UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM
For the quarterly period ended
For the transition period from ____________to____________
Commission File No.
(Exact name of the issuer as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer I.D. No.) |
(Address of Principal Executive Offices)
(Registrant’s 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.
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).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 |
| Smaller reporting company | |
| Emerging Growth company |
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. o
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
Our website is www.konatel.com.
Our common stock is quoted on the OTC Markets Group, LLC (the “OTC Markets”) in its “OTCQB 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 | shares | |
| Class | Outstanding as of November 14, 2024 |
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 Systems”); and IM Telecom, LLC, an Oklahoma limited liability company doing business as “Infiniti Mobile” (“IM Telecom” or “Infiniti Mobile”), of which we own 51%, which interest is subject to conveyance, if approved by the Federal Communications Commission (the “FCC”), to Excess Telecom, Inc., a Nevada corporation (“Excess Telecom”), under a Membership Interest Purchase Agreement effective at January 22, 2024 (the “Excess Telecom Purchase Agreement” or the “Membership Interest Purchase Agreement”). For additional information on the conditions of this conveyance and related agreements, see our 8-K Current Report dated January 22, 2024 (Excess Telecom Membership Purchase Agreement and related Agreements), filed with the SEC on January 30, 2024, which is Hyperlinked in Part II, Other Information, Item 6, Exhibits, hereof, and is incorporated herein by reference.
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, including the “Risk Factors” enumerated in “Part I, Item IA. Risk Factors” of our 10-K Annual Report for the year ended December 31, 2023, which commence on page ten (10) thereof; and issues related to “Cybersecurity” enumerated in “Part I, Item 1C. Cybersecurity,” which commence on page twenty (20) thereof. A copy of the Annual Report is attached hereto by Hyperlink in Part II-Other Information, in Item 6, Exhibits, hereof, and is incorporated herein by reference. 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.
Documents Incorporated by Reference
See Part II-Other Information, in Item 6, Exhibits, hereof.
| 2 |
KONATEL, INC.
FORM 10-Q
September 30, 2024
INDEX
| Page No. | |
| PART I – FINANCIAL INFORMATION | |
| Item 1. Financial Statements & Footnotes | 3 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 20 |
| Item 4. Controls and Procedures | 21 |
| PART II – OTHER INFORMATION | |
| Item 1. Legal Proceedings | 22 |
| Item 1A. Risk Factors | 22 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 22 |
| Item 3. Defaults Upon Senior Securities | 22 |
| Item 4. Mine Safety Disclosures | 22 |
| Item 5. Other Information | 22 |
| Item 6. Exhibits | 23 |
| SIGNATURES | 23 |
PART I - FINANCIAL STATEMENTS
September 30, 2024
Table of Contents
| 3 |
KonaTel, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Accounts Receivable, Net | ||||||||
| Inventory, Net | ||||||||
| Prepaid Expenses | ||||||||
| Other Current Assets | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, Net | ||||||||
| Other Assets | ||||||||
| Intangible Assets, Net | ||||||||
| Right of Use Asset | ||||||||
| Other Assets | ||||||||
| Total Other Assets | 749,251 | 1,152,122 | ||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable and Accrued Expenses | $ | $ | ||||||
| Loans Payable, Net of Loan Fees | ||||||||
| Right of Use Operating Lease Obligation - Current | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Right of Use Operating Lease Obligation - Long Term | ||||||||
| Total Long Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, $ par value, shares authorized, outstanding and issued at September 30, 2024 and outstanding and issued at December 31, 2023 | ||||||||
| Additional Paid In Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 4 |
KonaTel, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of Revenue | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Payroll and Related Expenses | ||||||||||||||||
| Operating and Maintenance | ||||||||||||||||
| Bad Debt | ||||||||||||||||
| Professional and Other Expenses | ||||||||||||||||
| Utilities and Facilities | ||||||||||||||||
| Depreciation and Amortization | ||||||||||||||||
| General and Administrative | ||||||||||||||||
| Marketing and Advertising | ||||||||||||||||
| Application Development Costs | ||||||||||||||||
| Taxes and Insurance | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Operating Income/(Loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other Income and Expense | ||||||||||||||||
| Gain on Sale | ||||||||||||||||
| Interest Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income/(Expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Income and Expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Income (Loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Earnings (Loss) per Share | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Weighted Average Outstanding Shares | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 5 |
KonaTel, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
| Common Shares | Additional | Accumulated | ||||||||||||||||||
| Shares | Amount | Paid-in Capital | Deficit | Total | ||||||||||||||||
| Balances as of January 1, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock Based Compensation | — | |||||||||||||||||||
| Stock Options Exercised | ||||||||||||||||||||
| Net Income | — | |||||||||||||||||||
| Balances as of September 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Shares | Additional | Accumulated | ||||||||||||||||||
| Shares | Amount | Paid-in Capital | Deficit | Total | ||||||||||||||||
| Balances as of July 1, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock Based Compensation | — | |||||||||||||||||||
| Stock Options Exercised | ( | ) | ||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||
| Balances as of September 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Shares | Additional | Accumulated | ||||||||||||||||||
| Shares | Amount | Paid-in Capital | Deficit | Total | ||||||||||||||||
| Balances as of January 1, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock Based Compensation | — | |||||||||||||||||||
| Stock Options Exercised | ||||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||
| Balances as of September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Common Shares | Additional | Accumulated | ||||||||||||||||||
| Shares | Amount | Paid-in Capital | Deficit | Total | ||||||||||||||||
| Balances as of July 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock Based Compensation | — | ( | ) | ( | ) | |||||||||||||||
| Stock Options Exercised | ||||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||
| Balances as of September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 6 |
KonaTel, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Income (Loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and Amortization | ||||||||
| Gain on Sale of IM Telecom (49%) | ( | ) | ||||||
| Loan Origination Cost Amortization | ||||||||
| Bad Debt | ||||||||
| Stock-based Compensation | ||||||||
| Non-Compensatory Stock Options Exercised | ||||||||
| Change in Right of Use Asset | ||||||||
| Change in Lease Liability | ( | ) | ( | ) | ||||
| Changes in Operating Assets and Liabilities: | ||||||||
| Accounts Receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid Expenses | ( | ) | ( | ) | ||||
| Notes Receivable | ( | ) | ||||||
| Accounts Payable and Accrued Expenses | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Sale of IM Telecom (49%) | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from Note Payable | ||||||||
| Repayments of Note Payable | ( | ) | ||||||
| Loan Origination Costs | ( | ) | ||||||
| Cash received from Stock Options Exercised | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net Change in Cash | ( | ) | ||||||
| Cash - Beginning of Year | ||||||||
| Cash - End of Period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 7 |
KonaTel, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview of Company
KonaTel Inc., a Delaware corporation, formerly known as Dala Petroleum Corp. (the “Company,” “we,” “our,” or “us”), also formerly known as “Westcott Products Corporation,” was incorporated as “Light Tech, Inc.” under the laws of the State of Nevada on May 24, 1984. A subsidiary in the name “Westcott Products Corporation” was organized by us under the laws of the State of Delaware on June 24, 1986, for the purpose of changing our name and domicile to the State of Delaware. On June 27, 1986, we merged with the Delaware subsidiary, with the survivor being Westcott Products Corporation, a Delaware corporation (“Westcott”). During 1990, we ceased our then current operations. On March 11, 2000, our Board of Directors began the process of re-entering the development stage, and on June 2, 2014, we completed a merger with Dala Petroleum Corp., a Nevada corporation (respectively, “Dala Nevada” and the “Dala Merger”). We operated as an early-stage oil exploration company focused on our leased acreage acquired by Dala Nevada until 2016, at which time we assigned substantially all of our leased acreage to the former owner of Dala Nevada, and our remaining oil and gas leasehold interests, comprising leases covering approximately 7,489 and 403 acres, more or less, expired in 2017 and 2018, respectively.
On December 18, 2017, we acquired KonaTel, Inc, a Nevada subchapter S-Corporation (“KonaTel Nevada”), in a merger with our acquisition subsidiary under which KonaTel Nevada became our wholly owned subsidiary, and we succeeded to its operations; and we changed our name to “KonaTel, Inc.” on February 5, 2018.
KonaTel Nevada was organized under the laws of the
State of Nevada on October 14, 2014, by its founder and then sole shareholder, D. Sean McEwen, our current Chairman and CEO, to conduct
the business of a full-service cellular provider that delivered cellular products and services to individual and business customers in
various retail and wholesale markets. Through its sales network, it provided these services nationwide. In furtherance of its proposed
business, on November 1, 2014, it acquired most of the assets of Coast to Coast Cellular, Inc. (“Coast to Coast”), including
inventories, property, plant and equipment and its customer list, all valued at approximately $
On December 31, 2018, we acquired Apeiron Systems (www.apeiron.io). Apeiron was organized in 2013 and is an international hosted services Communications Platform as a Service (“CPaaS”) provider that designed, built, owns and operates its national private core network, supporting a suite of business communications services, all accessible via proprietary Applications Programming Interfaces (“APIs”). As a Federal Communication Commission (the “FCC”) licensed Internet Telephony Service Provider (“ITSP”), Apeiron also holds an FCC numbering authority license. Some of Apeiron’s hosted services include Voice over IP (“VoIP”), cellular and Over-The-Top (“OTT”) telephony, SMS/MMS messaging and broadcast services, numbering features, including Cloud IVRs, Voicemail, Fax, Call Recording and other services through local, toll-free and international phone numbers. Supported by its national redundant network, Apeiron also provides public and private IP network services, including Multiprotocol Label Switching (“MPLS”), Dedicated Internet and LTE Wireless WAN solutions. Apeiron’s cloud services include Information Data Dips, Software-Defined Wide Area Networking (“SD-WAN”) and Internet of Things (“IoT”) data and device management. Apeiron primarily distributes its services nationally through its website, its sales staff, independent sales agents and Independent Sales Organizations (“ISOs”).
Apeiron Systems is headquartered in Johnstown, Pennsylvania, where it has customer service and software engineering resources staffed. Additional development resources are staffed out of Los Angeles, California, as well as in Europe and Asia.
On February 5, 2018, we entered into a purchase agreement to acquire 100% of the membership interest in IM Telecom (www.infinitimobile.com). On October 23, 2018, the FCC approved our acquisition of IM Telecom, and on January 31, 2019, we completed the purchase of IM Telecom. IM Telecom operated as a wholly owned subsidiary of KonaTel until the sale of 51% of its membership interest to “Excess Telecom” on January 22, 2024, which is discussed below. It is an FCC licensed Eligible Telecommunications Carrier (“ETC”) and is one of twenty-two (22) original FCC licensed wireless cellular resellers to hold an FCC approved Lifeline Compliance Plan since 2012, of which approximately twelve (12) license holders remain active today. The FCC has not approved (granted) a new wireless reseller Lifeline Compliance Plan since 2012. In addition to being authorized to offer wireless services in the fifty (50) states, Washington D.C., Puerto Rico and the US Virgin Islands, IM Telecom has been licensed by the FCC to offer Lifeline and is designated as an ETC in thirty-eight (38) states/territories which are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Idaho, Iowa, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Tennessee, US Virgin Islands, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.
| 8 |
IM Telecom has been an FCC licensed Affordable Connectivity Program (the “ACP” and the “ACP Program”) provider, authorized to distribute ACP subsidized high-speed mobile voice/data service in the fifty (50) states, Washington D.C. and Puerto Rico. As of June 1, 2024, the ACP Program ended in its current form. The “ACP Extension Act,” among other legislative initiatives, is being considered by Congress for purposes of extending the ACP Program. Stand-alone ACP customers have been given the opportunity to enroll in the Lifeline program, in lieu of ACP benefits. Customers already enrolled in Lifeline, in combination with ACP benefits, continue with Lifeline services. Lifeline is an FCC program that provides subsidized, fixed or mobile telecommunications services to low-income Americans. The ACP Program was an FCC program that provided subsidized high-speed wireless data services to low-income Americans. IM Telecom distributes Lifeline, and prior to June 1, 2024, had distributed ACP services, under its Infiniti Mobile brand name through its website, retail locations and ISOs. IM Telecom also offers non-Lifeline and non-ACP services throughout the United States. IM Telecom has a US-based customer support center located in Atmore, Alabama.
On
January 22, 2024 (the “Effective Date”), KonaTel and IM Telecom entered into a Membership Interest Purchase Agreement (the
“Excess Telecom Purchase Agreement” or the “Membership Interest Purchase Agreement”) with Excess Telecom, Inc.,
a Nevada corporation (“Excess Telecom”), pursuant to which KonaTel conveyed
IM Telecom is headquartered in Plano, Texas, and has a warehouse operation in Tulsa, Oklahoma, and a customer service center in Atmore, Alabama. We are headquartered in Plano, Texas.
Apeiron Systems has eleven (11) full-time employees. The current employees of IM Telecom, twenty-two (22) full-time and one (1) part-time, novated to employees of KonaTel under the Excess Telecom Purchase Agreement. These employees continue to engage in the same manner and function of service provided prior to the aforementioned agreement. KonaTel has four (4) other full-time employees.
Principal Products or Services and their Markets
Our principal products and services, provided through Apeiron Systems and IM Telecom, include our CPaaS suite of services (SIP/VoIP, SMS/MMS, POTS Replacement), wholesale and retail mobile voice and mobile data IoT services, wholesale voice termination services, and our ETC and ACP subsidized services for low-income Americans. Except for our ETC Lifeline services distributed in up to thirty-eight (38) states/territories and our ACP services, which until June 1, 2024, had been distributed in the fifty (50) states, as well as Washington D.C. and Puerto Rico, our Apeiron Systems’ products and services are available worldwide and subject to U.S., international and local/national regulations.
We generate revenue from two (2) primary sources, Hosted Services and Mobile Services:
| · | Our Hosted Services include a suite of hosted CPaaS services within Apeiron Systems’ cloud platform, including Cloud IVRs, Voicemail, Fax, Call Recording and other services provided with local, toll-free and international phone numbers. Apeiron also delivers public and private IP network services from its national redundant network backbone, including MPLS, Dedicated Internet and LTE Wireless WAN solutions. Additionally, Apeiron’s Cloud Services include Information Data Dips, SD-WAN and IoT data and device management, of which IoT provides device connectivity via wireless 4G/5G. These Hosted Services are marketed nationally and internationally through the Apeiron website, its sales staff, independent sales agents and ISOs. |
| · | Our Mobile Services include retail and wholesale cellular voice/text/data services and IoT mobile data services through Apeiron Systems and IM Telecom. Mobile voice/text/data and IoT 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 typically does not own the wireless network infrastructure over which services are provided to its customers. 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. Also included in our Mobile Services segment is the distribution of government subsidized mobile voice service and mobile data service by IM Telecom under its Infiniti Mobile brand and FCC license to low-income American households that qualify for the FCC’s Lifeline mobile voice service program and/or previously under the FCC’s ACP Program. Even though government programs like Lifeline have existed since 1985, these programs, along with newer programs like the ACP Program, are subject to change and any change, reduction or elimination may have a material impact on our Mobile Services business. |
| 9 |
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, 2023.
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. Estimates in these financial statements include the allowance for doubtful receivables, allowance for inventory obsolescence, the estimated useful lives of property and equipment, and stock-based compensation. Actual results could differ from those estimates.
Basis of Consolidation
The condensed consolidated financial statements include the Company and our two (2) wholly owned corporate subsidiaries, KonaTel Nevada and Apeiron Systems, and IM Telecom, presently owned 51% by us. All significant intercompany transactions are eliminated.
Basic income (loss) per share of common stock attributable to common stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net income (loss) per share of common stock attributable to common stockholders when their effect is dilutive. The dilutive common shares for the three (3) months ended September 30, 2024, and 2023, and for the nine (9) months ended September 30, 2023, are not included in the computation of diluted earnings per share because to do so would be anti-dilutive. As of September 30, 2023, there were potentially 870,684 dilutive shares.
| Three Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Numerator | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Denominator | ||||||||
| Weighted-average common shares outstanding, basic | ||||||||
| Dilutive impact of stock options | ||||||||
| Weighted-average common shares outstanding, diluted | ||||||||
| Net income per common share | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| 10 |
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Numerator | ||||||||
| Net Income/Loss | $ | $ | ( | ) | ||||
| Denominator | ||||||||
| Weighted-average common shares outstanding | ||||||||
| Dilutive impact of stock options | ||||||||
| Weighted-average common shares outstanding, diluted | ||||||||
| Net income per common share | ||||||||
| Basic | $ | $ | ( | ) | ||||
| Diluted | $ | $ | ( | ) | ||||
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of receivables, cash and cash equivalents.
All cash and cash equivalents are held at high credit financial institutions. These deposits are generally insured under the FDIC’s deposit insurance coverage; however, from time to time, the deposit levels may exceed FDIC coverage levels.
The Company has a concentration of risk with respect
to trade receivables from customers and cellular providers. As of September 30, 2024, the Company had a significant concentration of receivables
(defined as customers whose receivable balances are greater than 10% of total receivables) due from two (2) customers in the amount of
$
Concentration of Major Customer
A significant amount of the revenue is derived from
contracts with major customers. For the three (3) months ended September 30, 2024, the Company had three (3) customers that accounted
for $
Other Revenue
The Company has a shared relationship with distribution of Lifeline services through Excess Telecom, under a Master Distribution relationship. Revenue through this relationship is recorded on a net revenue basis. We have performed a principal versus agent analysis under ASC 606-10-25-25 and have determined that we are acting as agent under this relationship.
Effect of Recent Accounting Pronouncements
The Company has evaluated all recent accounting pronouncements and believes that none will have a significant effect on the Company’s financial statements.
Going Concern
For the nine (9) months ended September
30, 2024, the Company generated net income of $
| 11 |
We are one of only a few telecommunication carriers to hold a national wireless ETC Lifeline license, which provides us with additive reimbursement rates within the states we operate. In Q2 2024, we added an additional ten (10) state licenses, which continues to expand our nationally licensed wireless service coverage. We have continued to target and expand into additional ETC licensed states.
As of June 1, 2024, funding for the ACP Program ended, which accounted for approximately 15% of our revenues in Q2 2024 and 33% of our revenues in Q1 2024. Legislative efforts to extend funding remain within Congress, however, the decision to further fund the ACP Program (or a similar program) is still uncertain. In light of this uncertainty, the Company took initial steps to reduce costs in Q2 2024 while discussions continued in Congress, and we moved resources and focus in our mobile services segment to California. With the California Lifeline Program, through its additional state funding and Linkup program, the business was able to retain continuity in the mobile services market. In Q3 2024, the Company received a cease and desist letter from the State of California CPUC, specific to a marketing program by one of our master distribution partners. The inquiry into this matter has impacted the timing of payments on our qualified claims (see the heading “Concentration of Credit Risk” in NOTE 1 above).
Through September 30, 2024, and with no visible progress towards an extension of the ACP Program within Congress, the Company is in the process of further cost reduction measures, including reductions within our workforce. Although the Company eliminated its outstanding debt and increased its cash position earlier in the year, uncertainty around the ACP Program, the recent impact on our business in the State of California, and program launch timing for our VIVA-US Telecommunications, Inc. (“VIVA-US”) and our other ongoing health care sales initiatives will play significant roles in our ability to continue operations without more drastic reductions. The lack of our success with any of these foregoing initiatives raises substantial doubt about our ability to remain a going concern for the twelve (12) month period from the date of this Quarterly Report.
NOTE 2 – INVENTORY
Inventory primarily consists of sim cards, cell phones
and tablets, which are stored at our warehouse, or have been delivered to distributors in the field. Inventories are stated at cost using
the first-in, first-out (“FIFO”) valuation method. On a monthly basis, inventory is counted at our warehouse facility, and
is reviewed for obsolescence and counted for accuracy with distributors. At September 30, 2024, and December 31, 2023, the Company had
inventory of $
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following major classifications as of September 30, 2024, and December 31, 2023:
| September 30, 2024 | December 31, 2023 | |||||||
| Lease Improvements | $ | $ | ||||||
| Furniture and Fixtures | ||||||||
| Billing Software | ||||||||
| Office Equipment | ||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation related to Property and Equipment amounted
to $
NOTE 4 – RIGHT-OF-USE ASSETS
Right-of-Use Assets consist of assets accounted for
under ASC 842. The assets are recorded at present value using implied interest rates between
The Company has Right-of-Use Assets through leases
of property under non-cancelable leases. As of September 30, 2024,
| 12 |
Future lease liability payments under the terms of these leases are as follows:
| 2024 | $ | ||
| 2025 | $ | ||
| 2026 | $ | ||
| 2027 | $ | ||
| 2028 | $ | ||
| Thereafter | $ | ||
| Total | $ | ||
| Less Interest | $ | ||
| Present value of minimum lease payments | $ | ||
| Less Current Maturities | $ | ||
| Long Term Maturities | $ |
The weighted average term of the Right-to-Use leases
is
NOTE 5 – INTANGIBLE ASSETS
Intangible Assets with definite useful life consist
of licenses, customer lists and software that were acquired through acquisitions. Intangible Assets with indefinite useful life consist
of the Lifeline license granted by the FCC. The license, because of the nature of the asset and the limitation on the number of granted
Lifeline licenses by the FCC, will not be amortized. The license was acquired through an acquisition. The fair market value of the license
as of September 30, 2024, and December 31, 2023, was $
| September 30, 2024 | December 31, 2023 | |||||||
| Customer List | $ | $ | ||||||
| Software | ||||||||
| ETC License | ||||||||
| Less: Amortization | ( | ) | ( | ) | ||||
| Net Amortizable Intangibles | ||||||||
| Right of Use Assets - net | ||||||||
| Intangible Assets net | $ | $ | ||||||
Amortization expense amounted to $
The reclassification in the Balance Sheet for Right of Use Assets has been made in this filing to conform to both the current and future reported presentation.
NOTE 6 – NOTES PAYABLE
The Company had no outstanding notes payable as of September 30, 2024.
NOTE 7 – CONTINGENCIES AND COMMITMENTS
Litigation
From time to time, the Company may be subject to legal proceedings and claims which arise in the ordinary course of business. As of September 30, 2024, there are no ongoing legal proceedings.
Contract Contingencies
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.
| 13 |
Tax Audits
In June of 2021, the Company received an audit determination
and assessment from the State of Pennsylvania related to sales and use tax for the audit period of January 1, 2016, through September
30, 2019. The assessment is in the amount of $
Letters of Credit
The Company had no outstanding letters of credit as of September 30, 2024.
NOTE 8 – SEGMENT REPORTING
The Company operates within two (
The reportable segments consist of Hosted Services and Mobile Services. Mobile Services reporting consists of our post-paid and pre-paid cellular business.
Hosted Services – Our Hosted Services include a suite of hosted CPaaS services within the Apeiron Systems’ cloud platform, including Cloud IVRs, Voicemail, Fax, Call Recording and other services provided with local, toll-free and international phone numbers. Apeiron also delivers public and private IP network services from its national redundant network backbone, including MPLS, Dedicated Internet and LTE Wireless WAN solutions. Additionally, Apeiron’s Cloud Services include Information Data Dips, SD-WAN and IoT data and device management. These Hosted Services are marketed nationally and internationally through the Apeiron website, its sales staff, independent sales agents and ISOs.
Mobile Services – Our Mobile Services include retail and wholesale cellular voice/text/data services and IoT mobile data services through Apeiron Systems and IM Telecom. Mobile voice/text/data and IoT 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 typically does not own the wireless network infrastructure over which services are provided to its customers. 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. Also included in our Mobile Services segment is the distribution of government subsidized mobile voice service and mobile data service by IM Telecom under its Infiniti Mobile brand and FCC Lifeline license to low-income American households that qualify for the FCC’s Lifeline mobile voice service program and/or the FCC’s ACP mobile data program. Even though government programs like Lifeline have existed since 1985, these programs, along with newer programs like the ACP Program, are subject to change and may have a material impact on our Mobile Services business if changed, reduced or eliminated.
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The following table reflects the result of operations of the Company’s reportable segments:
| Hosted Services | Mobile Services | Total | ||||||||||
| For the nine (9) months period ended September 30, 2024 | ||||||||||||
| Revenue | $ | $ | $ | |||||||||
| Gross Profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Additions to property and equipment | $ | $ | $ | |||||||||
| For the three (3) months period ended September 30, 2024 | ||||||||||||
| Revenue | $ | $ | $ | |||||||||
| Gross Profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Additions to property and equipment | $ | $ | $ |
| For the nine (9) months period ended September 30, 2023 | ||||||||||||
| Revenue | $ | $ | $ | |||||||||
| Gross Profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Additions to property and equipment | $ | $ | $ |
| For the three (3) months period ended September 30, 2023 | ||||||||||||
| Revenue | $ | $ | $ | |||||||||
| Gross Profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Additions to property and equipment | $ | $ | $ |
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock
On August 9, 2024, Robert Beaty, an independent Board member, conveyed to the Company shares of the Company’s common stock at a price of $, in an exempt transaction pursuant to Section 16b-3(c), and in full payment of the exercise of incentive stock options granted to him in 2019 at a price of $ per share, which was 110% of the fair market value of our common stock on the date of such grant. These ISO shares were issued to Mr. Beaty on August 9, 2024, in exchange for the conveyance of the shares to the Company.
Non-Compensatory Stock Option Grant
On September 17, 2024, .
Stock Option Grants
There were no Stock Option Grants provided for during the quarter ended September 30, 2024.
Stock Compensation
The Company offers incentive stock option grants to
directors and key employees. Options vest in tranches and typically expire five (5) years from the date of grant. For the nine (9) months
ended September 30, 2024, and 2023, the Company recorded options expense of $
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On September 17, 2024, the Board of Directors approved a plan allowing the Company to reprice certain employee stock options granted by the Board of Directors under the Company’s 2018 Stock Option Plan to the closing price of the Company’s common stock on September 16, 2024, which closing price was $0.37. Employees who qualified for the repricing had previously taken voluntary pay reductions during Q2 2024. In exchanging the new award for the original award, an incremental cost is recognized over the remaining life of the service period, in addition to recognizing any remaining and unrecognized cost under the original award. Incremental value for vested awards is immediately recognized. The repricing will have a measurable impact to Stock Option Expense going forward. This is accounted for under ASC 718-20-35-3 through ASC 718-20-35-4.
| Number of | Weighted Average | Weighted Average | Aggregate | |||||||||||||
| Shares | Exercise Price | Remaining Life | Intrinsic Value | |||||||||||||
| Options Outstanding – December 31, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | — | |||||||||||||||
| Options Outstanding – September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable and Vested, September 30, 2024 | $ | $ | ||||||||||||||
The aggregate intrinsic value for options outstanding as of September 30, 2024, is not calculated because the closing stock price on September 30, 2024, is less than the weighted average exercise price of outstanding options on that date.
NOTE 10 – SUBSEQUENT EVENTS
Below are events that have occurred since September 30, 2024:
On November 11, 2024, Robert Beaty, an independent Board member, conveyed to the Company shares of the Company’s common stock at a price of $, in an exempt transaction pursuant to Section 16b-3(c), and in full payment of the exercise of incentive stock options granted to him in 2019 at a price of $ per share, which was 110% of the fair market value of our common stock on the date of such grant.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
When used in this Quarterly Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act regarding events, conditions and financial trends that may affect our future plans of operations, business strategy, operating results and financial position. Persons reviewing this Quarterly Report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such factors are discussed at the forepart of this Quarterly Report under the caption “Forward-Looking Statements” and include general economic factors, cybersecurity and conditions that may directly or indirectly impact our financial condition or results of operations.
Despite risks and uncertainties specifically related to Covid-19, the Company has not experienced adverse impacts to our business operations as a result of this ongoing health concern. Possible vulnerabilities to Covid-19, such as supply chain disruptions, inventory shortages and travel or resource limitations and delays will continue to be a risk that is presented to the Company, our suppliers, our customers and our investors.
Overview of Current and Planned Business Operations
We continue to pursue market opportunities for the distribution of our current products and services described in our “Principal Products or Services and their Markets” summary commencing on page nine (9) of this Quarterly Report. In addition, we continue to pursue expanded market distribution opportunities, development of new products and services, the addition of new lines of business and accretive acquisition opportunities that may enhance or expand our current product and service offerings.
Results of Operations
As stated previously in our filings during 2023, including our 10-K Annual Report for the year ended December 31, 2023 (see Part II-Other Information, Item 6, Exhibits, below, for a Hyperlink to this Annual Report), we shifted our focus of mobile services activations to higher ARPU areas (“Average Revenue Per User”) within our eleven (11) Lifeline states. As of September 30, 2024, we have added twenty-seven (27) new Lifeline states/territories, for a total of thirty-eight (38) Lifeline states/territories. This expanded footprint provides our mobile services business with additional opportunities to serve customers. Under IM Telecom’s national ETC license, and in accordance with the Excess Telecom Purchase Agreement, the Company will continue to enroll and provide services to qualifying consumers in the FCC Lifeline Program. The Lifeline Program is a separate program from the ACP Program under the FCC, and remains committed and viable in support of providing affordable communication services for low-income consumers.
As mentioned in our Q1 2024 filing, funding for the FCC ACP Program was expected to sunset, or partially sunset, in April, 2024, according to an FCC announcement on February 7, 2024. Due to a lack of additional funding from Congress, the ACP program has ended. Effective June 1, 2024, households were no longer eligible to receive an ACP discount. The Company placed the customers that were participating in the ACP Program into a dormant state, which would allow for the customer handset and data service to be re-engaged should the ACP Program be extended and re-funded. During Q3, these customers were provided with an “opt in” available product that would allow them to convert from ACP to a Lifeline only service pending the outcome of several Congressional paths to restore the ACP Program. This product was available to customers that were in an authorized Lifeline territory. The ACP Program had recently contributed approximately 30-35% of total Company revenues. In Q2 2024, ACP revenues were approximately 14% of total Company revenue; Hosted Services (“CPaaS services”) were approximately 40% of total Company revenue; and Lifeline sales accounted for approximately 42% of total Company revenue. The Lifeline Program is a U.S. government subsidized telecommunication program created in 1985. It is separately funded from the ACP Program through fees collected from all U.S. telecommunication invoices. According to the National Lifeline Association (“NaLA”), there were at least eight (8) separate ACP refunding legislative efforts currently moving through the U.S. Congress. Approximately 22 million American households were receiving ACP Program benefits, and ACP refunding efforts generally enjoy wide bi-partisan support. Regardless of the ACP’s future funding status, management continues to prioritize its growth initiatives within the Company’s Hosted Services segment. Specifically, our Hosted Services revenue for the nine (9) months ended September 30, 2024, grew 14.6% over the nine (9) months period ended September 2023. In Q1 2024, the Company added direct sales resources to our Hosted Services team, in an effort to expand revenues through established relationships in the wholesale, ISP, and carrier verticals. Operational resources were also added to this segment, to support new growth initiatives.
In Q1 2024, the Company chose to expand and reallocate its resources in California to offset the potential risk of an ACP Program end. In lieu of retaining the ACP subsidy, California offers state and federal subsidies which are similar in value to the ACP subsidy. Since Lifeline services are funded by the Federal Universal Service Fund (“FUSF”), and not subject to enactment or renewal of government funded appropriations, the Company chose to redirect resources to California Lifeline, where ARPU is equal to or greater than that of ACP. Our California Lifeline revenue for the nine (9) months ended September 30, 2024, grew 209.0% over the nine (9) months period ended September 2023
| 17 |
As previously reported during the first quarter of 2024, the Company entered into a Membership Interest Purchase Agreement with Excess Telecom to sell 49% of IM Telecom in consideration of the sum of $10,000,000. As part of this sale, the Company paid off all existing and outstanding debt, and gained substantial additional liquidity and Owner’s Equity into the business. Upon final sale of the remaining 51%, if approved by the FCC, the Company shall have the right to continue providing Lifeline qualified services through a Master Distribution Agreement with Excess Telecom, for not less than ten (10) years. If the FCC does not approve Excess Telecom’s petition to acquire IM Telecom under the Membership Interest Purchase Agreement, KonaTel shall retain 51% ownership of IM Telecom and no monies paid by Excess Telecom to KonaTel shall be refundable. Further, if on or before December 31, 2024, the ACP Program is renewed by the U.S. Congress for a duration of greater than four (4) months (the “ACP Renewal Condition”), Excess Telecom shall pay KonaTel the additional sum of $5,000,000 (the “ACP Renewal Earnout), less the balance of a “Finder’s Fee Payment” to an unrelated third party of approximately $125,000. No assurance can be given that the ACP Program will be renewed by the FCC on or prior to December 31, 2024.
See the Hyperlinked 8-K Current Report dated January 22, 2024 (Excess Telecom Membership Interest Purchase Agreement and related Agreements), filed with the SEC on January 30, 2024, for additional information, in Part II, Other Information, Item 6, Exhibits, hereof.
Comparison of the three (3) months ended September 30, 2024, to the three (3) months ended September 30, 2023
For the three (3) months ended September 30, 2024, we had $3,148,409 in revenues from operations compared to $4,689,001 for the three (3) months ended September 30, 2023, for a total revenue decrease of ($1,540,592). The decrease in revenue was primarily due to the loss of mobile services revenues under the ACP Program, which last funded in Q2 2024.
For the three (3) months ended September 30, 2024, our cost of revenue was $2,439,037 compared to $3,424,832 in the three (3) months ended September 30, 2023, for a cost of revenue decrease of ($985,795). Our cost of revenue decrease was a result of lower network, sales compensation and device costs, related to the activity decreases from our Mobile Services subscribers.
For the three (3) months ended September 30, 2024, we had gross profit of $709,372 compared to $1,264,169 in the three (3) months ended September 30, 2023, for a gross profit decrease of ($554,797). This decrease primarily resulted from adding fewer higher ARPU activations in our Mobile Services segment, due to the loss of mobile services revenues under the ACP Program.
For the three (3) months ended September 30, 2024, total operating expenses were $1,896,592 compared to $1,133,106 in the three (3) months ended September 30, 2023, for an increase of $763,486. This increase was primarily due to a reversal of stock option expense as the result of employee forfeitures of incentive stock options taken in Q3 2023. Additionally, there was an increase in payroll and related expense associated with the addition of headcount in our Apeiron subsidiary.
For the three (3) months ended September 30, 2024, other income (expense) was $(1,694) compared to $(244,279) for the quarter ended September 30, 2023. This decrease was primarily the result of no longer owing interest following the payoff of the CCUR loan.
For the three (3) months ended September 30, 2024, we had net loss of $(1,188,914) compared to a net loss of ($113,216) in the three (3) months ended September 30, 2023.
Comparison of the nine (9) months ended September 30, 2024, to the nine (9) months ended September 30, 2023
For the nine (9) months ended September 30, 2024, we had $13,127,425 in revenues from operations compared to $13,322,146 for the nine (9) months ended September 30, 2023, for a total revenue decrease of $(194,721). The decrease in revenue was primarily due to the loss of mobile services revenues under the ACP Program, which last funded in Q2 2024. Revenues in our Hosted Services segment increased 14.6%, or approximately $622,616, by comparison during this same period, generally driven by higher volume contracted voice minutes and from the addition of new LTE Wireless WAN solutions customers.
For the nine (9) months ended September 30, 2024, our cost of revenue was $10,390,841 compared to $10,282,046 in the nine (9) months ended September 30, 2023, for a cost of revenue increase of $108,795. Our cost of revenue increase was primarily the result of higher network, sales compensation and device costs, related to a higher level of activity from Mobile Services subscribers.
For the nine (9) months ended September 30, 2024, we had gross profit of $2,736,584 compared to $3,040,100 in the nine (9) months ended September 30, 2023, for a gross profit decrease of $(303,517). This decrease primarily resulted from adding fewer, higher ARPU subscribers, due to the ACP program expiring, and higher network costs.
| 18 |
For the nine (9) months ended September 30, 2024, total operating expenses were $6,025,121 compared to $4,605,779 in the nine (9) months ended September 30, 2023, for an increase of $1,419,342. This increase was impacted by a reversal of stock option expense as the result of employee forfeitures of incentive stock options taken in Q3 2023, in addition to increases in payroll and related expense associated with additive headcount in our Apeiron subsidiary, as well as increases in consulting fees.
For the nine (9) months ended September 30, 2024, other income (expense) was $9,073,010 compared to $(684,954) in the nine (9) months ended September 30, 2023. This increase was a result of the gain on sale recognized as part of the sale of 49% interest in IM Telecom.
For the nine (9) months ended September 30, 2024, we had net income of $5,784,473 compared to a net loss of ($2,250,633) in the nine (9) months ended September 30, 2023.
Liquidity and Capital Resources
As of September 30, 2024, we had $2,688,303 in cash and cash equivalents on hand.
In comparing liquidity between the nine (9) month period ending September 30, 2024, and December 31, 2023, cash increased by 245.9%. This increase is the result of cash received as part of the sale of 49% interest in IM Telecom. Liabilities and total overall debt decreased by 54.6% in the nine (9) month period ended September 30, 2024, when compared to December 31, 2023, as part of the funds received with the sale of the 49% interest in IM Telecom were used by the Company to pay all material debt obligations then outstanding.
Our current ratio (current assets divided by our current liabilities) increased to 1.92 as of September 30, 2024, compared to .48 as of December 31, 2023. Working capital increased by 178.8%.
Cash Flow from Operations
During the nine (9) months ended September 30, 2024, cash flow used in operating activities was ($3,983,809), primarily as a result of debt and other obligations which were paid off as part of a condition to the 49% sale of IM Telecom, as well as a note receivable resulting from the same sale of IM Telecom.
Cash Flows from Investing Activities
During the nine (9) months ended September 30, 2024, cash flow provided by investing activities was $9,558,509, as a result of the gain on sale of IM Telecom.
Cash Flows from Financing Activities
During the nine (9) months ended September 30, 2024, cash flow used in financing activities was ($3,663,500), primarily as a result of repayments of outstanding notes payable.
Going Concern
For the nine (9) months ended September 30, 2024, the Company generated net income of $5,784,473, compared to a net loss for the nine (9) months ended September 30, 2023, of ($2,250,633). The Company sold a 49% interest in IM Telecom, which allowed the business to pay off all outstanding debt and retain additive cash. The accumulated deficit as of September 30, 2024, is ($6,454,218).
We are one of only a few telecommunication carriers to hold a national wireless ETC Lifeline license, which provides us with additive reimbursement rates within the states we operate. In Q2 2024, we added an additional ten (10) state licenses, which continues to expand our nationally licensed wireless service coverage. We have continued to target and expand into additional ETC licensed states.
As of June 1, 2024, funding for the ACP Program ended, which accounted for approximately 15% of our revenues in Q2 2024 and 33% of our revenues in Q1 2024. Legislative efforts to extend funding remain within Congress, however, the decision to further fund the ACP Program (or a similar program) is still uncertain. In light of this uncertainty, the Company took initial steps to reduce costs in Q2 2024 while discussions continued in Congress, and we moved resources and focus in our mobile services segment to California. With the California Lifeline Program, through its additional state funding and Linkup program, the business was able to retain continuity in the mobile services market. In Q3 2024, the Company received a cease and desist letter from the State of California CPUC, specific to a marketing program by one of our master distribution partners. The inquiry into this matter has impacted the timing of payments on our qualified claims (see the heading “Concentration of Credit Risk” below).
| 19 |
Through September 30, 2024, and with no visible progress towards an extension of the ACP Program within Congress, the Company is in the process of further cost reduction measures, including reductions within our workforce. Although the Company eliminated its outstanding debt and increased its cash position earlier in the year, uncertainty around the ACP Program, the recent impact on our business in the State of California, and program launch timing for our VIVA-US and our other ongoing health care sales initiatives will play significant roles in our ability to continue operations without more drastic reductions. The lack of our success with any of these foregoing initiatives raises substantial doubt about our ability to remain a going concern for twelve (12) month period from the date of this Quarterly Report.
Off-Balance Sheet Arrangements
We had no Off-Balance Sheet arrangements during the nine (9) month period ending September 30, 2024.
Critical Accounting Policies
Earnings Per Share
We follow ASC Topic 260 to account for the earnings per share. Basic earnings per common share calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share calculations are determined by dividing net income available to common stockholders by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of receivables, cash and cash equivalents.
All cash and cash equivalents are held at high credit financial institutions. These deposits are generally insured under the FDIC’s deposit insurance coverage; however, from time to time, the deposit levels may exceed FDIC coverage levels.
The Company has a concentration of risk with respect to trade receivables from customers and cellular providers. As of September 30, 2024, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from two (2) customers in the amount of $1,369,032 or 73.3%, and $192,508 or 10.3%. It should be noted that the largest customer is the State of California, and the second largest customer is the federal government, as administered by USAC, under the authority of the FCC. As of December 31, 2023, the Company had a significant concentration of receivables from two (2) customers in the amounts of $1,024,308 or 68.5%, and $285,536 or 19.0%.
Concentration of Major Customer
A significant amount of the revenue is derived from contracts with major customers. For the three (3) months ended September 30, 2024, the Company had three (3) customers that accounted for $953,260 or 30.3%, $665,665 or 21.1% and $617,440 or 19.6% of revenue, respectively. For the (3) three months ended September 30, 2023, the Company had two (2) customers that accounted for $2,793,313 or 59.6% and $772,614 or 16.5% of revenue, respectively.
Effect of Recent Accounting Pronouncements
The Company has evaluated all recent accounting pronouncements and believes that none will have a significant effect on the Company’s financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not required.
| 20 |
Item 4. Controls and Procedures.
Management’s Quarterly Report on Internal Control Over Financial Reporting
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that material information relating to us is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors. These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness, as of September 30, 2024, 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 effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Not required; however, see Part I, Item 1A. Risk Factors, commencing on page ten (10) of our Annual Report for the year ended December 31, 2023, filed with the SEC on April 1, 2024, for a list of Risk Factors, which Annual Report can be accessed by Hyperlink in Part II-Other Information, in Item 6, Exhibits, hereof. Also see “Cybersecurity,” enumerated in “Part I, Item 1C. Cybersecurity,” of this Annual Report, which commences on page twenty (20) thereof, for information on matters related to cybersecurity issues that may affect our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
See NOTE 9-Stockholders’ Equity and NOTE 10-Subsequent Events, of our Condensed Consolidated Financial Statements included in this Quarterly Report respecting the exercise of certain non-compensatory stock options and the grant of certain incentive stock options during or subsequent to the quarter ended September 30, 2024.
The shares of common stock issued on the exercise of the non-compensatory stock option and the issuance of the referenced incentive stock options were exempt from registration under the Securities Act pursuant to Section 4(a)(2) thereof and applicable state law registration exemptions. The underlying and/or exercised shares that may be issued under the incentive stock options were registered with the SEC pursuant to an S-8 Registration Statement filed with the SEC on August 25, 2021, and as subsequently amended from time to time.
Item 3. Defaults upon Senior Securities
None; not applicable.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
(i) On July 29, 2024, the Company received a cease and desist notice from the State of California Public Utilities Commission (“CPUC”). The cause of the notice was identified as an improperly conducted SMS messaging campaign by one of our distribution channels. Upon receiving the notice, the Company took immediate action to identify the source of the complaint and eliminated the SMS messaging campaign associated with the specific distribution channel. The Company will continue conversations with the CPUC to ensure all marketing campaigns comply. As noted above, California is the largest open receivable as of September 30, 2024. Due to the ongoing cease and desist notice and related inquiry regarding the SMS messaging campaign, payments from California have been delayed, and could cause cash distress to the business going forward.
(ii) No director or Section 16 officer
(iii) Effective November 8, 2024, the Board of Directors amended the Insider Trading Policy of the Company to exempt from the “Black-Out Periods” therein the exercise of stock options by the conveyance to the Company of fully-paid shares of common stock of the Company that are owned by the holder of the stock options in payment of any exercise price of the stock options, based upon the closing price of such common stock on a nationally recognized market for the trading of the Company’s common stock, under any equity, pension or stock option plan or stock option agreement, provided that the subject stock options will expire during the Black-Out Periods if not exercised. The Board of Directors also changed the “Compliance Officer” to Brain R. Riffle, the Company’s CFO. See Exhibit 99.1 in Part II, Item 6, Exhibits, hereof.
| 22 |
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(i)(a) | Certificate of Amendment to Amended and Restated Certificate of Incorporation (Name Change). | Filed with the Form 8-K filed on February 12, 2018, 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. | ||
| 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. | ||
| 99 | Insider Trading Policy | |||
| 101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, were formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||
| 104 | Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL. |
Exhibits incorporated by reference:
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: | November 14, 2024 | By: | /s/ D. Sean McEwen | |
| D. Sean McEwen | ||||
| Chairman 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: | November 14, 2024 | By: | /s/ D. Sean McEwen | |
| D. Sean McEwen | ||||
| Chairman and CEO |
| Date: | November 14, 2024 | By: | /s/ Brian R. Riffle | |
| Brian R. Riffle | ||||
| Chief Financial Officer |
23
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: | November 14, 2024 | By: | /s/ D. Sean McEwen | |
| D. Sean McEwen | ||||
| Chairman and CEO |
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: | November 14, 2024 | By: | /s/ Brian R. Riffle | |
| Brian R. Riffle | ||||
| Chief Financial Officer |
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 September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), we, D. Sean McEwen, Chief Executive Officer and Brian R. 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: | November 14, 2024 | By: | /s/ D. Sean McEwen | |
| D. Sean McEwen | ||||
| Chairman and CEO |
| Date: | November 14, 2024 | By: | /s/ Brian R. Riffle | |
| Brian R. Riffle | ||||
| Chief Financial Officer |
Exhibit 99
KONATEL, INC. (“KTEL”)
INSIDER TRADING POLICY
| 1) | General Purpose |
Federal securities laws prohibit the purchase or sale of securities by persons who are aware of material nonpublic information about a company, as well as the disclosure of material, nonpublic information about a company to others who then trade in the company’s securities. These transactions are commonly known as “insider trading.”
Insider trading violations are heavily pursued by the Securities and Exchange Commission and the U.S. Attorney Offices and are punished. While the regulatory authorities concentrate their efforts on individuals who trade, or who provide inside information to others who trade, the Federal securities laws also impose potential liability on companies and other “controlling persons” if they fail to take reasonable steps to prevent insider trading by company personnel.
The Board of Directors of KonaTel, Inc., a Delaware corporation, has adopted this Insider Trading Policy (the “Policy”) both to satisfy its obligation to prevent insider trading and to help its personnel avoid the consequences associated with violations of the insider trading laws. For purposes of this policy, the “Company” includes KonaTel, Inc. and its subsidiaries (“KonaTel”).
This Policy is also intended to prevent even the appearance of improper conduct on the part of anyone employed by or associated with us, not just so-called “insiders.” Everyone within KonaTel has worked very hard to establish KonaTel as a company known for integrity and ethical conduct, and therefore cannot afford to have that reputation damaged.
A copy of this Policy is to be delivered to all current and new employees and consultants upon the commencement of their relationships with KonaTel and its subsidiaries.
| 2) | Persons Covered |
This Policy refers to an “insider” and we wish to define it herein. Insiders of KonaTel, Inc. are defined as (a) members of our Board of Directors, corporate officers and employees; (b) consultants to KonaTel and subsidiaries or other persons associated with KonaTel and/or its subsidiaries, including distributors, sales agents or other partners that may, in the course of their work with KonaTel, receive access to confidential, material non-public information; and (c) household and immediate family members of those listed in (a) and (b) above.
| 3) | Definitions |
| A) | Material non-public information: Material non-public information is defined to be information that is not known to persons outside the immediate company that could be relied upon or considered significant to an investor making a decision to buy or sell KonaTel securities. It is currently very difficult to define each and every category under this heading. However, any information that should be considered sensitive and non-public material includes but is not limited to the following: |
| a. | Financial results; |
| b. | Future Earnings or Losses; |
| c. | News of a pending or proposed sale, merger or acquisition; |
| d. | Acquisitions, Mergers or Divestitures; |
| e. | Impending bankruptcy or financial liquidity problems; |
| f. | Major changes in senior management; |
| g. | Stock dividends or splits; |
| h. | New equity or debt offerings; |
| i. | Large contracts in a pending status or in discussion. |
Remember, anyone who is reviewing your securities transactions will be doing so after the fact, with the benefit of hindsight. As such, before engaging in any transaction, you should carefully consider how the others might view the transaction.
| B) | Black-Out Periods: A “Black-Out Period” is a time before and after a significant event wherein an insider may not buy or sell KonaTel securities without violating this Policy. |
There are four Black-Out Periods for insiders of KonaTel. These include twenty (20) days prior to the release of financial results for the periods ending March 31, June 30, September 30 and December 31 of each year and end after three (3) full trading days of KonaTel (KTEL) securities on the OTCQB (or any other recognized nation medium of which KonaTel (KTEL) securities publicly trade [“Other Medium”]) after the results are announced for the preceding fiscal period. If the last day of the month falls on a weekend, the Black-Out Period will start at the close of business on the last trading day prior to the weekend.
Additional Black-Out Periods may occur when other material events occur, such as a press release sent out to the public, wherein only a select few persons have knowledge of the event. If you are one of these individuals, or if it would appear to an outsider that you were likely to have had access to such information related to the event, then you will not be allowed to purchase or sell KonaTel securities so long as the event remains non-public information and for three (3) full trading days of KonaTel, Inc. securities on the OTCBB or Other Medium after the event is made public.
Also, KonaTel may occasionally issue interim earnings guidance or other potentially material information by filing with the Securities and Exchange Commission a Form 8-K or by other means designed to achieve widespread dissemination of the information. You should anticipate that trades are unlikely to be pre-cleared while KonaTel is in the process of assembling the information to be released and until the information has been released and fully absorbed by the public market. The existence of an additional Black-Out Period will not be announced. If you request pre-clearance of a transaction in KonaTel’s securities during an additional Black-Out Period, you will be informed of the existence of a Black-Out Period, but you may not be advised of the reason for the Black-Out Period.
If you are made aware of the existence of an additional Black-Out Period, you should not disclose the existence of the Black-Out Period to any other person. Whether or not you are designated as being subject to an additional Black-Out Period, you still have the obligation not to purchase or sell KonaTel securities while you are aware of the material non-public information.
KonaTel, Inc. Proprietary & Confidential | Insider Trading Policy Page 2 of 5 | Ver 11/8/24 |
| C) | Securities: Securities of KonaTel are defined as common stock, preferred stock, options to purchase stock, warrants, convertible debt and/or derivative securities. |
Except as otherwise provided herein, these Black-Out Periods do not apply to the exercise of Stock Option Agreements for Rule 144 common stock of KonaTel that are issued by KonaTel, or other stock issuances approved by the Board of Directors; however, they do apply to all KonaTel securities that are the subject of a registration statement filed with the Securities and Exchange Commission.
| 4) | Policy |
| A) | No insider may buy or sell KonaTel securities at any time when they have material non-public information relating to KonaTel. |
| B) | No insider may buy or sell securities of another company at any time when they have material non-public information about that company, including, without limitation, any company that we conduct ordinary business with, such as customers, vendors, or suppliers, when that information is obtained during the course of his/her employment with KonaTel or its subsidiaries. |
| C) | No insider may disclose material non-public information to third parties, to any other person, including family members, or make recommendations or express opinions on the basis of material non-public information with regard to trading securities. |
| D) | No insider who receives or has access to our material non-public information may comment on the stock price movement or rumors of other corporate developments that are of possible significance to the investing public, unless it is part of his/her job description (e.g., Investor Relations) or you have been specifically pre-authorized by the KonaTel CEO or CFO in each instance. |
| E) | If you comment on stock price movement or rumors and/or disclose material non-public information, you should immediately contact KonaTel’s Chief Compliance Officer. |
| F) | No insider may buy or sell our securities during any of the four Black-Out Periods that occur each fiscal year or any other Black-Out Period. |
| G) | This Policy continues in effect until the end of the first Black-Out Period after termination of employment or other relationship with KonaTel or its subsidiaries. |
| 5) | Special Rules |
If a concern or question relating to your status within KonaTel (insider or not, etc.) should arise, please contact the Chief Compliance Officer.
| A) | Special Rules applicable to the Board of Directors, those officers of KonaTel who are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (persons subject to reports on Forms 3, 4, and 5), and other employees who may be designated from time to time by KonaTel’s Compliance Officer. |
| a. | In addition to the restrictions related to the trading of KonaTel securities as defined in Section 4 above, insiders shall not purchase or sell any KonaTel securities, except: |
| i. | After first consulting with and pre-clearing such transaction with the KonaTel’s Compliance Officer; |
KonaTel, Inc. Proprietary & Confidential | Insider Trading Policy Page 3 of 5 | Ver 11/8/24 |
| ii. | Only during the period commencing at the opening of the fourth (4th) full day after earnings are released with respect to the preceding fiscal quarter and ending twenty (20) days prior to the end of the current fiscal quarter. |
| b. | In addition to the restrictions related to the trading of KonaTel securities as defined in Section 4 above, insiders shall: |
| i. | Not engage in short sales of KonaTel securities; |
| ii. | Not buy or sell put options, call options or other derivatives of the KonaTel’s securities. |
| c. | In addition to the restrictions related to the trading of KonaTel securities as defined in Section 4 above, insiders shall: |
| i. | Comply with SEC Rule 10b-5 with his/her broker when placing sales of KonaTel securities near a Black-Out Period date. |
| B) | Special Rules applicable to officers of KonaTel that are not subject to Section 16 of the Exchange Act, and assistants and secretaries of insiders, and certain other employees that may be designated from time to time by KonaTel’s Compliance Officer. |
| a. | In addition to the restrictions related to the trading of KonaTel securities as defined in Section 4 above, insiders shall not: |
| i. | Purchase or sell any KonaTel securities except during the period commencing at the opening of the fourth (4th) full day after earnings are released with respect to the preceding fiscal quarter and ending twenty (20) days prior to the end of the current fiscal quarter; |
| ii. | Not engage in short sales of KonaTel securities. |
| 6) | Exceptions to the Policy |
The restriction related to the trading of KonaTel securities as defined in Section 4 above does not apply to the following item:
| A) | The exercise of stock options for cash; or the exercise of stock options by the conveyance to KonaTel of fully-paid shares of common stock of KonaTel that are owned by the holder of the stock options in payment of any exercise price of the stock options under any equity, pension or stock option plan or stock option agreement, provided that the subject stock options will expire during the Black-Out Periods if not exercised; or any other plan later defined (but not the public sale of such shares), since the market price does not affect the exercise price stated in the agreement. |
| 7) | Potential Criminal and/or Civil Liability and/or Disciplinary Action |
The items set forth in this Policy are simply to be viewed as guidelines, not as comprehensive coverage of all potential instances. Appropriate judgment should be exercised by each individual in connection with the purchase or sale of securities.
KonaTel, Inc. Proprietary & Confidential | Insider Trading Policy Page 4 of 5 | Ver 11/8/24 |
Insiders found liable for insider trading may be subject to criminal penalties of up to $1,000,000 and up to ten (10) years in jail for trading of securities based on material non-public information. In addition, insiders may also be liable for conducting transactions improperly by any person to whom they have disclosed the material non-public information. The Securities and Exchange Commission has imposed large penalties even when the disclosing person did not profit, directly or indirectly, from the trade(s). There are also civil penalties of up to three (3) times the profit gained, or loss avoided, that may be imposed.
KonaTel and controlling persons of KonaTel may also be found liable for insider trading by any insider, and accordingly all purchases and sale of KonaTel by insiders must be made within the terms and conditions of this Policy and must be first submitted to the Chief Compliance Officer.
Furthermore, any employees who are found in violation of this Policy will be subject to disciplinary action as outlined in the Employee Handbook, including ineligibility of future participation in equity incentive plans or termination of employment.
For all purposes of this Policy, Brian Riffle shall be designated as the “Chief Compliance Officer.” Mr. Riffle’s telephone number is 814-535-4017; and his e-mail address is briffle@cfostratllc.com.
All communications of every kind hereunder shall be in writing or shall be of no effect.
ACKNOWLEDGMENT CONCERNING INSIDER TRADING POLICY
I, Brian R. Riffle, acknowledge that I have read and understand the Insider Trading Policy of KonaTel and that I agree to abide by the provisions stated therein. I further certify that I understand that failure to adhere to these rules will result in serious consequences and may result in termination of my employment with KonaTel or its’ subsidiaries.
Dated this 12th day of November 2024.
| Signature: | /s/ Brian R. Riffle |
| Name: | Brian R. Riffle |
KonaTel, Inc. Proprietary & Confidential | Insider Trading Policy Page 5 of 5 | Ver 11/8/24 |
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 50,000,000 | 50,000,000 |
| Common stock, shares issued | 43,472,950 | 43,145,720 |
| Common stock, shares outstanding | 43,472,950 | 43,145,720 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Income Statement [Abstract] | ||||
| Revenue | $ 3,148,409 | $ 4,689,001 | $ 13,127,425 | $ 13,322,146 |
| Cost of Revenue | 2,439,037 | 3,424,832 | 10,390,841 | 10,282,046 |
| Gross Profit | 709,372 | 1,264,169 | 2,736,584 | 3,040,100 |
| Operating Expenses | ||||
| Payroll and Related Expenses | 1,316,381 | 686,560 | 4,108,020 | 2,933,409 |
| Operating and Maintenance | 1,179 | 1,242 | 4,143 | 4,563 |
| Bad Debt | 200 | 1,448 | 214 | |
| Professional and Other Expenses | 94,435 | 113,546 | 435,960 | 576,964 |
| Utilities and Facilities | 50,292 | 53,814 | 160,410 | 162,889 |
| Depreciation and Amortization | 2,449 | 3,088 | 7,348 | 9,264 |
| General and Administrative | 54,006 | 35,459 | 159,974 | 120,103 |
| Marketing and Advertising | 24,629 | 36,633 | 85,657 | 120,640 |
| Application Development Costs | 259,836 | 185,350 | 853,719 | 628,508 |
| Taxes and Insurance | 93,385 | 17,214 | 208,442 | 49,225 |
| Total Operating Expenses | 1,896,592 | 1,133,106 | 6,025,121 | 4,605,779 |
| Operating Income/(Loss) | (1,187,220) | 131,063 | (3,288,537) | (1,565,679) |
| Other Income and Expense | ||||
| Gain on Sale | 9,247,726 | |||
| Interest Expense | (407) | (209,991) | (104,737) | (551,123) |
| Other Income/(Expense), net | (1,287) | (34,288) | (69,979) | (133,831) |
| Total Other Income and Expenses | (1,694) | (244,279) | 9,073,010 | (684,954) |
| Net Income (Loss) | $ (1,188,914) | $ (113,216) | $ 5,784,473 | $ (2,250,633) |
| Earnings (Loss) per Share | ||||
| Basic | $ (0.03) | $ (0.00) | $ 0.13 | $ (0.05) |
| Diluted | $ (0.03) | $ (0.00) | $ 0.13 | $ (0.05) |
| Weighted Average Outstanding Shares | ||||
| Basic | 43,485,560 | 42,707,808 | 43,385,493 | 42,658,697 |
| Diluted | 43,485,560 | 42,707,808 | 43,698,965 | 42,658,697 |
Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) - USD ($) |
Common Shares |
Additional Paid-in Capital |
Accumulated Deficit |
Total |
|---|---|---|---|---|
| Beginning balance, value at Dec. 31, 2022 | $ 42,240 | $ 8,710,987 | $ (8,297,864) | $ 455,363 |
| Shares outstanding at Dec. 31, 2022 | 42,240,406 | |||
| Stock Based Compensation | $ 0 | 85,133 | 0 | 85,133 |
| Stock Options Exercised | $ 618 | 123,133 | 123,751 | |
| Exercised Stock Options, shares | 617,814 | |||
| Net Loss | $ 0 | 0 | (2,250,633) | (2,250,633) |
| Ending balance, value at Sep. 30, 2023 | $ 42,858 | 8,919,253 | (10,548,497) | (1,586,386) |
| Shares outstanding at Sep. 30, 2023 | 42,858,220 | |||
| Beginning balance, value at Jun. 30, 2023 | $ 42,671 | 9,075,626 | (10,435,281) | (1,316,984) |
| Shares outstanding at Jun. 30, 2023 | 42,670,720 | |||
| Stock Based Compensation | $ 0 | (197,436) | 0 | (197,436) |
| Stock Options Exercised | $ 187 | 41,063 | 41,250 | |
| Exercised Stock Options, shares | 187,500 | |||
| Net Loss | $ 0 | 0 | (113,216) | (113,216) |
| Ending balance, value at Sep. 30, 2023 | $ 42,858 | 8,919,253 | (10,548,497) | (1,586,386) |
| Shares outstanding at Sep. 30, 2023 | 42,858,220 | |||
| Beginning balance, value at Dec. 31, 2023 | $ 43,146 | 9,182,140 | (12,238,691) | (3,013,405) |
| Shares outstanding at Dec. 31, 2023 | 43,145,720 | |||
| Stock Based Compensation | $ 0 | 747,686 | 0 | 747,686 |
| Stock Options Exercised | $ 343 | 40,907 | $ 41,250 | |
| Exercised Stock Options, shares | 343,525 | 425,000 | ||
| Net Loss | $ 0 | 0 | 5,784,473 | $ 5,784,473 |
| Ending balance, value at Sep. 30, 2024 | $ 43,489 | 9,970,733 | (6,454,218) | 3,560,004 |
| Shares outstanding at Sep. 30, 2024 | 43,489,245 | |||
| Beginning balance, value at Jun. 30, 2024 | $ 43,473 | 9,669,809 | (5,265,304) | 4,447,978 |
| Shares outstanding at Jun. 30, 2024 | 43,472,954 | |||
| Stock Based Compensation | $ 0 | 300,940 | 0 | 300,940 |
| Stock Options Exercised | $ 16 | (16) | ||
| Exercised Stock Options, shares | 16,291 | |||
| Net Loss | $ 0 | 0 | (1,188,914) | (1,188,914) |
| Ending balance, value at Sep. 30, 2024 | $ 43,489 | $ 9,970,733 | $ (6,454,218) | $ 3,560,004 |
| Shares outstanding at Sep. 30, 2024 | 43,489,245 |
Pay vs Performance Disclosure - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Pay vs Performance Disclosure [Table] | ||||
| Net Income (Loss) | $ (1,188,914) | $ (113,216) | $ 5,784,473 | $ (2,250,633) |
Insider Trading Arrangements |
9 Months Ended |
|---|---|
Sep. 30, 2024 | |
| Trading Arrangements, by Individual [Table] | |
| Rule 10b5-1 Arrangement Adopted | false |
| Non-Rule 10b5-1 Arrangement Adopted | false |
| Rule 10b5-1 Arrangement Terminated | false |
| Non-Rule 10b5-1 Arrangement Terminated | false |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview of Company
KonaTel Inc., a Delaware corporation, formerly known as Dala Petroleum Corp. (the “Company,” “we,” “our,” or “us”), also formerly known as “Westcott Products Corporation,” was incorporated as “Light Tech, Inc.” under the laws of the State of Nevada on May 24, 1984. A subsidiary in the name “Westcott Products Corporation” was organized by us under the laws of the State of Delaware on June 24, 1986, for the purpose of changing our name and domicile to the State of Delaware. On June 27, 1986, we merged with the Delaware subsidiary, with the survivor being Westcott Products Corporation, a Delaware corporation (“Westcott”). During 1990, we ceased our then current operations. On March 11, 2000, our Board of Directors began the process of re-entering the development stage, and on June 2, 2014, we completed a merger with Dala Petroleum Corp., a Nevada corporation (respectively, “Dala Nevada” and the “Dala Merger”). We operated as an early-stage oil exploration company focused on our leased acreage acquired by Dala Nevada until 2016, at which time we assigned substantially all of our leased acreage to the former owner of Dala Nevada, and our remaining oil and gas leasehold interests, comprising leases covering approximately 7,489 and 403 acres, more or less, expired in 2017 and 2018, respectively.
On December 18, 2017, we acquired KonaTel, Inc, a Nevada subchapter S-Corporation (“KonaTel Nevada”), in a merger with our acquisition subsidiary under which KonaTel Nevada became our wholly owned subsidiary, and we succeeded to its operations; and we changed our name to “KonaTel, Inc.” on February 5, 2018.
KonaTel Nevada was organized under the laws of the State of Nevada on October 14, 2014, by its founder and then sole shareholder, D. Sean McEwen, our current Chairman and CEO, to conduct the business of a full-service cellular provider that delivered cellular products and services to individual and business customers in various retail and wholesale markets. Through its sales network, it provided these services nationwide. In furtherance of its proposed business, on November 1, 2014, it acquired most of the assets of Coast to Coast Cellular, Inc. (“Coast to Coast”), including inventories, property, plant and equipment and its customer list, all valued at approximately $950,000 net of liabilities in the approximate amount of $415,000; and on November 1, 2016, it acquired the assets of CS Agency LLC (“CS Agency”), consisting of contract rights related to the cellular industry, in consideration of assuming liabilities of CS Agency in the approximate amount of $300,000. With the completion of the KonaTel Nevada Merger, we succeeded to the current and intended business operations of KonaTel Nevada.
On December 31, 2018, we acquired Apeiron Systems (www.apeiron.io). Apeiron was organized in 2013 and is an international hosted services Communications Platform as a Service (“CPaaS”) provider that designed, built, owns and operates its national private core network, supporting a suite of business communications services, all accessible via proprietary Applications Programming Interfaces (“APIs”). As a Federal Communication Commission (the “FCC”) licensed Internet Telephony Service Provider (“ITSP”), Apeiron also holds an FCC numbering authority license. Some of Apeiron’s hosted services include Voice over IP (“VoIP”), cellular and Over-The-Top (“OTT”) telephony, SMS/MMS messaging and broadcast services, numbering features, including Cloud IVRs, Voicemail, Fax, Call Recording and other services through local, toll-free and international phone numbers. Supported by its national redundant network, Apeiron also provides public and private IP network services, including Multiprotocol Label Switching (“MPLS”), Dedicated Internet and LTE Wireless WAN solutions. Apeiron’s cloud services include Information Data Dips, Software-Defined Wide Area Networking (“SD-WAN”) and Internet of Things (“IoT”) data and device management. Apeiron primarily distributes its services nationally through its website, its sales staff, independent sales agents and Independent Sales Organizations (“ISOs”).
Apeiron Systems is headquartered in Johnstown, Pennsylvania, where it has customer service and software engineering resources staffed. Additional development resources are staffed out of Los Angeles, California, as well as in Europe and Asia.
On February 5, 2018, we entered into a purchase agreement to acquire 100% of the membership interest in IM Telecom (www.infinitimobile.com). On October 23, 2018, the FCC approved our acquisition of IM Telecom, and on January 31, 2019, we completed the purchase of IM Telecom. IM Telecom operated as a wholly owned subsidiary of KonaTel until the sale of 51% of its membership interest to “Excess Telecom” on January 22, 2024, which is discussed below. It is an FCC licensed Eligible Telecommunications Carrier (“ETC”) and is one of twenty-two (22) original FCC licensed wireless cellular resellers to hold an FCC approved Lifeline Compliance Plan since 2012, of which approximately twelve (12) license holders remain active today. The FCC has not approved (granted) a new wireless reseller Lifeline Compliance Plan since 2012. In addition to being authorized to offer wireless services in the fifty (50) states, Washington D.C., Puerto Rico and the US Virgin Islands, IM Telecom has been licensed by the FCC to offer Lifeline and is designated as an ETC in thirty-eight (38) states/territories which are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Idaho, Iowa, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Tennessee, US Virgin Islands, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.
IM Telecom has been an FCC licensed Affordable Connectivity Program (the “ACP” and the “ACP Program”) provider, authorized to distribute ACP subsidized high-speed mobile voice/data service in the fifty (50) states, Washington D.C. and Puerto Rico. As of June 1, 2024, the ACP Program ended in its current form. The “ACP Extension Act,” among other legislative initiatives, is being considered by Congress for purposes of extending the ACP Program. Stand-alone ACP customers have been given the opportunity to enroll in the Lifeline program, in lieu of ACP benefits. Customers already enrolled in Lifeline, in combination with ACP benefits, continue with Lifeline services. Lifeline is an FCC program that provides subsidized, fixed or mobile telecommunications services to low-income Americans. The ACP Program was an FCC program that provided subsidized high-speed wireless data services to low-income Americans. IM Telecom distributes Lifeline, and prior to June 1, 2024, had distributed ACP services, under its Infiniti Mobile brand name through its website, retail locations and ISOs. IM Telecom also offers non-Lifeline and non-ACP services throughout the United States. IM Telecom has a US-based customer support center located in Atmore, Alabama.
On January 22, 2024 (the “Effective Date”), KonaTel and IM Telecom entered into a Membership Interest Purchase Agreement (the “Excess Telecom Purchase Agreement” or the “Membership Interest Purchase Agreement”) with Excess Telecom, Inc., a Nevada corporation (“Excess Telecom”), pursuant to which KonaTel conveyed 49% of its membership interest in IM Telecom to Excess Telecom on the “Initial Closing Date” in consideration of the sum of $10,000,000, and if approved by the FCC, will convey the remaining 51% of the membership interest in IM Telecom to Excess Telecom for the sum of $100 on the “Final Closing.” If not approved by the FCC, KonaTel shall retain 51% of IM Telecom and Excess Telecom shall retain 49% of IM Telecom; and KonaTel shall have no obligation to refund any portion of the funds paid by Excess Telecom to KonaTel.
IM Telecom is headquartered in Plano, Texas, and has a warehouse operation in Tulsa, Oklahoma, and a customer service center in Atmore, Alabama. We are headquartered in Plano, Texas.
Apeiron Systems has eleven (11) full-time employees. The current employees of IM Telecom, twenty-two (22) full-time and one (1) part-time, novated to employees of KonaTel under the Excess Telecom Purchase Agreement. These employees continue to engage in the same manner and function of service provided prior to the aforementioned agreement. KonaTel has four (4) other full-time employees.
Principal Products or Services and their Markets
Our principal products and services, provided through Apeiron Systems and IM Telecom, include our CPaaS suite of services (SIP/VoIP, SMS/MMS, POTS Replacement), wholesale and retail mobile voice and mobile data IoT services, wholesale voice termination services, and our ETC and ACP subsidized services for low-income Americans. Except for our ETC Lifeline services distributed in up to thirty-eight (38) states/territories and our ACP services, which until June 1, 2024, had been distributed in the fifty (50) states, as well as Washington D.C. and Puerto Rico, our Apeiron Systems’ products and services are available worldwide and subject to U.S., international and local/national regulations.
We generate revenue from two (2) primary sources, Hosted Services and Mobile Services:
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, 2023.
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. Estimates in these financial statements include the allowance for doubtful receivables, allowance for inventory obsolescence, the estimated useful lives of property and equipment, and stock-based compensation. Actual results could differ from those estimates.
Basis of Consolidation
The condensed consolidated financial statements include the Company and our two (2) wholly owned corporate subsidiaries, KonaTel Nevada and Apeiron Systems, and IM Telecom, presently owned 51% by us. All significant intercompany transactions are eliminated.
Basic income (loss) per share of common stock attributable to common stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net income (loss) per share of common stock attributable to common stockholders when their effect is dilutive. The dilutive common shares for the three (3) months ended September 30, 2024, and 2023, and for the nine (9) months ended September 30, 2023, are not included in the computation of diluted earnings per share because to do so would be anti-dilutive. As of September 30, 2023, there were potentially 870,684 dilutive shares.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of receivables, cash and cash equivalents.
All cash and cash equivalents are held at high credit financial institutions. These deposits are generally insured under the FDIC’s deposit insurance coverage; however, from time to time, the deposit levels may exceed FDIC coverage levels.
The Company has a concentration of risk with respect to trade receivables from customers and cellular providers. As of September 30, 2024, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from two (2) customers in the amount of $1,369,032 or 73.3%, and $192,508 or 10.3%. It should be noted that the largest customer is the State of California, and the second largest customer is the federal government, as administered by the Universal Service Administrative Company (“USAC”), under the authority of the FCC. As of December 31, 2023, the Company had a significant concentration of receivables from two (2) customers in the amounts of $1,024,308 or 68.5%, and $285,536 or 19.0%.
Concentration of Major Customer
A significant amount of the revenue is derived from contracts with major customers. For the three (3) months ended September 30, 2024, the Company had three (3) customers that accounted for $953,260 or 30.3%, $665,665 or 21.1% and $617,440 or 19.6% of revenue, respectively. For the (3) three months ended September 30, 2023, the Company had two (2) customers that accounted for $2,793,313 or 59.6% and $772,614 or 16.5% of revenue, respectively.
Other Revenue
The Company has a shared relationship with distribution of Lifeline services through Excess Telecom, under a Master Distribution relationship. Revenue through this relationship is recorded on a net revenue basis. We have performed a principal versus agent analysis under ASC 606-10-25-25 and have determined that we are acting as agent under this relationship.
Effect of Recent Accounting Pronouncements
The Company has evaluated all recent accounting pronouncements and believes that none will have a significant effect on the Company’s financial statements.
Going Concern
For the nine (9) months ended September 30, 2024, the Company generated net income of $5,784,473, compared to a net loss for the nine (9) months ended September 30, 2023, of ($2,250,633). The Company sold a 49% interest in IM Telecom, which allowed the business to pay off all outstanding debt and retain additive cash. The accumulated deficit as of September 30, 2024, is ($6,454,218).
We are one of only a few telecommunication carriers to hold a national wireless ETC Lifeline license, which provides us with additive reimbursement rates within the states we operate. In Q2 2024, we added an additional ten (10) state licenses, which continues to expand our nationally licensed wireless service coverage. We have continued to target and expand into additional ETC licensed states.
As of June 1, 2024, funding for the ACP Program ended, which accounted for approximately 15% of our revenues in Q2 2024 and 33% of our revenues in Q1 2024. Legislative efforts to extend funding remain within Congress, however, the decision to further fund the ACP Program (or a similar program) is still uncertain. In light of this uncertainty, the Company took initial steps to reduce costs in Q2 2024 while discussions continued in Congress, and we moved resources and focus in our mobile services segment to California. With the California Lifeline Program, through its additional state funding and Linkup program, the business was able to retain continuity in the mobile services market. In Q3 2024, the Company received a cease and desist letter from the State of California CPUC, specific to a marketing program by one of our master distribution partners. The inquiry into this matter has impacted the timing of payments on our qualified claims (see the heading “Concentration of Credit Risk” in NOTE 1 above).
Through September 30, 2024, and with no visible progress towards an extension of the ACP Program within Congress, the Company is in the process of further cost reduction measures, including reductions within our workforce. Although the Company eliminated its outstanding debt and increased its cash position earlier in the year, uncertainty around the ACP Program, the recent impact on our business in the State of California, and program launch timing for our VIVA-US Telecommunications, Inc. (“VIVA-US”) and our other ongoing health care sales initiatives will play significant roles in our ability to continue operations without more drastic reductions. The lack of our success with any of these foregoing initiatives raises substantial doubt about our ability to remain a going concern for the twelve (12) month period from the date of this Quarterly Report.
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INVENTORY |
9 Months Ended |
|---|---|
Sep. 30, 2024 | |
| Inventory Disclosure [Abstract] | |
| INVENTORY | NOTE 2 – INVENTORY
Inventory primarily consists of sim cards, cell phones and tablets, which are stored at our warehouse, or have been delivered to distributors in the field. Inventories are stated at cost using the first-in, first-out (“FIFO”) valuation method. On a monthly basis, inventory is counted at our warehouse facility, and is reviewed for obsolescence and counted for accuracy with distributors. At September 30, 2024, and December 31, 2023, the Company had inventory of $360,061 and $1,229,770, respectively.
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PROPERTY AND EQUIPMENT |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT | NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following major classifications as of September 30, 2024, and December 31, 2023:
Depreciation related to Property and Equipment amounted to $2,449 and $3,088 for the three (3) months ended September 30, 2024, and 2023, respectively. Depreciation related to Property and Equipment amounted to $7,348 and $9,264 for the nine (9) months ended September 30, 2024, and 2023, respectively. Depreciation and amortization expenses are included as a component of operating expenses in the accompanying statements of operations.
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RIGHT-OF-USE ASSETS |
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| RIGHT-OF-USE ASSETS | NOTE 4 – RIGHT-OF-USE ASSETS
Right-of-Use Assets consist of assets accounted for under ASC 842. The assets are recorded at present value using implied interest rates between 4.75% and 7.50%. Right-of-Use Assets are recorded on the balance sheet as intangible assets.
The Company has Right-of-Use Assets through leases of property under non-cancelable leases. As of September 30, 2024, the Company had two (2) properties with lease terms in excess of one (1) year. Of these two (2) leases, one (1) lease expires in 2026, and one (1) lease expires in 2030. Lease payables as of September 30, 2024, is $374,190.
Future lease liability payments under the terms of these leases are as follows:
The weighted average term of the Right-to-Use leases is 56.3 months recorded with a weighted average discount of 7.01%. Total lease expense for the nine (9) months ended September 30, 2024, and 2023, was $125,917 and $128,582, respectively.
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INTANGIBLE ASSETS |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INTANGIBLE ASSETS | NOTE 5 – INTANGIBLE ASSETS
Intangible Assets with definite useful life consist of licenses, customer lists and software that were acquired through acquisitions. Intangible Assets with indefinite useful life consist of the Lifeline license granted by the FCC. The license, because of the nature of the asset and the limitation on the number of granted Lifeline licenses by the FCC, will not be amortized. The license was acquired through an acquisition. The fair market value of the license as of September 30, 2024, and December 31, 2023, was $323,468.
Amortization expense amounted to $0, and $0 for the three (3) months ended September 30, 2024, and 2023, respectively. Amortization expense amounted to $0, and $0 for the nine (9) months ended September 30, 2024, and 2023, respectively. Amortization expense is included as a component of operating expenses in the accompanying statements of operations. With the exception of the Lifeline license granted by the FCC, all intangible assets are fully amortized as of September 30, 2024.
The reclassification in the Balance Sheet for Right of Use Assets has been made in this filing to conform to both the current and future reported presentation.
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NOTES PAYABLE |
9 Months Ended |
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Sep. 30, 2024 | |
| Debt Disclosure [Abstract] | |
| NOTES PAYABLE | NOTE 6 – NOTES PAYABLE
The Company had no outstanding notes payable as of September 30, 2024.
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CONTINGENCIES AND COMMITMENTS |
9 Months Ended |
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Sep. 30, 2024 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| CONTINGENCIES AND COMMITMENTS | NOTE 7 – CONTINGENCIES AND COMMITMENTS
Litigation
From time to time, the Company may be subject to legal proceedings and claims which arise in the ordinary course of business. As of September 30, 2024, there are no ongoing legal proceedings.
Contract Contingencies
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.
Tax Audits
In June of 2021, the Company received an audit determination and assessment from the State of Pennsylvania related to sales and use tax for the audit period of January 1, 2016, through September 30, 2019. The assessment is in the amount of $115,000, including interest and penalties calculated on sales made inside and outside Pennsylvania. The Company has recorded the full amount of this assessment. The Company appealed the assessment in August, 2021, and at the request of the state, provided additional information to support its appeal. The Company’s position is that Pennsylvania has no sales tax authority to levy and collect sales tax on sales made outside of Pennsylvania. The Company initially recorded an expected liability of $7,000, based on known sales inside Pennsylvania. The State of Pennsylvania rejected an appeal by the Company. The Company has agreed to a twenty-four (24) month payment plan with the State of Pennsylvania, which commenced in December, 2023. Following the final payoff of the liability, the Company may have the right to re-open an appeal with the state for a refund of the liability.
Letters of Credit
The Company had no outstanding letters of credit as of September 30, 2024.
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SEGMENT REPORTING |
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| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT REPORTING | NOTE 8 – SEGMENT REPORTING
The Company operates within two (2) reportable segments. The Company’s management evaluates performance and allocates resources based on the profit or loss from operations. Because the Company is a recurring revenue 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 and Mobile Services. Mobile Services reporting consists of our post-paid and pre-paid cellular business.
Hosted Services – Our Hosted Services include a suite of hosted CPaaS services within the Apeiron Systems’ cloud platform, including Cloud IVRs, Voicemail, Fax, Call Recording and other services provided with local, toll-free and international phone numbers. Apeiron also delivers public and private IP network services from its national redundant network backbone, including MPLS, Dedicated Internet and LTE Wireless WAN solutions. Additionally, Apeiron’s Cloud Services include Information Data Dips, SD-WAN and IoT data and device management. These Hosted Services are marketed nationally and internationally through the Apeiron website, its sales staff, independent sales agents and ISOs.
Mobile Services – Our Mobile Services include retail and wholesale cellular voice/text/data services and IoT mobile data services through Apeiron Systems and IM Telecom. Mobile voice/text/data and IoT 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 typically does not own the wireless network infrastructure over which services are provided to its customers. 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. Also included in our Mobile Services segment is the distribution of government subsidized mobile voice service and mobile data service by IM Telecom under its Infiniti Mobile brand and FCC Lifeline license to low-income American households that qualify for the FCC’s Lifeline mobile voice service program and/or the FCC’s ACP mobile data program. Even though government programs like Lifeline have existed since 1985, these programs, along with newer programs like the ACP Program, are subject to change and may have a material impact on our Mobile Services business if changed, reduced or eliminated.
The following table reflects the result of operations of the Company’s reportable segments:
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STOCKHOLDERS’ EQUITY |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCKHOLDERS’ EQUITY | NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock
On August 9, 2024, Robert Beaty, an independent Board member, conveyed to the Company shares of the Company’s common stock at a price of $, in an exempt transaction pursuant to Section 16b-3(c), and in full payment of the exercise of incentive stock options granted to him in 2019 at a price of $ per share, which was 110% of the fair market value of our common stock on the date of such grant. These ISO shares were issued to Mr. Beaty on August 9, 2024, in exchange for the conveyance of the shares to the Company.
Non-Compensatory Stock Option Grant
On September 17, 2024, .
Stock Option Grants
There were no Stock Option Grants provided for during the quarter ended September 30, 2024.
Stock Compensation
The Company offers incentive stock option grants to directors and key employees. Options vest in tranches and typically expire five (5) years from the date of grant. For the nine (9) months ended September 30, 2024, and 2023, the Company recorded options expense of $747,686 and $85,133, respectively. For the three months ended September 30, 2024, and 2023, the Company recorded options expense of $300,940 and $(197,436), respectively. The option expense not taken as of September 30, 2024, is $, with a weighted average term of 3.34 years.
On September 17, 2024, the Board of Directors approved a plan allowing the Company to reprice certain employee stock options granted by the Board of Directors under the Company’s 2018 Stock Option Plan to the closing price of the Company’s common stock on September 16, 2024, which closing price was $0.37. Employees who qualified for the repricing had previously taken voluntary pay reductions during Q2 2024. In exchanging the new award for the original award, an incremental cost is recognized over the remaining life of the service period, in addition to recognizing any remaining and unrecognized cost under the original award. Incremental value for vested awards is immediately recognized. The repricing will have a measurable impact to Stock Option Expense going forward. This is accounted for under ASC 718-20-35-3 through ASC 718-20-35-4.
The aggregate intrinsic value for options outstanding as of September 30, 2024, is not calculated because the closing stock price on September 30, 2024, is less than the weighted average exercise price of outstanding options on that date.
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SUBSEQUENT EVENTS |
9 Months Ended |
|---|---|
Sep. 30, 2024 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 10 – SUBSEQUENT EVENTS
Below are events that have occurred since September 30, 2024:
On November 11, 2024, Robert Beaty, an independent Board member, conveyed to the Company shares of the Company’s common stock at a price of $, in an exempt transaction pursuant to Section 16b-3(c), and in full payment of the exercise of incentive stock options granted to him in 2019 at a price of $ per share, which was 110% of the fair market value of our common stock on the date of such grant. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | 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, 2023.
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. Estimates in these financial statements include the allowance for doubtful receivables, allowance for inventory obsolescence, the estimated useful lives of property and equipment, and stock-based compensation. Actual results could differ from those estimates.
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| Basis of Consolidation | Basis of Consolidation
The condensed consolidated financial statements include the Company and our two (2) wholly owned corporate subsidiaries, KonaTel Nevada and Apeiron Systems, and IM Telecom, presently owned 51% by us. All significant intercompany transactions are eliminated.
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| Net Income (Loss) Per Share |
Basic income (loss) per share of common stock attributable to common stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net income (loss) per share of common stock attributable to common stockholders when their effect is dilutive. The dilutive common shares for the three (3) months ended September 30, 2024, and 2023, and for the nine (9) months ended September 30, 2023, are not included in the computation of diluted earnings per share because to do so would be anti-dilutive. As of September 30, 2023, there were potentially 870,684 dilutive shares.
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| Concentrations 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 are held at high credit financial institutions. These deposits are generally insured under the FDIC’s deposit insurance coverage; however, from time to time, the deposit levels may exceed FDIC coverage levels.
The Company has a concentration of risk with respect to trade receivables from customers and cellular providers. As of September 30, 2024, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from two (2) customers in the amount of $1,369,032 or 73.3%, and $192,508 or 10.3%. It should be noted that the largest customer is the State of California, and the second largest customer is the federal government, as administered by the Universal Service Administrative Company (“USAC”), under the authority of the FCC. As of December 31, 2023, the Company had a significant concentration of receivables from two (2) customers in the amounts of $1,024,308 or 68.5%, and $285,536 or 19.0%.
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| Concentration of Major Customer | Concentration of Major Customer
A significant amount of the revenue is derived from contracts with major customers. For the three (3) months ended September 30, 2024, the Company had three (3) customers that accounted for $953,260 or 30.3%, $665,665 or 21.1% and $617,440 or 19.6% of revenue, respectively. For the (3) three months ended September 30, 2023, the Company had two (2) customers that accounted for $2,793,313 or 59.6% and $772,614 or 16.5% of revenue, respectively.
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| Other Revenue | Other Revenue
The Company has a shared relationship with distribution of Lifeline services through Excess Telecom, under a Master Distribution relationship. Revenue through this relationship is recorded on a net revenue basis. We have performed a principal versus agent analysis under ASC 606-10-25-25 and have determined that we are acting as agent under this relationship.
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| Effect of Recent Accounting Pronouncements | Effect of Recent Accounting Pronouncements
The Company has evaluated all recent accounting pronouncements and believes that none will have a significant effect on the Company’s financial statements. |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies -Schedule of Earnings Per Share, Basic and Diluted |
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PROPERTY AND EQUIPMENT (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment - Schedule of Property and Equipment | Property and equipment consist of the following major classifications as of September 30, 2024, and December 31, 2023:
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RIGHT-OF-USE ASSETS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Right-of-use Assets | |||||||||||||||||||||||||||||||||||||||||||||||||
| Right-of-Use Assets - Schedule of Future Minimum Lease Payments for Operating Leases | Future lease liability payments under the terms of these leases are as follows:
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INTANGIBLE ASSETS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets - Schedule of Acquired Finite-Lived Intangible Assets |
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SEGMENT REPORTING (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting - Schedule of Segment Reporting Information | The following table reflects the result of operations of the Company’s reportable segments:
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STOCKHOLDERS’ EQUITY (Tables) |
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders’ Equity - Schedule of Share-Based Compensation, Stock Option Activity |
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Summary of Significant Accounting Policies -Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
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| Numerator | ||||
| Net Income/Loss | $ (1,188,914) | $ (113,216) | $ 5,784,473 | $ (2,250,633) |
| Denominator | ||||
| Weighted-average common shares outstanding | 43,485,560 | 42,707,808 | 43,385,493 | 42,658,697 |
| Dilutive impact of stock options | 313,472 | |||
| Weighted-average common shares outstanding, diluted | 43,485,560 | 42,707,808 | 43,698,965 | 42,658,697 |
| Net income per common share | ||||
| Basic | $ (0.03) | $ (0.00) | $ 0.13 | $ (0.05) |
| Diluted | $ (0.03) | $ (0.00) | $ 0.13 | $ (0.05) |
INVENTORY (Details Narrative) - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Inventory, Net | $ 360,061 | $ 1,229,770 |
Property and Equipment - Schedule of Property and Equipment (Details) - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 461,611 | $ 461,611 |
| Less: Accumulated Depreciation | (444,775) | (437,427) |
| Property and equipment, net | 16,836 | 24,184 |
| Lease Improvements | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 46,950 | 46,950 |
| Furniture and Fixtures | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 102,946 | 102,946 |
| Billing Software | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 217,163 | 217,163 |
| Office Equipment | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 94,552 | $ 94,552 |
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
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| Property, Plant and Equipment [Line Items] | ||||
| Depreciation expense | $ 2,449 | $ 3,088 | $ 7,348 | $ 9,264 |
| Property and Equipment | ||||
| Property, Plant and Equipment [Line Items] | ||||
| Depreciation expense | $ 2,449 | $ 3,088 | $ 7,348 | $ 9,264 |
Right-of-Use Assets - Schedule of Future Minimum Lease Payments for Operating Leases (Details) - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Right-of-use Assets | ||
| 2024 | $ 39,000 | |
| 2025 | 129,543 | |
| 2026 | 65,967 | |
| 2027 | 54,000 | |
| 2028 | 54,000 | |
| Thereafter | 90,000 | |
| Total | 432,510 | |
| Less Interest | 58,320 | |
| Present value of minimum lease payments | 374,190 | |
| Less Current Maturities | 125,364 | $ 127,716 |
| Long Term Maturities | $ 248,826 | $ 330,511 |
RIGHT-OF-USE ASSETS (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Lease terms and expirations, description | the Company had two (2) properties with lease terms in excess of one (1) year. Of these two (2) leases, one (1) lease expires in 2026, and one (1) lease expires in 2030 | |
| Lease liability | $ 374,190 | |
| Weighted average term | 56 months 9 days | |
| Weighted average discount | 7.01% | |
| Lease expense | $ 125,917 | $ 128,582 |
| Minimum | ||
| Implied interest rate used | 4.75% | |
| Maximum | ||
| Implied interest rate used | 7.50% | |
Intangible Assets - Schedule of Acquired Finite-Lived Intangible Assets (Details) - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Customer List | $ 1,135,962 | $ 1,135,962 |
| Software | 2,407,001 | 2,407,001 |
| ETC License | 323,468 | 634,251 |
| Less: Amortization | (3,542,963) | (3,542,963) |
| Net Amortizable Intangibles | 323,468 | 634,251 |
| Right of Use Assets - net | 351,240 | 443,328 |
| Intangible Assets net | $ 674,708 | $ 1,077,579 |
INTANGIBLE ASSETS (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
Dec. 31, 2023 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||
| Fair market value of acquired license | $ 323,468 | $ 323,468 | $ 323,468 | ||
| Amortization expense | $ 0 | $ 0 | $ 0 | $ 0 | |
CONTINGENCIES AND COMMITMENTS (Details Narrative) |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
| |
| Operating Loss Carryforwards [Line Items] | |
| Expected liability | $ 7,000 |
| State of Pennsylvania | |
| Operating Loss Carryforwards [Line Items] | |
| Tax assessment | $ 115,000 |
Segment Reporting - Schedule of Segment Reporting Information (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Segment Reporting Information [Line Items] | ||||
| Revenue | $ 3,148,409 | $ 4,689,001 | $ 13,127,425 | $ 13,322,146 |
| Gross Profit | 709,372 | 1,264,169 | 2,736,584 | 3,040,100 |
| Depreciation and amortization | 2,449 | 3,088 | 7,348 | 9,264 |
| Additions to property and equipment | ||||
| Hosted Services | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenue | 1,293,764 | 1,252,405 | 4,331,543 | 3,736,323 |
| Gross Profit | 279,818 | 351,766 | 997,448 | 1,059,921 |
| Depreciation and amortization | 1,006 | 825 | 2,425 | 2,598 |
| Additions to property and equipment | ||||
| Mobile Services | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenue | 1,854,645 | 3,436,596 | 8,795,882 | 9,585,823 |
| Gross Profit | 429,554 | 912,403 | 1,739,136 | 1,980,179 |
| Depreciation and amortization | 1,443 | 2,263 | 4,923 | 6,666 |
| Additions to property and equipment | ||||
SEGMENT REPORTING (Details Narrative) |
9 Months Ended |
|---|---|
|
Sep. 30, 2024
Number
| |
| Segment Reporting [Abstract] | |
| Number of reportable segments | 2 |
STOCKHOLDERS’ EQUITY (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
Dec. 31, 2019 |
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Stock options, exercised | 425,000 | |||||
| Stock-based compensation expense | $ 300,940 | $ (197,436) | $ 747,686 | $ 85,133 | ||
| Stock-based compensation expense | $ (300,940) | $ 197,436 | (747,686) | $ (85,133) | ||
| Deferred compensation expense | $ 2,288,689 | |||||
| Chief Executive Officer | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Stock options modification description and terms | the Company’s Board of Directors adopted resolutions to extend Mr. McEwen's expiration dates on his last two (2) 187,500 share option tranches by one (1) year, or to respectively expire at midnight on September 17, 2025, and December 17, 2025 | |||||
| Incentive Stock | Independent Director | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Shares issued as a result of options exercised | 8,709 | |||||
| Stock price | $ 0.48 | $ 0.48 | $ 0.48 | $ 0.1672 | ||
| Stock options, exercised | 25,000 | |||||
| Extension of conditional vesting date, description | The Board of Directors also extended the conditional vesting date of a tranche of 650,000 ISOs of Robert Beaty, an independent Board member, related to the required number of customers VIVA-US is to have for the vesting of this tranche of ISOs by one (1) year. | |||||
SUBSEQUENT EVENTS (Details Narrative) - $ / shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Nov. 11, 2024 |
Sep. 30, 2024 |
Sep. 30, 2024 |
Dec. 31, 2019 |
|
| Subsequent Event [Line Items] | ||||
| Stock options, exercised | 425,000 | |||
| Incentive Stock | Independent Director | ||||
| Subsequent Event [Line Items] | ||||
| Shares issued as a result of options exercised | 8,709 | |||
| Stock price | $ 0.48 | $ 0.48 | $ 0.1672 | |
| Stock options, exercised | 25,000 | |||
| Subsequent Event | Incentive Stock | Independent Director | ||||
| Subsequent Event [Line Items] | ||||
| Shares issued as a result of options exercised | 10,587 | |||
| Stock price | $ 0.39485 | |||
| Stock options, exercised | 25,000 |