UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of earliest event reported: December 31, 2018
KonaTel, Inc.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Former name or address, if changed since last report)
| | | | |
Delaware | | 001-10171 | | 80-0000245 |
(State or Other Jurisdiction Of Incorporation) | | (Commission File Number) | | (I.R.S. Employer Identification Number) |
13601 Preston Road, # E816
Dallas, Texas 75240
(Address of Principal Executive Offices, Including Zip Code)
(214) 323-8410
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
£ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
£ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
£ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
£ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter or Rule 12b-2 of the Securities and Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company x
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. x
Our common stock is currently quoted on the OTC Markets OTC Pink Tier (the “OTC Pink Tier”) under the trading symbol “KTEL.”
FORWARD-LOOKING STATEMENTS
This Current 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. We have based the forward-looking statements contained in this Current Report primarily on our current expectations about future events and trends that we believe may affect our current and proposed business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements are subject to risks, uncertainties, assumptions and other factors, including those described under the caption “Risk Factors” of Item 1A of our 10-K Annual Report for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission (the “SEC”) on or about April 23, 2019, and which is incorporated herein by reference and can be accessed by Hyperlink in Item 9.01(d) below (the “10-K Annual Report”). Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements used herein. Accordingly, we cannot assure you that the forward-looking statements in this Current Report will prove to be accurate, and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this Current Report completely, and it should be read and considered with other reports or registration statements filed by us with the SEC. 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.
EXPLANATORY NOTES
Except as otherwise indicated by context, references to 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 (“Apeiron Systems”), and IM Telecom, LLC, and Oklahoma limited liability company (“IM Telecom”).
On December 31, 2018, we completed an Agreement and Plan of Merger with Apeiron Systems, Inc., a Nevada corporation (“Apeiron Systems”), and whereby Apeiron Systems became our wholly-owned subsidiary on that date (the “Merger”); and we are filing this 8-K/A-1 Current Report to file the audited financial statements of Apeiron Systems and unaudited proforma condensed consolidated financial statement reflecting the completion of the Merger. For more information on the Merger, see our 8-K Current Report dated December 31, 2018, filed with the SEC on that date, and which is accessible by Hyperlink Item 9.01(d) below.
CAUTIONARY STATEMENTS
D. Sean McEwen, our Chairman, CEO, President and a director is currently the beneficial owner of approximately 77.6% of our outstanding voting securities by reason of his personal ownership and two Shareholder Voting Agreements. See the caption “Security Ownership of Certain Beneficial Owners and Management” of Part III, Item 12, of our 10-K Annual Report Hyperlinked in Item 9.01 hereof for additional information about Mr. McEwen’s beneficial ownership and these Shareholder Voting Agreements.
Section 9 – Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(a)
Financial statements of businesses acquired.
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![[f8ka1currentreport1231181.jpg]](https://capedge.com/proxy/8-KA/0001010412-19-000019/f8ka1currentreport1231181.jpg)
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APEIRON SYSTEMS INC.
BALANCE SHEETS
| | | |
| December 31 |
| 2018 | | 2017 |
| | | |
Assets | | | |
| | | |
Current Assets | | | |
Cash and Cash Equivalents | $ 336,132 | | $ 190,094 |
Accounts Receivable, Net | 269,635 | | 176,932 |
Vendor Deposits | 53,501 | | 62,501 |
Total Current Assets | 659,268 | | 429,527 |
| | | |
Property and Equipment, Net | 25,736 | | 36,067 |
| | | |
Total Assets | $ 685,004 | | $ 465,594 |
| | | |
| | | |
Liabilities and Stockholders’ Equity | | | |
| | | |
Current Liabilities | | | |
Accounts Payable and Accrued Expenses | $ 180,468 | | $ 116,368 |
Income Tax Payable | 108,941 | | 52,139 |
Deferred Revenue | 5,764 | | 28,710 |
Dividend Payable | 360,000 | | - |
Amount Due to Stockholder | 13,056 | | 13,056 |
Total Current Liabilities | 668,229 | | 210,273 |
| | | |
Deferred Tax Liability | 10,700 | | 6,000 |
Total Liabilities | 678,929 | | 216,273 |
| | | |
Stockholders’ Equity | | | |
Common Stock | 100 | | 100 |
Retained Earnings (Accumulated Deficit) | 5,975 | | 249,221 |
Total Stockholder’s Equity | 6,075 | | 249,321 |
| | | |
Total Liabilities and Stockholders’ Equity | $ 685,004 | | $ 465,594 |
See the accompanying notes.
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APEIRON SYSTEMS INC.
STATEMENT OF OPERATIONS
| | | |
| Years Ended December 31, |
| 2018 | | 2017 |
| | | |
| | | |
Revenue | $ 2,899,974 | | $ 2,276,280 |
Cost of Revenue | 1,347,371 | | 1,147,663 |
| | | |
Gross Profit | 1,552,603 | | 1,128,617 |
| | | |
Operating Expenses | | | |
Payroll and Related | 516,179 | | 285,297 |
Operating and Maintenance | 696,713 | | 577,538 |
Bad Debt | - | | 6,320 |
Utilities and Facilities | 46,213 | | 56,005 |
Depreciation | 17,081 | | 12,776 |
General and Administrative | 37,086 | | 40,997 |
Marketing and Advertising | 8,231 | | 6,043 |
Taxes and Insurance | 11,699 | | 9,880 |
Total Operating Expenses | 1,333,202 | | 994,856 |
| | | |
Other Income and Expense | | | |
Interest Income | 1 | | 1 |
Loss on Sale or Disposal of Property and Equipment | (667) | | - |
Interest Expense | (480) | | (2,000) |
Total Other Expenses | (1,146) | | (1,999) |
| | | |
Net Income before provision for income taxes | 218,255 | | 131,762 |
Provision for Income Taxes | 61,502 | | 58,139 |
| | | |
Net Income | $ 156,753 | | $ 73,623 |
See the accompanying notes.
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APEIRON SYSTEMS INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
| | | | | | | | |
| | Capital Shares | | Retained Earnings | | |
| | Shares | | Amount | | (Accumulated Deficit) | | Total |
Balance at January 1, 2017 | | 1,000,000 | | $ 100 | | $ 175,598 | | $ 175,698 |
| | | | | | | | |
Net Income | | | | | | 73,623 | | 73,623 |
| | | | | | | | |
Balance at December 31, 2017 | | 1,000,000 | | $ 100 | | $ 249,221 | | $ 249,321 |
| | | | | | | | |
Cash Dividend Declared ($.40 per share) | | | | | | (400,000) | | (400,000) |
Net Income | | | | | | 156,753 | | 156,753 |
| | | | | | | | |
Balance at December 31, 2018 | | 1,000,000 | | $ 100 | | $ 5,975 | | $ 6,075 |
See the accompanying notes.
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APEIRON SYSTEMS INC.
STATEMENTS OF CASH FLOWS
| | | |
| Years Ended December 31 |
| 2018 | | 2017 |
| | | |
| | | |
Cash Flows from Operating Activities: | | | |
Net Income | $ 156,753 | | $ 73,623 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Bad Debt | - | | 6,320 |
Depreciation | 17,081 | | 12,776 |
Deferred Income Tax | 4,700 | | 6,000 |
Loss on Sale or Disposal of Property and Equipment | 667 | | - |
| | | |
Changes in Operating Assets and Liabilities: | | | |
Accounts Receivable | (92,703) | | (9,306) |
Vendor Deposits | 9,000 | | 13,530 |
Accounts Payable and Accrued Expenses | 64,100 | | 18,907 |
Income Tax Payable | 56,802 | | 52,139 |
Deferred Revenue | (22,946) | | 28,710 |
Net cash provided in operating activities | 193,454 | | 202,684 |
| | | |
Cash Flows from Investing Activities | | | |
Capital Expenditures | (7,417) | | (31,137) |
Net cash used in investing activities | (7,417) | | (31,137) |
| | | |
Cash Flows from Financing Activities | | | |
Payments on Loans | - | | (16,000) |
Payment of Dividends | (40,000) | | - |
Net cash used in financing activities | (40,000) | | (16,000) |
| | | |
Net increase in cash | 146,037 | | 155,547 |
| | | |
Cash - Beginning of Year | 190,094 | | 34,547 |
Cash - End of Year | $ 336,132 | | $ 190,094 |
| | | |
Supplemental Disclosure of Cash Flow Information | | | |
Cash paid for interest | $ 480 | | $ 2,000 |
Dividend payable | $ 360,000 | | $ - |
See the accompanying notes.
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APEIRON SYSTEMS, INC.
Notes to Financial Statements
December 31, 2018 and 2017
NOTE 1 - ORGANIZATION
Apeiron Systems, Inc. (the “Company”) was organized under the laws of the State of Nevada on May 29, 2013, and is a provider of a suite of real-time business communications services that include voice, messaging, network connectivity and platform services. It develops software that defines and manages the products, its billing and the customer experience and interface. The Company delivers service from a facilities-based network using best in class commercial and open source software and hardware to create a highly resilient and scalable business communications service.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared using the accrual basis of accounting.
Use of Estimates
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. Significant estimates in these financial statements include the allowance for doubtful receivables and the estimated useful lives of property and equipment. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and Cash Equivalents include cash on hand and all short-term investments with maturities of three months or less.
Trade Accounts Receivable
The Company accounts for trade receivables based on amounts billed to customers. Past due receivables are determined based on contractual terms. The Company does not accrue interest and does not require collateral on any of its trade receivables.
Allowance for Doubtful Receivables
The allowance for doubtful receivables is determined by management based on customer credit history, specific customer circumstances and general economic conditions. Periodically, management reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. As of December 31, 2018 and 2017, management has determined that no allowance for doubtful receivables is necessary.
Vendor Deposits
The Company is required to maintain security vendor deposits. Vendor deposits as of December 31, 2018 and 2017 were $53,501 and $62,501, respectively.
Property and Equipment
Property and equipment are recorded at cost, and are depreciated on the straight-line method over their estimated useful lives. Furniture, fixtures and equipment are depreciated over periods ranging from five to seven (5-7) years.
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Maintenance and repairs are charged to expense as incurred while major replacements and improvements are capitalized. When property and equipment are retired or sold, the cost and applicable accumulated depreciation are removed from the respective accounts and the related gain or loss is recognized.
Revenue Recognition
Services revenues are generated from communication and platform services. The revenue is mainly derived from business to business transactions. Services are billed in advance and revenue is generated in the month that the services are provided.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This update provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The Company has adopted this update. The Company does not believe this guidance will impact the recognition of its primary source of revenue from its wholesale and retail customers. The adoption of this guidance did not have a material impact on its consolidated financial statements.
Cost of Revenue
Cost of Revenue includes the cost of communication services, equipment and accessories, shipping costs, and commissions of sub-agents.
Income Taxes
The Company has filed federal and state tax returns on the cash basis of accounting. It accounts for income taxes in accordance with Accounting Standards Code 740, Accounting for Income Taxes. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, it considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. 655 Appendix D — Sample Disclosures of Income Taxes.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
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 (Federal Deposit Insurance Corporation) deposit insurance coverage; however, from time to time, the deposit levels may exceed FDIC coverage levels.
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The Company also has a concentration of risk with respect to trade receivables. As of December 31, 2018 and 2017, the Company had a significant concentration of receivables due from two and one major customers, respectively (defined as customers whose receivable balances are greater than 10% of total accounts receivable). These customers represented approximately 86% of the total accounts receivable as of December 31, 2018, and approximately 98% of total accounts receivable as of December 31, 2017.
Concentration of Major Customer
A significant amount of the revenue is derived from agreements with business customers. For the years ended December 31, 2018 and 2017, the Company had two major customers which amounted to approximately 85% and 90%, respectively, of total revenues.
Effect of Recent Accounting Pronouncements
On February 25, 2016, the FASB issued Accounting Standards Update No. 2016- 02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. The Company has determined that adoption of the standard will begin January 1, 2019. The Company currently has four equipment operating leases and one operating property lease; and the property lease expires in April 2019. The Company has determined that this pronouncement has very little impact on the financial statements.
The Company has evaluated all other recent accounting pronouncements and believes that none will have a significant effect on the Company’s financial statement.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following major classifications as of December 31, 2018 and 2017:
| | | |
| 2018 | | 2017 |
Furniture and Fixtures | 70,473 | | 63,057 |
Vehicles | - | | 2,500 |
Total Cost | 70,473 | | 65,557 |
Accumulated Depreciation | (44,737) | | (29,490) |
Property and Equipment, Net | 25,736 | | 36,067 |
Depreciation expense amounted to $17,081 and $12,776 for the years ended December 31, 2018 and 2017, respectively. Depreciation expense is included as a component of operating expenses in the accompanying statements of operations.
NOTE 4 – AMOUNT DUE TO STOCKHOLDER
Between 2015 and 2016, shareholder Joshua Ploude advanced the Company $29,056. Mr. Ploude was repaid $16,000 during 2017. The advance did not have any repayment terms. As of December 31, 2018 and 2017, the amount due was $13,056.
NOTE 5 – LEASES
The Company currently leases an office on a month-by-month basis. The lease is verbal and contains no future provision. Rent expense for the years ended December 31, 2018 and 2017 was $42,307 and $51,357, respectively.
The Company leases a vehicle. The lease expense for the years ended December 31, 2018 and 2017 was $7,585 and $6,069, respectively. The lease was terminated on December 31, 2018.
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NOTE 6 – 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 December 31, 2018 and 2017, there were no legal proceedings.
Contract Contingency
The Company has the normal obligation for the completion of its provider contracts in accordance with the appropriate standards of the industry and that may be provided in the contractual agreements.
NOTE 7 – STOCKHOLDERS’ EQUITY
Common Stock
On May 29, 2013, the Company issued 1,000,000 shares of common stock with a par value of $0.001 per share. The Company had authorized, issued and outstanding 1,000,000 shares as of December 31, 2018 and 2017.
NOTE 8 – INCOME TAX
The provision for income taxes follows:
| | | |
| 2018 | | 2017 |
Current Income Tax Expense: | | | |
Federal | $41,333 | | $41,711 |
State - California | $15,469 | | $10,428 |
| | | |
Deferred Income Tax Expense: | | | |
Federal | $3,790 | | $4,860 |
State | $910 | | $1,200 |
Total Current and Deferred Income Tax Expense | $61,502 | | $58,139 |
| | | |
| 2018 | | 2017 |
Deferred Tax Liability: | | | |
Federal | $8,600 | | $4,800 |
State - California | $2,100 | | $1,200 |
Total Deferred Tax Liability | $10,700 | | $6,000 |
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
On December 22, 2017, the United States Government passed new tax legislation that, among other provisions, will lower the corporate tax rate from 35% to 21%, in addition to applying the new lower corporate tax rate in 2018 and thereafter to any taxable income the Company may have.
NOTE 9 – DIVIDENDS
The Company declared a cash dividend on December 31, 2018 of $.40 per share. The total amount of dividend declared was $400,000. $40,000 of the declared dividend was paid on December 31, 2018.
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NOTE 10 – SUBSEQUENT EVENTS
The Company has evaluated all subsequent events through April 11, 2019, which is the date these financial statements were available for issuance and has determined that there are no events, other than disclosed above, that require recognition in the financial statements or disclosure in the notes to the financial statements.
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(b)
Pro forma financial information.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The Unaudited Pro Forma Condensed Consolidated Statement of Operations reflects the consolidated Statement of Operations after giving effect to the Merger. The unaudited pro forma condensed consolidated statement of operations should be read in conjunction with KonaTel, Inc’s. historical consolidated statement of operations and accompanying notes as of and for the year ended December 31, 2018 (see the 10-K Annual Report for the year ended December 31, 2018, and filed with the SEC on April 22, 2019, in Item 9.01(d) below), and Apeiron Systems, Inc. statement of operations and accompanying notes as of and for the year ended December 31, 2018.
The unaudited pro forma condensed consolidated statements of operations give effect to the Merger as if it had been consummated beginning January 1, 2018, the earliest period presented. The audited 2018 balance sheet of KonaTel, Inc. reflects the acquisition of Apeiron Systems, Inc. on December 31, 2018, and is not included in these unaudited pro forma financial statements. The following unaudited pro forma condensed combined financial information may require additional pro forma adjustments including, but not limited to, acquisition accounting adjustments. Information necessary to make adjustments for acquisition accounting is estimates. Such adjustments may be material to the currently presented pro forma financial information.
The unaudited pro forma condensed consolidated statement of operations is provided for informational purposes only. The pro forma information provided is not necessarily indicative of what the consolidated companies financial position and results of operations would have actually been had the Merger been completed on the dates used to prepare these pro forma statement of operations. In addition, the unaudited pro forma condensed consolidated statement of operations does not purport to project the future financial position or results of operations of the merged companies.
This unaudited pro forma condensed consolidated statement of operations does not give effect to any anticipated purchase price allocations, synergies, operating efficiencies or cost savings that may be associated with the transaction. These statement of operations also do not include any integration costs the companies may incur related to the Merger as part of combining the operations of the companies.
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