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 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, 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.”
| 1 |
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 September 30, 2022 |
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” (“Infiniti Mobile”).
Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Quarterly Report. We cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate, and therefore, prospective investors are encouraged not to place undue reliance on forward-looking statements. You should carefully read this Quarterly Report completely, and it should be read and considered with all other reports filed by us with the United States Securities and Exchange Commission (the “SEC”) that are contained in the SEC Edgar Archives. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.
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KONATEL, INC.
FORM 10-Q
September 30, 2022
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 | 15 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 18 |
| Item 4. Controls and Procedures | 18 |
| PART II – OTHER INFORMATION | |
| Item 1. Legal Proceedings | 18 |
| Item 1A. Risk Factors | 18 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 19 |
| Item 3. Defaults Upon Senior Securities | 19 |
| Item 4. Mine Safety Disclosures | 20 |
| Item 5. Other Information | 20 |
| Item 6. Exhibits | 21 |
| SIGNATURES | 22 |
PART I - FINANCIAL STATEMENTS
September 30, 2022
Table of Contents
| 3 |
KonaTel, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Accounts Receivable, net | ||||||||
| Inventory, Net | ||||||||
| Prepaid Expenses | ||||||||
| Other Current Asset | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, Net | ||||||||
| Other Assets | ||||||||
| Intangible Assets, Net | ||||||||
| Other Assets | ||||||||
| Investments | ||||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable and Accrued Expenses | $ | $ | ||||||
| Loans Payable, net of origination fees | ||||||||
| Right of Use Operating Lease Obligation - current | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Right of Use Operating Lease Obligation - long term | ||||||||
| Note Payable - 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, 2022 and outstanding and issued at December 31, 2021 | ||||||||
| Additional Paid In Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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KonaTel, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of Revenue | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Payroll and Related Expenses | ||||||||||||||||
| Operating and Maintenance | ||||||||||||||||
| Bad Debt | ||||||||||||||||
| Professional Services | ||||||||||||||||
| 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 | ||||||||||||||||
| Interest Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 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
(Unaudited)
| Common Shares | Additional | Accumulated | ||||||||||||||||||
| Shares | Amount | Paid-in Capital | Deficit | Total | ||||||||||||||||
| Balances as of January 1, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Exercised Stock Options | ||||||||||||||||||||
| Stock Based Compensation | — | |||||||||||||||||||
| Net Income | — | |||||||||||||||||||
| Balances as of September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balances as of July 1, 2021 | $ | $ | $ | ( | ) | |||||||||||||||
| Exercised Stock Options | ||||||||||||||||||||
| Stock Based Compensation | — | |||||||||||||||||||
| Net Income | — | |||||||||||||||||||
| Balances as of September 30, 2021 | $ | $ | ( | ) | $ | |||||||||||||||
| Common Shares | Additional | Accumulated | ||||||||||||||||||
| Shares | Amount | Paid-in Capital | Deficit | Total | ||||||||||||||||
| Balances as of January 1, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Exercised Stock Options | ||||||||||||||||||||
| Stock Based Compensation | — | |||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||
| Balances as of September 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balances as of July 1, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Exercised Stock Options | ||||||||||||||||||||
| Stock Based Compensation | — | |||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||
| Balances as of September 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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KonaTel, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Income (Loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and Amortization | ||||||||
| Loan Origination Cost Amortization | ||||||||
| Bad Debt | ||||||||
| Stock-based Compensation | ||||||||
| Change in Right of Use Asset | ( | ) | ( | ) | ||||
| Change in Lease Liability | ||||||||
| Changes in Operating Assets and Liabilities: | ||||||||
| Accounts Receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Prepaid Expenses | ( | ) | ||||||
| Accounts Payable and Accrued Expenses | ||||||||
| Deferred Revenue | ( | ) | ||||||
| Other Assets | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of Assets | ( | ) | ||||||
| Net cash (used in) investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from short-term note payable | ||||||||
| Loan origination cost | ( | ) | ||||||
| Repayments of amounts of Notes Payable | ( | ) | ( | ) | ||||
| 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 | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Right of use assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||
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 Nevada (as defined below) was organized under the laws of the State of Nevada on October 14, 2014, by its founder and then sole shareholder, D. Sean McEwen, to conduct the business of a full-service MVNO (“Mobile Virtual Network Operator”) provider that delivered cellular products and services to individual and business customers in various retail and wholesale markets.
KonaTel Inc., 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”). 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.
On December 31, 2018, we acquired Apeiron Systems, Inc. (www.apeiron.io) (“Apeiron Systems” or “Apeiron”), which is also our wholly owned subsidiary. 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 Communications Commissions (“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”).
On February 5, 2018, we entered into a purchase agreement to acquire IM Telecom, LLC, an Oklahoma limited liability company (www.infinitimobile.com), doing business as Infiniti Mobile (“IM Telecom” or “Infiniti Mobile”). 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 operates as a wholly owned subsidiary of KonaTel. 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. As a licensed ETC, IM Telecom is currently authorized to distribute Lifeline subsidized mobile voice/data service in nine (9) states. In addition to Lifeline, IM Telecom is also an FCC licensed Affordable Connectivity Program (“ACP”) provider, authorized to distribute ACP subsidized high-speed mobile data service in the forty-eight (48) contiguous states plus Washington D.C. and Puerto Rico. Lifeline is an FCC program that provides subsidized, fixed or mobile telecommunications services to low-income Americans. ACP is an FCC program that provides subsidized high-speed wireless data services to low-income Americans. IM Telecom distributes Lifeline and ACP services under its Infiniti Mobile brand name through its website, sales staff, retail location and ISOs. IM Telecom also offers non-Lifeline and non-ACP services throughout the United States.
Apeiron Systems is headquartered in Los Angeles, California. It also has some management staff in Plano, Texas, customer service and software engineering resources staffed in Johnstown, Pennsylvania and software engineering services staffed in Europe and Asia. IM Telecom is headquartered in Plano, Texas, and operates a retail operation in Tulsa, Oklahoma.
We are headquartered in Plano, Texas. Apeiron Systems has fourteen (14) full-time employees; IM Telecom has twenty-three (23) full-time employees and two (2) part-time employees; and we have four (4) full-time employees.
Principal Products or Services and their Markets
Our principal products and services, across our two wholly owned subsidiaries, Apeiron Systems and IM Telecom, include our CPaaS suite of services (SIP/VoIP, SMS/MMS), 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 nine (9) states and our ACP services distributed in the forty-eight (48) contiguous states, 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.
| 8 |
We generate revenue from two (2) primary sources, Hosted Services and Mobile 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. |
| · | Our Mobile Services include retail and wholesale cellular voice/text/data services and IoT mobile data services through our subsidiaries 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 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. |
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, 2021.
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 three wholly owned corporate subsidiaries, KonaTel Nevada, Apeiron Systems and IM Telecom. All significant intercompany transactions are eliminated.
Basic income (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. Dilutive common share equivalents are computed by using the “Treasury Stock Method,” which computes the number of new shares that may potentially be created by unexercised options. Diluted common share equivalents are stock based compensation options. The dilutive common shares derived from stock options are and , for the three and nine months ended September 30, 2022, respectively, are not included in the computation of diluted earnings per share, because to do so would be anti-dilutive.
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net Income (Loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average shares outstanding during period on which basic earnings per share is calculated | ||||||||||||||||
| Effect of dilutive shares | ||||||||||||||||
| Incremental shares under stock-based compensation | ||||||||||||||||
| Weighted average shares outstanding during period on which diluted earnings per share was calculated | ||||||||||||||||
| Earnings per share attributable to common stockholders | ||||||||||||||||
| Basic earnings per share | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted earnings per share | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
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, 2022, the Company had a significant concentration of receivables
(defined as customers whose receivable balances are greater than 10% of total receivables) due from one (1) customer in the amount of
$
Concentration of Major Customer
A significant amount of the revenue is derived from
large customers and the government. For the three months ended September 30, 2022, the Company had two (2) customers that accounted for
$
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.
NOTE 2 – INVENTORY
Inventory primarily consists of sim cards and cell
phones, 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 on a quarterly basis
inventory is reviewed for obsolescence and counted for accuracy with distributors. At September 30, 2022, and December 31, 2021, the Company
had inventory of $
| 10 |
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following major classifications as of September 30, 2022, and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| 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 four (4) non-cancelable leases. As of September 30, 2022,
Future lease liability payments under the terms of these leases are as follows:
| 2022 | $ | |
| 2023 | $ | |
| 2024 | $ | |
| 2025 | $ | |
| 2026 | $ | |
| 2027 and thereafter | $ | |
| Total | $ | |
| Less Interest | $ | |
| Present value of minimum lease payments | $ | |
| Less Current Maturities | $ | |
| Long Term Maturities | $ |
The Company had (2) office/retail spaces on a month-to-month
basis during Q3 2022, now supplanted under new lease obligations. Total lease expense for the three months ended September 30, 2022, and
2021, was $
NOTE 5 – INTANGIBLE ASSETS
Intangible Assets with definite useful life consist of licenses, customer lists and software that were acquired through acquisitions. Intangible Assets with indefinite useful life consist of a Lifeline License granted by the FCC.
The Lifeline License, because of the nature of the
asset and the limitation on the number of granted licenses by the FCC, will not be amortized. The Lifeline License was acquired through
an acquisition. The fair market value of the License as of September 30, 2022, was $
| 11 |
| September 30, 2022 | December 31, 2021 | |||||||
| Customer List | $ | $ | ||||||
| Software | ||||||||
| ETC License | ||||||||
| Less: Amortization | ( | ) | ( | ) | ||||
| Net Amortizable Intangibles | ||||||||
| Right of Use Assets - net | ||||||||
| Intangible Assets - net | $ | $ | ||||||
Amortization expense amounted to $
NOTE 6 – NOTES PAYABLE
In 2020, the Company was granted a $
On June 14, 2022, the Company and its wholly owned
subsidiary companies entered into a Note Purchase Agreement and related Guarantee and Security Agreement with CCUR Holdings, Inc. (as
collateral agent), and Symbolic Logic, Inc., whereby the Company pledged its assets to secure $
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, 2022, there are no ongoing legal proceedings.
Contract Contingency
The Company has the normal obligation for the completion of its cellular provider contracts in accordance with the appropriate standards of the industry and that may be provided in the contractual agreements.
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, 2022.
| 12 |
NOTE 8 – SEGMENT REPORTING
The Company operates within two (
The reportable segments consist of Hosted Services and Mobile Services.
Hosted Services – This segment includes 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 through Apeiron’s website, its own sales staff, independent sales agents, and ISOs.
Mobile Services – This segment includes retail and wholesale cellular voice/text/data services and IoT mobile data services through our subsidiaries 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 cellular voice service and mobile data service by IM Telecom under its Infiniti Mobile brand to low-income American households that qualify for the FCC’s Lifeline voice service program and 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:
| Hosted Services | Mobile Services | Total | ||||||||||
| For the nine months period ended September 30, 2022 | ||||||||||||
| Revenue | $ | $ | $ | |||||||||
| Gross Profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Additions to property and equipment | $ | $ | $ | |||||||||
| For the three months period ended September 30, 2022 | ||||||||||||
| Revenue | $ | $ | $ | |||||||||
| Gross Profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Additions to property and equipment | $ | $ | $ |
| For the nine months period ended September 30, 2021 | ||||||||||||
| Revenue | $ | $ | $ | |||||||||
| Gross Profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Additions to property and equipment | $ | $ | $ |
| For the three months period ended September 30, 2021 | ||||||||||||
| Revenue | $ | $ | $ | |||||||||
| Gross Profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Additions to property and equipment | $ | $ | $ |
| 13 |
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock
The Company issued shares of its common stock
during the quarter ended September 30, 2022, to two (2) former employees who exercised their respective incentive stock options to acquire
shares of our common stock that had been registered with the SEC pursuant to an S-8 Registration Statement filed with the SEC on August
25, 2021,
Stock Compensation
The Company offers incentive stock option equity grants
to directors and key employees. Options vest in tranches and typically expire in five (5) years. For the three months ended September
30, 2022, and 2021, the Company recorded options expense of $
Through September 30, 2022, the Company granted options. There was a total of incentive stock options issued to two (2) employees, each vesting on the four () year anniversary dates of their respective grants. A total of incentive stock options were issued to two (2) independent Board members, fully vested as of each grant date, at exercise prices based on 110% of the fair market value of our common stock on the date of grant, and incentive stock options were issued to an independent consultant to the Company, fully vested, as of the date of grant. All option values were computed using the Black-Scholes-Merton pricing model, with a term of five () years, an average interest-free rate of %, an average volatility rate of %, and an average exercise price of $.
| No. Shares | Weighted Average Exercise Price | Weighted Average Remaining Life | Aggregate Intrinsic Value | |||||||
| Options Outstanding – December 31, 2021 | $ | $ | ||||||||
| Granted | ||||||||||
| Exercised | — | — | — | |||||||
| Forfeited | — | — | — | |||||||
| Options Outstanding – September 30, 2022 | $ | $ | ||||||||
| Exercisable and Vested, September 30, 2022 | $ | $ | ||||||||
NOTE 10 – SUBSEQUENT EVENTS
Below are events that have occurred since September 30, 2022:
Incentive Stock Option Grants
The Company granted a quarterly director share incentive stock option to Jeffrey Pearl, an independent director, on October 28, 2022, at an exercise price of $, fully vested. The exercise price was based upon 110% of the fair market value or the closing public trading price of the Company’s common stock on the date of grant.
The Company also granted a quarterly director share incentive stock option to Robert Beaty, an independent director, on November 12, 2022, at an exercise price of $, fully vested. The exercise price was based upon 110% of the fair market value or the closing public trading price of the Company’s common stock on the date of grant.
Effective October 14, 2022, and pursuant to a Letter
Agreement of that date and the consent of the Board of Directors of the Company dated October 12, 2022, the Company cancelled incentive stock options exercisable at $per share that had been granted under the Company’s “Revised Form of Employee Incentive Stock Option Agreement”
(see Exhibit 4.1 in Part II. Item 6 hereof) effective May 19, 2022, to a consultant who had provided the Company invaluable services
and advice over the prior four (4) years, in consideration of the sum of $
| 14 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
When used in this Quarterly Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act regarding events, conditions and financial trends that may affect our future plans of operations, business strategy, operating results, and financial position. Persons reviewing this Quarterly Report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such factors are discussed further below under “Trends and Uncertainties,” and include general economic factors and conditions that may directly or indirectly impact our financial condition or results of operations.
Overview of Current and Planned Business Operations
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 on page 8 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 previously discussed in our second quarter, 2022 quarterly report (Form 10-Q), due to growth opportunities within our Mobile Services market segment, through our wholly owned subsidiary, Infiniti Mobile, Management accelerated Mobile Services growth in the second and third quarters of this year.
We continue to expand our distribution channels, including field agents and internet sales. As a result, the Company recognized increases in Mobile Services revenue and direct costs during the quarter ending September 30, 2022. Since the Company may not capitalize customer acquisition costs over the average life of a customer, we recognize the full incremental cost of each new Mobile Service customer at the start of service, which is typically recovered within 120 days after activation.
During this period of Mobile Services growth, Management foresaw and previously disclosed a temporary reduction of Mobile Services gross profit; however, as we follow a managed/stepped approach to growth, starting in the fourth quarter 2022, Management will marginally reduce Mobile Services growth to allow gross profit to accelerate.
In addition to growth within our Mobile Services segment, we also continue to develop our Hosted Services market segment through our wholly owned subsidiary, Apeiron Systems. As a result of an increase in cloud communications sales opportunities, we are experiencing an increase in overall SMS & MMS messaging, voice usage (origination & termination of domestic and international traffic), and LTE data volume across our national CPaaS cloud network. Additionally, Apeiron recently executed a new three-year agreement (extension) with one of its largest customers. Apeiron’s national cloud communications platform supports this customers’ network, which provides inmate communications services to prisons across the United States. This new agreement runs until September 2025 and includes monthly minimum revenue commitments at twice the previous commitment, totaling a minimum commitment of at least $7.2 million over the full term of the contract.
Comparison of the three months ended September 30, 2022, to the three months ended September 30, 2021
For the three months ended September 30, 2022, we had $5,880,333 in revenues from operations compared to $3,612,861 for the three months ended September 30, 2021, for a total revenue increase of $2,267,472. This increase in revenue was directly related to the growth in our Mobile Services segment. Mobile Services expansion continued under the Lifeline and ACP program. The revenues were derived as a result of delivering high-speed mobile data service to low-income consumers.
For the three months ended September 30, 2022, our cost of revenue was $4,969,251 compared to $1,988,624 in the three months ended September 30, 2021, for a cost of revenue increase of $2,980,627. Our cost of revenue increase was primarily the result of increased network, handset and sales compensation costs related to distributing additional services.
For the three months ended September 30, 2022, we had gross profit of $911,082 compared to $1,624,237 in the three months ended September 30, 2021, for a gross profit decrease of $713,155. This decline is directly related to up-front costs incurred by accelerating growth to acquire new customers within our Mobile Services segment.
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For the three months ended September 30, 2022, total operating expenses were $2,054,037 compared to $1,252,632 in the three months ended September 30, 2021, for an increase of $801,405. This increase was due primarily to additions in payroll and related expenses resulting from the hiring of operations management and customer support positions in both of our subsidiaries, Apeiron Systems and IM Telecom.
For the three months ended September 30, 2022, other income (expense) was $(202,559) compared to $(51,770) in the quarter ended September 30, 2021.
For the three months ended September 30, 2022, we had a net loss of $1,345,514 compared to net income of $319,836 in the three months ended September 30, 2021. The loss for the three months ended September 30, 2022, was impacted by an acceleration of growth in our Mobile Services segment that increased our customer acquisition costs. Customer acquisition costs may not be amortized over the life of the customer, but must be recorded in full at the time of customer activation.
Comparison of the nine months ended September 30, 2022, to the nine months ended September 30, 2021
For the nine months ended September 30, 2022, we had $15,231,288 in revenues from operations compared to $8,919,573 for the nine months ended September 30, 2021, for a total revenue increase of $6,311,715. This increase in revenue was directly related to the growth in both our Hosted Services and Mobile Services segments. Mobile Services expansion continued under the Lifeline and ACP programs. The revenues were derived as a result of delivering high-speed mobile data service to low-income consumers.
For the nine months ended September 30, 2022, our cost of revenue was $12,230,378 compared to $4,946,786 for the nine months ended September 30, 2021, for a cost of revenue increase of $7,283,592. Our cost of revenue increase was primarily the result of increased network, handset and sales compensation costs related to distributing additional services.
For the nine months ended September 30, 2022, we had a gross profit of $3,000,910 compared to $3,972,787 for the nine months ended September 30, 2021, for a gross profit decrease of $971,877. This decline is directly related to up-front costs incurred by accelerating growth to acquire new customers within our Mobile Services segment.
For the nine months ended September 30, 2022, total operating expenses were $5,470,296 compared to $3,377,950 for the nine months ended September 30, 2021, for an increase of $2,092,346. This increase was due primarily to additions in payroll and related expenses resulting from the hiring of operations management and customer support positions in both of our subsidiaries, Apeiron Systems and IM Telecom.
For the nine months ended September 30, 2022, other income (expense) was $(398,931) compared to $(166,638) for the nine months ended September 30, 2021.
For the nine months ended September 30, 2022, we had a net loss of $2,868,317 compared to net income of $428,199 for the nine months ended September 30, 2021. The loss for the nine months ended September 30, 2022, was impacted by an acceleration of growth in our Mobile Services segment that increased our customer acquisition costs and may not be amortized over the life of the customer but must be recorded in full at the time of customer activation.
Liquidity and Capital Resources
As of September 30, 2022, we had $2,243,195 in cash and cash equivalents on hand.
In comparing liquidity between the nine-month periods ending September 30, 2022, and September 30, 2021, cash increased by 65.1%. This increase was primarily attributable to short-term debt financing secured in Q2 2022. Liabilities and total overall debt increased by 238.4% in the nine-month period ended September 30, 2022, when compared to September 30, 2021. This change was primarily the result of the short-term loan received in Q2 2022. As we scale capabilities alongside our growth strategy in our Mobile Services customer base, we expect it to provide long-term liquidity.
Our current ratio (current assets divided by our current liabilities) decreased to .88 as of September 30, 2022, compared to 2.05 as of September 30, 2021. Working capital decreased by 142.3%.
Cash Flow from Operations
During the nine months ended September 30, 2022, cash flow used in operating activities was $1,606,058, and for the nine months ended September 30, 2021, cash flow provided by operating activities was $636,557.
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Cash Flows from Investing Activities
During the nine months ended September 30, 2022, no cash flow was used in investing activities. During the nine months ended September 30, 2021, $10,000 cash flow was used in investing activities.
Cash Flows from Financing Activities
During the nine months ended September 30, 2022, net cash flow provided by financing activities was $2,916,468, due to securing short-term debt financing for the business. For the nine months ended September 30, 2021, net cash flow used in financing activities was $16,970, for net cash received from exercises of stock options after repayments of notes payable.
Going Concern
For the nine months ended September 30, 2022, the Company generated a net loss of $2,868,317, compared to net income for the nine months ended September 30, 2021, of $428,199. The Company sourced short-term financing during the second quarter to help facilitate its growing Mobile Services segment and support higher customer acquisition costs (sales). The accumulated deficit as of September 30, 2022, is $8,213,821.
The Company has continued to ameliorate any substantial going concern doubt by generating additional cash flow in the first quarter of 2022, the year ended 2021, and the year ended 2020, and through securing financing in June 2022. As the Company continues its growth strategy and increases its Mobile Services customer base, additional operating capital may be required to support the related increase in customer acquisition costs (sales).
Off-Balance Sheet Arrangements
We had no Off-Balance Sheet arrangements during the three-month period ended September 30, 2022.
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. As of September 30, 2022, there are 4,490,000 potentially dilutive common shares derived from stock options, and as of September 30, 2021, there are 2,676,266 potentially dilutive common shares derived from stock options.
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, 2022, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from one (1) customer in the amount of $1,305,264, or 86.8%. It should be noted that the largest customer is the FCC. As of December 31, 2021, the Company had a significant concentration of receivables from two (2) customers in the amounts of $783,431, or 63.9%, and $194,647, or 15.9%.
Concentration of Major Customer
A significant amount of the revenue is derived from contracts with major customers and cellular partners. For the nine months ended September 30, 2022, the Company had two (2) customers that accounted for $9,915,189 or 65.1% and $2,639,730 or 17.3% of revenue, respectively. For the nine-month period ended September 30, 2021, the Company had two (2) customers that accounted for $3,297,984, or 37.0% and $2,818,465 or 31.6%, of revenue.
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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.
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, 2022, 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, 2022.
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, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Not required; however, see Item 1A. Risk Factors, Part I, commencing on page nine (9) of the Company’s 10-K Annual Report for the fiscal year ended December 31, 2021, filed with the SEC on April 14, 2022, for a list of “Risk Factors,” which Annual Report can be accessed by Hyperlink in Part II, Item 6 hereof.
The following risk factor supplements the “Risk Factor” on cybersecurity contained in our referenced Annual Report and titled: “Our reliance on information management and transaction systems to operate our business exposes us to cyber incidents and hacking of our sensitive information if our outsourced service providers experience a security breach.”
We face risks relating to cyberattack.
Our business operations are dependent upon secure information technology systems and telecommunications networks. Breaches of these systems and networks through cyberattack or other unauthorized access may have numerous negative effects on our business, including lost sales and damage to customer relationships; disruptions on our operations; reputational harm and negative publicity; lost trust from our customers, partners and employees; lawsuits resulting from the compromise of sensitive customer or employee information; costs of mitigation; and remediation and security enhancement expenses.
The following risk factor supplements the Risk Factor titled “Our business operations could be impacted by the current world health crisis” that is also contained in our Annual Report.
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The COVID-19 pandemic presents ongoing risks to our business.
In response to the COVID-19 pandemic, governments and other authorities around the world implemented significant measures intended to control the spread of the virus. While many of these restrictions have been lifted as the rates of COVID-19 infection have decreased or stabilized and as various vaccines have become more widely available, a resurgence of COVID-19 and the impact of variants of the virus that causes COVID-19 may result in the reinstatement of social distancing measures; business closures; restrictions on operations; and quarantines and travel bans. In addition, any government mandates that require COVID-19 vaccination or other employee behaviors may result in employee attrition at the Company or its suppliers or customers and may create difficulties in satisfying future employment and supply requirements.
In addition to the risk factors identified in our Annual Report as supplemented above, the following risks are material to the Company’s future operations. These additional risk factors should be read in conjunction with the Risk Factor disclosure contained in our Annual Report.
The Russian invasion of Ukraine may disrupt global telecommunications networks.
While we do not have any direct exposure to Russia, Belarus or Ukraine through our operations, employee base, investments or sourcing of goods and services, third party companies with whom we do business may use Ukraine-based software developers. These relationships may be affected by the global geopolitical disruptions caused by the Russian invasion of Ukraine in February, 2022. We also face the risk that the invasion and ongoing war may result in disruptions to national and international telecommunications networks, either through cyberattacks by state actors or others, physical damage to the networks themselves or due to interruptions in the supply chain for the materials and services necessary to maintain them. The likelihood and the potential size and scope of any such damage or disruptions is difficult to predict. However, they may have significant negative effects on the Company’s future business and results of operations.
Rising inflation may negatively affect our operating results.
During 2021 and 2022, global economic conditions have deteriorated, with significantly increased inflation and the risks of further inflation and recession in 2023 and beyond. These unfavorable economic conditions may lead to decreased demand for our products or services in the future, especially by our lower-income customers, which would have a negative effect on our business and results of operations. In particular, inflation could affect the price of equipment for the services provided in our Lifeline Program. The ongoing Russian invasion of Ukraine and related sanctions on Russia may also lead to higher prices for commodities used in the production of telephones and other technologies used in the global telecommunications industry, which may result in decreased demand for our products and services. To the extent that we are unable to increase the prices of our goods and services in response to increased costs, our operating margins will be compressed.
Supply chain disruptions could adversely affect our business.
Supply chain dislocations resulting from global geopolitical and public health issues such as the Russian invasion of Ukraine, the COVID-19 pandemic and other causes may have a material adverse impact on our business and results of operations. Such disruptions may increase our costs of doing business, including through significant increases in the price of our products and their components and materials and the related costs of shipment, including equipment used in the Lifeline Program. Supply chain disruptions may also adversely affect our access to suppliers, manufacturers, customers and vendors and may impair our ability to perform contracted services. Delays in our ability to meet our obligations as a result of supply chain issues may negatively affect our reputation, our relationships with customers and our ability to deliver products and services.
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 grant of certain additional incentive stock options during and subsequent to the quarter ended September 30, 2022, and the exercise and payment of two (2) incentive stock option grants.
The incentive stock options were issued in reliance on the exemption from registration under the Securities Act provided in Section 4(a)(2) thereof and applicable state law registration exemptions. The underlying shares were registered with the SEC pursuant to an S-8 Registration Statement filed with the SEC on August 25, 2021.
Item 3. Defaults upon Senior Securities
None; not applicable.
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Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
(i) Additionally, earlier today, the Company disseminated a press release (Exhibit 99 hereto) regarding the earnings set forth in this Quarterly Report, and this press release is being furnished for the purposes of Section 18 of the Exchange Act and “SEC Regulation FD Disclosure” only. This press release shall not be deemed to be incorporated by reference into our filings under the Securities Act of the Exchange Act.
(ii) On August 15, 2022, the Company corrected the Incentive Stock Option Agreement of D. Sean McEwen that was granted to him on December 18, 2017, as an exchange of his shares of KonaTel, a Nevada corporation (“KonaTel Nevada”), for common shares and an option to acquire common shares of the Company under the merger whereby the Company acquired KonaTel Nevada from Mr. McEwen, its sole shareholder, to exclude the “incentive” and “employee” provisions, among other related provisions, with all terms of the grant and exercise dates and term of the stock options granted therein remaining unchanged. Our CFO (Brian Riffle) has determined that the revisions will have no material adverse impact on our prior or current financial statements. This action required the withdrawal of the 1,500,000 shares underlying the initially issued Incentive Stock Option Agreement granted to Mr. McEwen from the unexercised incentive stock options registered on Form S-8 of the SEC on August 25, 2021, under our 2018 Stock Option Plan (the “Plan”), and results in the shares of our common stock underlying the corrected Incentive Stock Option Agreement being “restricted securities” if and when exercised by Mr. McEwen. Our S-8 Registration Statement was amended to reflect this action on August 22, 2022. It does not change the strike price, vesting or the number of shares of Mr. McEwen’s option or the number of shares reserved for issuance under our Plan. This action was approved on the referenced date in good faith by the Board of Directors on a reasonable factual basis and related documentation presented to them by legal counsel for the Company prior to such approval. Mr. McEwen, the Chairman of the Board of Directors, abstained from voting on this matter. See Exhibit 10.1 in Part II, Item 6, for reference to a copy of the corrected Stock Option Agreement.
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Item 6. Exhibits
|
Exhibit Number |
Description of Exhibit | Filing | ||
| 3(i) | Amended and Restated Certificate of Incorporation | Filed with the Form 8-K/A filed on December 20, 2017, and incorporated herein by reference. | ||
| 3(ii) | Amended and Restated Bylaws | Filed with the Form 8-K/A filed on December 20, 2017, and incorporated herein by reference. | ||
| 4.0 | Description of the Company’s Securities. | Filed herewith. | ||
| 4.1 | Revised Form of Employee Incentive Stock Option Agreement | Filed with the Form S-8 filed on July 7, 2022, and incorporated herein by reference. | ||
| 10.1 | D. Sean McEwen Corrected Stock Option Agreement | Filed with the 10-Q for the quarter ended June 30, 2022, on August 15, 2022. | ||
| 10.2 | Letter Agreement | Filed herewith. | ||
| 14 | Code of Ethics | Filed with the Form 8-K/A filed on December 20, 2017, and incorporated herein by reference. | ||
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith. | ||
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
| 32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith. | ||
| 99 | Earnings Press Release dated November 14, 2022 | Filed herewith. | ||
| 101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, 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:
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| KonaTel, Inc. | ||||
| Date: | November 14, 2022 | 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, 2022 | By: | /s/ D. Sean McEwen | |
| D. Sean McEwen | ||||
| Chairman and CEO |
| Date: | November 14, 2022 | By: | /s/ Brian R. Riffle | |
| Brian R. Riffle | ||||
| Chief Financial Officer |
22
Exhibit 4
DESCRIPTION OF REGISTRANT’S SECURITIES
We have an authorized capital of 100,000,000 shares divided into 50,000,000 shares of common stock with a par value of $0.001 per share and 50,000,000 shares of preferred stock with a par value of $0.01. No shares of preferred stock are presently designated in any “series” or are outstanding.
Common Stock
Each share is entitled to one vote at all meetings of shareholders, and there are no preemptive, cumulative voting rights or other rights not customary to standard issued common stock. However, our Amended and Restated Certificate of Incorporation grants the Board of Directors the following powers respecting our authorized common stock, which are in addition to any additional powers granted under the Delaware General Corporation Act:
(1) Dividends. Subject to the provisions of any Preferred Stock Series Resolution, the Board of Directors may, in its discretion, out of funds legally available for the payment of dividends and at such times and in such manner as determined by the Board of Directors, declare and pay dividends on the common stock of the corporation.
No dividend (other than a dividend in capital stock ranking on a parity with the common stock or cash in lieu of fractional shares with respect to such stock dividend) shall be declared or paid on any share or shares of any class of stock or series thereof ranking on a parity with the common stock in respect of payment of dividends for any dividend period unless there shall have been declared, for the same dividend period, like proportionate dividends on all shares of common stock then outstanding.
(2) Liquidation. In the event of any liquidation, dissolution or winding up of the corporation, whether voluntary of involuntary, after payment or provision for payment of the debts and other liabilities of the corporation and payment or setting aside for payment of any preferential amount due to the holders of any other class or series of stock, the holders of the common stock shall be entitled to receive ratably any or all assets remaining to be paid or distributed.
(3) Voting Rights. Subject to any special voting rights set forth in any Preferred Stock Series Resolution, the holders of the common stock of the corporation shall be entitled at all meetings of shareholders to one vote for each share of such common stock held by them.
Prior, Parity or Junior Stock.
Whenever reference is made in this Article V to shares “ranking prior to” another class of stock or “on a parity with” another class of stock, such reference shall mean and include all other shares of the corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation are given preference over, or rank on an equality with, as the case may be, the rights of the holders of such other class of stock. Whenever reference is made to shares “ranking junior to” another class of stock, such reference shall mean and include all shares of the corporation in respect of which the rights of the holders thereof as to the payment of dividends and as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation are junior and subordinate to the rights of the holders of such class of stock.
Except as otherwise provided herein or in any Preferred Stock Series Resolution, each series of preferred stock ranks on a parity with each other and each ranks prior to the common stock. Common stock ranks junior to the preferred stock.
Liquidation.
For the purposes of Section 2 of Section B of this Article V and for the purpose of the comparable sections of any Preferred Stock Series Resolution, the merger or consolidation of the corporation, or the sale, lease or conveyance of all or substantially all the assets, property or business of the corporation, shall not be deemed to be a liquidation, dissolution or winding up of the corporation.
Reservation and Retirement of Shares.
The corporation shall at all times reserve and keep available, out of its authorized but unissued shares of common stock or out of shares of common stock held in its treasury, the full number of shares of common stock into which all shares of any series of preferred stock having conversion privileges from time to time outstanding are convertible.
Unless otherwise provided in a Preferred Stock Series Resolution with respect to a particular series of preferred stock, all shares of preferred stock redeemed or acquired (as a result of conversion or otherwise) shall be retired and restored to the status of authorized but unissued shares.
Repurchases of Capital Stock.
The corporation may, without shareholder approval, purchase, directly or indirectly, its own shares to the extent of the aggregate of its unrestricted capital surplus and unrestricted reduction surplus.
Preferred Stock
We have no outstanding series of designated preferred stock. Our Amended and Restated Certificate of Incorporation provides our Board of Directors with the following powers of designation of any series our authorized preferred stock, which are in addition to any additional powers granted under the Delaware General Corporation Act:
(1) The number of shares constituting that series and the distinctive designation of that series, or any increase or decrease (but not below the number of shares thereof then outstanding) in such number;
(2) The dividend rate on the shares of that series, whether such dividends, if any, shall be cumulative, and, if so, the date or dates from which dividends payable on such shares shall accumulate, and the relative rights of priority, if any, of payment of dividends on shares of that series;
(3) Whether that series shall have voting rights, in addition to the voting rights provided by law and, if so, the terms of such voting rights;
(4) Whether that series shall have conversion privileges with respect to shares of any other class or classes of stock or of any other series of any class of stock, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rates upon occurrence of such events as the Board of Directors shall determine;
(5) Whether the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including their relative rights of priority, if any, of redemption, the date or dates upon or after which they shall be redeemable, provisions regarding redemption notices, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
(6) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series and, if so, the terms and amount of such sinking fund;
(7) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series;
(8) The conditions or restrictions upon the creation of indebtedness of the corporation or upon the issuance of additional preferred stock or other capital stock ranking on a parity therewith, or prior thereto, with respect to dividends or distribution of assets upon liquidation;
(9) The conditions or restrictions with respect to the issuance of, payment of dividends upon, or the making of other distributions to, or the acquisition or redemption of, shares ranking junior to the preferred stock or to any series thereof with respect to dividends or distribution of assets upon liquidation; and
(10) Any other designations, powers, preferences and rights, including, without limitation, any qualifications, limitations or restrictions thereof allowed by applicable law.
Any of the Series Terms, including voting rights of any series, may be made dependent upon facts ascertainable outside the Certificate of Incorporation and the Preferred Stock Series Resolution, provided that the manner in which such facts shall operate upon such Series Terms is clearly and expressly set forth in the Certificate of Incorporation or in the Preferred Stock Series Resolution.
Subject to the provisions of this Article V, shares of one or more series of preferred stock may be authorized or issued from time to time as shall be determined by and for such consideration as shall be fixed by the Board of Directors or a designated committee thereof, in an aggregate amount not exceeding the total number of shares of preferred stock authorized by this Certificate of Incorporation. Except in respect of series particulars fixed by the Board of Directors or its committee as permitted hereby, all shares of preferred stock shall be of equal rank and shall be identical. All shares of one series of preferred stock so designated by the Board of Directors shall be alike in every particular, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative.
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, 2022 | By: | /s/ D. Sean McEwen | |
| D. Sean McEwen | ||||
| Chairman, President 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, 2022 | 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, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), we, D. Sean McEwen, President and Chief Executive Officer and Brian 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, 2022 | By: | /s/ D. Sean McEwen | |
| D. Sean McEwen | ||||
| Chairman, President and CEO |
| Date: | November 14, 2022 | By: | /s/ Brian R. Riffle | |
| Brian R. Riffle | ||||
| Chief Financial Officer |
Exhibit 99
KonaTel Reports Third Quarter 2022 Results
Revenue Increased 63% Year-Over-Year to $5.9 Million as Mobile Services Continues to Scale
Company Expects Gross Profit to Improve in Fourth Quarter
DALLAS, November 14, 2022 -- KonaTel, Inc. (OTCQB: KTEL) (www.konatel.com), a voice/data communications holding company, today announced financial results for the third quarter and nine-month period ended September 30, 2022.
Third Quarter 2022 Financial Summary and Recent Business Highlights
| · | Revenues of $5.9 million, up 62.8% compared to the third quarter last year and up 14.8% compared to the second quarter of this year. |
| · | Gross profit of $911,000, down 43.9% compared to the third quarter last year. Gross profit temporarily down due to increased customer acquisition costs (recognized at activation per U.S. accounting guidelines) during this period of planned rapid growth. |
| · | GAAP net loss of $(1.3) million, or $(0.03) per share, compared to GAAP net income of $320,000, or $0.01 per share, in the third quarter last year. |
| · | Non-GAAP net loss of $(995,000), or $(0.02) per diluted share, compared to non-GAAP net income of $599,000, or $0.01 per diluted share, in the third quarter last year. |
| · | Cash and cash equivalents of $2.2 million as of September 30, 2022, compared with $933,000 as of December 31, 2021. |
D. Sean McEwen, Chairman and CEO of KonaTel stated, “Third quarter revenue grew 63% year-over-year and 15% sequentially to nearly $6.0 million. We ignited our growth earlier this year with strategic investments in the acquisition of new Mobil Services customers. As one of only a limited number of FCC approved national wireless resellers under recently expanded government programs, we are uniquely positioned to capture additional market share and are seizing the opportunity to do so. Scaling our business requires an upfront investment to acquire customers, which is already creating increasing recurring streams of revenue and cash. As previously discussed, the investment in our accelerated growth plan put pressure on our margins over the last two quarters as costs to acquire new customers are generally expensed at the start of service; however, the initiatives we are taking today are setting ourselves up for sustained profitable growth.”
McEwen continued, “Looking ahead and because of the way we implement our growth strategy, we anticipate gross profit and cash flow to accelerate as we begin to recover customer acquisition costs. We are fortunate to have a business model that provides the flexibility to take a measured and stepped approached to growth.”
McEwen concluded, “We also continue to develop our Hosted Services market segment and are experiencing an increase in overall SMS & MMS messaging, voice usage and LTE data volume across our national CPaaS cloud network. We recently executed a new three-year extension with one of our largest cloud services customers that doubles their monthly minimum revenue commitment. Under the terms of the new contract, which has a minimum value of $7.2 million over the term, we will continue to provide our national cloud communications platform to support their network, which provides inmate communications services to prisons across the United States.”
Quarterly Financial Summary (Q3 2022 vs. Q3 2021)
Revenue of $5.9 million, an increase of 62.8% compared to $3.6 million. This continued increase was directly related to growth in our Mobile Services segment through the delivery of mobile voice and high-speed mobile data service to low-income consumers under the Lifeline and ACP programs.
Gross profit was $911,000, or 15.5% gross profit margin, compared to $1.6 million, or 45.0% gross profit margin. The decline in gross profit was directly related to up-front costs booked as direct costs and incurred by accelerating growth to acquire new customers within our Mobile Services segment. Mobile customer acquisition costs are not amortized over the average life of the customer, but are generally recognized at the start of service and typically recovered within 120 days after activation. Mobile customer acquisition costs for the third quarter 2022 were $2.9 million compared to $283,000 for the third quarter of 2021.
Total operating expenses were $2.1 million, up 64.0%, compared to $1.3 million. This increase was primarily due to additions in payroll and related expenses resulting from the hiring of operations management and customer support positions in each of the Company’s subsidiaries, Apeiron Systems and IM Telecom d/b/a “Infiniti Mobile.”
GAAP net loss was $(1.3) million, or $(0.03) per diluted share (based on 41.9 million weighted average shares), compared to net income of $320,000, or $0.01 per diluted share (based on 43.6 million weighted average shares). The loss for the three months ended September 30, 2022, was impacted by an acceleration of growth in the Mobile Services segment that increased customer acquisition costs.
Non-GAAP net loss was $(995,000), or $(0.02) per diluted share, compared to Non-GAAP net income of $599,000, or $0.01 per diluted share.
Year-to-Date Financial Detail (First Nine Months of 2022 vs. First Nine Months of 2021)
Revenues increased 70.8% to $15.2 million, compared to $8.9 million, reflecting a 143.0% increase in Mobile Services revenues, which was partially offset by a 4.1% decline in Hosted Services.
Gross profit was $3.0 million, or 19.7% gross profit margin, compared to gross profit of $4.0 million, or 44.5% gross profit margin. The decline in gross profit directly related to up-front costs incurred by accelerating growth to acquire new customers within the Mobile Services segment. Mobile customer acquisition costs for the first nine months of 2022 were $6.6 million compared to $549,000 for the first nine months of 2021.
Total operating expenses were $5.5 million, up 61.9% compared to $3.4 million. This increase was due primarily to additions in payroll and related expenses resulting from the hiring of operations management and customer support positions in each of the company’s subsidiaries, Apeiron Systems and Infiniti Mobile.
GAAP net loss was $(2.9) million, or $(0.07) per diluted share (based on 41.7 million weighted average shares), compared to net income of $428,000, or $0.01 per diluted share (based on 43.4 million weighted average shares).
Non-GAAP net loss was $(2.1) million, or $(0.05) per diluted share, compared to non-GAAP net income of $1,223,000, or $0.03 per diluted share.
About KonaTel
KonaTel provides a variety of retail and wholesale telecommunications services including mobile voice/text/data service supported by national U.S. mobile networks, mobile numbers, SMS/MMS services, IoT mobile data service, and a range of hosted cloud services. KonaTel’s subsidiary, Apeiron Systems (www.apeiron.io), is a global cloud communications service provider employing a dynamic “as a service” (CPaaS/UCaaS/CCaaS/PaaS) platform. Apeiron provides voice, messaging, SD-WAN, and platform services using its national cloud network. All Apeiron’s services can be accessed through legacy
interfaces and rich communications APIs. KonaTel’s other subsidiary, Infiniti Mobile (www.infinitimobile.com), is an FCC authorized wireless Lifeline carrier with an FCC approved wireless Lifeline Compliance Plan, authorized to provide government subsidized cellular service to low-income American families. KonaTel is headquartered in Plano, Texas.
Safe Harbor Statement
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 press release. This press release should be considered in light of the disclosures contained in the filings of KonaTel and its “forward-looking statements” in such filings that are contained in the EDGAR Archives of the SEC at www.sec.gov.
Contacts
D. Sean McEwen
(214) 323-8410
inquiries@konatel.com
-- Tables Follow –
KonaTel, Inc.
Consolidated Balance Sheets
| September 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | 2,243,195 | $ | 932,785 | ||||
| Accounts Receivable, net | 1,503,055 | 1,274,687 | ||||||
| Inventory, Net | 297,393 | 566,839 | ||||||
| Prepaid Expenses | 7,443 | 79,467 | ||||||
| Other Current Asset | 164 | 164 | ||||||
| Total Current Assets | 4,051,250 | 2,853,942 | ||||||
| Property and Equipment, Net | 39,624 | 48,887 | ||||||
| Other Assets | ||||||||
| Intangible Assets, Net | 1,224,790 | 807,775 | ||||||
| Other Assets | 127,864 | 154,297 | ||||||
| Investments | 10,000 | 10,000 | ||||||
| Total Other Assets | 1,362,654 | 972,072 | ||||||
| Total Assets | $ | 5,453,528 | $ | 3,874,901 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable and Accrued Expenses | $ | 1,445,975 | $ | 930,449 | ||||
| Loans Payable, net of origination fees | 3,027,564 | — | ||||||
| Right of Use Operating Lease Obligation - current | 115,653 | 50,672 | ||||||
| Total Current Liabilities | 4,589,192 | 981,121 | ||||||
| Long Term Liabilities | ||||||||
| Right of Use Operating Lease Obligation - long term | 495,385 | 136,445 | ||||||
| Note Payable - long term | — | 150,000 | ||||||
| Total Long Term Liabilities | 495,385 | 286,445 | ||||||
| Total Liabilities | 5,084,577 | 1,267,566 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, $0.001 par value, 50,000,000 shares authorized, 42,215,406 outstanding and issued at September 30, 2022 and 41,615,406 outstanding and issued at December 31, 2021 | 42,215 | 41,615 | ||||||
| Additional Paid In Capital | 8,540,557 | 7,911,224 | ||||||
| Accumulated Deficit | (8,213,821 | ) | (5,345,504 | ) | ||||
| Total Stockholders’ Equity | 368,951 | 2,607,335 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 5,453,528 | $ | 3,874,901 | ||||
KonaTel, Inc.
Consolidated Statements of Operations
|
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||
| Revenue | $ | 5,880,333 | $ | 3,612,861 | $ | 15,231,288 | $ | 8,919,573 | |||
| Cost of Revenue | 4,969,251 | 1,988,624 | 12,230,378 | 4,946,786 | |||||||
| Gross Profit | 911,082 | 1,624,237 | 3,000,910 | 3,972,787 | |||||||
| Operating Expenses | |||||||||||
| Payroll and Related Expenses | 1,348,152 | 636,329 | 3,719,446 | 1,817,200 | |||||||
| Operating and Maintenance | 5,321 | 461 | 6,681 | 1,211 | |||||||
| Bad Debt | - | - | 29,133 | 427 | |||||||
| Professional Services | 381,340 | 77,335 | 675,987 | 206,671 | |||||||
| Utilities and Facilities | 60,083 | 39,726 | 135,118 | 110,523 | |||||||
| Depreciation and Amortization | 3,088 | 213,552 | 9,264 | 640,657 | |||||||
| General and Administrative | 71,545 | 32,668 | 251,778 | 93,994 | |||||||
| Marketing and Advertising | 15,542 | 37,350 | 100,570 | 50,073 | |||||||
| Application Development Costs | 142,237 | 179,427 | 391,930 | 396,715 | |||||||
| Taxes and Insurance | 26,729 | 35,784 | 150,389 | 60,479 | |||||||
| Total Operating Expenses | 2,054,037 | 1,252,632 | 5,470,296 | 3,377,950 | |||||||
| Operating Income/(Loss) | (1,142,955) | 371,605 | (2,469,386) | 594,837 | |||||||
| Other Income and Expense | |||||||||||
| Interest Expense | (161,977) | (2,573) | (233,153) | (12,328) | |||||||
| Other Expenses | (40,582) | (49,197) | (165,778) | (154,310) | |||||||
| Total Other Income and Expenses | (202,559) | (51,770) | (398,931) | (166,638) | |||||||
| Net Income (Loss) | $ | (1,345,514) | $ | 319,836 | $ | (2,868,317) | $ | 428,199 | |||
| Earnings (Loss) per Share | |||||||||||
| Basic | $ | (0.03) | $ | 0.01 | $ | (0.07) | $ | 0.01 | |||
| Diluted | $ | (0.03) | $ | 0.01 | $ | (0.07) | $ | 0.01 | |||
| Weighted Average Outstanding Shares | |||||||||||
| Basic | 41,912,145 | 40,899,569 | 41,715,406 | 40,758,495 | |||||||
| Diluted | 41,912,145 | 43,565,835 | 41,715,406 | 43,434,761 | |||||||
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