KonaTel, Inc. 10-K

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA KONATEL, INC. FINANCIAL STATEMENTS December 31, 2025, and 2024 TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm 28 Consolidated Balance Sheets 29 Consolidated Statements of Operations 30 Consolidated Statements of Stockholders’ Equity (Deficit) 31 Consolidated Statements of Cash Flow 32 Notes to Consolidated Financial Statements 33 ( This space intentionally left blank ) 27 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of KonaTel, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of KonaTel, Inc. (the Company) as of December 31, 2025 and 2024, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2025, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 of the consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit of $10,084,143. The losses in conjunction with uncertainty around the success of management’s future plans, raise substantial doubt about its ability to continue as a going concern. Management’s plans are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of Stock Based Compensation & Related Forfeitures Description of the Matter: As discussed in Note 11 to the consolidated financial statements, the Company offers stock option awards that involve complex accounting estimates. Management evaluates the stock option awards and related forfeitures in accordance with ASC Topic 718, “Compensation-Stock Compensation” and uses the Black Scholes Model to value the stock option awards and related forfeitures. This model requires management to make assumptions, use judgment, and can be complex. How We Addressed the Matter in Our Audit We gained an understanding of management’s processes and methodology to develop the estimates. We reviewed the underlying option agreements. To test both the value of options, we evaluated management’s selection of a valuation method, tested the inputs used in the valuation method (Black-Scholes) calculation by agreeing terms of the underlying agreements and market information to third-party sites, and performed recalculations. In order to assess forfeitures, we reviewed the guidance in ASC 718, as well as the option agreements related to forfeiture for the 3 employees to determine vesting periods. We then ensured the Company was correctly reversing the unvested portion of the expense. We also evaluated the adequacy of the disclosures related to these fair value measurements. / s / Haynie Haynie Salt Lake City, Utah April 16, 2026 PCAOB # 457 We have served as the Company’s auditor since 2019. 28 KONATEL, INC. CONSOLIDATED BALANCE SHEETS December 31, 2025 December 31,2024 (Restated) Assets Current Assets Cash and Cash Equivalents $ 704,867 $ 1,679,345 Accounts Receivable, Net 284,167 1,533,015 Inventory, Net 272,229 163,063 Prepaid Expenses 109,442 94,496 Other Current Assets 15,063 112,170 Total Current Assets 1,385,768 3,582,089 Property and Equipment, Net 4,453 15,128 Other Assets Intangible Assets, Net 634,251 634,251 Right of Use Asset 217,432 319,549 Notes Receivable 150,000 1,000,000 Other Assets 72,375 74,328 Total Other Assets 1,074,058 2,028,128 Total Assets $ 2,464,279 $ 5,625,345 Liabilities and Stockholders’ Equity Current Liabilities Accounts Payable and Accrued Expenses $ 1,668,244 $ 2,277,597 Right of Use Operating Lease Obligation - Current 51,736 113,740 Income Tax Payable 184,051 184,051 Total Current Liabilities 1,904,031 2,575,388 Long Term Liabilities Right of Use Operating Lease Obligation - Long Term 176,043 227,776 Total Long Term Liabilities 176,043 227,776 Total Liabilities 2,080,074 2,803,164 Commitments and Contingencies - - Stockholders’ Equity Common stock, $ .001 par value, 50,000,000 shares authorized 43,979,064 outstanding and issued at December 31, 2025 and 43,503,658 outstanding and issued at December 31, 2024 43,979 43,504 Additional Paid In Capital 10,424,369 10,215,767 Accumulated Deficit ( 10,084,143 ) ( 7,437,090 ) Total Stockholders’ Equity 384,205 2,822,181 Total Liabilities and Stockholders’ Equity $ 2,464,279 $ 5,625,345 The accompanying notes are an integral part of these consolidated financial statements. 29 KONATEL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS 2025 2024 (Restated) Years Ended December 31, 2025 2024 (Restated) Revenue $ 8,452,885 $ 15,503,251 Cost of Revenue 5,840,675 12,088,944 Gross Profit 2,612,210 3,414,307 Operating Expenses Payroll and Related Expenses 3,090,237 4,317,814 Stock Option Expense 126,578 992,735 Operating and Maintenance 8,082 6,086 Credit Loss 43,558 1,448 Professional and Other Expenses 708,781 1,646,755 Utilities and Facilities 177,946 210,438 Depreciation and Amortization 10,525 9,056 General and Administrative 292,582 213,149 Marketing and Advertising 13,580 99,759 Application Development Costs 716,910 140,880 Taxes and Insurance 101,813 315,258 Total Operating Expenses 5,290,592 7,953,378 Operating (Loss) ( 2,678,382 ) ( 4,539,071 ) Other Income and Expense Sale of Interest in IM Telecom ( 49 %) - 9,558,509 Interest Expense ( 539 ) ( 104,737 ) Other Income, net 31,868 70,951 Total Other Income and Expenses 31,329 9,524,723 Income Before Income Taxes ( 2,647,053 ) 4,985,652 Income Tax Expense - 184,051 Net Income (Loss) $ ( 2,647,053 ) $ 4,801,601 Earnings (Loss) per Share Basic $ ( 0.06 ) $ 0.11 Diluted $ ( 0.06 ) $ 0.11 Weighted Average Outstanding Shares Basic 43,706,214 43,402,219 Diluted 43,706,214 43,526,417 The accompanying notes are an integral part of these consolidated financial statements. 30 KONATEL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) Shares Amount Paid-in Capital Deficit Total For the Year Ending December 31, 2024 (Restated) Common Shares Additional Accumulated Shares Amount Paid-in Capital Deficit Total Balances as of January 1, 2024 43,145,720 $ 43,146 $ 9,182,140 $ ( 12,238,691 ) $ ( 3,013,405 ) Exercised Stock Options 357,938 358 40,892 - 41,250 Stock Based Compensation - - 992,735 - 992,735 Net Income - - - 4,801,601 4,801,601 Balances as of December 31, 2024 43,503,658 $ 43,504 $ 10,215,767 $ ( 7,437,090 ) $ 2,822,181 For the Year Ending December 31, 2025 Common Shares Additional Accumulated Shares Amount Paid-in Capital Deficit Total Balances as of December 31, 2024 43,503,658 $ 43,504 $ 10,215,767 $ ( 7,437,090 ) $ 2,822,181 Balances 43,503,658 $ 43,504 $ 10,215,767 $ ( 7,437,090 ) $ 2,822,181 Exercised Stock Options 475,406 475 82,025 - 82,500 Stock Based Compensation - - 126,577 - 126,577 Net Loss - - - ( 2,647,053 ) ( 2,647,053 ) Net Income (Loss) - - - ( 2,647,053 ) ( 2,647,053 ) Balances as of December 31, 2025 43,979,064 $ 43,979 $ 10,424,369 $ ( 10,084,143 ) $ 384,205 Balances 43,979,064 $ 43,979 $ 10,424,369 $ ( 10,084,143 ) $ 384,205 The accompanying notes are an integral part of these consolidated financial statements. ( This space intentionally left blank .) 31 KONATEL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS 2025 2024 (Restated) For Years Ended December 31, 2025 2024 (Restated) Cash Flows from Operating Activities: Net Income (Loss) $ ( 2,647,053 ) $ 4,801,601 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and Amortization 10,525 9,056 Sale of IM Telecom ( 49 %) - ( 9,558,509 ) Loan Origination Cost Amortization - 49,579 Credit Loss 43,558 1,448 Stock-based Compensation 126,577 992,735 Change in Right of Use Asset 102,117 123,778 Change in Lease Liability ( 113,737 ) ( 116,711 ) Changes in Operating Assets and Liabilities: Accounts Receivable 1,175,642 ( 37,664 ) Inventory ( 79,518 ) 1,066,707 Prepaid Expenses and Other Asset 84,114 ( 76,744 ) Accounts Payable and Accrued Expenses ( 609,353 ) ( 1,432,094 ) Income Tax Payable - 184,051 Net cash used in operating activities ( 1,907,128 ) ( 3,992,767 ) Cash Flows from Investing Activities Sale of Interest in IM Telecom ( 49 %) - 9,558,509 Notes Receivable 850,000 ( 1,000,000 ) Equipment 150 - Net cash provided by investing activities 850,150 8,558,509 Cash Flows from Financing Activities Repayments of amounts of Notes Payable - ( 3,704,750 ) Cash received from Stock Options Exercised 82,500 41,250 Net cash provided by (used in) financing activities 82,500 ( 3,663,500 ) Net Change in Cash ( 974,478 ) 902,242 Cash - Beginning of Year 1,679,345 777,103 Cash - End of Period $ 704,867 $ 1,679,345 Supplemental Disclosure of Cash Flow Information Cash paid for interest $ - $ 54,750 Cash paid for taxes $ - $ - The accompanying notes are an integral part of these consolidated financial statements. 32 KONATEL, INC. Notes to Consolidated Financial Statements 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. (“KonaTel,” 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”) and 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, (“IM Telecom” or “Infiniti Mobile”), which became our wholly owned subsidiary. Infiniti Mobile is an FCC licensed ETC (“Eligible Telecommunications Carrier”) and is one of approximately nineteen (19) 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 forty (40) states with pending Study Area Codes (SACs) applications with the FCC in an additional eight (8) states. On January 22, 2024 (the “Effective Date”), KonaTel and IM Telecom entered into a Membership Interest Purchase Agreement with Excess Telecom, Inc., a Nevada corporation (respectively, “Excess Telecom” and the “Excess Telecom Membership Interest Purchase Agreement”). Pursuant to the Membership Interest Purchase Agreement, KonaTel agreed to sell a membership interest in IM Telecom (the “Membership Interest”) to Excess Telecom, initially 49 % (the “Initial Closing”), with the remaining 51 % (the “Final Closing”) subject to final change of control approval by the “FCC.” Additional agreements were also executed by the parties at the Initial Closing Date of the Membership Interest Purchase Agreement, including a Management Service Agreement, a Master Distribution Agreement and an Amended and Restated Operating Agreement (collectively, the “Transaction Documents”). On September 19, 2025, KonaTel and Excess Telecom executed a First Omnibus Amendment to Transaction Documents (the “First Omnibus Agreement”) and a Third Amended and Restated Operating Agreement of IM Telecom (the “Amended Operating Agreement”). The First Omnibus Amendment was executed to create IM Telecom as a standalone partnership entity owned 51 % by KonaTel and 49 % by Excess Telecom. For KonaTel’s part, this entity change included transferring certain employees previously working for IM Telecom on KonaTel’s payroll to the new entity. As agreed by KonaTel and Excess Telecom, effective October 1, 2025, all combined net income of IM Telecom will be reported for federal income tax purposes as a partnership (Form 1065), and KonaTel will continue to receive distributions based upon a new Distribution Agreement for compensation from it sales only under the IM Telecom’s vertical sales channels, including all new sales stemming from our new healthcare vertical partnership as originally agreed. 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 intangible assets. Actual results could differ from those estimates. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. 33 Basis of Consolidation The consolidated financial statements for the year ended December 31, 2025, and 2024, include the Company and its two (2) owned corporate subsidiaries, KonaTel Nevada and Apeiron Systems, as well the 51 % share of IM Telecom. 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. Net receivables from transactions with customers were $ 284,167 and $ 1,533,015 as of December 31, 2025, and December 31, 2024, respectively. Allowance for Credit Losses The allowance for credit losses is determined by management based on customer credit history, specific customer circumstances and general economic conditions. Periodically, management reviews our 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, 2024, management determined the no allowance for credit losses was necessary. As of December 31, 2025, management determined that an allowance for credit losses of $ 29,648 was necessary. Inventory Inventory consists primarily of the cost of cellular phones and tablets. Inventory is reported at the lower of cost or net realizable value. Cost is determined by the first-in, first-out (“FIFO”) method. As of December 31, 2025, total inventory owned by the Company was $ 272,229 , which includes POTS related equipment consigned to customer premise locations. Due to rapidly changing technology within the industry, inventory is evaluated on a regular basis to determine if any obsolescence exists. As of December 31, 2025, and December 31, 2024, inventory obsolescence was $ 256 and $ 0 respectively. 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, 2025, and 2024. Intangible Assets The Company accounts for intangible 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. As of December 31, 2025, intangible assets include our ETC License. 34 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 security deposits held with vendors. 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 $ 0 in collateral deposits from various sub-reseller customers at December 31, 2025, and 2024, respectively. Notes Receivable On January 22, 2024, the Company accepted a $ 1,000,000 note receivable from Excess Telecom as part of the 49 % membership interest sale of IM Telecom. Payment of the note is contingent upon the satisfaction of certain underlying provisions noted in the Membership Interest Purchase Agreement. There is no stated interest or term under this note. As of December 31, 2025, there was $ 150,000 outstanding on this note receivable. 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 of 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. See NOTE 6 below. Upon adoption, we recorded $ 151,471 for operating lease assets and liabilities, which includes the impact of fair value adjustments, prepaid and deferred rent. As of December 31, 2025, and December 31, 2024, our operating lease liabilities were $ 227,779 and $ 341,516 , respectively. Revision of Previously Issued Financial Statements In connection with the preparation of the Company’s 2025 financial statements, Management identified an immaterial error in the previously issued 2024 financial statements related to the proceeds recognized as a result of the sale of 49 % of IM Telecom. Management evaluated the error under SAB Topic 1.M (SAB 99) and SAB Topic 1.N (SAM 108) and concluded that the error was not material to the previously issued financial statements. Accordingly, the Company has revised the comparative 2024 financial statements presented herein to correct the error. 35 The Company performed an in-depth evaluation of the recognition of revenue related to the sale of 49 % of IM Telecom in 2024. In that evaluation, Management took into account the facts and circumstances of the transaction as to whether accounting for the transaction should be treated in accordance with ASC 810 under the consolidation, equity or joint venture accounting methodology or whether we should look to ASC 606 regarding the selling a “right to use” or “right to access” an asset accounting. Management considered the relevant facts of the transaction, including the $ 10,000,000 non-refundable consideration received and payable regardless of whether future regulatory approval is received. While we came to the conclusion that ASC 810 would generally apply in similar transactions, we determined that a purchase of a right to use was made and ASC 606 revenue recognition should be used for purposes of financial statement presentation. The correction resulted in an increase in the proceed on sale recognized of $ 310,783 and a corresponding increase in net assets of $ 310,783 in 2024. There was no additional impact to prior periods. KONATEL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS SCHEDULE OF CONSOLIDATED STATEMENTS OF OPERATIONS 12/31/2024 as reported Adjustment 12/31/2024 as Restated Revenue $ 15,503,251 - 15,503,251 Cost of Revenue 12,088,944 - 12,088,944 Gross Profit 3,414,307 - 3,414,307 Operating Expenses General and Administrative 6,819,763 - 6,819,763 Stock Option Expense 992,735 - 992,735 Application Development Costs 140,880 - 140,880 Total Operating Expenses 7,953,378 - 7,953,378 Operating (Loss) ( 4,539,071 ) - ( 4,539,071 ) Other Income and Expense Sale of IM Telecom ( 49 %) 9,247,726 310,783 9,558,509 Interest Expense ( 104,737 ) - ( 104,737 ) Other Income, net 70,951 - 70,951 Total Other Income and Expenses 9,213,940 310,783 9,524,723 Income Before Income Taxes 4,674,869 310,783 4,985,652 Income Tax Expense 184,051 - 184,051 Net Income $ 4,490,818 310,783 4,801,601 36 KONATEL, INC. CONSOLIDATED BALANCE SHEET SCHEDULE OF CONSOLIDATED BALANCE SHEET 12/31/2024 as reported Adjustment 12/31/2024 as Restated Assets Current Assets Cash and Cash Equivalents $ 1,679,345 - $ 1,679,345 Accounts Receivable, Net 1,533,015 - 1,533,015 Inventory, Net 163,063 - 163,063 Prepaid Expenses 94,496 - 94,496 Other Current Assets 112,170 - 112,170 Total Current Assets 3,582,089 - 3,582,089 Property and Equipment, Net 15,128 - 15,128 Other Assets Intangible Assets, Net 323,468 310,783 634,251 Right of Use Asset 319,549 - 319,549 Notes Receivable 1,000,000 - 1,000,000 Other Assets 74,328 - 74,328 Total Other Assets 1,717,345 310,783 2,028,128 Total Assets 5,314,562 310,783 5,625,345 Liabilities and Stockholders’ Equity Current Liabilities Accounts Payable and Accrued Expenses 2,277,597 - 2,277,597 Right of Use Operating Lease Obligation - Current 113,740 - 113,740 Income Tax Payable 184,051 - 184,051 Total Current Liabilities 2,575,388 - 2,575,388 Long Term Liabilities Right of Use Operating Lease Obligation - Long Term 227,776 - 227,776 Total Long Term Liabilities 227,776 - 227,776 Total Liabilities 2,803,164 - 2,803,164 Commitments and Contingencies - - - Stockholders’ Equity Common stock, $.001 par value 43,504 - 43,504 Additional Paid In Capital 10,215,767 - 10,215,767 Accumulated Deficit ( 7,747,873 ) 310,783 ( 7,437,090 ) Total Stockholders’ Equity 2,511,398 310,783 2,822,181 Total Liabilities and Stockholders’ Equity 5,314,562 310,783 5,625,345 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. 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 Codification (ASC) 606, “Revenue from Contracts with Customers.” This standard update, along with related subsequently issued updates, clarifies the principles for recognizing revenue and develops a common revenue standard under 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. 37 We distribute government subsidized mobile services through Master Agents. As part of the distribution process, we deliver mobile phones and/or tablets (devices) to our Master Agents, who then are responsible to subscribe qualifying consumers under a government sponsored program (ACP and/or Lifeline). In most cases, devices that have been delivered to our Master Agents are subscribed to and activated by qualifying consumers within sixty (60) days, at which point we would receive a subsidy from a governing body (the Universal Service Administrative Company (“USAC”) or certain states) and recognize revenue. Once a device is activated, and the intended service provided under the government program is deemed to have occurred, the program revenue is recognized, the expense is recognized, and the device is removed from inventory. Deferred Revenue Services for cellular and telecommunication services have a monthly recurring charge that is billed in advance. This charge covers a thirty (30) or thirty-one (31)-day period. This charge is deferred for the period in which it was received and recorded as revenue at the conclusion of this 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 agent compensation. Advertising/Marketing Costs for advertising/marketing of products and services, as well as other promotional and sponsorship costs, are charged to selling, general and administrative expenses in the periods in which they are incurred. Advertising/marketing expense was $ 13,580 and $ 99,759 for 2025, and 2024, respectively. The decrease in advertising/marketing costs was a result of decline in marketing costs due to the expiration of the ACP program in 2024. 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 nonemployees 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. 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 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 year ended December 31, 2025, are not included in the computation of diluted earnings per share because to do so would be anti-dilutive. 38 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: SCHEDULE OF EARNINGS PER SHARE, BASIC AND DILUTED 2025 2024 Years Ended December 31, 2025 2024 Numerator Net Income (Loss) $ ( 2,647,053 ) $ 4,801,601 Denominator Weighted-average common shares outstanding 43,706,214 43,402,219 Dilutive impact of stock options - 54,163 Weighted-average common shares outstanding, diluted 43,706,214 43,526,417 Net income per common share Basic $ ( 0.06 ) $ 0.11 Diluted $ ( 0.06 ) $ 0.11 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, 2025, 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 amount of $ 75,387 or 23.9 %, $ 50,000 or 15.8 %, and $ 32,955 or 10.4 %. As of December 31, 2024, the Company had a significant concentration of receivables from one (1) customer in the amount of $ 1,055,337 or 68.5 %. Concentration of Major Customer A significant amount of the revenue is derived from contracts with major customers. For the year ended December 31, 2025, the Company had two (2) customers that accounted for $ 2,897,636 or 34.3 % and $ 1,019,357 or 12.1 % of revenue, respectively. For the year ended December 31, 2024, the Company had two (2) customers that accounted for $ 5,295,202 or 34.2 % and $ 3,483,080 or 22.5 % of revenue, respectively. The loss of a major customer would have a negative impact on the Company and would subsequently require the Company to make significant changes to reduce expenses. Effect of Recent Accounting Pronouncements The Company adopted Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, effective January 1, 2025. The amendments in this update enhance the transparency and decision usefulness of income tax disclosures by requiring (i) disaggregation of the effective tax rate reconciliation into specified categories and (ii) additional disclosures of income taxes paid, net of refunds, by jurisdiction. The Company applied the guidance prospectively. Accordingly, prior-period disclosures have not been adjusted and continue to be presented in accordance with the accounting guidance in effect for those periods. The adoption of ASU 2023-09 did not have an impact on the Company’s consolidated financial position, results of operations, or cash flows, as the amendments relate solely to income tax disclosures. The Company will prospectively adopt Accounting Standards Update (“ASU”) 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40) effective with our annual 2027 10K filing and interim reporting periods effective with our interim report for the quarter ended March 31, 2028. Accordingly, prior-period disclosures will not be made. 39 NOTE 2 – GOING CONCERN Effective with the creation of the First Omnibus Agreement between KonaTel and Excess Telecom, “the Annual Plan,” which was effective on October 1, 2025, IM Telecom began to operate as a standalone entity with employees not shared by KonaTel. In addition, during 2025, the Company began to refocus its efforts on the Hosted Services solutions operated by its subsidiary, Apeiron Systems. While KonaTel continues to receive regular monthly distributions from the IM Telecom partnership under the new Distribution Agreement for compensation from it sales only under the IM Telecom’s vertical sales channels, including all new sales stemming from our new healthcare vertical partnership as originally agreed, our focus is now on growing our Hosted Services, which enjoy substantially higher margins and substantially lower customer churn characteristics. Based on FCC data, it is estimated there are approximately 22 million commercial (i.e., used in commercial operations) copper-wire Plain Old Telephone Service (“POTS”) analog phone lines. These lines are scheduled to be phased out (terminated) across the United States by the end of the decade. So, in support of the increasing demand from end-of-life copper-wire POTS service, one of the Company’s new services, deployed and tested throughout 2025, includes a wireless POTS replacement solution targeted at large national telecommunication service providers. We are also focused on ongoing retail and wholesale sales of our Short Messaging Service (SMS) product, which saw continued growth from Q3 to Q4 of 2025. We continue to keep our $ 5 M line of credit facility open as well as actively pursuing additional credit facility options with the goal of focusing our growth efforts on our hosted services sector. The lack of our success in one or more of these foregoing initiatives raises substantial doubt about our ability to remain a going concern for the twelve (12) month period from the date of this Annual Report. The Company has several pending transactions such as a Master Sales Agreement with Lingo Communication to convert their imbedded base of existing POTS lines to wireless technology and to sell new wireless solutions including primary 4G/5G and backup wireless internet products. The transaction to sell the Tempo ETC license in the amount of $ 4.5 M, pending FCC approval. Release of the remaining Excess Transaction Escrow of $ 150,000 related to the sale of the IM Telecom ETC license is expected by the end of the second quarter of 2026. In addition to the copper-wire POTS replacement program, the Company continues to pursue the launch of the Viva USA MVNO opportunity. The first 10,000 SIM cards have been purchased by and delivered to Viva for deployment. The Company has completed its pre-launch obligations; we continue to wait for launch implementation by Viva. We continue to remain optimistic that the IM Telecom health care vertical will begin to accelerate in 2026. The growth of this vertical relies on the marketing/communication efforts of our healthcare partner to inform their millions of current/eligible customers of the opportunity to obtain wireless Lifeline services. In order to mitigate any going concern risks, the Company continues to implement broad reductions and improve efficiencies to extend and utilize cash resources in the most efficient manner possible. The aforementioned product applications and sales initiatives will require capital to expand infrastructure as sales increase. The growth of new products and the launch of the aforementioned business programs, along with the ability to raise capital, will play a significant role in our ability to continue operations without additional cost reduction measures. If necessary, we will also consider additional reductions in force, which will create more than a twelve (12) month net working capital in order to mitigate further risk. NOTE 3 – INVENTORY Inventories consist primarily of wireless router equipment necessary for the conversion of analog phone lines (POTS) to digital phone lines. Inventories are stated at cost using the first-in, first-out (“FIFO”) valuation method. On a monthly basis, inventory is counted at our warehouse facility and is reviewed for obsolescence and counted for accuracy with distributors. At December 31, 2025, and December 31, 2024, the Company had inventory of $ 272,229 and $ 163,063 , respectively. NOTE 4 – SIGNIFICANT TRANSACTIONS The Company had no significant transactions as of December 31, 2025. As of December 31, 2024, as a result of the funds received from the Excess Telecom Membership Interest Purchase Agreement in 2024, the CCUR Loan entered into in 2022 and the ACP Financing facility entered into in 2023 were both paid in full. 40 NOTE 5 – PROPERTY AND EQUIPMENT Property and equipment consist of the following major classifications as of December 31, 2025, and 2024: SCHEDULE OF PROPERTY AND EQUIPMENT December 31, 2025 December 31, 2024 Lease Improvements $ 46,950 $ 46,950 Furniture and Fixtures 102,946 102,946 Billing Software 217,163 217,163 Office Equipment 94,402 94,552 Property and equipment, gross 461,461 461,611 Less: Accumulated Depreciation ( 457,008 ) ( 446,483 ) Property and equipment, net $ 4,453 $ 15,128 Depreciation expense amounted to $ 10,525 and $ 9,056 for the years ended December 31, 2025, and 2024, respectively. Depreciation expense is included as a component of operating expenses in the accompanying statements of operations. NOTE 6 – RIGHT-OF-USE ASSETS Right-of-Use Assets consist of assets accounted for under ASC 842. The assets are recorded at present value using implied interest rates between 4.75 % and 7.50 %. The Right-of-Use Assets were $ 217,432 and $ 319,549 in 2025 and 2024, respectively. The Company has right-of-use assets through leases of properties under non-cancelable leases. As of December 31, 2025, the Company had four (4) leased properties. Of these four (4) leases, two (2) leases expired in 2025; one (1) lease expires in 2026; and one (1) lease expires in 2030. Lease payables as of December 31, 2025, was $ 227,779 . Future lease liability payments under the terms of these leases are as follows: SCHEDULE OF FUTURE LEASE LIABILITY PAYMENTS 2026 $ 65,967 2027 $ 54,000 2028 $ 54,000 2029 $ 54,000 2030 $ 36,000 Total $ 263,967 Less Interest $ 36,188 Present value of minimum lease payments $ 227,779 Less Current Maturities $ 51,736 Long Term Maturities $ 176,043 The weighted average term of the right-to-use leases is 54.1 months recorded with a weighted average discount of 7.40 %. For the year ended December 31, 2025, total lease expense was $ 129,056 . NOTE 7 – INTANGIBLE ASSETS (Restated) Intangible Assets with definite useful life consist of licenses, customer lists and software that were acquired through acquisitions: SCHEDULE OF INTANGIBLE ASSETS 2025 2024 December 31, 2025 2024 Customer List $ 1,135,962 $ 1,135,962 Software 2,407,001 2,407,001 ETC License 634,251 634,251 Less: Amortization ( 3,542,963 ) ( 3,542,963 ) Net Amortizable Intangibles 634,251 634,251 Right of Use Assets - net 217,432 319,549 Intangible Assets net $ 851,683 $ 953,800 Amortization expense amounted to $ 0 and $ 0 for the years ended December 31, 2025, and 2024, respectively. Amortization expense is included as a component of operating expenses in the accompanying statements of operations. With the exception of the license granted by the FCC, all intangible assets are fully amortized as of December 31, 2022. 41 Intangible Assets with indefinite useful life consist of the Lifeline license granted by the FCC. The license, because of the nature of the asset and the limitation on the number of granted Lifeline licenses by the FCC, will not be amortized. The license was acquired through an acquisition. The fair market value of the license as of December 31, 2025, was $ 634,251 , and as of December 31, 2024, was $ 634,251 . During the first quarter of 2024, the Company entered into a Membership Interest Purchase Agreement with Excess Telecom to sell 49% of IM Telecom in consideration of the sum of $10,000,000. NOTE 8 – LINES OF CREDIT The Company had no lines of credit as of December 31, 2025, and December 31, 2024, respectively. NOTE 9 – CONTINGENCIES AND COMMITMENTS Litigation From time to time, the Company may be subject to legal proceedings and claims that arise in the ordinary course of business. As of December 31, 2025, and December 31, 2024, there are no such legal proceedings. Contract Contingencies The Company has the customary 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. The Membership Interest Purchase Agreement with Excess Telecom includes the right to distribute Lifeline services under the IM Telecom license. The completion of the sale of IM Telecom is contingent upon approval of the sale by the FCC, as IM Telecom is the holder of a Lifeline license and is designated as an Eligible Telecommunications Carrier (“ETC”) for purposes of marketing Lifeline services to low-income consumers. Regulatory Determinations The Company had no outstanding regulatory determinations as of December 31, 2025, or December 31, 2024. Tax Audits In June of 2021, the Company received an audit determination and assessment from the State of Pennsylvania related to sales and use tax for the audit period of January 1, 2016, through September 30, 2019. The assessment was in the amount of $ 115,000 , including interest and penalties calculated on sales made inside and outside Pennsylvania. The Company recorded the full amount of this assessment in 2022. The Company appealed the assessment in August 2021, and at the request of the state, provided additional information to support its appeal. The Company’s position is that Pennsylvania has no sales tax authority to levy and collect sales tax on sales made outside of Pennsylvania. The State of Pennsylvania rejected an appeal by the Company. On November 6, 2023, the Company agreed to a payment plan with the State of Pennsylvania. The Company will pay $ 5,500 per month, over a twenty-four (24) month period, which commenced in December 2023. As of December 31, 2025, the Company has completed the payment plan agreement. Letters of Credit The Company had no outstanding letters of credit as of December 31, 2025, or December 31, 2024. N OTE 10 – SEGMENT REPORTING In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (ASU 2023-07). Beginning with our 2024 annual reporting, we adopted ASU No. 2023-07, which requires that a public entity disclose, on an interim and annual basis, significant segment expense categories and amounts that are regularly provided to its chief operating decision maker (“CODM”) and included in each reported measure of segment profit or loss. An entity must also disclose, by reportable segment, the amount and composition of other expenses. The standard requires an entity disclose the title and position of its CODM and explain how the CODM uses these reported measures in assessing segment performance and determining how to allocate resources. 42 Our segments are comprised of strategic business units or other operations that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We have two reportable segments: Hosted Serves and Mobile Services. Our CODM is our President. Our CODM uses operating income to evaluate performance and allocate resources, including capital allocations, when managing the business. Our CODM manages operations through the review of actual and forecasted “Operations and Support Expenses” information at a segment and business unit level, of which segments are primarily evaluated on a direct cost basis and comprised of equipment, compensation, network and technology, sales, advertising and other costs. Direct costs are incurred in support of products and services offered by the business units, such as equipment costs (predominantly wireless devices), network access, rents, leases, sales support, customer provisioning and compensation expenses. 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. Mobile Services reporting will now consist of our post-paid and pre-paid cellular business. Hosted Services – Our Hosted Services include a suite of hosted CPaaS services within the Apeiron Systems’ cloud platform, including Cloud IVRs, Voicemail, Fax, Call Recording and other services provided with local, toll-free and international phone numbers. Apeiron also delivers public and private IP network services from its national redundant network backbone, including MPLS, Dedicated Internet and LTE Wireless WAN solutions. Additionally, Apeiron’s Cloud Services include Information Data Dips, SD-WAN and IoT data and device management. These Hosted Services are marketed nationally and internationally through the Apeiron website, its sales staff, independent sales agents and ISOs. Mobile Services – Our Mobile Services include retail and wholesale cellular voice/text/data services and IoT mobile data services through our subsidiaries Apeiron Systems and IM Telecom. Mobile voice/text/data and IoT mobile data services are supported by a blend of reseller agreements with select national wireless carriers and national wireless wholesalers. A wireless communications service reseller typically does not own the wireless network infrastructure over which services are provided to its customers. Mobile voice/text/data and mobile data solutions are generally sold as traditional post-paid service plans that may include voice/text/data or wireless data only plans. Sometimes equipment is provided, which can include, but is not limited to, phones, tablets, modems, routers and accessories. Also included in our Mobile Services segment is the distribution of government subsidized mobile voice service and mobile data service by IM Telecom under its Infiniti Mobile brand and FCC license to low-income American households that qualify for the FCC’s Lifeline mobile voice service program and/or the FCC’s ACP mobile data program. Even though government programs like Lifeline have existed since 1985, these programs, along with newer programs like the ACP Program, are subject to change and may have a 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: SCHEDULE OF REPORTABLE SEGMENTS For the year ended December 31, 2025 Depreciation Operating and Other Net Revenues Expenses* Amortization Gain/Loss (Loss) Segment Hosted Services $ 5,879,627 $ 6,907,934 $ 7,321 $ - $ ( 1,035,628 ) Mobile Services 2,573,258 2,386,409 3,204 - 183,645 Segment Total 8,452,885 9,294,343 10,525 - ( 851,983 ) Corporate Administration support - 1,795,070 - - ( 1,795,070 ) Sale of subsidiary ( 49 %) - - - - - Total Corporate - 1,795,070 - - ( 1,795,070 ) KonaTel, Inc. $ 8,452,885 $ 11,089,413 $ 10,525 $ - $ ( 2,647,053 ) 43 For the year ended December 31, 2024 (Restated) Depreciation Operating and Other Net Revenues Expenses* Amortization Gain/Loss (Loss) Segment Hosted Services $ 5,581,069 $ 6,476,001 $ 8,757 $ - $ ( 903,689 ) Mobile Services 9,922,182 10,396,667 299 - ( 474,784 ) Segment Total 15,503,251 16,872,668 9,056 - ( 1,378,473 ) Corporate Administration support - 3,378,435 - - ( 3,378,435 ) Sale of subsidiary ( 49 %) - - - 9,558,509 9,558,509 Total Corporate - 3,378,435 - 9,558,509 6,180,074 KonaTel, Inc. $ 15,503,251 $ 20,251,103 $ 9,056 $ 9,558,509 $ 4,801,601 * Operating Expenses includes Cost of Revenue, Operating Expenses, Other Income/Expense and Income Tax Expense. NOTE 11 – STOCKHOLDERS’ EQUITY Non-Compensatory Stock Options Effective December 18, 2017, the Company completed an Agreement and Plan of Merger whereby a newly formed wholly owned subsidiary merged with and into KonaTel Nevada, and under which KonaTel Nevada was the surviving corporation and became a wholly owned subsidiary of the Company. Mr. McEwen was the sole shareholder of KonaTel Nevada and received merger consideration of 13,500,000 shares of the Company’s common stock and 1,500,000 non-compensatory options to acquire shares of the Company’s Common Stock under the merger, at an exercise price of $ 0.22 per share, vesting quarterly, from March 18, 2018, to December 18, 2019. On September 17, 2024, the Company’s Board of Directors adopted resolutions to extend D, Sean McEwen’s expiration dates on his last two (2) 187,500 share option tranches by one (1) year, or to respectively expire at midnight on September 17, 2025, and December 17, 2025. On September 17, 2025, Mr. McEwen exercised these last two tranches of stock options. Stock Compensation The Company offers incentive stock option equity awards to directors and key employees. Options vest in tranches and typically expire in five (5) years. During the year ended December 31, 2025, and 2024, the Company recorded options expense of $ 126,578 and $ 992,735 , respectively. The option expense not taken as of December 31, 2025, is $ 2,087,605 , with a weighted average term of 2.06 years. The Aggregate Intrinsic Value is based on the market value of the Company’s common stock of $ 0.30 on December 31, 2025. The estimated grant date fair value of stock option grants was calculated using the Black-Scholes-Merton option-pricing model using the following assumptions: SCHEDULE OF ESTIMATED GRANT DATE FAIR VALUE OF STOCK OPTION GRANTS 2025 2024 Weighted average volatility 100.44 % 170.23 % Weighted average expected term (years) 5.00 5.00 Risk free interest rate 4.18 % 4.54 % Expected dividend yield — — 44 SCHEDULE OF STOCK OPTION ACTIVITY The following table represents incentive stock option activity as of and for the year ended December 31, 2025: Number of Weighted Average Weighted Average Aggregate Shares Exercise Price Remaining Life Intrinsic Value Options Outstanding – December 31, 2024 5,650,000 $ 0.78 3.80 $ 612,418 Granted — — — — Exercised 550,000 0.13 — — Forfeited 1,605,000 — — — Options Outstanding – December 31, 2025 3,495,000 0.44 1.04 - Exercisable and Vested, December 31, 2025 2,181,664 0.63 1.42 ( 720,656 ) The following table represents stock option activity as of and for the year ended December 31, 2024: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Life Aggregate Intrinsic Value Options Outstanding: December 31, 2023 6,000,000 $ 0.75 3.69 $ 872,463 Granted 100,000 0.47 — — Exercised 450,000 0.41 — — Forfeited — — — — Options Outstanding: December 31, 2024 5,650,000 $ 0.78 3.80 $ 612,418 Exercisable and Vested: December 31, 2024 54,163 $ 0.51 1.72 $ ( 18,110 ) In 2024, 100,000 share incentive stock options were granted to one (1) employee of the Company. During the year ended December 31, 2024, 375,000 shares were exercised by D. Sean McEwen, CEO, and 75,000 shares were exercised by one (1) independent member of the Board of Directors. During the year ended 2025, no incentive stock options were granted. During the year ended December 31, 2025, 375,000 shares were exercised by D. Sean McEwen, CEO, and 125,000 shares were exercised by two (2) independent members of the Board of Directors. 50,000 shares were exercised by one (1) former independent member of the Board of Directors. During the year ended 2025, 1,605,000 partially vested share options were forfeited by three (3) key employees of the Company. The Aggregate Intrinsic Value is based on the market value of the Company’s common stock of $ 0.30 on December 31, 2025. NOTE 12 – INCOME TAX The Company provides for income taxes using an asset and liability-based approach. Deferred income tax assets and liabilities are recorded to reflect the future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Tax Cuts and Jobs Act was enacted on December 22, 2017, which reduced the U.S. corporate statutory tax rate from 35 % to 21 %. The Company changed its effective federal rate to 21 % as the expected rate for our deferred tax items. The significant components of net deferred tax assets (liabilities) were as follows at December 31, 2025, and 2024: SCHEDULE OF COMPONENTS OF NET DEFERRED TAX ASSETS LIABILITIES 2025 2024 December 31, 2025 2024 Net operating losses $ 1,320,354 $ 573,726 Depreciation and amortization ( 37,030 ) ( 18,493 ) Stock option expense 420,976 426,275 Valuation allowance ( 1,704,300 ) ( 981,508 ) Net Deferred Tax Asset $ — $ — 45 As of December 31, 2025, the Company had no unrecognized tax benefits that, if recognized, would affect the Company’s effective income tax rate over the next twelve (12) months. A reconciliation of the expected income tax benefit at the U.S. Federal income tax rate to the income tax benefit actually recognized for the years ended December 31, 2025, and 2024 is set forth below: SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSES 2025 2025 Rate 2024 2024 Rate For the Year Ended December 31, 2025 2025 Rate 2024 2024 Rate Tax at statutory federal rate $ ( 277,274 ) 21.0 % $ 184,051 21.0 % Changes in valuation allowance 277,159 0.8 % ( 184,817 ) 0.9 % Non-deductible expenses $ 115 0.1 % $ 766 0.1 % Benefit from income taxes $ — $ — Due to the pretax loss, certain reconciling items as a percentage of pretax income are not meaningful and may not be comparable to prior periods. As of December 31, 2025, the Company has a net operating loss carry-forward for U.S. federal income tax purposes of approximately ($ 6,287,398 ), which will expire in 2044. This carryforward is available to offset future taxable income, if any, and will expire, if not used, from 2037 through 2042. The utilization of the net operating loss carry-forward is dependent upon the tax laws in effect at the time the net operating loss carry-forward can be utilized and may be limited by changes in ownership control of the Company. The Company’s U.S. federal tax return, constituting the return of the major taxing jurisdictions, are subject to examination by the taxing authorities for all open years as prescribed by applicable statute. No income tax waivers have been executed that would extend the period subject to examination beyond the period prescribed by statute. The Company is no longer subject to U.S. federal tax examinations for tax years before and including December 31, 2020. During the years ended December 31, 2025, and 2024, the Company did not incur interest and penalties. NOTE 13 – SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date of this filing, and except for the following, no material subsequent events have occurred: Closure of IM Telecom’s Atmore Alabama Call Center On January 1, 2026, IM Telecom provided notice to the landlord of its Atmore, Alabama, Call Center that it would be vacating the premises effective January 31, 2026. Seven (7) full-time employees employed at this facility were terminated as part of this closure. So Stock Option Expiration On April 1, 2026, 150,000 incentive stock options granted and vested to employee Jonathan So expired without being exercised. 46 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During our two (2) most recent fiscal years, no independent accountant who was previously engaged as the principal accountant to audit our financial statements, or an independent accountant who was previously engaged to audit a significant subsidiary and on whom the principal accountant expressed reliance in its report, has resigned (or indicated it has declined to stand for re-election after the completion of the current audit) or was dismissed.