XML 26 R16.htm IDEA: XBRL DOCUMENT v3.10.0.1
Contingencies and Commitments
9 Months Ended
Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Contingencies and Commitments

NOTE 11 – 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 September 30, 2018, there are no legal proceedings.

 

Contract Contingency

 

The Company has the normal obligation for the completion of its cellular provider contracts in accordance with the appropriate standards of the industry and that may be provided in the contractual agreements.

 

Escrowed Contract

 

Effective February 7, 2018, the Company entered into an Agreement for the Purchase and Sale of Membership Interest dated as of February 5, 2018 (the “PSMI”), with the transaction documents being deposited in escrow on February 7, 2018, respecting the acquisition of 100% of the membership interest in IM Telecom, LLC, an Oklahoma limited liability company (“IM Telecom”), from its sole owner, Trevan Morrow (“Mr. Morrow”). The principal asset of IM Telecom is a “Lifeline Program” license (a Federal Communications Commission [the “FCC”] approved Compliance Plan), the transfer of ownership of which requires prior approval of the FCC. The PSMI provided that if the transfer of the beneficial ownership of the Lifeline Program license to us was not approved by the FCC prior to April 30, 2018, or a later date agreed upon by the parties, either party may terminate the PSMI; and the parties had agreed to continue the PSMI, with the FCC subsequently publishing notice of the approval of the transfer of the ownership of the Lifeline Program license to the Company on October 23, 2018. The parties are in the process of finalizing the closing of the PSMI, anticipated to be concluded by year end 2018.

 

Letters of Credit

 

The Company maintains irrevocable standby letter of credit arrangements with certain cellular carriers in the aggregate amount of $593,000. 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 September 30, 2018, and December 31, 2017.

 

Going Concern

 

As the Company did not generate net income during the nine month periods ending September 30, 2018, and 2017, we have been dependent upon equity financing to support our operations. In addition to losses of $1,255,609 and $1,236,954 for the nine month periods ending September 30, 2018, and 2017, respectively, we have experienced negative cash flow from operations of $1,293,856 and $350,522 in 2018, and 2017. The accumulated deficit as of September 30, 2018, is $4,446,482.

 

We believe we have ameliorated any “going concern” issues by generating additional cash flow since the completion of our merger with KonaTel Nevada on December 18, 2017; 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, we also have 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.

 

As a result of the sale of a component of the retail operations to Telecon Wireless, our irrevocable standby letter of credit arrangements with certain cellular carriers in the aggregate amount was reduced to $275,000 from $593,000, as noted in NOTE 11. The letters of credit serve as collateral and security for various resale contracts the Company has with their suppliers.