Company Quick10K Filing
Quick10K
Konatel
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-09-04 Other Events, Exhibits
8-K 2019-07-30 Regulation FD, Exhibits
8-K 2019-02-19 Regulation FD, Exhibits
8-K 2019-01-31 Accountant, Exhibits
8-K 2019-01-31 Regulation FD, Exhibits
8-K 2018-12-31 Enter Agreement, M&A, Sale of Shares, Exhibits
8-K 2018-10-28 Officers, Exhibits
8-K 2018-08-09 Enter Agreement, Enter Agreement, M&A, Exhibits
8-K 2018-03-08 Sale of Shares, Exhibits
8-K 2018-02-07 Other Events, Exhibits
ATXG Addentax Group 1,926
ELTP Elite Pharmaceuticals 50
PTRC Petro River Oil 26
TGLO theGlobe.com 22
LEAI Legacy Education Alliance 9
GRST Ethema Health 2
ATLS Atlas Energy Group 0
ODYY Odyssey Group 0
INNO Innocap 0
MDXG Mimedx Group 0
KTEL 2019-06-30
Part I - Financial Statements
Item 1. Financial Statements.
Note 1 - Organization
Note 2 - Transactions
Note 3 - Basis of Presentation
Note 4 - Property and Equipment
Note 5 - Right-To-Use Assets
Note 6 - Intangible Assets
Note 7 - Lines of Credit
Note 8 - Leases
Note 9 - Amount Due To Stockholder
Note 10 - Contingencies and Commitments
Note 11 - Segment Reporting
Note 12 - Stockholders' Equity
Note 13 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosure
Item 5. Other Information
Item 6. Exhibits
EX-31.1 exhibit311.htm
EX-31.2 exhibit312.htm
EX-32 exhibit32.htm

Konatel Earnings 2019-06-30

KTEL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ktel10q063019.htm 10-Q 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, 2019

 

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 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 TO CORPORATE 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 August 19, 2019

 

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.

 

 

2 

 

 

 

KONATEL, INC.

FORM 10-Q

JUNE 30, 2019

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 16
Item 3.      Quantitative and Qualitative Disclosures About Market Risk 18
Item 4.      Controls and Procedures 19
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, 2019

Table of Contents

 

 

   
Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018 4
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited) 5
Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018 (unaudited) 6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited) 7
Notes to Condensed Consolidated Financial Statements (unaudited) 8

 

 

 

 

3 

 

 

Item 1. Financial Statements.

 

KonaTel, Inc.

Condensed Consolidated Balance Sheets

 

   June 30,   December 31, 
   2019   2018 
   (unaudited)      
Assets          
Current Assets          
Cash and Cash Equivalents  $201,291   $56,510 
Accounts Receivable, net   729,016    1,035,273 
Note Receivable   16,666    66,667 
Inventory, Net   1,858    1,085 
Prepaid Expenses   5,160    7,354 
Total Current Assets   953,991    1,166,889 
           
Fixed Asset          
Property and Equipment, Net   118,900    132,023 
Right to Use Assets, Net   76,754    —   
Total Fixed Assets   195,654    132,023 
           
Other Assets          
Intangible Assets, Net   2,663,658    2,490,922 
Advances for Acquisition Target   —      561,309 
Other Assets   253,348    57,266 
Total Other Assets   2,917,006    3,109,497 
           
Total Assets  $4,066,651   $4,408,409 
           
Liabilities and Stockholders’ Equity          
Current Liabilities          
Accounts Payable and Accrued Expenses  $1,266,014   $1,265,080 
Amount Due to Stockholder   233,806    91,152 
Revolving Line of Credit   58,674    103,379 
Lease Liabilities   60,260    —   
Deferred Revenue   44,276    69,988 
Income Tax Payable   108,941    108,941 
Customer Deposits   65,274    28,854 
Total Current Liabilities   1,837,245    1,667,394 
           
Long Term Liabilities          
Lease Liabilities   17,508    —   
Deferred Tax Liability   10,700    10,700 
Total Long Term Liabilities   28,208    10,700 
Total Liabilities   1,865,453    1,678,094 
           
Stockholders’ Equity          
Common stock, $0.001 par value, 50,000,000 shares authorized, 40,692,286 outstanding and issued at June 30, 2019 and December 31, 2018   40,692    40,692 
Additional Paid In Capital   7,414,595    7,041,696 
Accumulated Deficit   (5,254,089)   (4,352,073)
Total Stockholders' Equity   2,201,198    2,730,315 
           
Total Liabilities and Stockholders’ Equity  $4,066,651   $4,408,409 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4 

 

 

KonaTel, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2019   2018   2019   2018 
                 
Revenue  $2,266,368   $2,744,349   $4,906,666   $5,137,704 
Cost of Revenue   1,680,233    2,654,302    3,318,897    4,588,991 
                     
Gross Profit   586,135    90,047    1,587,769    548,713 
                     
Operating Expenses                    
Payroll and Related Expenses   473,440    420,526    942,541    813,239 
Operating and Maintenance   380,892    249,117    809,037    574,047 
Bad Debt   —      —      —      15,210 
Utilities and Facilities   5,008    45,774    59,773    105,507 
Depreciation and Amortization   269,257    56,555    502,231    144,590 
General and Administrative   36,432    20,288    78,334    37,924 
Marketing and Advertising   6,104    16,811    21,469    37,289 
Taxes and Insurance   22,618    48,200    69,893    103,335 
Total Operating Expenses   1,193,751    857,271    2,483,278    1,831,141 
                     
Operating Loss   (607,616)   (767,224)   (895,509)   (1,282,428)
                     
Other Income and Expense                    
Interest Income   664    20    1,341    —   
Other Income   14,836    —      14,836    4,281 
Interest Expense   (12,733)   (6,760)   (22,684)   (23,844)
Total Other Income and Expenses   2,767    (6,740)   (6,507)   (19,563)
                     
Net Loss  $(604,849)  $(773,964)  $(902,016)  $(1,301,991)
                     
Net loss per share (basic and diluted)  $(0.01)  $(0.02)  $(0.02)  $(0.04)
Weighted Average Number of Basic and Diluted Shares   40,692,286    32,766,462    40,692,286    30,650,850 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 

5 

 

 

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, 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             274,417         274,417 
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 
                          
Balances as of April 1 2019   40,692,286   $40,692   $7,281,534   $(4,649,866)  $2,672,360 
Value of Options Issued as Part of IM Telecom Acquisition                         
Stock Based Compensation             133,061         133,061 
Net Loss                  (604,849)   (604,849)
                          
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 January 1, 2018   27,192,286   $27,192   $2,703,033   $(3,190,874)  $(460,649)
Issuance of Common Stock   5,750,000    5,750    1,144,250         1,150,000 
Stock Based Compensation             292,451         292,451 
Net Loss                  (1,301,991)   (1,301,991)
                          
Balances as of June 30, 2018   32,942,286   $32,942   $4,139,734   $(4,492,865)  $(320,189)
                          
Balances as of April 1, 2018   31,942,286   $31,942   $3,783,261   $(3,718,901)  $96,302 
Issuance of Common Stock   1,000,000    1,000    199,000         200,000 
Stock Based Compensation             157,473         157,473 
Net Loss                  (773,964)   (773,964)
                          
Balances as of June 30, 2018   32,942,286   $32,942   $4,139,734   $(4,492,865)  $(320,189)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

6 

 

 

KonaTel, Inc.

Condensed - Consolidated Statements of Cash Flow

(Unaudited)

 

   Six Months Ended June 30, 
   2019   2018 
         
Cash Flows from Operating Activities:          
Net Loss  $(902,016)  $(1,301,991)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and Amortization   502,231    144,590 
Bad Debt   —      15,210 
Stock-based Compensation   274,417    292,451 
Changes in Operating Assets and Liabilities, net of effects of acquisition:          
Accounts Receivable   370,021    (369,845)
Notes Receivable   50,001    —   
Inventory   (773)   10,975 
Prepaid Expenses   4,594    (159,749)
Accounts Payable and Accrued Expenses   (22,938)   336,393 
Deferred Revenue   (25,712)   18,265 
Customer Deposits   36,420    —   
Other Assets   (196,082)   70 
Net cash provided by (used in) operating activities   90,163    (1,013,631)
           
Cash Flows from Investing Activities          
Cash Received in Acquisition of IM Telecom   14,318    —   
Asset Purchase of IM Telecom   (22,382)   —   
Net cash used in investing activities   (8,064)   —   
           
Cash Flows from Financing Activities          
Proceeds from issuance of common stock   —      1,150,000 
Repayment of Revolving Lines of Credit   (44,705)   —   
Principal Payments on Lease Liabilities   (35,266)     
Advances made by Stockholder   200,000    100,000 
Repayments of amounts due to Stockholder   (57,346)   (183,328)
Net cash provided by financing activities   62,683    1,066,672 
           
Net Change in cash   144,782    53,041 
           
Cash - Beginning of Year   56,510    94,149 
Cash - End of Period  $201,292   $147,190 
           
Supplemental Disclosure of Cash Flow Information          
Cash paid for interest  $16,179   $17,240 
Cash paid for taxes  $—     $—   
           
Non-cash investing and financing activities:          
Lease Obligations for Right to Use Assets  $80,837   $—   
           
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      

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

7 

 

 

KONATEL, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE 1 – ORGANIZATION

 

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” and words of similar import), and 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 doing business as “Apeiron” (“Apeiron”), which is became our wholly-owned subsidiary on December 31, 2018. Apeiron 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 holds a Federal Communications Commission (“FCC”) numbering authority license. Some of Apeiron’s 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, an Oklahoma limited liability company doing business as “Infiniti Mobile” (“Infiniti Mobile”), which became our wholly-owned subsidiary on that date. 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 seven states.

 

NOTE 2 – TRANSACTIONS

 

The following are significant transactions that impact the operations of the Company:

 

Apeiron Acquisition

 

On December 31, 2018, the Company purchased Apeiron, which became a wholly-owned subsidiary. The total purchase price was $2,450,000. The purchase included the issuance of 7,000,000 shares of the Company’s common stock in exchange for all the outstanding common shares of Apeiron common stock. The purchase price was derived and based on the fair market value of the 7,000,000 shares at the December 31, 2018, common stock price of $.35 per share. The acquisition provides the Company with expansion and diversification within the telecommunications industry. Apeiron Systems brings CPaaS and business networking services to the Company that have significant business in the wireless telecommunications industry. The combination allows the Company to share customers and provide bundled service integrations.

 

Infiniti Mobile Acquisition

 

On January 31, 2019, the Company completed the acquisition of Infiniti Mobile. The purchase price was $682,173 and included $100 in cash, advances to Infiniti Mobile for the period from the sales agreement dated February 5, 2018, until January 31, 2019, in the amount of $465,056, 500,000 incentive stock options valued at $98,452 and accounts receivables due to the Company in the amount of $152,764. The stock options were computed using the Black-Scholes-Merton pricing model using a stock price of $.20, a strike price of $.20, an expected term of three years, volatility of 278.00% and a risk-free discount rate of 2.43%.

 

8 

 

 

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   63,764 
Prepaid Expenses and Deposits   2,400 
Furniture and Equipment at Fair Value   1,308 
License   624,255 
Accounts Payable   (23,872)
Net Assets Acquired  $682,173 

 

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

 

  

For the Three

Months Ended

June 30, 2019

  

For the Three

Months Ended

June 30, 2018

  

For the Six

Months Ended

June 30, 2019

  

For the Six

Months Ended

June 30, 2018

 
Net sales  $2,266,368   $2,744,249   $4,972,947   $6,945,815 
Net loss  $(604,849)  $(773,964)  $(936,870)  $(1,017,615)
Net loss per share, basic and diluted  $(0.01)  $(.02)  $(0.02)  $(0.02)

 

NOTE 3 – 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, 2018.

 

Basis of Presentation

 

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, software, licenses, 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 and Infiniti Mobile. The condensed consolidated financial statements for the three-month and six-month period ended June 30, 2019, includes the Company and its three (3) wholly-owned corporate subsidiaries, KonaTel Nevada, Apeiron and Infiniti Mobile. The condensed consolidated balance sheet for year ended December 31, 2018, includes the Company and the wholly-owned corporate subsidiaries, KonaTel Nevada and Apeiron. The condensed consolidated statements of operations, cash flows, and stockholders’ equity for the six-month period ended June 30, 2018, include the Company and the wholly-owned corporate subsidiary, KonaTel Nevada. All significant intercompany transactions are eliminated.

 

9 

 

 

Going Concern

 

As the Company did not generate net income during the six-month periods ended June 30, 2019, and 2018, the Company has been dependent upon equity financing to support its operations. The Company incurred losses of $902,016 and $1,301,991 for the six-month periods ended June 30, 2019, and 2018, respectively. The Company has had significant improvement in providing cash from the operations. Net cash provided by operating activities was $90,162 and used in operating activities was ($1,031,631) for the six-months ended June 30, 2019, and 2018, respectively. The accumulated deficit as of June 30, 2019, is $5,254,089.

 

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 acquisition of Apeiron and Infiniti Mobile; receiving cash investments through the private placement of shares of our common stock; and revenues from the growth of our Virtual ETC program, all of which has contributed to an improvement in our working capital, without the use of additional lines of credit or borrowings. Additionally, the Company also has two options to finance our mobile phone equipment purchases whereby multiple equipment suppliers provide us short term credit terms of up to 60 days on mobile phone purchases and a bank line of credit for purchases of select mobile phones.

 

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 June 30, 2019, and December 31, 2018, there are 4,775,000 and 4,325,000 potentially dilutive common shares from stock options, respectively. 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.

 

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. The Company also has a concentration of risk with respect to trade receivables from customers and cellular providers. As of June 30, 2019, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) from one customer in the amount of $104,133, or 14.3%. As of December 31, 2018, the Company had a significant concentration of receivables due from two customers in the amounts of $441,934, or 42.7%.

 

Concentration of Major Customer

 

A significant amount of the revenue is derived from contracts with major customers and cellular providers. 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 cellular provider that accounted for $1,232,155, or 25.1%, of the total revenue. For the three-month period ended June 30, 2019, the Company had one customer that accounted for $618,142, or 27.2%, and one cellular provider that accounted for $428,627, or 18.9%.

 

Effect of Recent Accounting Pronouncements

 

On February 25, 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. Early application is permitted. The Company has determined that adoption of the standard will begin January 1, 2019. The Company currently has four equipment operating leases and one Property lease; and the Property lease expires in April 2020. . See NOTE 5 for the impact of implementation.

 

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.

 

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NOTE 4 – PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following major classifications as of June 30, 2019, and December 31, 2018:

 

  

June 30, 2019

   December 31, 2018 
Leasehold Improvements  $46,950   $46,950 
Furniture and Fixtures   102,946    101,638 
Billing Software   217,163    217,163 
Office Equipment   86,887    86,887 
    453,946    452,638 
Less:  Accumulated Depreciation and Amortization   (335,047)   (320,615)
Property and equipment, net  $118,899   $132,023 

 

Depreciation and amortization amounted to $14,432 and $14,433 for the six-month periods ended June 30, 2019, and 2018, respectively; and $7,216 and $2,190 for the three-month periods ended June 30, 2019 and 2018, respectively.. Depreciation and amortization expense are included as a component of operating expenses in the accompanying statements of operations.

 

NOTE 5 – RIGHT-TO-USE ASSETS

 

Right-to-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, 2019

   December 31, 2018 
Right-to-Use Assets  $113,035   $—   
Less:  Accumulated Depreciation   (36,281)   —   
Right-to-Use, net  $76,754   $—   

 

Depreciation amounted to $36,281 for the six-month period ended June 30, 2019, and $18,141 for the three-month period ended June 30, 2019. Depreciation expense is included as a component of operating expenses in the accompanying statements of operations.

 

NOTE 6 – INTANGIBLE ASSETS

 

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

 

   June 30, 2019   December 31, 2018 
Customer Lists  $1,135,961   $1,135,961 
Software   2,407,001    2,407,001 
License   624,255      
Less: Accumulated Amortization   (1,503,559)   (1,052,040)
Intangible Assets, net  $2,663,658   $2,490,922 

 

Amortization expense amounted to $451,519 and $130,156 for the six-month periods ended June 30, 2019, and 2018, respectively; and $225,759 and $54,365 for the three-month periods ended June 30, 2019, and 2018, 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:

 

 2019  $  434,736 
 2020  $  802,334 
 2021  $  802,333 

 

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 June 30, 2019, was $624,255.

 

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NOTE 7 – LINES OF CREDIT

 

The Company has two lines of credit with a bank which provide aggregate maximum borrowing availability of $1,050,000 as of June 30, 2019, and December 31, 2018. The lines of credit are payable on demand and bear interest at a variable rate with rate ranges from 7.5% to 8.0%. Outstanding advances under these line of credit arrangements amounted to $58,675 and $103,379 as of June 30, 2019, and December 31, 2018, respectively. The lines of credit mature on January 5, 2020, and February 14, 2020. The amount available on the lines of credit at June 30, 2019 was $991,325.

 

The lines are secured by the general assets of the Company and aggregate amounts drawn under the line of credit may be limited to a borrowing base, as defined. The revolving lines of credit are guaranteed by an officer of the Company.

 

NOTE 8 – LEASES

 

The Company has right-to-use assets through leases of property under three non-cancelable leases with terms in excess of one year. The current lease liabilities expire April 30, 2020, September 1, 2020, and December 1, 2021. Future lease liability payments under the terms of these leases are as follows:

 

 2019  $36,220 
 2020  $31,373 
 2021  $10,175 
 Total  $77,768 
 Less Current Maturities  $60,260 
 Long Term Maturities  $17,508 

 

The Company also leases two office spaces on a month-to-month basis. Total lease expense for the six-month period ended June 30, 2019 and 2018 amounted to $42,816 and $83,581, respectively. Total lease expense for the three-month period ended June 30, 2019, and 2018, amounted to $21,788 and $43,898, respectively.

 

NOTE 9 – AMOUNT DUE TO STOCKHOLDER

 

As of, June 30, 2019, and December 31, 2018, the Company’s principal shareholder, D. Sean McEwen, was owed $32,291 and $91,152, respectively, for advances used for working capital under a note. The note bears a 10% per annum interest rate. The note matures on August 31, 2019.

 

During 2019, Joshua Ploude, CEO of Apeiron, 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 will increase to 12% per annum. The note was to mature on July 10, 2019, but has been extended 12 months to July 10, 2020.

 

NOTE 10 – 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, 2019, there are no legal proceedings, except the following:

 

On August 28, 2018, we filed a claim in AAA Arbitration against a former employee, Saul Glosser.  We have alleged that Mr. Glosser failed to honor an indemnification clause that was material to our 2014 purchase of Glosser’s former company, Coast to Coast Cellular, Inc. doing business as “Coast2Coast Cellular”.   We believe our damages are in the $350,000 to $400,000 range.  Mr. Glosser’s defense to the claim is believed by our counsel to be tenuous; however, no assurance can be given that we will be successful in recovering any amounts from Mr. Glosser.  Our legal fees in this matter are being paid under one of our insurance policies. On, January 11, 2019, Mr. Glosser filed an employment claim against us, alleging that his July 2017 termination was not “for cause” and thus breached his employment agreement with us.  Glosser has claimed damages of approximately $80,000.  Our counsel believes we have strong defenses to Mr. Glosser’s employment claim. Both matters are consolidated at KonaTel, Inc. vs. Saul Glosser, Case No. 01-18-0003-2772, with the American Arbitration Association (International Center for Dispute Resolution). An arbitration hearing occurred on July 11-12, 2019, in Pittsburgh, Pennsylvania. A decision is expected in mid-September 2019.

 

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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 $63,000. 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, 2019, and December 31, 2018. The letters of credit are not considered in the financial statements.

 

Regulatory Determinations

 

On May 17, 2019, Infiniti Mobile was notified by the United States Administrative Company (“USAC”) of an over-payment of Universal Service Fund reimbursements in the amount of $168,677. On July 25, 2019, the Company entered into a Letter of Acknowledgement with the Federal Communications Commission requesting a 24-month payment plan regarding the repayment of the over-payment amount. The FCC decision regarding the payment plan is expected in October 2019. As of June 30, 2019, the Company’s counsel advised that the liability for this over-payment could potentially lie with the previous ownership of Infiniti Mobile, and therefore, no contingency was recorded.

 

NOTE 11 – SEGMENT REPORTING

 

The Company operates within four 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 (“Eligible Communications Carrier”), and Lifeline VETC (“Virtual Eligible Communications Carrier”).

 

Hosted Services – This segment includes a suite of hosted CPaaS (“Communications Platform as a Service”) services including SIP/VoIP services, SMS/MMS, BOT integration, NLP (“Natural Language Processing”), ML (“Machine Learning”), mobile numbers, toll free numbers, DID landline numbers, SMS to Email, Database Dip, SD-WAN, voice termination and numerous API driven services.  Apeiron developed, owns and supports its services through its dedicated national telecommunications network. Apeiron provides telecommunications services to application developers, call centers and small & medium size businesses. Apeiron markets these services through the Apeiron website, independent sales agents, ISOs (Independent Sales Organizations) and Social Media Optimization (“SCO”).

 

Mobile Services – This segment includes retail and wholesale cellular voice/text/data services and mobile data (IoT – “Internet of Things”) services. KonaTel consolidated its wholesale and retail services with Apeiron’s hosted CPaaS services, providing Apeiron with an expanded portfolio of mobile services to bundle with its existing services. Apeiron’s 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’s 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. Apeiron 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 seven states which currently include Georgia, 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.

 

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Lifeline VETC – This segment operates under the license of another ETC.  We currently market our Lifeline VETC sales 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 upon government requirements, we may only provide voice/text service with no mobile data.

 

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-month period 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-month period ended June 30, 2019                         
Revenue  $859,564   $640,512   $171,873   $594,419   $2,266,368 
                          
Net Loss  $(269,032)  $(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  $—     $—     $—     $—     $—   
                          
For the six-month period ended June 30, 2018                         
Revenue  $—     $2,784,250   $—     $2,353,454   $5,137,704 
                          
Net Loss  $—     $(202,033)  $—     $(1,099,958)  $(1,301,991)
                          
Depreciation and amortization  $—     $115,140   $—     $29,450   $144,590 
Additions to property and equipment  $—     $—     $—     $—     $—   
                          
For the three-month period ended June 30, 2018                         
Revenue  $—     $1,218,100   $—     $1,526,249   $2,744,349 
                          
Net Loss  $—     $(5,886)  $—     $(768,078)  $(773,964)
                          
Depreciation and amortization  $—     $52,542   $—     $4,013   $56,555 
Additions to property and equipment  $—     $—     $—     $—     $—   

 

NOTE 12 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

On March 8, 2018, the Company issued 4,750,000 shares of our common stock in a private placement to “accredited investors” at $0.20 per share for an aggregate amount of $950,000.

 

On April 13, 2018, the Company issued 1,000,000 shares in a private placement to “accredited investors” at $0.20 per share for an aggregate amount of $200,000, $100,000 of which was in cash and $100,000 of which was in settlement of an advance in that amount from this subscriber.

 

The Company also issued 750,000 shares private placement to “accredited investors” at $0.20 per share for an aggregate amount of $150,000.

 

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Stock Compensation

 

The Company offers stock option outstanding equity awards to directors and key employees. Options vested in tranches and expire in five (5) years. During the six-months ended June 30, 2019 and 2018, the Company recorded vested options expense of $274,417 and $292,451, respectively. During the three-months ended June 30, 2019, and 2018, the Company recorded vested options expense of $133,061 and $157,473, respectively. The option expense not taken as of June 30, 2019, is $876,580, with a weighted average term of 3.4 years.

 

The stock options valuation as of June 30, 2019, was computed using the Black-Scholes-Merton pricing model using a stock price of $.15, a strike price of $.33, an expected term of five years, volatility of 278.00% and a risk-free discount rate of 2.75%. The stock options valuation as of December 31, 2018 was computed using the Black-Scholes-Merton pricing model using a stock price of $.30, a strike price of $.22, an expected term of five years, volatility of 331.63% and a risk-free discount rate of 2.70%.

 

The following table represents stock option activity as of and for the six-month period ended June 30, 2019:

 

  

Number of

Shares

  

Weighted Average

Exercise Price

  

Weighted Average

Remaining Life

  

Aggregate

Intrinsic Value

 
                 
Options Outstanding – December 31, 2018   4,325,000   $0.22    3.4   $—   
Granted   500,000   $0.20    2.6      
Exercised                    
Forfeited   (75,000)               
Options Outstanding – June 30, 2019   4,750,000   $0.21    3.4   $—   
                     
Exercisable and Vested, June 30, 2019   3,200,000   $0.21    4.5   $—   

 

NOTE 13 – 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:

 

On May 17, 2019, Infiniti Mobile was notified by the United States Administrative Company (“USAC”) of an over-payment of Universal Service Fund reimbursements in the amount of $168,677. On July 25, 2019, the Company entered into a Letter of Acknowledgement with the Federal Communications Commission requesting a 24-month payment plan regarding the repayment of the over-payment amount. The FCC decision regarding the payment plan is expected in October 2019. As of June 30, 2019, the Company’s counsel advised that the liability for this over-payment could potentially lie with the previous ownership of Infiniti Mobile, and therefore, no contingency has been recorded. See NOTE 10.

 

 

 

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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, NLP (“Natural Language Processing”), ML (“Machine Learning”), mobile numbers, toll free numbers, DID landline numbers, SMS to Email, Database Dip, SD-WAN, voice termination and numerous API driven services. Apeiron developed, owns and supports its services through its dedicated national telecommunications network. Apeiron provides telecommunications services to application developers, call centers and small & medium size businesses. Apeiron markets these services through the Apeiron 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’s hosted CPaaS services, providing Apeiron with a bundled portfolio of mobile and hosted CPaaS services. Apeiron’s 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’s 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. Apeiron 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 seven (7) states which currently include Georgia, 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 operates under the license of another ETC.  We currently market our Lifeline VETC sales 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 upon government requirements, we may only provide voice/text service with no mobile data.

 

Results of Operations

 

Comparison of the quarter ended June 30, 2019, to the quarter ended June 30, 2018

 

For the quarter ended June 30, 2019, we had $2,266,368 in revenues from operations compared to the quarter ended June 30, 2018, where we had $2,744,349 in revenue from operations. The cost of revenue for the quarter ended June 30, 2019, was $1,680,233, compared to $2,654,302 for the quarter ended June 30, 2018. We had a gross profit of $586,135 for the quarter ended June 30, 2019, and $90,047 for the quarter ended June 30, 2018.

 

For the quarter ended June 30, 2019, and the quarter ended June 30, 2018, total operating expenses were $1,193,751 and $857,271, respectively, for an increase of $336,480.

 

For the quarter ended June 30, 2019, non-operating expenses were interest income of $664, other income of $14,836, and interest expense of $12,733, compared to $20 interest income and interest expense of $6,760 for the quarter ended June 30, 2018.

 

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For the quarter ended June 30, 2019, we had net loss of $604,849. For the quarter ended June 30, 2018, we had a net loss of $773,964.

 

In comparing our Statements of Operations between the three-month periods ended June 30, 2019, and 2018, 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 45.6% of the total gross revenue for the three months ended June 30, 2019. Mobile services showed a decline of 77.0%, and Lifeline VETC showed a decrease of 66.7% in gross revenue for the three months ended June 30, 2019, compared to the three months ended June 30, 2018. Gross profit margin overall was 25.9% for the three months ended June 30, 2019, compared to 3.3% for the three months ended June 30, 2018. Hosted services and Lifeline ETC gross profit margin was 23.7% and 55.0%, respectively, for the three months ended June 30, 2019. Mobile services gross profit margin was 24.6% compared to 31.0% for the three months ended June 30, 2019, and 2018, respectively. Lifeline VETC gross profit margin was 21.7% compared to a decrease of 18.8% for the three months ended June 30, 2019, and 2018, respectively.

 

Liquidity and Capital Resources

 

As of June 30, 2019, we have $201,291 in cash and cash equivalents on hand.

 

In comparing liquidity between the three-month periods ending June 30, 2019, and June 30, 2018, cash and short-term assets decreased by 38.2%. Cash increase and accounts receivable decrease accounted for the overall decrease. Liabilities and total overall debt showed a 10.7% decrease in the three-month period ending June 30, 2019, when compared to June 30, 2018. 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) decreased to .52 as of June 30, 2019, compared to .70 as of December 31, 2018. Working capital decreased by 39.2%. The decreases were created due to a short-term borrowing from a stockholder.

 

Cash Flow from Operations

 

During the six months ended June 30, 2019, cash flow provided by operating activities was $90,163, and for the three months ended June 30, 2018, cash flow used in operating activities was ($1,013,631), respectively. Cash flows used in operating activities were primarily attributable to the Company’s net loss of $1,301,991 for the six months ended June 30, 2018.

 

Cash Flows from Investing Activities

 

During the six months ended June 30, 2019, and the six months ended June 30, 2018, cash flow (used) provided in investing activities was ($8,064) and $0, respectively. The cash flow from investing activities for the six months ended June 30, 2019, were from the asset purchase of Infiniti Mobile.

 

Cash Flows from Financing Activities

 

During the six months ended June 30, 2019, and the six months ended June 30, 2018, cash flow provided by financing activities was $62,683 and $1,066,672, respectively. The funds provided by financing were comprised $44,705 for repayment of revolving lines of credit, $35,266 principal payments on lease liabilities, $200,000 in advances from stockholder and $57,346 in repayments due to stockholder for the six months ended June 30, 2019. The funds provided by financing were comprised of proceeds from issuance of common stock, $1,150,000, $100,000 in advances made by stockholder and repayments to stockholder of $183,328 for the six months ended June 30, 2018.

 

Going Concern

 

As the Company did not generate net income during the six-month periods ended June 30, 2019, and 2018, the Company has been dependent upon equity financing to support its operations. The Company incurred losses of $902,016 and $1,301,991 for the six-month periods ended June 30, 2019, and 2018, respectively. The Company has had significant improvement in providing cash from the operations. Net cash provided by operating activities was $90,162 and used in operating activities was ($1,031,631) for the six-months ended June 30, 2019, and 2018, respectively. The accumulated deficit as of June 30, 2019, is $5,254,089.

 

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 acquisition of Apeiron and Infiniti Mobile; receiving cash investments through the private placement of shares of our common stock; and revenues from the growth of our Virtual ETC program, all of which has contributed to an improvement in our working capital, without the use of additional lines of credit or borrowings. Additionally, the Company also has two options to finance our mobile phone equipment purchases whereby multiple equipment suppliers provide us short term credit terms of up to 60 days on mobile phone purchases and a bank line of credit for purchases of select mobile phones.

 

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Off-Balance Sheet Arrangements

 

We had no Off-Balance Sheet arrangements during the period ended June 30, 2019.

 

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 June 30, 2019, and December 31, 2018, there are 4,775,000 and 4,325,000 potentially dilutive common shares, respectively. 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.

 

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. The Company also has a concentration of risk with respect to trade receivables from customers and cellular providers. As of June 30, 2019, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) from one customer in the amount of $104,133, or 14.3%. As of December 31, 2018, the Company had a significant concentration of receivables due from two customers in the amounts of $441,934, or 42.7%.

 

Concentration of Major Customer

 

A significant amount of the revenue is derived from contracts with major customers and cellular providers. 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 cellular provider that accounted for $1,232,155, or 25.1%, of the total revenue.

 

Effect of Recent Accounting Pronouncements

 

On February 25, 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. Early application is permitted. The Company has determined that adoption of the standard will begin January 1, 2019. The Company currently has four equipment operating leases and one Property lease; and the Property lease expires in April 2020. The Company has determined that this pronouncement will not have a material impact on the financial statements.

 

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.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

 

Not required.

 

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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 Securities Exchange Act of 1934, as amended (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, 2019, 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, 2019. During 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, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

Not required; however, see Item 1A. Risk Factors, Part I, commencing on page 10, of the Company’s 10-K Annual Report for the fiscal year ended December 31, 2018, filed with the SEC on April 23, 2019, for a list of “Risk Factors,” which Annual Report can be accessed by Hyperlink in Part II, Item 6 hereof.

 

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.

 

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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, 2018, and filed with the SEC on April 23, 2019.

 

 

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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, 2019   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, 2019   By: /s/ D. Sean McEwen
        D. Sean McEwen
        Chairman, President, CEO and a Director

 

Date: August 19, 2019   By: /s/ Brian R. Riffle
        Brian R. Riffle
        Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

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