UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

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

For the quarterly period ended March 31,September 30, 2022

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

For the transition period from ____________to____________

Commission File No. 001-10171

KonaTel, Inc.

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

500 N. Central Expressway, Ste. 202

Plano, Texas 75074

(Address of Principal Executive Offices)

214-323-8410

(Registrant Telephone Number)

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

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

Yes x No o

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes x No o

Indicate by check mark whether the Registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 No x

Our website is www.konatel.com.

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

The number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date:

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-ownedwholly 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.

KONATEL, INC.

FORM 10-Q

March 31,September 30, 2022

INDEX

PART I - FINANCIAL STATEMENTS

March 31,September 30, 2022

Table of Contents

KonaTel, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

KonaTel, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

KonaTel, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

Common Shares

Additional Paid-in Capital

Accumulated Deficit

KonaTel, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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-ownedwholly 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-ownedwholly 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 fifteen (15)fourteen (14) full-time employees; IM Telecom has five (5)twenty-three (23) full-time employees and four (4)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-ownedwholly 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.

We generate revenue from two (2) primary sources, Hosted Services and Mobile Services:

Basis of Presentation

Interim Financial Statements

The accompanying unaudited condensed interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 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, and estimated life of customer lists.compensation. Actual results could differ from those estimates.

Basis of Consolidation

The condensed consolidated financial statements include the Company and three wholly-ownedwholly owned corporate subsidiaries, KonaTel Nevada, Apeiron Systems and IM Telecom. All significant intercompany transactions are eliminated.

Earnings (Loss) Per Share

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 4,490,000 and 4,490,000, for the three and nine months ended March 31,September 30, 2022, respectively, are not included in the computation of diluted earnings per share, because to do so would be anti-dilutive.

The following table reconciles the shares outstanding and net income used in the computations 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.

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.

Trade Account Receivables

Sales Revenue

The Company has a concentration of risk with respect to trade receivables from customers and cellular providers. As of March 31,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 two (2) customersone (1) customer in the amountsamount of $802,8861,305,264, or 85.5% and $109,975, or 11.786.8%. 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 large customers and the government. For the three months ended March 31,September 30, 2022, the Company had two (2) customers that accounted for $915,837826,901 or 21.714.1% and $2,431,5694,173,492 or 57.571.0% of revenue, respectively. For the three-month period ended March 31,September 30, 2021, the Company had one (1) customertwo (2) customers that accounted for $830,1341,037,717, or 34.728.7%, and $1,637,712 or 45.3% of revenue.revenue, respectively. 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, respectively.

Effect of Recent Accounting Pronouncements

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

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 $297,393 and $566,839, respectively.

NOTE 23 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following major classifications as of March 31,September 30, 2022, and December 31, 2021:

Property and Equipment - Schedule of Property and Equipment

Depreciation related to Property and Equipment amounted to $4,1173,088 and $12,969 for the three-month periods ended March 31,September 30, 2022, and 2021, respectively. For the nine-month periods ended September 30, 2022, and 2021, depreciation was $9,264 and $38,907. Depreciation and amortization expenses are included as a component of operating expenses in the accompanying statements of operations.

NOTE 34 – 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 3.294.75% and 5.347.50%. 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 two (2)four (4) non-cancelable leases. As of March 31,September 30, 2022, the Company had one (1) propertyfour (4) properties with a lease term in excess ofmore than one (1) year. ThisThese lease liability expiresliabilities expire June 1, 2025, July 31, 2025, March 31, 2026.2026, and September 2, 2030. The Company has one (1)no current lease liability. This lease liability expires May 15, 2022.liabilities. In January 2021, the Company entered into a new five (5) year lease for its corporate headquarters located in Plano, TXTX. In June 2022, the Company entered a three (3) year lease for its new U.S. based national call center operation in Atmore, AL. In August 2022, the Company entered a three (3) year lease in Tulsa, OK, to support its distribution channel. In September 2022, the Company entered an eight (8) year lease in its Johnstown, PA location.

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 Company also leases twohad (2) office/retail spaces on a month-to-month basis.basis during Q3 2022, now supplanted under new lease obligations. Total lease expense for the three months ended March 31,September 30, 2022, and 2021, was $30,8972,073 and $10,6536,217, respectively,respectively. Total lease expense for these leases.the nine months ended September 30, 2022, and 2021, amounted to $15,508 and $18,652, respectively. Lease expense for 2022 is for the remaining three months of the year.

NOTE 45 – 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 March 31,September 30, 2022, was $634,251.

Amortization expense amounted to $0, and $200,583 for the three months ended March 31,September 30, 2022, and 2021.2021, respectively. Amortization expense amounted to $0, and $601,750 for the nine months ended September 30, 2022, and 2021, respectively. Amortization expense is included as a component of operating expenses in the accompanying statements of operations. Current intangible assets, except for the Lifeline License, were fully amortized as of December 31, 2021.

NOTE 56 – NOTES PAYABLE

In 2020, the Company was granted a $150,000 Economic Injury Disaster Loan (“EIDL”) from the SBA. The term of the loan iswas thirty (30) years, at an interest rate of 3.75% on advanced funds. Installment payments were to begin twelve (12) months following the loan date but have subsequently beenwere deferred through September of 2022. As of March 31,June 30, 2022, the outstanding balance was paid in full and there are no further obligations due the SBA.

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 $3,150,000 in debt financing. The term is for a period of twelve (12) months, at an interest rate of 15%, with two successive six-month optional extensions. As a condition of securing the loan, the Company paid a 3% origination fee, and other legal and closing expenses, in the amount of $153,284, resulting in a net loan balance of $2,984,181. The loan costs of $153,284 and the net loan balance of $2,984,181 are to be amortized over a 12-month period. Proceeds of the loan iswere used to retire the $150,000. SBA “EIDL” Loan and will be used in an ongoing capacity to support the acceleration of our mobile services growth strategy.

NOTE 67 – 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 March 31,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 in respect of an audit ofrelated to sales and use tax liability for the audit period of January 1, 2016, through September 30, 2019. The assessment is in the amount of $111,650115,000, 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 thisthe assessment in August 2021, and at the request of the state, has 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 in states outside Pennsylvania, and that it will be successful on appeal for a minimum of 93% of the assessment amount. A potentialPennsylvania. The Company initially recorded an expected liability in the amount of $7,000 has been recorded., based on known sales inside Pennsylvania. The State of Pennsylvania rejected an appeal by the Company. In response,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 has engaged representation to further discussions on this matter and maintainscan re-open an appeal with the position that Pennsylvania does not have sales tax authority to levy assessmentsstate for sales made outsidea refund of the state.liability.

Letters of Credit

The Company had no outstanding letters of credit as of March 31,September 30, 2022.

NOTE 78 – SEGMENT REPORTING

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

The reportable segments consist of Hosted Services and Mobile Services.

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:

Segment Reporting - Schedule of Segment Reporting Information

NOTE 89 – STOCKHOLDERS’ EQUITY

Common Stock

The Company has not issued600,000 shares of its common stock through March 31,during the quarter ended September 30, 2022, norto 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, in consideration of the sum of $90,000, or $45,000 for each 300,000 share tranche; these shares were issued under the Company’s 2018 Stock Option Plan; and 423,120 shares were issued under the 2018 Stock Option Plan during the year ended December 31, 2021.2021, in a cashless exchange of 76,880 shares underlying a 500,000 share incentive stock option grant made on December 18, 2017.

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 March 31,September 30, 2022, and 2021, the Company recorded options expense of $151,759185,637 and $31,34462,877, respectively. For the nine months ended September 30, 2022, and 2021, the Company recorded options expense of $539,933 and $141,935, respectively. The option expense not taken as of March 31,September 30, 2022, is $1,551,8671,889,371, with a weighted average term of 2.102.54 years.

Executive Vice President 

B. Todd Murcer, who was elected our Executive Vice President of Finance and Secretary on February 4,Through September 30, 2022, wasthe Company granted 350,000900,000 options. There was a total of 700,000 incentive stock options as of the effective date of his Employment Agreement at an exercise price of $1.165 per share,issued to two (2) employees, each vesting on the four (4) year anniversary dates of the grants, at the fair market valuetheir respective grants. A total of our common stock on the date of grant or January 24, 2022. The stock option value of $407,750150,000 was computed using the Black-Scholes-Merton pricing model using a stock price of $1.165, a strike price of $1.165, a term of 5-years, volatility of 604.58%, and a rate-free discount of 1.39%.

Jeffrey Pearl, an independent Board member, was granted 25,000 quarterly incentive stock options on January 28, 2022, at an exercise price of $1.342,were issued to two (2) independent Board members, fully vested which wasas 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 50,000 incentive stock options were issued to an independent consultant to the Company, fully vested, as of the date of grant. The stockAll option value of $25,000 wasvalues were computed using the Black-Scholes-Merton pricing model, using a stock price of $1.220, a strike price of $1.342,with a term of five (5-years,) years, an average interest-free rate of 2.32%, an average volatility rate of 577.44615.19%, and a rate-free discount of 1.61%.

Robert Beaty, an independent Board member, was granted 25,000 quarterly incentive stock options on February 12, 2022, at anaverage exercise price of $1.1381.26, fully vested, which was 110% of the fair market value of our common stock on the date of grant. The stock option value of $25,000 was computed using the Black-Scholes-Merton pricing model using a stock price of $1.035, a strike price of $1.1385, a term of 5-years, volatility of 588.64%, and a rate-free discount of 1.84%.

Jason Welch, who was elected as the President of IM Telecom on February 14, 2022, was granted 350,000 incentive stock options as of the effective date of his Employment Agreement at an exercise price of $1.04 per share, vesting on the four (4) year anniversary dates of the grants, at the fair market value of our common stock on the date of grant or February 14, 2022. The stock option value of $364,000 was computed using the Black-Scholes-Merton pricing model using a stock price of $1.04, a strike price of $1.04, a term of 5-years, volatility of 621.64%, and a rate-free discount of 1.85%.

The following table represents stock option activity as of and for the threenine months ended March 31,September 30, 2022:

Stockholders’ Equity - Schedule of Share-Based Compensation, Stock Option Activity

NOTE 910 – SUBSEQUENT EVENTS

Subsequent Event

Below are events that have occurred since March 31,September 30, 2022:

Incentive Stock Option Grants

Subsequent Event 

The Company granted two (2)a quarterly director 25,000 share Incentive Stock Options, oneincentive stock option to Jeffrey Pearl, an independent director, on AprilOctober 28, 2022, at an exercise price of $1.10, fully vested; and one to Robert Beaty on May 12, 2022, at an exercise price of $1.0121.386, fully vested. The exercise prices wereprice 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.

Additional Office Lease

IM Telecom, LLCThe Company also granted a quarterly director 25,000

As Management has decided share incentive stock option to transition back to domestic customer service operations,Robert Beaty, an independent director, on November 12, 2022, at an exercise price of $1.32, fully vested. The exercise price was based upon 110% of the fair market value or the closing public trading price of the Company’s subsidiary, IM Telecom, executedcommon stock on the date of grant.

Effective October 14, 2022, and pursuant to a three (3) year office lease agreement withLetter Agreement of that date and the Poarch Bandconsent of the Creek Nation, commencing June 1, 2022, to support our new national customer service center in Atmore, Alabama.

Debt Financing

On May 18,Board of Directors of the Company dated October 12, 2022, the Company entered into a non-binding letter of intent to securecancelled 50,000 incentive stock options exercisable at $3,000,0000.85 of debt financingper share that will be utilized to expandhad been granted under the Company’s Mobile Services customer base.

“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 $50,000. The Letter Agreement is Exhibit 10.2 to this Quarterly Report in Part II, Item 6, hereof.

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

Comparison of theAs previously discussed in our second quarter, ended March 31, 2022 to the quarter ended March 31, 2021

For the quarter ended March 31, 2022, we had $4,227,856 in revenues from operations compared to $2,392,838 for the quarter ended March 31, 2021, for a total revenue increase of $1,835,018. This increase in first quarter revenue was caused by an increase in both our Hosted Services and Mobile Services segments, with Mobile Services expandingquarterly report (Form 10-Q), due to the introduction of the ACP program, which also boosted the Lifeline program, adding additional revenues for the distribution of high-speed mobile data service to low-income consumers.

For the quarter ended March 31, 2022, our cost of revenue was $2,580,595 compared to $1,481,677 in the quarter ended March 31, 2021, for a cost of revenue increase of $1,098,918. Our first quarter cost of revenue increase was primarily the result of increased network, handset and sales commission costs related to distributing additional services.

For the quarter ended March 31, 2022, we had a gross profit of $1,647,261 compared to $911,161 in the quarter ended March 31, 2021, for a gross profit increase of $736,100 in the first quarter.

For the quarter ended March 31, 2022, total operating expenses were $1,596,556 compared to $1,141,641 in the quarter ended March 31, 2021, for an increase of $454,915 in the first quarter. This increase was due primarily to increases in payroll and related expenses resulting mostly from the hiring of management level operations positions in both our subsidiaries Apeiron Systems and IM Telecom.

For the quarter ended March 31, 2022, other income (expense) was $(95,154) compared to $(2,242) in the quarter ended March 31, 2021.

For the quarter ended March 31, 2022, we had a net loss of $44,449 compared to a net loss of $232,722 in the quarter ended March 31, 2021. The loss for the quarter ended March 31, 2022, was impacted by an acceleration of growth inopportunities within our Mobile Services market segment, that increasedthrough our customer acquisition costwholly owned subsidiary, Infiniti Mobile, Management accelerated Mobile Services growth in the second and some one-time charges described below.third quarters of this year.

As part of the Company’s Mobile Service expansion plan, the Company took one-time legalWe continue to expand our distribution channels, including field agents and regulatory charges in the first quarter 2022 of approximately $103,000 to support expansion into additional Mobile Service distribution territories (i.e., states).

Due to the success we are having with growing our Mobile Services subscriber base, Management has chosen, over the next two quarters, to accelerate growth within this segment, primarily influenced by expanded government subsidies and new wireless voice/data services for eligible low-income families.internet sales. As a result, the Company recognized increases in Mobile Services revenue and direct costs during the quarter ending March 31,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 100120 days after activation.

During this period of intentional acceleratedMobile Services growth, Management foreseesforesaw and previously disclosed a temporary reduction of Mobile Services gross marginsprofit; however, as we follow a managed/stepped approach to growth, starting in the Company continuesfourth quarter 2022, Management will marginally reduce Mobile Services growth to accelerate the expansionallow 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 Service customer base.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.

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 March 31,September 30, 2022, we had $1,452,869$2,243,195 in cash and cash equivalents on hand.

In comparing liquidity between the three-monthnine-month periods ending March 31,September 30, 2022, and March 31,September 30, 2021, cash assets increased by 155.2%65.1%. This increase was primarily attributable to adding more Mobile Services subscribers.short-term debt financing secured in Q2 2022. Liabilities and total overall debt declinedincreased by 5.1%238.4% in the three-monthnine-month period ended March 31,September 30, 2022, when compared to March 31,September 30, 2021. GrowthThis 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, is expectedwe expect it to provide additional long-term liquidity, however, in the near term, additional operating capital may be required to support a period of expanding Mobile Services growth. Therefore, Management is currently working to secure short term debt financing to support the growth of our government subsidized Mobile Services.liquidity.

Our current ratio (current assets divided by our current liabilities) decreased to 2.81.88 as of March 31,September 30, 2022, compared to .942.05 as of March 31,September 30, 2021. Working capital increaseddecreased by 3,151.8%142.3%.

Cash Flow from Operations

During the threenine months ended March 31,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 $520,084, and for the three months ended March 31, 2021, cash flow used in operating activities was $114,538.$636,557.

Cash Flows from Investing Activities

During the threenine months ended March 31,September 30, 2022, andno cash flow was used in investing activities. During the nine months ended September 30, 2021, no$10,000 cash flow was used in investing activities.

Cash Flows from Financing Activities

During the threenine months ended March 31,September 30, 2022, nonet cash flow provided by financing activities was used in$2,916,468, due to securing short-term debt financing activities.for the business. For the threenine months ended March 31,September 30, 2021, net cash flow used in financing activities was $31,321,$16,970, for net cash received from exercises of stock options after repayments of notes payable.

Going Concern

For the threenine months ended March 31,September 30, 2022, the Company generated a net loss of $44,449,$2,868,317, compared to a net lossincome for the threenine months ended March 31,September 30, 2021, of $232,722.$428,199. The Company has continuedsourced short-term financing during the second quarter to sustain itself through the operations of the business, indicated by net cash from operations of $520,084 for the three months ended March 31, 2022.help facilitate its growing Mobile Services segment and support higher customer acquisition costs (sales). The accumulated deficit as of March 31,September 30, 2022, is $5,389,954.$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; however, as2020, and through securing financing in June 2022. As the Company has started to increasecontinues its growth strategy and increases its Mobile Services customer base, in the first quarter of 2022 and for the foreseeable future, additional operating capital to may be required to support expandingthe related increase in customer acquisition costs (sales).

Off-Balance Sheet Arrangements

We had no Off-Balance Sheet arrangements during the three-month period ended March 31,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 March 31,September 30, 2022, there are 4,490,000 potentially dilutive common shares derived from stock options, and March 31,as of September 30, 2021, there are 2,875,000 and 3,475,000 respectively,2,676,266 potentially dilutive common shares.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 March 31,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 two (2) customersone (1) customer in the amountsamount of $802,886,$1,305,264, or 85.5% and $109,975, or 11.7%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 threenine months ended March 31,September 30, 2022, the Company had two (2) customers that accounted for $915,837$9,915,189 or 21.7%65.1% and $2,431,569$2,639,730 or 57.5%17.3% of revenue, respectively. For the three-monthnine-month period ended March 31,September 30, 2021, the Company had one (1) customertwo (2) customers that accounted for $830,134,$3,297,984, or 34.7%37.0% and $2,818,465 or 31.6%, of revenue.

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 March 31,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 March 31,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 March 31,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. crisis” that is also contained in our Annual Report.

The following risk factor regardingCOVID-19 pandemic presents ongoing risks to our business.

In response to the COVID-19 pandemic, was one of the risk factors included in the Company’s 10-K Annual Report for the year ended December 31, 2021:

On January 30, 2020, the World Health Organization declared the coronavirus (the ‘COVID-19’) outbreak a “Public Health Emergency of International Concern,”governments and on March 10, 2020, declared it to be a pandemic. Actions takenother authorities around the world implemented significant measures intended to help mitigatecontrol the spread of the coronavirus includevirus. 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 travel,operations; and quarantines and travel bans. In addition, any government mandates that require COVID-19 vaccination or other employee behaviors may result in certain areas,employee attrition at the Company or its suppliers or customers and forced closuresmay 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 certain typesthe 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 placeshealth issues such as the Russian invasion of Ukraine, the COVID-19 pandemic and businesses. The coronavirus and actions taken to mitigate itother causes may have had and are expected to continue to have ana 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 economiesprice of our products and financial marketstheir components and materials and the related costs of many countries,shipment, including equipment used in the geographical areasLifeline 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 which we operate. While it is unknown how long these conditions will last and what the complete financial effect will be on us,our ability to date andmeet our obligations as a result of actions taken by management to mitigate a material impact tosupply chain issues may negatively affect our financial statements orreputation, our operational results, we are not currently experiencing a material impact torelationships with customers and our financial statements or our results of operations; however, a pandemic typically results in social distancing, travel bans and quarantines, which may result in limited access to our facilities, customers, management, support staff and professional advisors.  These, in turn, may not only impact our operations, financial condition and demand for our services, but our overall ability to react timely to mitigate the impact of this event.  Given our small staff, if a key member of our team were disabled by COVID-19, it could have a material negative impact on our business.  Also, it may substantially hamper our efforts to provide our investors with timely informationdeliver products and to comply with our filing obligations under the Exchange Act with the SEC. If this pandemic were to last a prolonged period of time, we could see a decline in revenue due to the closure of customer businesses, which could then impact our ability pay our short-term debts. Our concentration of revenue from a small group of Apeiron Systems’ customers makes it reasonably possible that we are vulnerable to the risk of a long-term severe impact. Our dependence on certain suppliers to provide equipment to be distributed or sold to our customers could also be impacted if inventory shortages occur due to import or export restrictions resulting from the pandemic.services.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

See NOTE 8-Stockholders’9-Stockholders’ Equity and NOTE 9-Subsequent10-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 March 31, 2022.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.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information 

On March 28, 2022, the Company’s board of directors consented to extend the exercise period of all vested shares under the Incentive Stock Options granted former employees Nick Metherd and Paul LaPier for an additional ninety (90) days following their respective resignations from the Company, by reason of their providing of continued consulting services to the Company.

(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 inis 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.

Item 6. Exhibits

Exhibits incorporated by reference:

Annual Report on Form 10-K for the year ended December 31, 2021, and filed with the SEC on April 14, 2022.

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.

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.

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