| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Overview of Company 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”).
During 1990, we ceased our then current operations. On March 11, 2000, our Board of Directors began the process of re-entering the development
stage, and on June 2, 2014, we completed a merger with Dala Petroleum Corp., a Nevada corporation (respectively, “Dala Nevada”
and the “Dala Merger”). We operated as an early-stage oil exploration company focused on our leased acreage acquired by Dala
Nevada until 2016, at which time we assigned substantially all of our leased acreage to the former owner of Dala Nevada, and our remaining
oil and gas leasehold interests, comprising leases covering approximately 7,489 and 403 acres, more or less, expired in 2017 and 2018,
respectively. On December 18, 2017, we acquired KonaTel, Inc, a
Nevada subchapter S-Corporation (“KonaTel Nevada”), in a merger with our acquisition subsidiary under which KonaTel Nevada
became our wholly owned subsidiary, and we succeeded to its operations; and we changed our name to “KonaTel, Inc.” on February
5, 2018. KonaTel Nevada was organized under the laws of the
State of Nevada on October 14, 2014, by its founder and then sole shareholder, D. Sean McEwen, our current Chairman and CEO, to conduct
the business of a full-service cellular provider that delivered cellular products and services to individual and business customers in
various retail and wholesale markets. Through its sales network, it provided these services nationwide. In furtherance of its proposed
business, on November 1, 2014, it acquired most of the assets of Coast to Coast Cellular, Inc. (“Coast to Coast”), including
inventories, property, plant and equipment and its customer list, all valued at approximately $950,000 net of liabilities in the approximate
amount of $415,000; and on November 1, 2016, it acquired the assets of CS Agency LLC (“CS Agency”), consisting of contract
rights related to the cellular industry, in consideration of assuming liabilities of CS Agency in the approximate amount of $300,000.
With the completion of the KonaTel Nevada Merger, we succeeded to the current and intended business operations of KonaTel Nevada. On December 31, 2018, we acquired Apeiron Systems
(www.apeiron.io). 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 Communication Commission (“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”). Apeiron Systems is headquartered in Johnstown, Pennsylvania,
where it has customer service and software engineering resources staffed. Additional development resources are staffed out of Los Angeles,
California, as well as in Europe and Asia. On February 5, 2018, we entered into a purchase agreement
to acquire 100% of the membership interest in IM Telecom (www.infinitimobile.com). 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 operated as a wholly owned subsidiary of KonaTel
until the sale of 51% of its membership interest to “Excess Telecom” on January 22, 2024, which is discussed below. 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. In addition to being an FCC licensed ETC in thirty-six (36)
states/territories, which are Vermont, South Carolina, Georgia, Maryland, Kentucky, Wisconsin, Oklahoma, California, New York,
Pennsylvania, Nevada, Alaska, Arkansas, Florida, Louisiana, North Dakota, Nebraska, Ohio, Alabama, Colorado, Hawaii, Iowa, Idaho,
Michigan, Minnesota, Missouri, New Jersey, Puerto Rico, Rhode Island, Tennessee, Utah, US Virgin Islands, Virginia, Washington, West
Virginia, and Wyoming, IM Telecom has been an FCC licensed Affordable Connectivity Program (“ACP” and the “ACP
Program”) provider, authorized to distribute ACP subsidized high-speed mobile voice/data service in the fifty (50) states,
Washington D.C. and Puerto Rico. As of June 1, 2024, the ACP Program ended in its current form. The “ACP Extension Act,” among other
legislative initiatives, is being considered by Congress for purposes of extending the ACP Program. Stand-alone ACP customers have
been given the opportunity to enroll in the Lifeline program, in lieu of ACP benefits. Customers already enrolled in Lifeline, in
combination with ACP benefits, continue with Lifeline services. Lifeline is an FCC program that provides subsidized, fixed or mobile
telecommunications services to low-income Americans. The ACP Program was an FCC program that provided subsidized high-speed wireless
data services to low-income Americans. IM Telecom distributes Lifeline, and prior to June 1, 2024, had distributed ACP services, under
its Infiniti Mobile brand name through its website, sales staff, retail locations and ISOs. IM Telecom also offers non-Lifeline and
non-ACP services throughout the United States. IM Telecom has a US-based customer support center located in Atmore, Alabama. On
January 22, 2024 (the “Effective Date”), KonaTel and IM Telecom entered into a Membership Interest Purchase Agreement
(the “Excess Telecom Purchase Agreement” or the “Membership Interest Purchase Agreement”) with Excess
Telecom, Inc., a Nevada corporation (“Excess Telecom”), pursuant to which KonaTel
conveyed 49 of
its membership interest in IM Telecom to Excess Telecom on the “Initial Closing Date” in consideration of the sum of
$ 10,000,000 . IM Telecom is headquartered in Plano, Texas, and has
a warehouse operation in Tulsa, Oklahoma, and a customer service center in Atmore, Alabama. We are headquartered in Plano, Texas. Apeiron Systems has twelve (12) full-time
employees. The current employees of IM Telecom, twenty-two (22) full-time and one (1) part-time, novated to employees of KonaTel
under the Excess Telecom Purchase Agreement. These employees continue to engage in the same manner and
function of service provided prior to the aforementioned agreement. KonaTel has four (4) other full-time employees. Principal Products
or Services and their Markets Our principal products and
services, provided through Apeiron Systems and IM Telecom, include our CPaaS suite of services (SIP/VoIP, SMS/MMS, POTS Replacement),
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 thirty-six (36) states/territories and our ACP services,
which until June 1, 2024, had been distributed in the fifty (50) states, as well as Washington D.C. and Puerto Rico, our Apeiron Systems’
products and services are available worldwide and subject to U.S., international and local/national regulations. We generate revenue from
two (2) primary sources, Hosted Services and Mobile Services:
· Our Hosted Services include a suite of hosted CPaaS services within 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, of which IoT provides device connectivity via wireless 4G/5G. These Hosted Services are marketed nationally and internationally through the Apeiron website, its sales staff, independent sales agents and ISOs.
· Our Mobile Services
include retail and wholesale cellular voice/text/data services and IoT mobile data services through Apeiron Systems and
IM Telecom. Mobile voice/text/data and IoT mobile data services are supported by a blend of reseller agreements with select national
wireless carriers and national wireless wholesalers. A wireless communications service reseller typically does not own the wireless
network infrastructure over which services are provided to its customers. Mobile voice/text/data and mobile data solutions are
generally sold as traditional post-paid service plans that may include voice/text/data or wireless data only plans. Sometimes,
equipment is provided, which can include, but is not limited to, phones, tablets, modems, routers and accessories. Also included in
our Mobile Services segment is the distribution of government subsidized mobile voice service and mobile data service by IM Telecom
under its Infiniti Mobile brand and FCC
license to low-income American households that qualify for the FCC’s Lifeline mobile voice service program and/or previously under the FCC’s ACP 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 any change, reduction or elimination may have a material impact on our Mobile Services business. 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, 2023. The accompanying financial statements have been prepared
using the accrual basis of accounting. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Estimates in these financial statements include
the allowance for doubtful receivables, allowance for inventory obsolescence, the estimated useful lives of property and equipment, and
stock-based compensation. Actual results could differ from those estimates. Basis of Consolidation The condensed consolidated financial statements include
the Company and our two (2) wholly owned corporate subsidiaries, KonaTel Nevada and Apeiron Systems, and IM Telecom, presently owned 51%
by us. All significant intercompany transactions are eliminated. Net Income (Loss) Per Share Basic income (loss)
per share of common stock attributable to common stockholders is calculated by dividing net income (loss) attributable to common stockholders
by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average
shares of common stock underlying outstanding stock-based awards using the treasury stock method or the if-converted method, as applicable,
are included when calculating diluted net income (loss) per share of common stock attributable to common stockholders when their effect
is dilutive. The dilutive common shares for the three (3) months ended June 30, 2024, and 2023, and for the six (6) months ended June
30, 2023, are not included in the computation of diluted earnings per share because to do so would be anti-dilutive. As of June 30, 2023,
there were potentially 803,480 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
Three Months Ended June 30,
2024 2023
Numerator
Net Loss $ (1,109,697 ) $ (1,222,720 )
Denominator
Weighted-average common
shares outstanding, basic 43,412,602 42,520,720
Dilutive impact of stock options — —
Weighted-average common shares outstanding, diluted 43,412,602 42,520,720
Net income per common share
Basic $ (0.03 ) $ (0.03 )
Diluted $ (0.03 ) $ (0.03 )
Six Months Ended June 30,
2024 2023
Numerator
Net Income/Loss $ 6,973,387 $ (2,137,417 )
Denominator
Weighted-average common
shares outstanding, basic 43,301,670 42,539,672
Dilutive impact of stock options — —
Weighted-average common shares outstanding, diluted 43,301,670 42,539,672
Net income per common share
Basic $ 0.16 $ (0.05 )
Diluted $ 0.16 $ (0.05 ) 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 Customer Concentration Sales Revenue The Company has a concentration of risk with respect
to trade receivables from customers and cellular providers. As of June 30, 2024, the Company had a significant concentration of receivables
(defined as customers whose receivable balances are greater than 10% of total receivables) due from two (2) customers in the amount of
$ 1,071,558 58.0 465,576 25.2 1,024,308 68.5 285,536 19.0 Concentration of Major Customer A significant amount of the revenue is derived from
contracts with major customers. For the three (3) months ended June 30, 2024, the Company had two (2) customers that accounted for $ 1,321,520 30.3 1,071,558 24.6 2,614,769 56.8 745,484 16.2 Other Revenue The Company
has a shared relationship with distribution of Lifeline services through Excess Telecom. Revenue through this relationship is recorded
on a net revenue basis. We have performed a principal versus agent analysis under ASC 606-10-25-25 and have determined that we are acting
as agent under this relationship. 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. Going Concern For the six (6) months ended June 30, 2024,
the Company generated net income of $ 6,973,387 2,137,417 5,265,304 We are one of only a few telecommunication
carriers to hold a national wireless ETC Lifeline license, which provides us with additive reimbursement rates within the states we operate.
In Q2 2024, we added an additional ten (10) state licenses, which continues to expand our nationally licensed wireless service coverage.
We continue to target and expand into additional ETC licensed states. As of June 1, 2024, funding for the ACP Program ended,
which accounted for approximately 15% of our revenues in Q2 2024 and 33% of our revenues in Q1 2024. There are legislative bills to extend
funding currently being discussed with Congressional leaders; however, the decision to further fund the ACP Program (or a similar program)
remains uncertain. In light of this uncertainty, the Company has taken initial cost reduction measures while discussions continue in Congress,
and further expense reduction steps will be required if the ACP Program is not reinstated. Irrespective of an ACP Program extension, the
California Lifeline Program provides ongoing business continuity due to its additional state funding and Linkup program. As a result of the Company’s elimination
of outstanding debt and increased cash position, the Company has ameliorated any substantial going concern doubt. |
