UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

________________

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 20172023

ooTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to________________________to____________

Commission File No. 001-10171

DALA PETROLEUM CORP.KonaTel, Inc.

(Exact name of the issuer as specified in its charter)

P.O Box 947500 N. Central Expressway, Ste. 202

Crosslake, MN 56442Plano, Texas75074

(Address of Principal Executive Offices)

(612) 801-0789

214-323-8410

(Registrant Telephone Number)

The Registrant does not have any securities registered pursuant to Section 12(b) of the Exchange Act.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesx No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files files). Yesx No o (The Registrant does not maintain a website.)

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 definitiondefinitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrantRegistrant 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 oNox

Our website is www.konatel.com.

Our common stock is quoted on the OTC Markets Group, LLC (the “OTC Markets”) in its “OTCQB Tier” under the symbol “KTEL.”

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’sRegistrant’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:

References

FORWARD LOOKING STATEMENTS

In this Quarterly Report, references to “KonaTel, Inc.,” “KonaTel,” the “Company,” “we,” “our,” “us” and words of similar import, refer to KonaTel, Inc., a Delaware corporation, formerly named “Dala Petroleum Corp.,” which is the Registrant; and our wholly owned subsidiaries, KonaTel, Inc., a Nevada corporation (“KonaTel Nevada”), Apeiron Systems, Inc., a Nevada corporation doing business as “Apeiron” (“Apeiron Systems”), and IM Telecom, LLC, an Oklahoma limited liability company doing business as “Infiniti Mobile” (“IM Telecom” or “Infiniti Mobile”).

Forward-Looking Statements

This Quarterly Report on Form 10-Q, Financial Statements and Notes to Financial Statements containcontains forward-looking statements that discuss, amongwithin 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 things,comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future expectationsperformance or results and projections regarding future developments, operations and financial conditions. All forward-lookingwill 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 management’s existing beliefs about presentinformation available at the time the statements are made and future events outsideinvolve known and unknown risks, uncertainties and other factors that may cause our results, levels of management’s control and on assumptionsactivity, 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 maythe forward-looking statements in this Quarterly Report will prove to be incorrect. If any underlying assumptions prove incorrect,accurate, and therefore, prospective investors are encouraged not to place undue reliance on forward-looking statements. You should carefully read this Quarterly Report completely, and it should be read and considered with all other reports filed by us with the United States Securities and Exchange Commission (the “SEC”) that are contained in the SEC Edgar Archives, including the “Risk Factors” enumerated in “Part I, Item IA. Risk Factors” of our actual results10-K Annual Report for the year ended December 31, 2022 which commence on page ten (10) thereof. A copy of this “Annual Report” is attached hereto by Hyperlink in Part II-Other Information, in Item 6 hereof. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may vary materially from those anticipated, estimated, projected or intended.change in the future.

DALA PETROLEUM CORP.KONATEL, INC.

FORM 10-Q

JUNEJune 30, 20172023

INDEX

PART I - FINANCIAL STATEMENTS

June 30, 20172023

C O N T E N T STable of Contents

KonaTel, Inc.

Item 1. Financial Statements.

DALA PETROLEUM CORP.

Condensed Consolidated Balance Sheets

(unaudited)(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

KonaTel, Inc.

DALA PETROLEUM CORP.

Condensed Consolidated Statements of Operations

(unaudited)(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

KonaTel, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements

Common Shares

Additional Paid-in Capital

Accumulated Deficit

DALA PETROLEUM CORP.KonaTel, Inc.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended June 30,(Unaudited)

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

KonaTel, Inc.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017(Unaudited)

(unaudited)

NOTE 1 – ORGANIZATIONSUMMARY 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. It is currently inactive.

KonaTel Inc., a Delaware corporation, formerly known as Dala Petroleum Corp. (the “Company,” “we,” “our,” or “Dala”“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.

NOTE 2 – TRANSACTIONS

June 2014 Merger

corporation (“Westcott”). During 1990, we ceased our then current operations. On March 11, 2000, our Board of Directors began the process of re-entering the development stage, and on June 2, 2014, the Company, its newly formed and wholly-owned subsidiary, Dala Acquisition Corp.,we completed a Nevada corporation (“Merger Subsidiary”), andmerger with Dala Petroleum Corp., a Nevada corporation (“Dala”), executed(respectively, “Dala Nevada” and deliveredthe “Dala Merger”). We operated as an Agreement and Plan of Merger (the “Merger Agreement”), whereby Merger Subsidiary merged with and intoearly-stage oil exploration company focused on our leased acreage acquired by Dala and Dala was the surviving company under the merger and became a wholly-owned subsidiary of then-named Westcott (the “Merger”) on the closing of the Merger. As a result of the Merger, Westcott issued 10,000,000 shares of its common stock in exchange forNevada until 2016, at which time we assigned substantially all of our leased acreage to the outstanding shares of common stockformer owner of Dala Nevada, and our remaining oil and gas leasehold interests, comprising leases covering approximately 7,489 and 403 acres, more or less, expired in 2017 and 2018, respectively.

On December 18, 2017, we acquired KonaTel, Inc, a Nevada subchapter S-Corporation (“KonaTel Nevada”), in a merger with our acquisition subsidiary under which was distributed to Dala Petroleum’s sole shareholderKonaTel Nevada became our wholly owned subsidiary, and was then distributed on a pro rata basiswe succeeded to its members.operations; and we changed our name to “KonaTel, Inc.” on February 5, 2018.

AsApeiron Systems is headquartered in Johnstown, Pennsylvania, where it has customer service and software engineering resources staffed. Additional development resources are staffed out of Los Angeles, CA, as well as in Europe and Asia.

IM Telecom is headquartered in Plano, Texas, and has a condition precedentwarehouse operation in Tulsa, Oklahoma, and a customer service center in Atmore, Alabama.

We are headquartered in Plano, Texas. Apeiron Systems has nine (9) full-time employees; IM Telecom has twenty-one (21) 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 (2) active 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 eleven (11) states and our ACP services distributed in the Merger, Westcott raised $2,025,000fifty (50) states, as well as Washington D.C. and Puerto Rico, our Apeiron Systems’ products and services are available worldwide and subject to U.S., international and local/national regulations.

We generate revenue from persons who were “accredited investors”two (2) primary sources, Hosted Services and Mobile Services:

Basis of Presentation

Interim Financial Statements

The accompanying unaudited condensed interim financial statements and related notes have been prepared in considerationaccordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and in accordance with the salerules and regulations of 2,025 shares of its Series A 6% Convertible Preferred Stock and 2,893,725 warrants at the offering price of $1,000 per unit.  Each $1,000 unit consisted of (i) one share of Series A 6% Convertible Preferred Stock that was convertible at any time at the option of the Holder into common stock at the conversion price of $0.70 per common share based on the total dollar amount invested and (ii) 1,429 warrants (issued for each Series A 6% Convertible Preferred Stock sold in each unit) to purchase common shares of the Company at an exercise price of $1.35 with a life of three years as of the “Effective Date” defined as the earliest date of the following to occur: (a) the initial registration statement required by the Offering Documents had been declared effective by the United States Securities and Exchange Commission (the “SEC”), (b) all of the underlying shares have been sold pursuant to SEC Rule 144 or may be sold pursuant to SEC Rule 144 without the requirement for the Company to be in compliance with the current public information required under SEC Rule 144 and without volume or manner-of-sale restrictions or (c) following the one year anniversary of June 3, 2014.

The Merger was accounted for as a reverse-merger and recapitalization of Dala.

Dala possesses rights to engage in oil and natural gas exploration and development in north central Kansas, with total acreage of approximately 25,000 acres (the “Property”).  Since the time of the Merger, Dala is operating as an early-stage oil exploration company focused on the Property, which has oil potential at depths of less than 6,000 feet. Since May 2015, Dala had previously temporarily suspended its exploration program due to the decline in the price of oil and difficult market conditions; however the Company is presently evaluating potential options for the extension of terms of the leases comprising the Property and funding the development of the Property, either singly or as a joint venture or with a working interest, carried or fully funded.

May 2016 Transaction

The Company entered into a Partial Cancellation Agreement (the “PCA”) by and among its subsidiary, Dala Petroleum Corp., a Nevada corporation (“Dala NV”), Chisholm Partners II, LLC, a Louisiana limited liability company (“Chisholm II”), certain members of Chisholm II (the “Chisholm Members”), through which Chisholm II (after receiving shares from certain of its Chisholm Members) returned a total of 8,567,800 shares of the Company common stock to the Company’s treasury for cancellation.  In exchange for the return of these shares for cancellation, the Company assigned 55,000 acres of the Company’s Property rights (approximately 68.75% of its total holdings) to Chisholm II.

Pursuant to terms of the PCA, on May 26, 2016, the 8,567,800 shares of common stock delivered by Chisholm II stockholders were cancelled on the books and records of the Company. Prior to that, Company delivered 55,000 acres of its leased Property to Chisholm II.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

On May 16, 2016, as approved by the Board of Directors of the Company as part of the settlement with the Preferred Shareholders, the Company filed an Amended and Restated Certificate of Designation of the Company’s Series A 6% Convertible Preferred Stock (the “COD”), which (i) changed the conversion price of the preferred stock from $0.70 per share to $0.05 per share, and (ii) eliminated Section 7 “Certain Adjustments” of the COD.

Pursuant to terms of the PCA, on July 28, 2016, the 1,030,000 shares of common stock delivered after the initial closing by Baldo Sanso (360,000 shares of common stock), Robert Sali (610,000 shares of common stock) and Chris Dabbs (60,000 shares of common stock) were cancelled on the books and records of the Company. The reduction was offset to additional paid-in capital.

July 2017 Transaction

On July 19, 2017, the Company entered into a Common Stock Purchase Agreement with M2 Equity Partners LLC, a Minnesota limited liability company (“M2”), whereby M2 has purchased 12,100,000 newly issued shares of the Company’s common stock (the “Common Stock”) for an aggregate purchase price of $347,500 (the “Purchase Price”), pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and/or Rule 506(b) promulgated thereunder.  Prior to the closing (the “Closing”) of the Common Stock Purchase Agreement, the Company had the following outstanding securities: (i) 2,926,486 shares of Common Stock; (ii) 2,008 shares of Series A 6% Convertible Preferred Stock (the “Preferred Stock”); and (iii) 1,928,571 warrants (the “Warrants”) to acquire 1,928,571 shares of Common Stock that were issued in connection with the issuance of our Preferred Stock. In connection with this purchase of Common Stock, certain of the Company’s shareholders agreed to cancel an aggregate 1,584,200 shares of the Company’s Common Stock for an aggregate amount of $15,842; and 2,008 shares of the Company’s Preferred Stock and all outstanding Warrants for an aggregate amount of $53,841, with an additional sum of approximately $4,700 due to those shareholders who have agreed to cancel their respective shares of Preferred Stock and Warrants being reserved for the payment of miscellaneous expenses or other liabilities of the Company not provided for in the schedules and exhibits to the Common Stock Purchase Agreement, and any remainder of this sum will be paid to these shareholders, pro rata, based upon the respective percentage that the aggregate amount being paid for the cancellation of the Preferred Stock and Warrants bears, if any, to these additional funds, following payment of any such miscellaneous expenses or other liabilities of the Company.  $10,750 of the Purchase Price is being held in the Trust Account of the Company’s legal counsel to be expended on behalf of the Company or deposited into a new bank account to be opened by the Company.

As a result of the cancellation of the 1,584,200 shares of Common Stock, Preferred Stock and Warrants immediately prior to or simultaneous with the Closing, the Company had 1,342,286 shares of Common Stock issued and outstanding (the “Existing Shares”) and no shares of Preferred Stock or Warrants issued and outstanding; and taking into account the share cancellation and the 12,100,000 share Common Stock purchase and issuance, the Company presently has issued and outstanding (i) 13,442,286 shares of its Common Stock, consisting of (a) the 1,342,286 Existing Shares, and (b) the 12,100,000 shares purchased by M2; and (ii) no other securities (as defined in the Securities Act) issued or outstanding.

The Company will use the remainder of the $347,500 to, among other items set forth in the schedules and exhibits to the Common Stock Purchase Agreement, pay or compromise all outstanding indebtedness and other liabilities of the Company, amounting to approximately $262,367, which includes a payment of an aggregate of $10,000 ($5,000 to each) to our two directors and executive officers, with the understanding that our then current assets will consist of approximately $10,750, our Property, consisting of our oil and gas lease assets that we presently own, along with other intangible assets, and following the payment of the indebtedness and other liabilities and financial obligations of the Company, there will be no liabilities of the Company at Closing.

M2 has agreed to pay M2 Capital Advisors, Inc., a Minnesota corporation (“M2 Capital”), which is wholly-owned by Mark Savage, a founding member of M2, an Introduction Fee of $25,000 for introducing the Company to M2. These funds will be divided between M2 Capital and Elev8 Marketing, a firm owned by Matt Atkinson, who is also a founding member of M2 and M2’s sole Manager, and will be utilized to repay these entities for legal costs and miscellaneous expenses incurred by them in connection with the formation and funding of M2.

The Closing of the Common Stock Purchase Agreement resulted in a change in control of the Company.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

NOTE 3 – BASIS OF PRESENTATION

The accompanying unaudited financial statements of Dala Petroleum, Inc. have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructionsrespect to Form 10-Q and Article 8 of Regulation S-X. The results of operations for the interim period ended June 30, 2017 shown in this report areAccordingly, they do not necessarily indicative of results to be expected for the full fiscal year ending September 30, 2017. In the opinioninclude all of the Company’s management, the information contained herein reflectsand 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 presentationstatement of the Company’s results for the interim periods presented. Interim results are not necessarily indicative of operations, financial position and cash flows. Thethe results for the full year. These unaudited interim financial statements should be read in conjunction with the audited financial statements inof the Company’s Form 10-KCompany for the year ended September 30, 2016 filed on January 13, 2017 and Management’s Discussion and Analysis of Financial Condition and Results of Operations.December 31, 2022.

Use of Estimates

The timelyaccompanying 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 revenuerevenues 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 significantly from those estimates.

Accounting for DerivativesBasis of Consolidation

The condensed consolidated financial statements include the Company evaluatesand its convertible debt, options, warrants or other contracts to determine if those contracts or embedded componentsthree (3) wholly owned corporate subsidiaries, KonaTel Nevada, Apeiron Systems and IM Telecom. All significant intercompany transactions are eliminated.

Net Income (Loss) Per Share

Basic income (loss) per share of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.

Impairment of Long-Lived Assets

The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain of our financial instruments, including cash, accounts payable, accrued expenses, and short-term loans the carrying amounts approximate fair value due to their short maturities.

We follow accounting guidance for financial and non-financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

Unproved oil and natural gas properties are accounted for and measured under Regulation S-X, Rule 4-10.

We currently measure and report at fair value other intangible assets (due to our impairment analysis) and derivative liabilities using ASC 820-10, Fair Value Measurement.  The fair value of intangible assets has been determined using the present value of estimated future cash flows method.  The fair value of derivative liabilities is measured using the Black-Scholes option pricing method.  The following tables summarizes our non-financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2017 and September 30, 2016:

Oil and Natural Gas Properties

The Company follows the full cost method of accounting for oil and natural gas operations whereby all costs related to the exploration and development of oil and natural gas properties are initially capitalized into a single cost center (“full cost pool”). Such costs include land acquisition costs, a portion of employee salaries related to Property development, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling directly related to acquisition, and exploration activities. Internal salaries are capitalized based on employee time allocated to the acquisition of leaseholds and development of oil and natural gas properties. The Company did not capitalize interest for the period ended June 30, 2017 as it was not required.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

Proceeds from Property sales will generally be credited to the full cost pool, with no gain or loss recognized, unless such a sale would significantly alter the relationship between capitalized costs and the proved reservescommon stock attributable to these costs.

The Company assesses all items classified as unproved Property on a quarterly basis for possible impairment or reduction in value. The assessment includes consideration of the following factors, among others: intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of proved reserves, and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such Property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and amortization.  The costs of drilling exploratory dry holes are included in the amortization base immediately upon determination that the wellcommon stockholders is dry.

Capitalized costs associated with impaired properties and properties having proven reserves, estimated future development costs, and asset retirement costs under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 410-20-25 are depleted and amortized on the unit-of-production method based on the estimated gross proved reserves.  The costs of unproved properties are withheld from the depletion base until such time as they are developed, impaired, or abandoned.

Under the full cost method of accounting, capitalized oil and natural gas Property costs less accumulated depletion, net of deferred income taxes, may not exceed a ceiling amount equal to the present value, discounted at 10%, of estimated future net revenues from proved oil and natural gas reserves plus the cost of unproved properties not subject to amortization (without regard to estimates of fair value), or estimated fair value, if lower, of unproved properties that are subject to amortization. Should capitalized costs exceed this ceiling, which is tested on a quarterly basis, an impairment is recognized. The present value of estimated future net revenues is computed by applying prices based on a 12-month unweighted average of the oil and natural gas prices in effect on the first day of each month, less estimated future expenditures to be incurred in developing and producing the proved reserves (assuming the continuation of existing economic conditions), less any applicable future taxes.  If such capitalized costs exceed the ceiling, the Company will record a write-down to the extent of such excess as a non-cash charge to earnings.  Any such write-down will reduce earnings in the period of occurrence and result in a lower depreciation, depletion and amortization rate in future periods.  A write-down may not be reversed in future periods even though higher oil and natural gas prices may subsequently increase the ceiling.

In April 2015, the Company participated in the completion of a well in which the Company owns a 10% non-operated working interest targeting the Simpson and Viola formations, Kansas. That well was determined to be dry in June 2015.

During the period ended June 30, 2017, the Company incurred total $0 in oil and natural gas expenditures.

As of September 30, 2015, the Company’s oil and natural gas properties were determined to be impaired thereby reducing the unproved oil and natural gas properties to $608,000.  No additional impairment was realized for the year ended September 30, 2016 or the period ended June 30, 2017.

On May 10, 2016, the Company entered into a Partial Cancellation Agreement (the “PCA”) by and among its subsidiary, Dala Petroleum Corp., a Nevada corporation (“Dala NV”), Chisholm II, and certain members of Chisholm II (the “Chisholm Members”) through which Chisholm II (after receiving shares from certain of Chisholm Members) returned a total of 8,567,800 shares of the Company’s common stock to the Company’s treasury for cancellation.  In exchange for the return of these shares for cancellation, the Company returned 55,000 acres of the Company’s Property rights, held in the form of oil and gas leases from Chisholm II (approximately 68.75% of its total holdings), to Chisholm II.

Revenue Recognition

The Company recognizes oil and natural gas revenues from our interests in producing wells when production is delivered to, and title has transferred to, the purchaser and to the extent the selling price is reasonably determinable.

The Company uses the sales method of accounting for balancing of natural gas production and would recognize a liability if the existing proven reserves were not adequate to cover the current imbalance situation. For the nine months ended June 30, 2017, no revenue has been recognized as all wells are still unproved and non-producing.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

Asset Retirement Obligation

Asset retirement obligation (“ARO”) reflects the estimated present value of the amount of dismantlement, removal, site reclamation and similar activities associated with the Company’s oil and natural gas properties. Inherent in the fair value calculation of the ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments.   As of June 30, 2017, the Company had no ARO liability as no wells have been established.

Stock-based Compensation

The Company records stock based compensation in accordance with the guidance in ASC 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This requires that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718-10 and the conclusions reached by the ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505-50.

Income Taxes

The Company follows ASC Topic 740 for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.

Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.

The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities. As of June 30, 2017, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax positions with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore this standard has not had a material effect on the Company.

Net Loss Per Share

The Company follows ASC Topic 260 to account for the loss per share. Basic loss per common share calculations are determinedcalculated by dividing net lossincome (loss) attributable to common stockholders by the weighted average number ofweighted-average shares of common stock outstanding duringfor the period. Diluted loss per common share calculationsPotentially dilutive shares, which are determined by dividing net loss bybased on the weighted average numberweighted-average shares of common shares andstock underlying outstanding stock-based awards using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net income (loss) per share of common stock attributable to common stockholders when their effect is dilutive. The dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.  As the Company has incurred lossesshares for the periodthree and six months ended June 30, 2017,2023, and 2022, are not included in the potentially dilutive shares totaling 0 are anti-dilutive and are thus not added into the losscomputation of diluted earnings per share calculations.  Duebecause to do so would be anti-dilutive. As of June 30, 2023, and 2022, there were 803,480 and 2,205,473 dilutive shares.

The following table reconciles the anti-dilutive impact the weighted average dilutive shares outstanding forand net income used in the periodcomputations of both basic and diluted earnings per share of common stockholders:

Summary of Significant Accounting Policies -Schedule of Earnings Per Share, Basic and Diluted

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of receivables, cash and cash equivalents.

Trade Account Receivables

Sales Revenue

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 June 30, 2023, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from two (2) customers in the amount of $942,772, or 65.7%, and $273,982, or 19.1%. It should be noted that the largest customer is the Federal Communication Commission (the “FCC”). As of December 31, 2022, the Company had a significant concentration of receivables from two (2) customers in the amounts of $859,334, or 57.0%, and $255,136, or 16.9%.

Concentration of Major Customer

A significant amount of the revenue is derived from contracts with major customers. For the three months ended June 30, 2017,2023, the Company had two (2) customers that accounted for basic$2,614,769 or 56.8% and dilutive shares, are$745,485 or 16.2% of revenue, respectively. For the same.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

three months ended June 30, 2017

(unaudited)

Segment Information

In accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information,”2022, the Company is required to report financialhad two (2) customers that accounted for $3,310,128 or 64.6% of revenue and descriptive information about its reportable operating segments. The Company does not have any operating segments as$910,574 or 17.8% of the revenue, respectively. For the six months ended June 30, 2017,2023, the Company had two (2) customers that accounted for $4,872,883 or 56.4% and September 30, 2016.

NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU No. 2014-09”), which requires an entity to recognize the amount$1,463,062 or 16.9% of revenue, to which it expects to be entitledrespectively. For the six months ended June 30, 2022, the Company had two (2) customers that accounted for the transfer$5,741,697 or 61.4% of promised goodsrevenue and $1,826,412 or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for annual reporting periods beginning after December 15, 2017.  Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect19.5% of the standard on its ongoing financial reporting.revenue, respectively.

Effect of Recent Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Topic 205) Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The guidance requires management to perform an evaluation each annual and interim reporting period of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within the one-year period after the date that the financial statements are issued. If such conditions are identified, the guidance requires an entity to provide certain disclosures about the principal conditions or events that gave rise to the substantial doubt about the entity’s ability to continue as a going concern, management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations and management’s plans to alleviate or mitigate substantial doubt about the entity’s ability to continue as a going concern. The guidance is currently effective. The Company currently does not expect the adoption of ASU 2014-15 to have a material impact on its financial statements.

In November 2014, the FASB issued ASU No. 2014-16, Derivatives and Hedging (Topic 815) Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or Equity. This update amends existing guidance with the objective to eliminate the use of different methods in practice with respect to the consideration of redemption features in relation to other features when determining whether the nature of a host contract is more akin to debt or equity and thereby reduce existing diversity under GAAP in accounting for hybrid financial instruments issued in the form of a share.  The amendments clarify how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share.

The amendments clarify that no single term or feature would necessarily determine the economic characteristics and risks of a host contract, but rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument.  In addition, the amendments in this update clarify that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features when considering how to weight those terms and features. The guidance applies to all entities that are issuers of, or investor in, hybrid instruments that are issued in the form of a share.   The effects of initially adopting the amendments in this update should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective.  Retrospective application is permitted to all relevant prior periods.  The updates in this pronouncement are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2016.  The Company is currently evaluating the adoption of ASU 2014-16 and the impact of the updates upon the Company.  The Company plans on adopting the pronouncement for periods beginning after December 15, 2016 and does not anticipate early adoption of this pronouncement.

The Company has evaluated all other recent accounting pronouncements and believes that none of them will have a significant effect on the Company’s financial statement.statements.

Dala Petroleum Corp.NOTE 2 – INVENTORY

Notes

Inventory primarily consists of sim cards and cell phones, which are stored at our warehouse, or have been delivered to Condensed Consolidated Financial Statements

distributors in the field. Inventories are stated at cost using the first-in, first-out (“FIFO”) valuation method. On a monthly basis, inventory is counted at our warehouse facility, and is reviewed for obsolescence and counted for accuracy with distributors. At June 30, 20172023, and December 31, 2022, the Company had inventory of $792,985 and $526,337, respectively.

(unaudited)

NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following major classifications as of June 30, 2023, and December 31, 2022:

Property and Equipment - Schedule of Property and Equipment

Depreciation related to Property and Equipment amounted to $3,088 and $2,059 for the three months ended June 30, 2023, and 2022, respectively. Depreciation related to Property and Equipment amounted to $6,176 and $6,176 for the six months ended June 30, 2023, and 2022, respectively. Depreciation and amortization expenses are included as a component of operating expenses in the accompanying statements of operations.

NOTE 4 – RIGHT-OF-USE ASSETS

Minimum

Maximum

Right-of-Use Assets consist of assets accounted for under ASC 842. The assets are recorded at present value using implied interest rates between 4.75% and 7.50%. Right-of-Use Assets are recorded on the balance sheet as intangible assets.

The Company has Right-of-Use Assets through leases of property under non-cancelable leases. As of June 30, 2023, the Company had four (4) properties with lease terms in excess of one (1) year. Of these four (4) leases, two (2) leases expire in 2025, one (1) lease expires in 2026, and one (1) lease expires in 2030. Lease payables as of June 30, 2023, is $518,606.

Future lease liability payments under the terms of these leases are as follows:

Right-of-Use Assets - Schedule of Future Minimum Lease Payments for Operating Leases

The weighted average term of the Right-to-Use leases is 64.2 months recorded with a weighted average discount of 6.81%. Total lease expense for the three months ended June 30, 2023, and 2022, was $42,803 and $28,818, respectively. Total lease expense for the six months ended June 30, 2023, and 2022, was $86,078 and $59,597, respectively.

NOTE 5 – RELATED PARTY TRANSACTIONSINTANGIBLE ASSETS

Intangible Assets with definite useful life consist of licenses, customer lists and software that were acquired through acquisitions. Intangible Assets with indefinite useful life consist of the Lifeline license granted by the FCC. The license, because of the nature of the asset and the limitation on the number of granted Lifeline licenses by the FCC, will not be amortized. The license was acquired through an acquisition. The fair market value of the license as of June 30, 2023, and December 31, 2022, was $634,251.

Amortization expense amounted to $0, and $0 for the three months ended June 30, 2023, and 2022, respectively. Amortization expense amounted to $0, and $0 for the six months ended June 30, 2023, and 2022, respectively. Amortization expense is included as a component of operating expenses in the accompanying statements of operations. With the exception of the license granted by the FCC, all intangible assets are fully amortized as of June 30, 2023.

The reclassification in the Balance Sheet for Right of Use Assets has been made in this filing to conform to both the current and future reported presentation.

NOTE 6 – NOTES PAYABLE

On June 2, 2014, the Company issued 10,000,000 shares of its common stock to Chisholm II in exchange for oil14, 2022, we and gas assets.  Chisholm II was the sole stockholder of Dala Petroleum Corp. (a Nevada corporation) prior to the Merger.

The Company had a service agreement, which has been suspended by the Company since May 2015our wholly-owned subsidiary companies, Apeiron Systems and has since been cancelled, with Chisholm II to use its existing technical exploration team for general and administrative-type services on behalf of the Company.  The Company was obligated to pay Chisholm II $25,000 per month plus expenses for these services under the Master Services Agreement.  For the year ended September 30, 2015, the Company paid $225,472 and had accrued $50,000 for its services prior to suspending the Master Services Agreement and cancelling all amounts due thereunder.

In June 2014, the Company entered into an Option Participation Agreement with Chisholm II, whereby Chisholm II granted the Company the option, at the Company’s own election, to participate for up to twenty-five percent (25%) of Chisholm II’s share of each drilling operation in search for oil or gas in the State of Kansas undertaken by Chisholm II.  The Company has not elected to participate in the Option Participation Agreement since April 2015.

On June 15, 2015, the Company received the funds from a Promissory Note (the “Pacific Note”) in the amount of $99,999 in favor of Pacific Oil & Gas, LLC (the “Pacific”). The Pacific Note bears an interest rate of 12% per annum and all principal and accrued interest will be due and payable by the Company to Pacific on December 31, 2015. The Note is secured by a Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing Statement that was filed on June 25, 2015 against the Company’s Evans 9-1 lease in McPherson County, Kansas. The trustee of Pacific is the Company’s director, Clancy Cottman, and the funds delivered to the Company by Pacific were provided by a group of the Company’s Series A 6% Convertible Preferred shareholders.

On December 22, 2015, the Company entered into four Promissory Notes (the “Notes”) in the total amount of $20,000 in favor of Chisholm Partners II, LLC, Mill City Ventures III, LLC (“Mill City”), Lane Ventures, Inc. and Alpha Capital Anstalt (collectively, the “Lenders”). The Notes all bear an interest rate of 12% per annum and all principal and accrued interest will be due and payable by the Company to the Lenders on December 22, 2016. The Note is unsecured. The managing partner of Chisholm Partners II, LLC is the Company’s director, Clancy Cottman. The other three Lenders are the shareholders in the Company’s Series A 6% Convertible Preferred offering.  On July 16, 2016, a principal of Mill City, Daniel Ryweck (“Ryweck”), was appointed as a Director of the Company.  

On January 26, 2016, the CompanyIM Telecom, entered into a letter agreement through which Pacific Oil & Gas, LLC extendedNote Purchase Agreement (the “NPA”) with CCUR Holdings, Inc., a Delaware corporation (respectively, “CCUR” and the maturity date of that certain Promissory Note dated June 8, 2015“CCUR Loan”), as “Collateral Agent”; and made pursuant to the termsCCUR and conditions of the Mortgage, Deed of Trust, Assignment of Production,Symbolic Logic, Inc., a Delaware corporation (“Symbolic”), as “Purchasers,” along with a related Guarantee and Security Agreement and Financing Statement dated June 8, 2015. See Note 6.

On January 28, 2016,(the “GSA”) with CCUR as the Collateral Agent, whereby the Company entered into a Promissory Noteand its subsidiary companies pledged all of their assets to secure $3,150,000 (the “Mill City Note”“Principal Amount”) in the amount of $30,000debt financing payable in favor of Mill City Ventures III, LLC (the “Lender”). The Mill City Note bears an interest rate of 12% per annum and all principal and accrued interest willone (1) year (could not be due and payable by the Companyrepaid prior to the Lender on January 28, 2017. The Mill City Note is unsecured. The Lender is a shareholder in the Company’s Series A 6% Convertible Preferred offering. The funds have been used by the Company to pay liabilities and to maintain the Company’s listing on the OTCQB.

On February 17, 2016, a supermajority of more than 67% of the shareholders of the Series A 6% Convertible Preferred Stock approved certain corporate transactions in an effort to settle certain violations of the Series A 6% Convertible Preferred Stock Certificate of Designation and other documents related to the sale of Series A 6% Convertible Preferred Stock in 2014. The transactions approved by a supermajority of the Series A 6% Convertible Preferred Shareholders are to be implemented by the Board of Directors at the Board’s discretion. The approved transactions include the following: (i) the approval of a potential settlement agreementnine (9) months), together with Chisholm Partners II, LLC and certain members of Chisholm II, (ii) the approval of the amendment of the Certificate of Designation for the Series A 6% Convertible Preferred Stock modifying the Conversion Price to $0.05, (iii) the Removal of Section 7, “Certain Adjustments” in the Series A 6% Convertible Preferred Stock Certificate of Designation (iv) the modification of the permitted indebtedness allowable under the Series A 6% Convertible Preferred Stock Certificate of Designation to $200,000, (v) the approval of promissory notes with related parties in an amount up to $60,000, (vi) the waiver of the right of redemption upon Triggering Events for the Company’s violations of Section 10 of the Certificate of Designation, (vii) the waiver of the accrual of the late fee for unpaid dividends as of January 1, 2016, (viii) the waiver of the first right of refusal to purchase shares from other Series A 6% Convertible Preferred Shareholders, and (ix) waiver of the “Most Favored Nation” provision in the SPA for the Series A 6% Convertible Preferred Stock, among other things. None of the items approved by the shareholders have yet been effected by the Board.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

On February 17, 2016, the Company entered into a promissory note with Mill City for $30,000.  The note matures on January 28, 2017 and bears interest at the rate of 12%15% per annum (the “Interest Rate”), with two (2) successive six (6) month optional extensions.

On April 28, 2023, the Company provided notice to CCUR of its election to utilize the “First Extension Option” by an additional six (6) months. As part of the condition to extend, the Company paid $47,250 to CCUR, which is equal to one and a half percent (1.5%) of the outstanding principal amount of the CCUR Loan. A summary of these agreements, along with copies of the NPA and GSA are contained in the 8-K Current Report of the Company dated June 14, 2022, and filed with the SEC on June 21, 2022, which can be accessed by Hyperlink in Part II, Item 6 hereof.

On June 1, 2023, we entered into a “First Amendment to the NPA” with CCUR and Symbolic. The purpose for the amendment was to add further growth capital to the Company in the form of “Delayed Draw Notes” in an aggregate principal amount of up to $2,000,000; and in consideration therefor, we provided additional collateral for the NPA by the assignment of our Purchase of Contract Rights Agreement between us and Insight Mobile (the “Tempo Assignment Agreement”) under a Collateral Assignment of Acquisition Documents (the “Collateral Assignment of Acquisition Documents”), the terms of which are summarized below, with all summaries being subject to the referenced Exhibits that are attached hereto in Part II, Item 6 hereof. A copy of the initial Assignment Agreement is contained in the 8-K Current Report of the Company dated April 6, 2023, and filed with the SEC on April 17, 2023, which can be accessed by Hyperlink in Part II, Item 6 hereof.

On June 1, 2023, the Company exercised the first draw under the First Amendment to the NPA of $500,000. DuringAs part of the year endedFirst Amendment to NPA, the Company paid $15,000 to CCUR, which is equal to one and a half percent (1.5%) of the initial delayed draw, and the initial interest rate established in the NPA was increased by three percent (3%).

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 June 30, 2023, there are no ongoing legal proceedings.

Contract Contingencies

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

Tax Audits

In June of 2021, the Company received an audit determination and assessment from the State of Pennsylvania related to sales and use tax for the audit period of January 1, 2016, through September 30, 2016,2019. The assessment is in the amount of $115,000, including interest and penalties calculated on sales made inside and outside Pennsylvania. The Company has recorded the full amount of this assessment. The Company appealed the assessment in August 2021, and at the request of the state, provided additional information to support its appeal. The Company’s position is that Pennsylvania has no sales tax authority to levy and collect sales tax on sales made outside of Pennsylvania. The Company initially recorded an expected liability of $7,000, based on known sales inside Pennsylvania. The State of Pennsylvania rejected an appeal by the Company. The Company remains in discussions with the State of Pennsylvania and is working towards a plan to pay the full amount of the liability, under the possibility of an extended payout period. The Company believes this is the best course of action, as following the final payoff of the liability, the Company accrued $5,125 interest expense under this note.  This note is in defaultcan re-open an appeal with the state for a refund of the liability.

Letters of Credit

The Company had no outstanding letters of credit as of June 30, 2017.  See Note 6.2023.

On May 10, 2016,NOTE 8 – SEGMENT REPORTING

The Company operates within two (2) reportable segments. The Company’s management evaluates performance and allocates resources based on the profit or loss from operations. Because the Company entered intois a Partial Cancellation Agreement (the “PCA”)recurring revenue service business with very few physical assets, management does not use total assets by segment to make decisions regarding operations, and amongtherefore, the total assets disclosure by segment has not been included.

The reportable segments consist of Hosted Services and Mobile Services. Mobile Services reporting will now consist of our post-paid and pre-paid cellular business.

Hosted Services – Our Hosted Services include a suite of hosted CPaaS services within the Apeiron Systems’ cloud platform, including Cloud IVRs, Voicemail, Fax, Call Recording and other services provided with local, toll-free and international phone numbers. Apeiron also delivers public and private IP network services from its subsidiary, Dala Petroleum Corp.,national redundant network backbone, including MPLS, Dedicated Internet and LTE Wireless WAN solutions. Additionally, Apeiron’s Cloud Services include Information Data Dips, SD-WAN and IoT data and device management. These Hosted Services are marketed nationally and internationally through the Apeiron website, its sales staff, independent sales agents and ISOs.

Mobile Services – Our Mobile Services include retail and wholesale cellular voice/text/data services and IoT mobile data services through our subsidiaries Apeiron Systems and IM Telecom. Mobile voice/text/data and IoT mobile data services are supported by a Nevada corporation (“Dala NV”), Chisholm Partners II, LLC,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 Louisiana limited liability company (“Chisholm II”)(a company that is managed by onematerial impact on our Mobile Services business if changed, reduced or eliminated.

The following table reflects the result of operations of the Company’s then-directors),reportable segments:

Segment Reporting - Schedule of Segment Reporting Information

NOTE 9 – STOCKHOLDERS’ EQUITY

Independent Directors’ Incentive Stock Options

On June 1, 2023 the Board of Directors unanimously voted to suspend incentive stock options available to our two (2) independent directors, effective June 1, 2023.

Non-Compensatory Stock Option Grant 

Chief Executive Officer

On June 13, 2023, D. Sean McEwen, the Chairman and certain members of Chisholm II (the “Chisholm Members”)(some of which are beneficially controlled by the Company’s then-officer and then-directors) through which Chisholm II (after receiving shares from certain of its Chisholm Members) is to return a total of 8,567,800 sharesCEO of the Company, exercised his second tranche of 187,500 equity stock options for 187,500 shares of common stock at a price of $0.22 per share, which shares were issued on June 18, 2023.

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 Company’s treasury for cancellation.  In exchange for the return of these shares for cancellation,six months ended June 30, 2023, and 2022, the Company assigned 55,000 acresrecorded options expense of $282,569 and $354,296, respectively. For the Company’s Property rights (approximately 65% of its total holdings) to Chisholm II. On May 10, 2016,three months ended June 30, 2023, and 2022, the Company terminated the Master Services Agreement entered into with Chisholm II on June 3, 2014recorded options expense of $139,970 and all amounts due thereunder were released by Chisholm II.

On May 10, 2016, the Company and one of its creditors, Pacific Oil & Gas Company, LLC (a company managed by Clancy Cottman, the Company’s then-director)$202,537, restated the Pacific Note by assigning the amounts due to three different creditors based on their initial participation in the Pacific Note.respectively. The reallocation in the Restated Promissory Note (the “Restated Pacific Note”) is as follows:

The above notes,option expense not taken as of June 30, 2017, are in default.2023, is $1,599,299, with a weighted average term of 3.15 years.

As part of the settlement with the Preferred Shareholders, and in association with the PCA,Jeffrey Pearl, an independent Board member, was granted 25,000 quarterly incentive stock options on May 10, 2016 certain creditors of the Company agreed to release and waive all amounts owed to them by the Company. Chisholm Partners II, LLC (a company that is managed by Clancy Cottman, one of the Company’s then-directors), Clancy Cottman (then a director of the Company), Jon Wimbish (then a director of the Company), William Gumma (then a director and officer of the Company), E. Will Gray II (a former director of the Company), Pacific Oil & Gas, LLC (managed by Clancy Cottman, one of the Company’s then-directors) all released the Company from any amounts due to them. The releases were offset to additional paid-in capital.

On October 18, 2016, the Company entered into a promissory note with Mill City for $10,000.  The promissory note bears an interest rate of 12% per annum and all principal and accrued interest of $11,200 will be due and payable by the Company to Mills City on October 17, 2017. As of June 30, 2017, the accrued interest was $930.  See Note 6.

On December 16, 2016, the Company entered into a promissory note with Mill City for $12,500. The note is payable on December 15, 2017 in the amount of $14,000. The note bears interest of 12% which is payable on December 15, 2017.  As of June 30, 2017, the accrued interest was $814.  See Note 6.

NOTE 6 – NOTES PAYABLE

Notes payable, all classified as current at June 30, 2017 and September 30, 2016, consists of the following:

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)