10-Q

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.

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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

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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.

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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.

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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.

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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.

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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.

10 

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.

11 

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.

12 

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.

13 

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.

14 

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.

15 

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.

16 

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.

17 

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.

18 

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.

19 

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.

20 

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

 21

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

REQUIRED BY RULE 13A-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, D. Sean McEwen, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of KonaTel, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.   The Registrant other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Registrant and have:

a)       designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)       designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)       evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)       disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions);

a)       all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b)       any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:	August 19, 2019	By:	/s/ D. Sean McEwen
			D. Sean McEwen
			Chairman, President and CEO

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

REQUIRED BY RULE 13A-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brian R. Riffle, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of KonaTel, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.   The Registrant other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Registrant and have:

a)       designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)       designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)       evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)       disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions);

a)       all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b)       any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

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

EX-32

Exhibit 32

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of KonaTel, Inc. (the “Registrant”) on Form 10-Q for the quarterly period ending June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), we, D. Sean McEwen, President and Chief Executive Officer and Brian Riffle, Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Quarterly Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and result of operations of the Registrant.

Date:	August 19, 2019	By:	/s/ D. Sean McEwen
			D. Sean McEwen
			Chairman, President and CEO

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

XML

Cover - shares	6 Months Ended
	Jun. 30, 2019	Aug. 19, 2019
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2019
Current Fiscal Year End Date	--12-31
Entity File Number	001-10171
Entity Registrant Name	KonaTel, Inc.
Entity Central Index Key	0000845819
Entity Incorporation, State or Country Code	DE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Elected Not To Use the Extended Transition Period	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		40,692,286
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2019

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Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
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 Assets
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
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
Commitments and Contingencies
Stockholders' Equity (Deficit)
Common Stock	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

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Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Common stock, par value in dollars	$ 0.001	$ 0.001
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	40,692,286	40,692,286
Common stock, shares outstanding	40,692,286	40,692,286

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Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Statement [Abstract]
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

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Condensed Consolidated Statements of Stockholders' Equity - USD ($)	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Beginning Balance at Dec. 31, 2017	$ 27,192	$ 2,703,033	$ (3,190,874)	$ (460,649)
Beginning Balance, shares at Dec. 31, 2017	27,192,286
Issuance of common stock, value	$ 5,750	1,144,250		1,150,000
Issuance of common stock, shares	5,750,000
Stock Based Compensation		292,451		292,451
Net loss			(1,301,991)	(1,301,991)
Ending Balance at Jun. 30, 2018	$ 32,942	4,139,734	(4,492,865)	(320,189)
Ending Balance, shares at Jun. 30, 2018	32,942,286
Beginning Balance at Mar. 31, 2018	$ 31,942	3,783,261	(3,718,901)	96,302
Beginning Balance, shares at Mar. 31, 2018	31,942,286
Issuance of common stock, value	$ 1,000	199,000		200,000
Issuance of common stock, shares	1,000,000
Stock Based Compensation		157,473		157,473
Net loss			(773,964)	(773,964)
Ending Balance at Jun. 30, 2018	$ 32,942	4,139,734	(4,492,865)	(320,189)
Ending Balance, shares at Jun. 30, 2018	32,942,286
Beginning Balance at Dec. 31, 2018	$ 40,692	7,041,696	(4,352,073)	2,730,315
Beginning Balance, shares at Dec. 31, 2018	40,692,286
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)
Ending Balance at Jun. 30, 2019	$ 40,692	7,414,595	(5,254,089)	2,201,198
Ending Balance, shares at Jun. 30, 2019	40,692,286
Beginning Balance at Mar. 31, 2019	$ 40,692	7,281,534	(4,649,866)	2,672,360
Beginning Balance, shares at Mar. 31, 2019	40,692,286
Stock Based Compensation		133,061		133,061
Net loss			(604,849)	(604,849)
Ending Balance at Jun. 30, 2019	$ 40,692	$ 7,414,595	$ (5,254,089)	$ 2,201,198
Ending Balance, shares at Jun. 30, 2019	40,692,286

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 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 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 period	56,510	94,149
Cash, End of period	201,291	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
License	624,255
Value of Options	98,482
IM Telecom
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

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Organization

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

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.

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Transactions

6 Months Ended

Jun. 30, 2019

Business Combinations [Abstract]

Transactions

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%.

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	)

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Basis of Presentation

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

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.

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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Property and Equipment

6 Months Ended

Jun. 30, 2019

Property, Plant and Equipment [Abstract]

Property and Equipment

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.

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Right-To-Use Assets

6 Months Ended

Jun. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Right-To-Use Assets

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.

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Intangible Assets

6 Months Ended

Jun. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

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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Lines of Credit

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Lines of Credit

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.

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Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

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.

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Amount Due to Stockholder

6 Months Ended

Jun. 30, 2019

Related Party Transactions [Abstract]

Amount Due to Stockholder

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.

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Contingencies and Commitments

6 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Contingencies and Commitments

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.

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.

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Segment Reporting

6 Months Ended

Jun. 30, 2019

Segment Reporting [Abstract]

Segment Reporting

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.

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	$	—		$	—		$	—		$	—		$	—

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Stockholders' Equity

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

Stockholders' Equity

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.

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	$	—

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Subsequent Events

6 Months Ended

Jun. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

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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Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

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

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.

Net Loss Per Share

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.

Concentration of Credit Risk

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

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

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.

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Transactions (Tables)

6 Months Ended

Jun. 30, 2019

Business Combinations [Abstract]

Schedule of Noncash or Part Noncash Acquisitions

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

Schedule of Pro-Forma Financial Information

	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	)

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2019

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

	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

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Right-To-Use Assets (Tables)

6 Months Ended

Jun. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Right-To-Use Assets

	June 30, 2019			December 31, 2018
Right-to-Use Assets	$	113,035		$	—
Less:  Accumulated Depreciation		(36,281	)		—
Right-to-Use, net	$	76,754		$	—

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Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets and Goodwill

	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

Schedule of Intangible Assets Future Amortization Expense

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

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Leases (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Schedule of Future Minimum Lease Payments for Operating Leases

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

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Segment Reporting (Tables)

6 Months Ended

Jun. 30, 2019

Segment Reporting [Abstract]

Schedule of Segment Reporting Information

	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	$	—		$	—		$	—		$	—		$	—

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Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

Schedule of Share-Based Compensation , Stock Options, Activity

	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	$	—

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Transactions - Schedule of Noncash or Part Noncash Acquisitions (Details)	6 Months Ended
	Jun. 30, 2019 USD ($)
Cash Received in Acquisition of IM Telecom	$ 14,318
License	624,255
Infiniti Mobile Acquisition
Cash Received in Acquisition of IM Telecom	14,318
Accounts Receivable	63,764
Prepaid Expense	2,400
Furniture and Equipment at Fair Value	1,308
License	624,255
Accounts Payable	(23,872)
Net Assets Acquired	$ 682,173

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Transactions - Schedule of Pro-Forma Financial Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net loss per share - basic and diluted	$ (0.01)	$ (0.02)	$ (0.02)	$ (0.04)
Apeiron Systems, Inc. and Infiniti Mobile
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)	$ (0.02)	$ (0.02)	$ (0.02)

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Transactions (Details Narrative) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Price per share	$ .15	$ .30
Stock options issued	500,000
Value of Options Issued as Part of IM Telecom Acquisitions	$ 98,482
Strike price	$ .33	$ .22
Apeiron Systems
Acquisition purchase price		$ 2,450,000
Equity interest issued, acquisition		7,000,000
Price per share		$ 0.35
Infiniti Mobile Acquisition
Acquisition purchase price	$ 682,173
Cash payments for acquisition	100
Advances for acqusition	$ 465,056
Stock options issued	500,000
Value of Options Issued as Part of IM Telecom Acquisitions	$ 98,452
Accounts receivable	$ 152,764
Stock price	$ 0.20
Strike price	$ 0.20
Expected term	3 years
Volatility	278.00%
Risk-free discount	2.43%

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Basis of Presentation (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Net Loss	$ (604,849)	$ (773,964)	$ (902,016)	$ (1,301,991)
Net cash provided by (used in) operating activities			90,163	(1,013,631)	$ (978,120)
Accumulated Deficit	(5,254,089)		$ (5,254,089)		$ (4,352,073)
Potentially dilutive common shares			4,775,000		4,325,000
Concentration risk, percentage			14.30%		42.70%
Receivable concentration	104,133		$ 104,133		$ 441,934
Revenues	$ 2,266,368	$ 2,744,349	$ 4,906,666	$ 5,137,704
Revenue | Cellular Provider
Concentration risk, percentage	18.90%		25.10%
Revenues	$ 428,627		$ 1,232,155
Revenue | Customer
Concentration risk, percentage	27.20%		27.40%
Revenues	$ 618,142		$ 1,346,791

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Property and Equipment - Schedule of Property and Equipment (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Property, Plant and Equipment [Line Items]
Property, plant and equipment	$ 453,946	$ 452,638
Less: Accumulated Depreciation and Amortization	(335,047)	(320,615)
Property, plant and equipment, net	118,900	132,023
Leasehold Improvements
Property, Plant and Equipment [Line Items]
Property, plant and equipment	46,950	46,950
Furniture and Fixtures
Property, Plant and Equipment [Line Items]
Property, plant and equipment	102,946	101,638
Billing Software
Property, Plant and Equipment [Line Items]
Property, plant and equipment	217,163	217,163
Office Equipment
Property, Plant and Equipment [Line Items]
Property, plant and equipment	$ 86,887	$ 86,887

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Property and Equipment (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Property, Plant and Equipment [Abstract]
Depreciation and amortization expense	$ 7,216	$ 2,190	$ 14,432	$ 14,433

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Right-To-Use Assets - Schedule of Right-To-Use Assets (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
Right-to-Use Assets	$ 113,035
Less: Accumulated Depreciation	(36,281)
Right to Use Assets, Net	$ 76,754

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Right-To-Use Assets (Details Narrative)	3 Months Ended	6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2019 USD ($)
Depreciation	$ 18,141	$ 36,281
Minimum
Implied interest rate	5.29%	5.29%
Maximum
Implied interest rate	5.34%	5.34%

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Intangible Assets - Schedule of Intangible Assets and Goodwill (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
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

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Intangible Assets - Schedule of Intangible Assets Future Amortization Expense (Details)	Jun. 30, 2019 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
2019	$ 434,736
2020	802,334
2021	$ 802,333

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Intangible Assets (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of intangible assets	$ 225,759	$ 54,365	$ 451,519	$ 130,156
License			$ 624,255

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Lines of Credit (Details Narrative) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Debt Disclosure [Abstract]
Line of credit, maximum borrowing	$ 1,050,000	$ 1,050,000
Line of credit, interest rate description	Bears interest at a variable rate with rate ranges from 7.5% to 8.0%.	Bears interest at a variable rate with rate ranges from 7.5% to 8.0%.
Line of credit, advances	$ 58,675	$ 103,379
Line of credit, maturity date	Feb. 14, 2020	Feb. 14, 2020
Line of credit, available borrowings	$ 991,325

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Leases - Schedule of Future Minimum Lease Payments (Details)	Jun. 30, 2019 USD ($)
Leases [Abstract]
Future minimum lease payments, 2019	$ 36,220
Future minimum lease payments, 2020	31,373
Future minimum lease payments, 2021	10,175
Total	77,768
Less Current Maturities	60,260
Long Term Maturities	$ 17,508

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Leases (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Leases [Abstract]
Lease expense	$ 21,788	$ 43,898	$ 42,816	$ 83,581

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Amount Due to Stockholder (Details Narrative) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Proceeds from related parties	$ 200,000	$ 100,000
Amount Due to related party	$ 233,806		$ 91,152
D. Sean McEwen
Interest rate	10.00%		10.00%
Maturity date	Aug. 31, 2019		Aug. 31, 2019
Amount Due to related party	$ 32,291		$ 91,152
Joshua Ploude, Ceo of Apeiron
Proceeds from related parties	$ 200,000
Interest rate	12.00%
Maturity date	Jul. 10, 2020

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Contingencies and Commitments (Details Narrative) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
United States Administrative Company
Over-payment of fund reimbursements, description	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.
Potential Outcome of Litigation
Contingencies, description		The Company filed a claim in AAA Arbitration against a former employee, Saul Gosser.  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". 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.
Potential gains from pending arbitration		$ 400,000
Name of plaintiff		Saul Glosser
Dispute resolution type, description		Arbitration
Damages sought		$ 80,000
Standby Letters of Credit
Letter of credit	$ 63,000	$ 63,000

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Segment Reporting - Schedule of Segment Reporting Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Segment Reporting Information [Line Items]
Revenue	$ 2,266,368	$ 2,744,349	$ 4,906,666	$ 5,137,704
Net Loss	(604,849)	(773,964)	(902,016)	(1,301,991)
Depreciation and amortization	269,257	56,555	502,231	144,590
Additions to property and equipment
Hosted Services
Segment Reporting Information [Line Items]
Revenue	859,564		1,575,228
Net Loss	(269,032)		(353,511)
Depreciation and amortization	218,319		428,588
Additions to property and equipment
Mobile Services
Segment Reporting Information [Line Items]
Revenue	640,512	1,218,100	1,347,719	2,784,250
Net Loss	(54,331)	(5,886)	(137,665)	(202,033)
Depreciation and amortization	16,545	52,542	38,239	115,140
Additions to property and equipment
Lifeline ETC
Segment Reporting Information [Line Items]
Revenue	171,873		366,107
Net Loss	(128,223)		(125,231)
Depreciation and amortization	20,754		12,352
Additions to property and equipment
Lifeline VETC
Segment Reporting Information [Line Items]
Revenue	594,419	1,526,249	1,617,612	2,353,454
Net Loss	(153,264)	(768,078)	(285,609)	(1,099,958)
Depreciation and amortization	13,639	4,013	23,052	29,450
Additions to property and equipment

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Segment Reporting (Details Narrative)	6 Months Ended
	Jun. 30, 2019 Number
Segment Reporting [Abstract]
Number of reportable segments	4

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Stockholders' Equity - Schedule of Share-Based Compensation , Stock Options, Activity (Details)	6 Months Ended
	Jun. 30, 2019 USD ($) $ / shares shares
Share-Based Compensation Arrangement By Share-Based Payment Award Options Outstanding
Options outstanding, beginning of period	4,325,000
Granted	500,000
Forfeited	(75,000)
Options outstanding, end of period	4,750,000
Options exercisable and vested, end of period	3,200,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price
Weighted average exercise price outstanding, beginning of period | $ / shares	$ 0.22
Weighted average exercise price, granted | $ / shares	0.20
Weighted average exercise price outstanding, end of period | $ / shares	0.21
Weighted average exercise price, exercisable and vested, end of period | $ / shares	$ 0.21
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures
Weighted average remaining contractual life outstanding, beginning of period	3 years 5 months
Weighted average remaining contractual life, granted	2 years 8 months
Weighted average remaining contractual life outstanding, end of period	3 years 5 months
Weighted average remaining contractual life, exercisable and vested, end of period	4 years 6 months
Average intrinsic value outstanding, beginning of period | $
Average intrinsic value outstanding, end of period | $
Average intrinsic value, exercisable and vested, end of period | $

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Stockholders' Equity (Details Narrative) - USD ($)	3 Months Ended				6 Months Ended		12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Stock-based compensation expense, vested options	$ 133,061		$ 157,473		$ 274,417	$ 292,451
Deferred compensation expense					$ 876,580
Weighted average term, compensation expense					3 years 5 months
Options vesting period					5 years
Stock price	$ .15	$ .30			$ .15		$ .30
Strike price	$ .33	$ .22			$ .33		$ .22
Expected term					5 years		5 years
Volatility					278.00%		331.63%
Risk free discount rate					2.75%		2.70%
Private Placement
Common stock issued		750,000	1,000,000	4,750,000
Common stock issued, aggregate value		$ 150,000	$ 200,000	$ 950,000
Stock price		$ 0.20	$ 0.20	$ 0.20		$ 0.20	$ 0.20