“SCO”).
Our Mobile Services include our retail and wholesale cellular voice/text/data services and mobile data (IoT – “Internet of Things”) services. We consolidated our wholesale and retail mobile services with Apeiron Systems’ hosted CPaaS services, providing Apeiron Systems with a bundled portfolio of mobile and hosted CPaaS services. Its mobile voice/text/data and mobile data services are supported by a blend of reseller agreements with select national wireless carriers and national wireless wholesalers. A wireless communications service reseller does not own the wireless network infrastructure over which services are provided to its customers. Apeiron Systems’ mobile voice/text/data and mobile data solutions are generally sold as traditional post-paid service plans that may include voice/text/data or wireless data only plans. Sometimes equipment is provided which can include, but is not limited to, phones, tablets, modems, routers and accessories. It primarily markets its mobile services through independent sales agents and ISOs via the “Apeiron” brand. These agents and ISOs generally market to small and medium sized businesses throughout the United States. This type of marketing is also considered B2B (“Business to Business”) sales.
Our Lifeline ETC services operate under its own FCC approved Compliance Plan and FCC wireless ETC designation in eight (8) states which currently include Georgia, Kentucky, Maryland, Nevada, Oklahoma, South Carolina, Vermont, and Wisconsin. IM Telecom, operating under its Infiniti Mobile brand, currently markets its Lifeline service through its Internet presence, its storefront in Tulsa, Oklahoma, and through ISOs that specialize in the distribution of Lifeline services. These ISOs typically support teams of field agents who market directly to Lifeline eligible individuals requesting Lifeline service. We provide phones and wireless voice/text/data service to Lifeline eligible individuals requesting Lifeline service. In some states, and depending on government requirements, we may only provide voice/text service with no mobile data.
Our Lifeline VETC services operate through a single VETC agent agreement with another ETC. We no longer distribute Lifeline service under this single VETC agent agreement; however, we continue to collect monthly commissions for those Lifeline lines that we distributed and which remain active under this single VETC agent agreement.
Results of Operations
Comparison of the quarter ended March 31, 2020, to the quarter ended March 31, 2019
For the quarter ended March 31, 2020, we had $1,957,355 in revenues from operations compared to the quarter ended March 31, 2019, where we had $2,640,296 in revenue from operations. The cost of revenue for the quarter ended March 31, 2020, was $1,192,177, compared to $1,503,460 for the quarter ended March 31, 2019. We had a gross profit of $765,178 for the quarter ended March 31, 2020, and $1,136,836 for the quarter ended March 31, 2019.
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For the quarter ended March 31, 2020, and the quarter ended March 31, 2019, total operating expenses were $955,169 and $1,423,926, respectively, for a decrease of $468,757.
For the quarter ended March 31, 2020, non-operating expenses were interest income of $1, other income of $301,372 (from an arbitration settlement) and interest expense of $10,549, compared to $676 interest income and interest expense of $11,379 for the quarter ended March 31, 2019.
For the quarter ended March 31, 2020, we had net income of $100,833. For the quarter ended March 31, 2019, we had a net loss of $297,793.
In comparing our Statements of Operations between the three-month periods ended March 31, 2020, and 2019, the Company continued the process of diversifying the service mix. Gross Revenue from Hosted Services and Lifeline ETC were new services added through acquisitions and accounted for 66.7% of the total gross revenue for the three months ended March 31, 2020. Mobile services showed a decline of 26.5%, and Lifeline VETC showed a decrease of 84.5% in gross revenue for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. Gross profit margin overall was 39.0% for the three months ended March 31, 2020, compared to 43.1% for the three months ended March 31, 2019. Hosted services and Lifeline ETC gross profit margin was 51.6% and 52.17%, respectively, for the three months ended March 31, 2020. Mobile services gross profit margin was 9.2% compared to 6.2% for the three months ended March 31, 2020, and 2019, respectively. Lifeline VETC gross profit margin was 37.4% compared to 70.5% for the three months ended March 31, 2020, and 2019, respectively.
Liquidity and Capital Resources
As of March 31, 2020, we have $227,269 in cash and cash equivalents on hand.
In comparing liquidity between the three-month periods ending March 31, 2020, and March 31, 2019, cash and short-term assets decreased by 0.3%. Liabilities and total overall debt showed a 1.2% increase in the three-month period ending March 31, 2020, when compared to March 31, 2019. Going forward, equity investment and growth of new services is expected to provide the liquidity for our business.
Overall, the current ratio (current assets divided by our current liabilities) remained at .36 as of March 31, 2020, compared to December 31, 2019. Working capital increased by 0.7%.
Cash Flow from Operations
During the three months ended March 31, 2020, cash flow provided by operating activities was $407,322 and for the three months ended March 31, 2019, cash flow provided by operating activities was $47,719. Cash flows provided by operating activities were primarily attributable to the Company’s other income and dividends paid for the three months ended March 31, 2020.
Cash Flows from Investing Activities
During the three months ended March 31, 2020, and the three months ended March 31, 2019, cash flow used in investing activities was $3,168 and $42,293, respectively. The cash flow from investing activities for the three months ended March 31, 2020, were from an asset purchase. The cash flow from investing activities for the three months ended March 31, 2019, was derived from the purchase of IM Telecom.
Cash Flows from Financing Activities
During the three months ended March 31, 2020, and the three months ended March 31, 2019, cash flow provided by (used in) financing activities was ($368,359) and $157,773, respectively. The funds used in financing comprised repayment of $12,237 on revolving lines of credit, $26,089 principal payments on lease liabilities and $49,044 in repayments due to a stockholder for the three months ended March 31, 2020.
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Going Concern
The Company for the three months ended March 31, 2020 generated net income of $100,833 derived from other income of $301,372. For the three months ended March 31, 2019, the net loss was $297,793. The Company has sustained itself through the operations of the business as is indicated by net cash provided by operations of $126,333 and $72,720 for the three months ended March 31, 2020, and 2019, respectively. The accumulated deficit as of March 31, 2020 is $6,106,273.
The Company has ameliorated any substantial doubt issues by generating additional cash flow since the completion of our merger with KonaTel Nevada on December 18, 2017; the acquisitions of Apeiron Systems and IM Telecom; receiving cash investments through the private placement of shares of our common stock; and revenues from the growth of IM Telecom, all of which has contributed to an improvement in our working capital, without the use of additional lines of credit or borrowings.
Our overall goal was to increase profit margins through cost controls and selection of high margin product offerings. Our profit margins were 39% and 43% for the three months ended March 31, 2020, and 2019, respectively. Our overall expenses were decreased from $1,423,926 for the three months ended March 31, 2019, to $955,169 for three months ended March 31, 2020. We continue to be confident that with aggressive management and business development that we will continue to eliminate any going concern issues.
Off-Balance Sheet Arrangements
We had no Off-Balance Sheet arrangements during the period ended March 31, 2020.
Critical Accounting Policies
Net Loss Per Share
Basic loss per common share calculations are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share calculations are determined by dividing net loss by the weighted average number of common shares and dilutive common share equivalents outstanding. As of March 31, 2020, and December 31, 2019, there are 3,400,000 potentially dilutive common shares. The dilutive common shares are not included in the computation of diluted earnings per share, because to do so would be anti-dilutive.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of receivables, cash, and cash equivalents.
The Company has a concentration of risk with respect to trade receivables from customers and cellular providers. As of March 31, 2020, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from one (1) customer in the amount of $53,649, or 15.8%, of accounts receivables. As of December 31, 2019, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from three (3) customers in the amounts of $89,078, or 24.4%, $77,662, or 21.3% and $48,475, or 13.3%, respectively.
Concentration of Major Customer
A significant amount of the revenue is derived from contracts with major customers and cellular providers. For the three months ended March 31, 2020, the Company had one (1) customer that accounted for $555,826, or 28.4%, of revenue. For the three months ended March 31, 2019, the Company had one (1) cellular partner that accounted for $728,649 in contractually obligated commission payments or 27.6% of revenue.
Effect of Recent Accounting Pronouncements
The Company has evaluated all other recent accounting pronouncements and believes that none will have a significant effect on the Company’s financial statement.
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Emerging Growth Company
The Company is an emerging growth company and 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not required.
Item 4. Controls and Procedures.
Management’s Quarterly Report on Internal Control Over Financial Reporting
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that material information relating to us is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors. These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness, as of March 31, 2020, of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were adequate as of March 31, 2020. Prior to this period, we achieved effective controls for ensuring the accuracy of reporting over significant account balances, including the review, approval, documentation of related transactions and other complex accounting procedures. These control improvements were achieved through the implementation of a Vice President of Finance function and additional segregation of duties and responsibilities as well as multi-level review procedures to validate accounts and financial results. The Company also currently has two independent directors.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
Not required; however, see Item 1A. Risk Factors, Part I, commencing on page 11, of the Company’s 10-K Annual Report for the fiscal year ended December 31, 2019, filed with the SEC on May 11, 2020, for a list of “Risk Factors,” which Annual Report can be accessed by Hyperlink in Part II, Item 6 hereof.
The following risk factor regarding the COVID-19 pandemic was one of the risk factors included in the Company’s 10-K Annual Report for the year ended December 31, 2019:
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“Our business operations could be impacted by the current world health crisis.
On January 30, 2020, the World Health Organization declared the coronavirus (the ‘COVID-19’) outbreak a “Public Health Emergency of International Concern,” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical areas in which we operate. While it is unknown how long these conditions will last and what the complete financial affect will be on us, to date and as a result of actions taken by management to mitigate a material impact to our financial statements or our operational results, we are not currently experiencing a material impact to our financial statements or our results of operations; however, a pandemic typically results in social distancing, travel bans and quarantines, which may result in limited access to our facilities, customers, management, support staff and professional advisors. These, in turn, may not only impact our operations, financial condition and demand for our services, but our overall ability to react timely to mitigate the impact of this event. Given our small staff, if a key member of our team were disabled by COVID-19, it could have a material negative impact on our business. Also, it may substantially hamper our efforts to provide our investors with timely information and to comply with our filing obligations under the Exchange Act with the SEC. If this pandemic were to last a prolonged period of time, we could see a decline in revenue due to the closure of customer businesses, which could then impact our ability pay our short-term debts. Our concentration of revenue from a small group of Apeiron Systems’ customers makes it reasonably possible that we are vulnerable to the risk of a long-term severe impact. Our dependence on certain suppliers to provide equipment to be distributed or sold to our customers could also be impacted if inventory shortages occur due to import or export restrictions resulting from the pandemic.”
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None; not applicable.
Item 3. Defaults upon Senior Securities
None; not applicable.
Item 4. Mine Safety Disclosure
Not applicable.
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|
Exhibit Number |
Description of Exhibit | Filing | ||
| 3(i) | Amended and Restated Certificate of Incorporation | Filed with the Form 8-K/A filed on December 20, 2017 and incorporated herein by reference. | ||
| 3(ii) | Amended and Restated Bylaws | Filed with the Form 8-K/A filed on December 20, 2017 and incorporated herein by reference. | ||
| 14 | Code of Ethics | Filed with the Form 8-K/A filed on December 20, 2017 and incorporated herein by reference. | ||
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith. | ||
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
| 32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith. | ||
| 101.INS | XBRL Instance Document | |||
| 101.SCH | XBRL Taxonomy Extension Schema | |||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase | |||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase | |||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
Exhibits incorporated by reference:
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KonaTel, Inc.
| Date: | June 5, 2020 | By: | /s/ D. Sean McEwen | |
| D. Sean McEwen | ||||
| Chairman, President and CEO |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Date: | June 5, 2020 | By: | /s/ D. Sean McEwen | |
| D. Sean McEwen | ||||
| Chairman, President, CEO and a Director |
| Date: | June 5, 2020 | By: | /s/ Brian R. Riffle | |
| Brian R. Riffle | ||||
| Chief Financial Officer |
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