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KonaTel, Inc. – ‘10-Q’ for 6/30/20

On:  Wednesday, 8/19/20, at 10:32am ET   ·   For:  6/30/20   ·   Accession #:  1515971-20-100   ·   File #:  1-10171

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 8/19/20  KonaTel, Inc.                     10-Q        6/30/20   57:2.5M                                   EDGARSources LLC/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    188K 
 2: EX-31.1     Certification -- §302 - SOA'02 -- exhibit311        HTML     20K 
 3: EX-31.2     Certification -- §302 - SOA'02 -- exhibit312        HTML     20K 
 4: EX-32       Certification -- §906 - SOA'02 -- exhibit32         HTML     18K 
11: R1          Cover                                               HTML     50K 
12: R2          Condensed Consolidated Balance Sheets (Unaudited)   HTML    108K 
13: R3          Condensed Consolidated Balance Sheets               HTML     25K 
                (Parenthetical)                                                  
14: R4          Condensed Consolidated Statements of Operations     HTML     91K 
                (Unaudited)                                                      
15: R5          Condensed Consolidated Statements of Stockholders'  HTML     46K 
                Equity (Unaudited)                                               
16: R6          Condensed Consolidated Statements of Cash Flows     HTML    119K 
17: R7          Summary of Significant Accounting Policies          HTML     41K 
18: R8          Transactions                                        HTML     26K 
19: R9          Property and Equipment                              HTML     25K 
20: R10         Right-Of-Use Assets                                 HTML     25K 
21: R11         Intangible Assets                                   HTML     24K 
22: R12         Amount Due to Stockholder                           HTML     20K 
23: R13         Notes Payble                                        HTML     20K 
24: R14         Contingencies and Commitments                       HTML     21K 
25: R15         Segment Reporting                                   HTML     58K 
26: R16         Stockholders' Equity                                HTML     27K 
27: R17         Subsequent Events                                   HTML     19K 
28: R18         Accounting Policies (Policies)                      HTML     40K 
29: R19         Summary of Significant Accounting Policies          HTML     29K 
                (Tables)                                                         
30: R20         Transactions (Tables)                               HTML     26K 
31: R21         Property and Equipment (Tables)                     HTML     24K 
32: R22         Right-Of-Use Assets (Tables)                        HTML     25K 
33: R23         Intangible Assets (Tables)                          HTML     25K 
34: R24         Segment Reporting (Tables)                          HTML     50K 
35: R25         Stockholders' Equity (Tables)                       HTML     25K 
36: R26         Summary of Significant Accounting Policies -        HTML     48K 
                Schedule of Earnings Per Share, Basic and Diluted                
                (Details)                                                        
37: R27         Summary of Significant Accounting Policies          HTML     50K 
                (Details Narrative)                                              
38: R28         Transactions - Schedule of Transactions of          HTML     35K 
                Recognized Assets Acquired and Liabilities Assumed               
                (Details)                                                        
39: R29         Transactions - Schedule of Pro-Forma Financial      HTML     23K 
                Transactions (Details)                                           
40: R30         Transactions (Details Narrative)                    HTML     48K 
41: R31         Property and Equipment - Schedule of Property and   HTML     34K 
                Equipment (Details)                                              
42: R32         Property and Equipment (Details Narrative)          HTML     19K 
43: R33         Right-Of-Use Assets - Supplemental Balance Sheet    HTML     22K 
                Information Related to Operating Leases (Details)                
44: R34         Right-Of-Use Assets (Details Narrative)             HTML     26K 
45: R35         Intangible Assets - Schedule of Acquired            HTML     27K 
                Finite-Lived Intangible Assets (Details)                         
46: R36         Intangible Assets - Schedule of Intangible Assets   HTML     21K 
                Future Amortization Expense (Details)                            
47: R37         Intangible Assets (Details Narrative)               HTML     22K 
48: R38         Amount Due to Stockholder (Details Narrative)       HTML     25K 
49: R39         Notes Payble (Details Narrative)                    HTML     33K 
50: R40         Contingencies and Commitments (Details Narrative)   HTML     18K 
51: R41         Segment Reporting - Schedule of Segment Reporting   HTML     48K 
                Information (Details)                                            
52: R42         Segment Reporting (Details Narrative)               HTML     18K 
53: R43         Stockholders' Equity - Schedule of Share-Based      HTML     57K 
                Compensation , Stock Options, Activity (Details)                 
54: R44         Stockholders' Equity (Details Narrative)            HTML     26K 
56: XML         IDEA XML File -- Filing Summary                      XML     99K 
55: EXCEL       IDEA Workbook of Financial Reports                  XLSX     56K 
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 7: EX-101.CAL  XBRL Calculations -- ktel-20200630_cal               XML    141K 
 8: EX-101.DEF  XBRL Definitions -- ktel-20200630_def                XML    231K 
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 6: EX-101.SCH  XBRL Schema -- ktel-20200630                         XSD     92K 
57: ZIP         XBRL Zipped Folder -- 0001515971-20-000100-xbrl      Zip     74K 


‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Part I -- Financial Information
"Financial Statements
"Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019
"Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited)
"Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the three and six months ended June 30, 2020 and 2019 (unaudited)
"Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 (unaudited) and 2019
"Notes to Condensed Consolidated Financial Statements (unaudited)
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures About Market Risk
"Controls and Procedures
"Part Ii -- Other Information
"Legal Proceedings
"Risk Factors
"Unregistered Sales of Equity Securities and Use of Proceeds
"Defaults Upon Senior Securities
"Mine Safety Disclosures
"Exhibits
"Signatures

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  KonaTel, Inc.  

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 June 30, 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.”

 

 C: 
 C: 

 

 

 

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 30, 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” (“Infiniti 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 C: 

 

 

KONATEL, INC.

FORM 10-Q

JUNE 30, 2020

INDEX

 

       
  Page No.
PART I – FINANCIAL INFORMATION 3
Item 1.      Financial Statements 4
Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
Item 3.      Quantitative and Qualitative Disclosures About Market Risk 18
Item 4.      Controls and Procedures 18
PART II – OTHER INFORMATION 19
Item 1.      Legal Proceedings 19
Item 1A.   Risk Factors 19
Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3.      Defaults Upon Senior Securities 19
Item 4.      Mine Safety Disclosures 19
Item 5.      Other Information 19
Item 6.      Exhibits 20
   
SIGNATURES 21

 

 

PART I - FINANCIAL STATEMENTS

 

June 30, 2020

Table of Contents

 

   
Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019 4
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited) 5
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2020 and 2019 (unaudited) 6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 (unaudited) and 2019 7
Notes to Condensed Consolidated Financial Statements (unaudited) 8

 

 

 

 

 

 

 

 

 

 

 

 

 C: 

 

 

 

KonaTel, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

   June 30, 2020   December 31, 2019 
Assets          
Current Assets          
Cash and Cash Equivalents  $637,059   $191,474 
Accounts Receivable, net   485,710    377,485 
Inventory, net   4,004    4,659 
Prepaid Expenses   1,480    1,743 
Total Current Assets   1,128,253    575,361 
           
Fixed Asset          
Property and Equipment, net   91,425    102,689 
Right of Use Assets, net   102,980    78,584 
Total Fixed Assets   194,405    181,273 
           
Other Assets          
Intangible Assets, net   1,837,751    2,238,918 
Other Assets   172,065    207,740 
Total Other Assets   2,009,816    2,446,658 
Total Assets  $3,332,474   $3,203,292 
           
Liabilities and Stockholders’ Equity          
Current Liabilities          
Accounts Payable and Accrued Expenses  $1,174,688   $1,223,195 
Amount Due to Stockholder   99,597    151,357 
Revolving Line of Credit   —      12,237 
Note Payable - current portion   79,997    75,905 
Lease Liabilities - current portion   100,186    69,148 
Deferred Revenue   38,002    53,074 
Customer Deposits   —      31,087 
Total Current Liabilities   1,492,470    1,616,003 
           
Long Term Liabilities          
Lease Liabilities - long term   56,437    12,942 
Note Payable - long term   306,556    50,603 
Total Long Term Liabilities   362,993    63,545 
Total Liabilities   1,855,463    1,679,548 
           
Stockholders’ Equity          
Common stock, $.001 par value, 50,000,000 shares authorized, 40,692,286 outstanding and issued at June 30, 2020 and December 31, 2019   40,692    40,692 
Additional Paid In Capital   7,400,543    7,380,029 
Accumulated Deficit   (5,964,224)   (5,896,977)
Total Stockholders’ Equity   1,477,011    1,523,744 
Total Liabilities and Stockholders’ Equity  $3,332,474   $3,203,292 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 C: 

 

 

 

KonaTel, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2020   2019   2020   2019 
Revenue  $2,257,193   $2,266,368   $4,214,548   $4,906,666 
Cost of Revenue   1,378,868    1,680,233    2,571,045    3,318,897 
                     
Gross Profit   878,325    586,135    1,643,503    1,587,769 
                     
Operating Expenses                    
Payroll and Related Expenses   449,931    473,440    898,080    942,541 
Operating and Maintenance   228,678    380,892    420,700    809,037 
Bad Debt   190    —      1,690    —   
Utilities and Facilities   7,623    5,008    16,490    59,773 
Depreciation and Amortization   246,968    269,257    517,268    502,231 
General and Administrative   12,568    36,432    27,135    78,334 
Marketing and Advertising   872    6,104    1,816    21,469 
Taxes and Insurance   23,312    22,618    42,126    69,893 
Total Operating Expenses   970,142    1,193,751    1,925,305    2,483,278 
                     
Operating Loss   (91,817)   (607,616)   (281,802)   (895,509)
                     
Other Income and Expense                    
Interest Income   —      664    1    1,341 
Other Income   242,080    14,836    543,448    14,836 
Interest Expense   (8,214)   (12,733)   (18,765)   (22,684)
Total Other Income and Expenses   233,866    2,767    524,684    (6,507)
                     
Net Income/(Loss)  $142,049   $(604,849)  $242,882   $(902,016)
                     
Net Income/(Loss) per Share  $0.00   $(0.01)  $0.01   $(0.02)
                     
Weighted Average Outstanding Shares - Basic   40,692,286    40,692,286    40,692,286    40,692,286 
                     
Diluted Net Income/(Loss) per Share  $0.00   $(0.01)  $0.01   $(0.02)
                     
Weighted Average Outstanding Shares - Diluted   44,092,286    43,342,286    44,092,286    43,342,286 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 C: 

 

 

 

KONATEL, INC.

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   —      —      20,514    —      20,514 
Dividends Paid to Apeiron shareholders   —      —      —      (310,129)   (310,129)
Net Income   —      —      —      242,882    242,882 
                          
Balances as of June 30, 2020   40,692,286   $40,692   $7,400,543   $(5,964,224)  $1,477,011 

 

   Common Shares   Additional   Accumulated     
   Shares   Amount   Paid-in Capital   Deficit   Total 
Balances as of April 1, 2020   40,692,286   $40,692   $7,390,286   $(6,106,273)  $1,324,705 
                          
Stock Based Compensation   —      —      10,257    —      10,257 
Net Income   —      —      —      142,049    142,049 
                          
Balances as of June 30, 2020   40,692,286   $40,692   $7,400,543   $(5,964,224)  $1,477,011 

 

   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 
                          
Stock Based Compensation   —      —      274,417    —      274,417 
Value of Options Issued as Part of IM Telecom Acquisition   —      —      98,482    —      98,482 
Net Loss   —      —      —      (902,016)   (902,016)
                          
Balances as of June 30, 2019   40,692,286   $40,692   $7,414,595   $(5,254,089)  $2,201,198 

 

   Common Shares   Additional   Accumulated     
   Shares   Amount   Paid-in Capital   Deficit   Total 
Balances as of April 1, 2019   40,692,286   $40,692   $7,281,534   $(4,649,240)  $2,672,986 
                          
Stock Based Compensation   —      —      133,061    —      133,061 
Net Loss   —      —      —      (604,849)   (604,849)
                          
Balances as of March 31, 2019   40,692,286   $40,692   $7,414,595   $(5,254,089)  $2,201,198 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 C: 

 

 

 

KonaTel, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   Six Months Ended June 30, 
   2020   2019 
Cash Flows from Operating Activities:          
Net Income/(Loss)  $242,882   $(902,016)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and Amortization   517,268    502,231 
Bad Debt   1,690    —   
Stock-based Compensation   20,514    274,417 
Amount recorded as loan forgiveness on SBA Covid-19 Loans   (229,003)   —   
Changes in Operating Assets and Liabilities, net of effects of acquisition:          
Accounts Receivable   (109,915)   370,021 
Notes Receivable   —      50,001 
Inventory   655    (773)
Prepaid Expenses   263    4,594 
Accounts Payable and Accrued Expenses   (102,624)   (22,938)
Payments on Operating Lease Liabilities   (21,384)   (35,266)
Deferred Revenue   (15,072)   (25,712)
Customer Deposits   (31,087)   36,420 
Other Assets   35,675    (196,082)
Net cash provided by operating activities   309,862    54,897 
           
Cash Flows from Investing Activities          
Cash Received in Acquisition of IM Telecom   —      14,318 
Purchase of Assets   (3,168)   —   
Asset Purchase of IM Telecom   —      (22,382)
Net cash (used in) investing activities   (3,168)   (8,064)
           
Cash Flows from Financing Activities          
Repayment of Revolving Lines of Credit   (12,237)   (44,705)
Advances made by Stockholder   —      200,000 
Proceeds from Federal SBA Covid-19 Loans   458,900    —   
Repayments of amounts due to Related Party and Seller   (51,760)   (57,346)
Dividends Paid to Apeiron shareholders   (256,012)   —   
Net cash provided by (used in) financing activities   138,891    97,949 
           
Net Change in Cash   445,585    144,782 
           
Cash - Beginning of Year   191,474    56,510 
Cash - End of Period  $637,059   $201,292 
           
Supplemental Disclosure of Cash Flow Information          
Cash paid for interest  $17,174   $16,179 
Cash paid for taxes  $—     $—   
           
Non-cash investing and financing activities:          
Asset Purchase of IM Telecom          
Accounts Receivable  $—     $63,764 
Prepaid Expense  $—     $2,400 
Furniture and Equipment at Fair Market Value  $—     $1,308 
Accounts Payable and Accrued Expenses, net of cash  $—     $(23,872)
License  $—     $624,255 
Value of Options  $—     $98,482 
Right of use assets obtained in exchange for new operating lease liabilities  $129,108   $80,837 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 C: 

 

 

KONATEL, INC.

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.

 

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.

 

 C: 

 

 

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. All significant intercompany transactions are eliminated.

 

Net Income/(Loss) Per Share

 

Basic income/(loss) per common share calculations are determined by dividing net income/(loss) by the weighted average number of shares of common stock outstanding during the period. Diluted income/(loss) per common share calculations are determined by dividing net income/(loss) by the weighted average number of common shares and dilutive common share equivalents outstanding. Dilutive common share equivalents are computed by using the “Treasury Stock Method,” which computes the number of new shares that may potentially be created by unexercised options. Diluted common share equivalents are stock based compensation options. The dilutive common shares for the three and six months periods ended June 30, 2019, 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 June 30,   Six Months Ended June 30, 
   2020   2019   2020   2019 
Net income/(loss)  $142,049   $(604,849)  $242,882   $(902,016)
Weighted average shares outstanding during period on which basic earnings per share is calculated   40,692,286    40,692,286    40,692,286    40,692,286 
Effect of dilutive shares                    
Incremental shares under stock-based compensation   —      —      —      —   
Weighted average shares outstanding during period on which diluted earnings per share is calculated   40,692,286    40,692,286    40,692,286    40,692,286 
                     
Earnings per share attributable to common stockholders                    
Basic earnings (loss) per share  $0.00   $(0.01)  $0.01   $(0.02)
Diluted earnings (loss) per share  $0.00   $(0.01)  $0.01   $(0.02)

 

Basic income/(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.

Dilutive common share equivalents are computed using the Treasury Stock Method, which computes the number of new shares that may potentially be created by unexercised options. The effects of incremental shares under stock-based compensation would be anti-dilutive because no options are in the money during the reporting periods. The number of shares that would have been reported had the options been in the money would have been 3,400,000 and 2,650,000 respectively for both the three month and six month periods ended June 30, 2020 and 2019.

 

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 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.

 

The Company has a concentration of risk with respect to trade receivables from customers and cellular providers. As of June 30, 2020, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from two (2) customers in the amounts of $95,195 and $56,996, respectively, or 11.7%, of total accounts receivable. 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.

 

 C: 

 

 

Concentration of Major Customer

 

 A significant amount of the revenue is derived from contracts with major customers and cellular partners. For the six months ended June 30, 2020, the Company had one (1) customer that accounted for $1,309,330 or 31.1%, of revenue. For the six month period ended June 30, 2019, the Company had one customer that accounted for $1,346,791, or 27.4%, and one (1) cellular provider that accounted for $1,232,155, or 25.1%, of the total revenue.

 

Effect of Recent Accounting Pronouncements

 

The Company has evaluated all 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 d/b/a “Infiniti Mobile” 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 $168,277.

 

The purchase price of $583,690 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 

 

The following table provides unaudited proforma results, prepared in accordance with ASC 805, for the six months ended June 30, 2020, and 2019, respectively, as if IM Telecom and Apeiron Systems had been acquired on January 1, 2018:

 

  

For the Six

Months Ended

June 30, 2020

  

For the Six

Months Ended

June 30, 2019

 
Net Sales  $4,214,548   $4,972,947 
Net Profit (Loss)  $242,882   $(936,870)
Net profit (loss) per share, basic and diluted  $0.00   $(0.02)

 

 C: 
10 

 

 

NOTE 3 – PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following major classifications as of June 30, 2020, and December 31, 2019:

 

   June 30, 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   (365,689)   (351,257)
Property and equipment, net  $91,425   $102,689 

 

Depreciation and amortization related to Property and Equipment amounted to $14,432 and $14,432 for the six month periods ended June 30, 2020, and 2019, respectively; and $7,216 and $7,216 for the three month periods ended June 30, 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%.

 

   June 30, 2020   December 31, 2019 
Right-of-Use Assets  $261,476   $151,472 
Less: Accumulated Depreciation   (158,496)   (72,888)
Right-of-Use, Net  $102,980   $78,584 

 

Depreciation amounted to $101,670 and $36,281 for the six months ended June 30, 2020, and 2019, respectively; and $39,168 and $18,141 for the three months ended June 30, 2020, and 2019, respectively. Depreciation expense is included as a component of operating expenses in the accompanying Condensed Consolidated Statements of Operations.

 

The Company has right-of-use assets through leases of property under three (3) 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  $63,371 
2021  $72,646 
2022  $20,606 
Total  $156,623 
Less Current Maturities  $100,186 
Long Term Maturities  $56,437 

 

The Company also leases two (2) office spaces on a month-to-month basis. Total lease expense for the six months ended June 30, 2020, and 2019, amounted to $6,685 and $37,200, respectively, for these leases.

 

NOTE 5 – INTANGIBLE ASSETS

 

Intangible Assets with definite useful life consist of licenses, customer lists and software that were acquired through acquisitions.

 

Intangible Assets with indefinite useful life consist of a Lifeline License granted by the FCC.

 

The Lifeline 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 Lifeline License was acquired through an acquisition. The fair market value of the License as of June 30, 2020, was $634,252.

 

   June 30, 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   (2,339,463)   (1,938,296)
Intangible Assets, net  $1,837,751   $2,238,918 

 

 C: 
11 

 

 

Amortization expense amounted to $401,166 and $451,519 for the six months ended June 30, 2020, and 2019, respectively; and $200,583 and $225,759 for the three months ended June 30, 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  $401,168 
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 June 30, 2020, was $99,597.

 

NOTE 7 – NOTES PAYABLE

 

In June 2020, the Company received a Small Business Administration (“SBA”) Emergency Injury Disaster Loan (“EIDL”) in the amount of $150,000. The maturity date of the 30-year note is June 2050. Interest will accrue at a rate of 3.75% per annum. Payments will begin in June 2021.

 

The Company also received three separate SBA Payroll Protection Loans in the amounts of $186,300, $101,800, and $20,900 for a total of $309,000. Each loan includes an interest rate of 1% and a maturity date of April 14, 2022; however, the Company believes that 100% of these loans will be forgiven based upon current loan SBA forgiveness guidelines. As of June 30, 2020, $79,997 has not been recorded as forgiven. The amount recognized as forgiven to date is $229,003 and has been recorded as Other Income.

 

In conjunction with the Notes Payable, the Company received $10,000 in an SBA Emergency Injury Disaster Grant. This amount was recorded as Other Income.

 

NOTE 8 – 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 June 30, 2020, there are no ongoing legal proceedings.

 

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 June 30, 2020, and December 31, 2019. The letters of credit are not considered in the financial statements.

 

NOTE 9 – 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.

 

 C: 
12 

 

 

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.  Following our acquisition of IM Telecom, thereby securing our own FCC approved Lifeline ETC license, we are phasing out this segment and 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 six months ended June 30, 2020                         
Revenue  $1,990,487   $1,087,306   $862,538   $274,217   $4,214,548 
Net Loss  $(126,200)  $48,748   $378,471   $(58,137)  $242,882 
Depreciation and amortization  $411,167   $49,887   $16,001   $40,213   $517,268 
Additions to property and equipment  $—     $—     $—     $—     $—   
                          
For the three months ended June 30, 2020                         
Revenue  $1,011,813   $587,054   $536,197   $122,129   $2,257,193 
Net Loss  $(189,291)  $91,001   $348,406   $(108,067)  $142,049 
Depreciation and amortization  $200,583   $32,670   $5,262   $8,453   $246,968 
Additions to property and equipment  $3,168   $—     $—     $—     $3,168 
                          
For the six months ended June 30, 2019                         
Revenue  $1,575,228   $1,347,719   $366,107   $1,617,612   $4,906,666 
Net Loss  $(353,511)  $(137,665)  $(125,231)  $(285,609)  $(902,016)
Depreciation and amortization  $428,588   $38,239   $12,352   $23,052   $502,231 
Additions to property and equipment  $—     $—     $—     $—     $—   
                          
For the three months ended June 30, 2019                         
Revenue  $859,564   $640,512   $171,873   $594,419   $2,266,368 
Net Profit (Loss)  $(269,031)  $(54,331)  $(128,223)  $(153,264)  $(604,849)
Depreciation and amortization  $218,319   $16,545   $20,754   $13,639   $269,257 
Additions to property and equipment  $—     $—     $—     $—     $—   

 

NOTE 10 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

The Company has not issued any common stock through June 30, 2020, nor for the year ended December 31, 2019.

 

 C: 
13 

 

 

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 six months ended June 30, 2020, and 2019, the Company recorded vested options expense of $20,514 and $274,417 respectively. For the three months ended June 30, 2020, and 2019, the Company recorded vested options expense of $10,257 and $133,061, respectively. The option expense not taken as of June 30, 2020, is $61,540, with a weighted average term of 2.9 years.

 

The following table represents stock option activity as of and for the six months ended June 30, 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 – June 30, 2020  3,800,000  $0.21  2.8  $—  
               
Exercisable and Vested, June 30, 2020  3,400,000  $0.21  2.6  $—  

 

NOTE 11 – SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through the date of this filing, and no material subsequent events have occurred.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 C: 
14 

 

 

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.  Following our acquisition of IM Telecom, thereby securing our own FCC approved Lifeline ETC license, we are phasing out this segment, and 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 June 30, 2020, to the quarter ended June 30, 2019

 

For the quarter ended June 30, 2020, we had $2,257,193 in revenues from operations compared to the quarter ended June 30, 2019, where we had $2,266,368 in revenue from operations. The cost of revenue for the quarter ended June 30, 2020, was $1,378,868, compared to $1,680,233 for the quarter ended June 30, 2019. We had a gross profit of $878,325 for the quarter ended June 30, 2020, and $586,135 for the quarter ended June 30, 2019.

 

For the quarter ended June 30, 2020, and the quarter ended June 30, 2019, total operating expenses were $970,142 and $1,193,751, respectively, for a decrease of $223,609.

 

For the quarter ended June 30, 2020, non-operating expenses were other income of $242,080 (expected PPP loan forgiveness) and interest expense of $8,214, compared to $644 interest income, other income of $14,836 and interest expense of $12,733 for the quarter ended June 30, 2019.

 

 C: 
15 

 

 

For the quarter ended June 30, 2020, we had net income of $142,049. For the quarter ended June 30, 2019, we had a net loss of $604,849.

 

In comparing our Condensed Consolidated Statements of Operations between the three month periods ended June 30, 2020, and 2019, respectively, 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 68.6% of the total gross revenue for the three months ended June 30, 2020. Mobile services showed a decline of 8.3%, and Lifeline VETC, a segment of our business being phased out in favor of our Lifeline ETC business, showed a decrease of 79.5% in gross revenue for the three months ended June 30, 2020, compared to the three months ended June 30, 2019. Gross profit margin overall was 38.9% for the three months ended June 30, 2020, compared to 25.9% for the three months ended June 30, 2019. Hosted Services and Lifeline ETC gross profit margin was 23.2% and 49.5%, respectively, for the three months ended June 30, 2020. Mobile services gross profit margin was 49.3% compared to 24.6% for the three months ended June 30, 2020, and 2019, respectively. Lifeline VETC gross profit margin was 72.8% compared to 21.9% for the three months ended June 30, 2020, and 2019, respectively.

 

Comparison of the six months ended June 30, 2020, to the six months ended June 30, 2019

 

For the six months ended June 30, 2020, we had $4,214,548 in revenues from operations compared to the six months ended June 30, 2019, where we had $4,906,666 in revenue from operations. The cost of revenue for the six months ended June 30, 2020, was $2,571,045, compared to $3,318,897 for the six months ended June 30, 2019.

 

For the six months ended June 30, 2020, and the six months ended June 30, 2019, total operating expenses were $1,925,305 and $2,483,278, respectively, for a decrease of $557,973.

 

For the six months ended June 30, 2020, non-operating expenses were the interest income and other income of $543,449 and interest expense of $18,765, compared to $1,341 interest income, other income of $14,836 and interest expense of $22,684 for the six months ended June 30, 2019.

 

For the six months ended June 30, 2020, we had net income of $242,882. For the six months ended June 30, 2019, we had a net loss of $902,016.

 

In comparing our Condensed Consolidated Statements of Operations between the six month periods ended June 30, 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 67.7% of the total gross revenue for the six months ended June 30, 2020. Mobile services showed a decline of 19.3%, and Lifeline VETC showed a decrease of 83.0% in gross revenue for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. Gross profit margin overall was 39.0% for the six months ended June 30, 2020, compared to 32.4% for the six months ended June 30, 2019. Hosted Services and Lifeline ETC gross profit margin was 35.6% and 67.2%, respectively, for the six months ended June 30, 2020. Mobile services gross profit margin was 30.3% compared to 30.1% for the six months ended June 30, 2020, and 2019, respectively. Lifeline VETC gross profit margin was 67.2% compared to 23.0% for the six months ended June 30, 2020, and 2019, respectively.

 

Liquidity and Capital Resources

 

As of June 30, 2020, we had $637,059 in cash and cash equivalents on hand.

 

In comparing liquidity between the six month periods ending June 30, 2020, and June 30, 2019, cash assets increased by 216.5%. This increase was due to increased business, increased cash-flow performance, and the government emergency programs. Liabilities and total overall debt showed a 2.4% increase in the three month period ended June 30, 2020, when compared to June 30, 2019. Going forward, equity investment and growth of new services are expected to provide the liquidity for our business.

 

Overall, the current ratio (current assets divided by our current liabilities) improved to 0.73 as of June 30, 2020, compared to December 31, 2019, of 0.36. Working capital increased by 59.6%.

 

Cash Flow from Operations

 

During the six months ended June 30, 2020, cash flow provided by operating activities was $309,862, and for the six months ended June 30, 2019, cash flow provided by operating activities was $54,897. Cash flows provided by operating activities were primarily attributable to the Company’s other income and dividends paid for the six months ended June 30, 2020.

 

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Cash Flows from Investing Activities

 

During the six months ended June 30, 2020, and the six months ended June 30, 2019, cash flow used in investing activities was $3,168 and $8,064, respectively. The cash flow from investing activities for the six months ended June 30, 2020, were from an asset purchase. The cash flow from investing activities for the six months ended June 30, 2019, was derived from the purchase of IM Telecom.

 

Cash Flows from Financing Activities

 

During the six months ended June 30, 2020, and the six months ended June 30, 2019, cash flow provided by (used in) financing activities was $138,891 and $97,949, respectively. The funds used in financing for the six months ended June 30, 2020, comprised of repayment of $12,237 on revolving lines of credit, $256,012 dividends paid to shareholders and $51,760 in repayments due to a stockholder. The funds provided by financing for the six months ended June 30, 2020, comprised of proceeds from four (4) separate Small Business Administration PPP and EIDL loans totaling $458,900.

 

Going Concern

 

For the six months ended June 30, 2020, the Company generated net income of $242,882.. For the six months ended June 30, 2019, the net loss was $902,016. The Company has sustained itself through the operations of the business as is indicated by net cash provided by operations of $309,862 and $54,897 for the six months ended June 30, 2020, and 2019, respectively. The accumulated deficit as of June 30, 2020, is $5,964,224

 

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; diversification of our revenues through the acquisitions of Apeiron Systems and IM Telecom; receiving cash investments through the private placement of shares of our common stock during the first six months of 2018; and revenues from the growth of IM Telecom and Apeiron Systems, all of which have contributed to an improvement in our working capital, without the use of additional lines of credit, borrowings or additional cash investments beyond the initial private placement of shares of our common stock during the first six months of 2018.

 

Our overall goal was to diversify our sources of revenue and increase profit margins through cost controls and a shift to higher margin product offerings. Prior to acquiring Apeiron Systems and IM Telecom, we derived nearly 100% of our total revenue from cellular (voice) resales. For the six months ended June 30, 2020, Hosted Services account for 47% of our total revenue, Mobile Services account for 26% of our total revenue, Lifeline (ETC) accounts for 21% of our total revenue and Lifeline VETC, currenting being phased out in favor of Lifeline ETC, accounts for 6% of our total revenue. Our profit margins were 39% and 32% for the six months ended June 30, 2020, and 2019, respectively. Our overall expenses were decreased from $2,483,278 for the six months ended June 30, 2019, to $1,925,305 for six months ended June 30, 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 June 30, 2020.

 

Critical Accounting Policies

 

Net Income/(Loss) Per Share

 

Basic income/(loss) per common share calculations are determined by dividing net income/(loss) by the weighted average number of shares of common stock outstanding during the period. Diluted income/(loss) per common share calculations are determined by dividing net income/(loss) by the weighted average number of common shares and dilutive common share equivalents outstanding. As of June 30, 2020, and June 30, 2019, there are 3,400,000 potentially dilutive common shares. The dilutive common shares for the three and six months ended June 30, 2019, 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 June 30, 2020, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from two (2) customers in the amount of $95,195 and $56,996, or 11.7%, of accounts receivables. As of December 31, 2019, the Company had a significant concentration of receivables (defined as customers whose receivable balances are

 

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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 six months ended June 30, 2020, the Company had one (1) customer that accounted for $1,309,330 or 31.1%, of revenue. For the six month period ended June 30, 2019, the Company had one (1) customer that accounted for $1,346,791, or 27.4%, and one (1) cellular provider that accounted for $1,232,155, or 25.1%, of the total revenue.

 

Effect of Recent Accounting Pronouncements

 

The Company has evaluated all recent accounting pronouncements and believes that none will have a significant effect on the Company’s financial statements.

 

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 June 30, 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 June 30, 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 June 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

Our business operations could be impacted by the current world health crisis.

 

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:

 

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.

 

Item 5. Other Information

 

None; not applicable. 

 

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Item 6. Exhibits

 

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:

 

Annual Report on Form 10-K for the year ended December 31, 2019, and filed with the SEC on May 11, 2020.

 

 

 

 

 

 

 

 

 

 

 

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SIGNATURES

 

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: August 19, 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: August 19, 2020   By: /s/ D. Sean McEwen
        D. Sean McEwen
        Chairman, President, CEO and a Director

 

Date: August 19, 2020   By: /s/ Brian R. Riffle
        Brian R. Riffle
        Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
5/15/22
4/14/22
12/1/21
1/1/218-K
Filed on:8/19/20
For Period end:6/30/20NT 10-Q
5/11/2010-K
4/1/20
3/10/20
1/30/20
1/1/208-K
12/31/1910-K,  10-K/A
9/4/198-K
7/10/19
6/30/1910-Q,  NT 10-Q
5/1/19
4/1/19NT 10-K
3/31/1910-Q,  NT 10-Q
1/31/198-K
1/1/19
12/31/1810-K,  3,  8-K,  8-K/A,  D,  NT 10-K
10/23/18
2/7/188-K,  8-K/A
2/5/18
1/1/18
12/20/178-K/A
12/18/173,  4
10/14/14
 List all Filings 


2 Previous Filings that this Filing References

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 5/12/20  KonaTel, Inc.                     10-K       12/31/19   66:7.1M                                   EDGARSources LLC/FA
12/20/17  KonaTel, Inc.                     8-K/A:1,2,311/15/17   14:1M                                     Action Edgar Fil… Svc/FA
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