| Summary of Significant Accounting Policies | 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., 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 sub S-Corporation (“KonaTel Nevada”), in a merger with our acquisition subsidiary under
which KonaTel Nevada became our wholly-owned subsidiary. On December 31, 2018, we acquired Apeiron Systems,
Inc., a Nevada corporation d/b/a “Apeiron” (“Apeiron Systems”), which is also our wholly-owned subsidiary.
Apeiron Systems was organized in 2013 and is an international hosted services CPaaS (“Communications Platform as a Service”)
provider that designed, built, owns and operates its private core network, supporting a suite of real-time business communications
services and Applications Programming Interfaces (“APIs”). As an Internet Telephony Service Provider (“ITSP”),
Apeiron Systems holds a Federal Communications Commission (FCC) numbering authority license. Some of Apeiron Systems’ hosted
services include SIP/VoIP services, SMS/MMS processing, BOT integration, NLP (“Natural Language Processing”), ML (“Machine
Learning”), number services including mobile, toll free and DID landline numbers, SMS to Email services, Database Dip services,
SD-WAN, voice termination, and numerous API driven services including voice, messaging, and network management. On January 31, 2019, we acquired IM Telecom,
an Oklahoma limited liability company, d/b/a Infiniti Mobile, (“Infiniti Mobile”) which became our wholly-owned subsidiary.
Infiniti Mobile is an FCC licensed ETC (“Eligible Telecommunications Carrier”) and is one of 22 FCC licensed carriers
to hold an FCC approved Lifeline Compliance Plan in the United States. Under the Lifeline program, Infiniti Mobile is currently
authorized to provide government subsidized mobile telecommunications services to eligible low-income Americans currently in eight
(8) states. Basis of Presentation 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. Significant
estimates in these financial statements include the allowance for doubtful receivables, allowance for inventory obsolescence, the
estimated useful lives of property and equipment, and customer lists. Actual results could differ from those estimates. Basis of Consolidation The consolidated financial statements for
the year ended December 31, 2019, include the Company and its three (3) wholly owned corporate subsidiaries, KonaTel Nevada, Apeiron
Systems and Infiniti Mobile (February through December). The consolidated balance sheet as of December 31, 2018, includes the
Company and the wholly-owned corporate subsidiaries, KonaTel Nevada and Apeiron Systems. The consolidated statements of operations,
cash flows, and stockholders’ equity (deficit) for the year ended December 31, 2018, include the Company and the wholly-owned
corporate subsidiary, KonaTel Nevada. Aperion Systems was acquired on December 31, 2018. All significant intercompany transactions
are eliminated. 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, 2019, and 2018, management has
determined that no allowance for doubtful receivables is necessary. Note Receivable The Company entered into an Assets Sale Agreement
with Telecon Wireless Resources, Inc. (the “Telecon Wireless Agreement”), with an effective date of July 31, 2018.
As part of the Agreement, the Company agreed to hold a one (1) year note of $100,000 to be paid in 12 payments of $8,333. As of
December 31, 2019, the receivable was paid in full. The note in the Telecon Wireless Agreement did not reference an interest rate.
The note was being recorded with an implied interest rate of 5.00%. Inventory Inventory consists primarily of the cost of
cellular phones and cellular accessories. Inventory is reported at the lower of cost or net realizable value. Cost is determined
by the first-in, first-out (“FIFO”) method. Due to the sale of the assets in July 2018, inventory is minimal as of
December 31, 2019. Due to the rapidly changing technology within
the industry, inventory is evaluated on a regular basis to determine if any obsolescence exists. As of December 31, 2019, and 2018,
the allowance for inventory obsolescence was $0. Property and Equipment Property and equipment are recorded at cost
and are depreciated on the straight-line method over their estimated useful lives. Leasehold improvements are amortized over the
lesser of the lease term or estimated useful life, furniture and fixtures, equipment, and vehicles are depreciated over periods
ranging from five to seven (5-7) years, and billing software is depreciated over three (3) years which represents the estimated
useful life of the assets. 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. The Company recognizes impairment losses for
long-lived assets whenever changes in circumstances result in the carrying amount of the assets exceeding the sum of the expected
future cash flows associated with such assets. Management has concluded that no impairment reserves are required as of December
31, 2019, and 2018. Intangible Assets – 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. Intangible assets consist of customer
lists, licenses and software arising from acquisitions which are amortized on a straight-line basis over three (3) years,
their estimated useful lives. Other Intangibles The Company accounts for other intangibles
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. During 2019, KonaTel, through the acquisition
of IM Telecom, recorded, at fair market value, a FCC License in the amount of $634,251. Other Intangible Assets are not amortized.
As of December 31, 2019, there is no impairment of the value of the license. Other Assets Other Assets represent items classified as
long-term assets in accordance with the Statement of Financial Accounting Standards ASC 210-10-45. Other Assets include vendor
deposits and security deposits that the Company is required to maintain. Customer Deposits Before entering into a contract with a sub-reseller
customer, the Company requires the customer to either secure a formal letter of credit with a bank or require a certain level of
cash collateral deposits from the customer. These collateral requirements are determined by management and may be adjusted upward
or downward depending on the volume of business with the sub-reseller customer, or if management’s assessment of credit risk
for a sub-reseller customer would change. The Company held $18,745 and $28,854 in collateral
deposits from various sub-reseller customers at December 31, 2019, and 2018, respectively. Such amounts represent collateral received
from the sub-resellers in order to contract with the Company. The related contracts have an option to terminate within a period
of less than one (1) year, and accordingly, these collateral deposits are classified as current liabilities in the accompanying
balance sheet. Fair Market Value of Assets 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, deposits received from customers for receivables and short-term loans the carrying amounts
approximate fair value due to their short maturities. Long-term assets purchased through acquisitions are valued at the Fair Market
Value of the asset at the time of acquisition. The Fair Market Value is based on observable inputs on assets in active market-
places for fixed assets, and estimations and assumptions developed by us for Other Intangibles. The Company follows 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. Level 2: Inputs other than quoted prices,
which 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. Leases In February 2016, the FASB updated the accounting
guidance related to leases. The most significant change in the updated accounting guidance requires lessees to recognize lease
assets and liabilities on the balance sheet for all operating leases with the exception of short-term leases. The standard also
expands the disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. For a lessee, the recognition,
measurement and presentation of expenses and cash flows arising from a lease did not significantly change from previous guidance.
We adopted the updated guidance on January 1, 2019 on a prospective basis and as a result, prior period amounts were not adjusted
to reflect the impacts of the updated guidance. In addition, as permitted under the transition guidance within the new standard,
prior scoping and classification conclusions were carried forward for leases existing as of the adoption date. See NOTE 4. Upon adoption, we recorded $151,471 for operating
lease assets and liabilities, which includes the impact of fair value adjustments, prepaid and deferred rent. Revenue Recognition Services revenues are generated from cellular
and telecommunication services. The revenue is derived from wholesale and retail services. Telecommunications and mobile telecommunication
services include network platforms, voice, data, and text services. The Company recognizes revenue as telecommunications and mobile
services are provided in service revenue. Telecommunications and mobile services are billed and paid on a monthly basis. Services
are billed and paid on a monthly basis. These bills include an amount for the monthly recurring charge and a usage charge. We earn revenue from contracts with customers,
primarily through the provision of telecommunications and other services. We account for these revenues under Accounting Standards
Update (ASU) 2014-09, “Revenue from Contracts with Customers” (Topic 606), which we adopted on January 1, 2018, using
the modified retrospective approach. This standard update, along with related subsequently issued updates, clarifies the principles
for recognizing revenue and develops a common revenue standard U.S. GAAP. The standard update also amends current guidance for
the recognition of costs to obtain and fulfill contracts with customers such that incremental costs of obtaining and direct costs
of fulfilling contracts with customers will be deferred and amortized consistent with the transfer of the related good or service.
The adoption of this guidance did not have a material impact on the consolidated financial statements. Deferred Revenue Services for cellular and telecommunication
services have a monthly recurring charge that is billed in advance. This charge covers a 30 or 31- day period. This charge is deferred
for the period in which it was received and recorded as revenue at the conclusion of the 30 to 31-day period. Costs, mainly from
outside providers, associated with the deferred revenue are recognized in the same period as revenue is recognized. Cost of Revenue Cost of Revenue includes the cost of communication
services, equipment and accessories, shipping costs, and commissions of sub-agents. Advertising Costs for advertising products and services,
as well as other promotional and sponsorship costs, are charged to Selling, general and administrative expense in the periods in
which they are incurred. 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. In June 2018, the FASB issued ASU 2018-07,
“Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands
the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU
2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services
to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does
not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction
with selling goods or services to customers as part of a contract accounted for under ASC 606. The amendments in ASU 2018-07 are
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In 2019, KonaTel
issued stock-based options to key employees of the company. Implementation of the aforementioned standard had no effect on the
issuance of the 2019 options. Income Taxes Provisions for income taxes are based on taxes
payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and
pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements.
Deferred tax assets and liabilities are included in the consolidated financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in
tax laws or rate are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The benefits of uncertain tax positions are
recorded in the Company’s Consolidated Financial Statements only after determining a more-likely-than-not probability that
the uncertain tax positions will withstand challenge, if any, from taxing authorities. The Company records interest and penalties
related to unrecognized tax benefits in interest expense in the Company’s Consolidated Statements of Operations. Net Loss Per Share Basic loss per common share calculations are
determined by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted
loss per common share calculations are determined by dividing net loss by the weighted average number of common shares and dilutive
common share equivalents outstanding. As of December 31, 2019, there are 3,800,000 potentially dilutive common shares. As of December
31, 2018, there were 4,250,000 potentially dilutive common shares. The dilutive common shares are not included in the computation
of diluted earnings per share, because to do so would be anti-dilutive. 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 and restricted
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 December 31, 2019, the Company had a significant concentration
of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from three (3) customers
in the amounts of $89,078, or 24.4%, $77,662, or 21.3% and $48,475, or 13.3%. As of December 31, 2018, the Company had a significant
concentration of receivables from one (1) customer in the amount of $496,252 or 45.3%. These receivables represented 59% and 45%
of the total receivables for the years ended December 31, 2019, and 2018, respectively. Concentration of Major Customer A significant amount of the revenue is derived
from contracts with major customers and cellular providers. For the year ended December 31, 2019, the Company had one (1) cellular
provider that accounted for $3,728,456, or 39.6% and one (1) customer that accounted for $2,200,761, or 23.4%, of the revenue.
For the year ended December 31, 2018, the Company had one (1) cellular provider that accounted for $4,679,647, or 49.7%, of the
revenue. The loss of a major customer would create a very negative impact on the company, which would require the company to make
significant changes to reduce expenses. Segment Reporting The Company operates within four reportable
segments. The Company’s management evaluates performance and allocates resources based on the profit or loss from operations.
The Company is a 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, Mobile Services, Lifeline ETC and Lifeline VETC . Effect of Recent Accounting Pronouncements In February 2016, the FASB updated the accounting
guidance “Accounting Standards Update (ASU) No. 2016- 02, Leases (Topic 842),” related to leases. The most significant
change in the updated accounting guidance requires lessees to recognize lease assets and liabilities on the balance sheet for
all operating leases with the exception of short-term leases. The standard also expands the disclosures regarding the amount,
timing and uncertainty of cash flows arising from leases. For a lessee, the recognition, measurement and presentation of expenses
and cash flows arising from a lease did not significantly change from previous guidance. We adopted the updated guidance on January
1, 2019 on a prospective basis and as a result, prior period amounts were not adjusted to reflect the impacts of the updated guidance.
In addition, as permitted under the transition guidance within the new standard, prior scoping and classification conclusions
were carried forward for leases existing as of the adoption date. Upon adoption, we recorded $151,471 for operating
lease assets and liabilities, which includes the impact of fair value adjustments, prepaid and deferred rent. The Company currently
has four equipment operating leases and one Property lease; and the Property lease expires in April 2020. The Company has determined
that this pronouncement will not have a material impact on the financial statements. In June 2018, the FASB issued ASU 2018-07,
“Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands
the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU
2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services
to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718
does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction
with selling goods or services to customers as part of a contract accounted for under ASC 606. The amendments in ASU 2018-07 are
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company has evaluated all other recent
accounting pronouncements and believes that none will have a significant effect on the Company’s financial statement. Emerging Growth Company The Company is an emerging growth company and
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. |
