What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-04-14 compared with 2021-04-06 · 372 added, 423 removed, 495 unchanged (62% of the section changed)

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Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheet

Consolidated Balance Sheets

Consolidated Statements of Operations

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Board of Directors and

Stockholders of KonaTel, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets

of KonaTel, Inc.

(the Company) as of December 31, 2020 and 2019, and the related statements of operations, stockholders’

and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as

the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of

the Company as of December 31, 2021 and 2019, and the results of its operations and its cash flows for each of the years in the two-year

period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

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 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.

on the Financial Statements

have audited the accompanying balance sheets of KonaTel, Inc.

(the Company) as of December 31, 2021 and 2020, and the related statements

of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the

related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all

material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its

cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted

in the United States of America.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

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.

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 financial statements are free of material misstatement, whether due to error or fraud.

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 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 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 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 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 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 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.

Impairment of Intangible Assets

Description of the Matter:

We identified the assessment of the valuation of intangible assets as a

critical audit matter due to the materiality to the financial statements and significant estimate involved.

As discussed in Note 6 to

the financial statements, the Company’s intangible assets are subject to impairment.

Intangible assets are valued at cost and amortized

using the straight-line method over the useful economic life of the asset and

tested for impairment.

The Company’s

intangible assets are comprised of FCC license and software arising from past acquisitions.

The assessment of intangible asset impairment

can be subjective and requires management to make judgements about whether the impairment needs to be recorded and the amount.

fiscal year ended December 31, 2020, the Company did not record any impairment of intangible assets.

How We Addressed the Matter in Our

We obtained a thorough understanding

of the controls the Company has in place to perform this assessment including the analysis of whether the controls are designed and operating

We performed our own detailed evaluation on the analysis of intangible asset impairment prepared by the management by comparing

the year-end balances to the undiscounted future cash flows from the intangible assets to evaluate the Company’s determination of

the carrying value as of December 31, 2020 and analyzed the inputs of the future cash flows to verifiable data.

/s/ Haynie & Company

audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements.

We believe that our audits

provide a reasonable basis for our opinion.

Audit Matters

critical audit matters communicated below are matters arising from the current period audit of the 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 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 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.

of Stock Based Compensation

of the Matter:

discussed in Note 10 to the financial statements, the Company offers stock option awards that involve complex accounting estimates.

evaluates the stock option awards in accordance with ASC Topic 718, “Compensation-Stock Compensation” and uses the Black

Scholes Model to value the stock option awards.

This model requires management to make assumptions, use judgment, and can be complex.

management's assessments and valuations can be complex, involves judgment, and requires a thorough understanding of award terms.

We Addressed the Matter in Our Audit.

reviewed all contracts to obtain a thorough understanding of the terms.

We tested the inputs and assumptions management used in the Black-Scholes

We reperformed the calculation of the stock-based compensation to test management’s valuations.

Haynie & Company

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April 14, 2022

We have served as the Company’s auditor since

have served as the Company’s auditor since 2019.

KONATEL, INC.

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Prepaid Expenses

Other Current Assets

Other Current Asset

Total Current Assets

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Total Other Assets

Liabilities and Stockholders’

Liabilities and Stockholders’ Equity

Current Liabilities

Accounts Payable and Accrued Expenses

Amount Due to Stockholder

Revolving Line of Credit

Note Payable - current portion

Right of Use Operating Lease Obligations - current

Right of Use Operating Lease Obligation - current

Deferred Revenue

Customer Deposits

Total Current Liabilities

Long Term Liabilities

Right of Use Operating Lease Obligations - long term

Right of Use Operating Lease Obligation - long term

Note Payable - long term

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Total Liabilities

Commitments and contingencies

Stockholders’

Common stock, $.001 par value, 50,000,000 shares authorized, 40,692,286 outstanding and issued at December 31, 2020 and December 31, 2019

Commitments and contingencies - Footnote 8

Stockholders’ Equity

Common stock, $ .001 par value, 50,000,000 shares authorized, 41,615,406 outstanding and issued at December 31, 2021 and 40,692,286 outstanding and issued at December 31, 2020

Additional Paid In Capital

Accumulated Deficit

Total Stockholders’

Total Liabilities and Stockholders’

( 5,345,504 )

( 5,968,489 )

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

The accompanying notes are an integral part of these

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Payroll and Related Expenses

Operating and Maintenance

Professional and Other Expenses

Utilities and Facilities

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Total Operating Expenses

Operating Loss

Operating Income/(Loss)

$ ( 360,019 )

Other Income and Expense

Interest Income

Interest Expense

Other Expenses

Total Other Income and Expenses

Net Income (Loss) before Provision for Income Tax

$ (1,683,404 )

Provision for Income Taxes (Benefit)

Net Income (Loss)

$ (1,584,904 )

Net Income (Loss) per Share

Weighted Average Number of Shares

Earnings per Share

Weighted Average Outstanding Shares

The accompanying notes are an integral part of these

consolidated financial statements.

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KONATEL, INC.

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$ ( 5,896,977 )

Dividend Settled in 2018

Stock Based Compensation

Dividends Paid to Apeiron Systems shareholders

Balances as of December 31, 2020

$ ( 5,968,489 )

Exercised Stock Options

Stock Based Compensation

Dividends Paid to Apeiron shareholders

Balances as of December 31, 2021

$ ( 5,345,503 )

Additional Paid-in Capital

Accumulated Deficit

The accompanying notes are an integral part of these

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,

For Years Ended December 31,

Cash Flows from Operating Activities:

Net Income (Loss)

$ (1,584,904 )

Adjustments to reconcile net loss to net cash provided by operating activities:

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Stock-based Compensation

Change in Right of Use Asset

Change In Right of Use Assets

Change in Lease Liability

Grant Revenue

Changes in Operating Assets and Liabilities, net of effects of acquisition:

Amount recorded as loan forgiveness of SBA Covid-19 Loans

Changes in Operating Assets and Liabilities:

Accounts Receivable

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Cash Flows from Investing Activities

Cash Received in Acquisition of IM Telecom

Notes Receivable from Sale of Business Component

Purchase of Assets

Asset Purchase of IM Telecom

Net cash provided by (used in) investing activities

Net cash (used in) investing activities

Cash Flows from Financing Activities

Repayment of Revolving Lines of Credit

Advances made by Stockholder

Repayment on Revolving Lines of Credit

Cash received from Stock Options Exercised

Proceeds from Federal SBA Covid-19 Loans

Repayments of amounts due to Related Party and Seller

Repayments of amounts due to Related Party

Repayments of amounts of Notes Payable

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Dividends Paid to Apeiron shareholders

Net cash used in financing activities

Net cash provided by (used in) financing activities

Net Change in Cash

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Non-cash investing and financing activities:

Asset Purchase of IM Telecom

Accounts Receivable

Prepaid Expense

Furniture and Equipment at Fair Market Value

Accounts Payable and Accrued Expenses, net of cash

Right of use assets obtained in exchange for new operating lease liabilities

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Nevada became our wholly owned subsidiary.

At the closing of this merger, our IRS Federal EIN number was changed from 80-0000245 through

customary processing, and EIN number 80-0973608 was assigned to us by the IRS on March 5, 2019.

On December 31, 2018, we acquired Apeiron Systems,

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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.

Mobile is an FCC licensed ETC (“Eligible Telecommunications Carrier”) and is one of 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 eight (8) states.

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 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 eight (8) states.

Basis of Presentation

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Periodically, management

reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables against

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.

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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

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fair value less costs to sell.

During 2019, KonaTel,

through the acquisition of IM Telecom, recorded, at

fair market value, an FCC License in the amount of $634,251.

During 2019, the Company, through the acquisition of IM Telecom, recorded, at fair market value, an FCC

License in the amount of $ 634,251 .

Other Intangible Assets are not amortized.

As of December 31, 2020, there

is no impairment of the value of the license.

As of December 31, 2021, there is no impairment of the value

of the license.

Other Assets represent items classified as long-term

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customer would change.

The Company held $0 and $31,088 in collateral deposits

from various sub-reseller customers at December 31, 2020, and 2019, 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.

The Company held $0 in collateral deposits from various

sub-reseller customers at December 31, 2021, and 2020, 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

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of acquisition.

The Fair Market Value is based on observable inputs on assets in active market- places for fixed assets, and estimations

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.

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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

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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

This standard update, along with related subsequently issued updates, clarifies the principles for recognizing revenue and develops

a common revenue standard U.S.

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.

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 U.S.

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

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Advertising expense was $ 89,678 and $ 15,840 for 2021 and 2020 respectively.

The increase in advertising costs was a result of

the expansion of the marketing of Infiniti Mobile via independent agents and local advertising efforts in Oklahoma.

Professional and Other Expenses

Previously for 2020, the Company presented certain

professional fees and other expenses under the category of “Operating and Maintenance.” These expenses are now being presented

under the category of “Professional and Other Expenses” as this change better represents the types of expenses that were incurred

during 2021 and 2020, respectively.

Stock-based Compensation

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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 2020, KonaTel issued stock-based options to key employees of the company.

Implementation

of the aforementioned standard had no effect on the issuance of the 2020 options.

Provisions for income taxes are based on taxes payable

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As of December 31, 2021, there are 1,981,926 potentially dilutive common shares.

As of December 31, 2019, there were 3,675,000 potentially dilutive common shares.

The dilutive common shares for the year ended December

31, 2020, and December 31, 2019, are not included in the computation of diluted earnings per share, because to do so would be anti-dilutive.

The following table provides a reconciliation of the

numerators and denominators used to determine basic and diluted net income/loss per common share:

following table provides a reconciliation of the numerators and denominators used to determine basic and diluted net income/loss per

common share:

Summary of Significant Accounting Policies - Schedule of Earnings Per Share, Basic and

Years Ended December 31,

Net Income/Loss

$ (1,584,904 )

Weighted-average common shares outstanding

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$ 783,431 or 63.9 % and $ 194,647 or 15.9 %.

As of December 31, 2019, the Company had a significant concentration of receivables from three

(3) customers in the amounts of $89,078, or 24.4%, $77,662, or 21.3% and $48,475, or 13.3%.

These receivables represented 14% and 59%

of the total receivables for the years ended December 31, 2020, and 2019, respectively.

As of December 31, 2020, the Company had a significant concentration of receivables from two

(2) customers in the amounts of $ 194,509 , or 52.4 %, and $ 52,843 , or 14.2 %.

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, 2020, the Company had one (1) cellular

provider that accounted for $3,337,262, or 35.7% of revenue and one (1) customer that accounted for $1,472,962, or 15.7%, of the

For the year ended December 31, 2019, the Company had one (1) cellular provider that accounted for $3,728,456, or 39.6% of

revenue and one (1) customer that accounted for $2,200,761, or 23.4%, 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.

A significant amount of the revenue is derived from

contracts with major customers.

For the year ended December 31, 2021, the Company had two (2) customers that accounted for $ 5,494,625

or 42.8 % of revenue and $ 3,617,833 or 28.2 %, of the revenue.

For the year ended December 31, 2020, the Company had two (2) customers that

accounted for $ 3,337,262 or 35.7 % and $ 1,472,962 or 15.7 % of 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.

It should be noted that the primary major

customer is the FCC through the federal Lifeline and EBB programs.

Effect of Recent Accounting Pronouncements

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NOTE 2 – SIGNIFICANT TRANSACTIONS

January 2019 Transaction – IM Telecom Acquisition

Effective February 7, 2018, we entered into an Agreement

for the Purchase and Sale of Membership Interest (the “PMSI”) dated as of February 5, 2018, with the transaction documents

being deposited in escrow on February 7, 2018, respecting the acquisition of 100% of the membership interest in IM Telecom from its sole

owner, Trevan Morrow.

The principal asset of IM Telecom was a “Lifeline Program” license (an FCC approved Compliance

Plan), the transfer of ownership of required prior approval of the FCC.

Following the FCC approval of the transfer of the Lifeline

Program license to us on October 23, 2018, the PSMI was completed on January 31, 2019.

At the closing, we also engaged Mr.

as an independent consultant for ninety (90) days in consideration of $100 and granted him an incentive stock option to purchase 500,000

shares of our common stock at an exercise price of $0.20 per share.

The incentive stock option to purchase 500,000 shares to Mr.

was cancelled as discussed in NOTE 8.

The purchase price of $583,690 consisted of payments of debt and

accounts payable made by the Company on behalf of IM Telecom from the PMSI effective date of February 7, 2018, until January 31,

2019, the closing date.

The purchase price allocation included the FCC license valued at $634,252, cash of $14,318, accounts

receivable of $123,959, prepaid other assets of $2,400, furniture and equipment of $1,309.

As part of the transaction, the Company

also agreed to assume accounts payable of $24,271.

The transaction was accounted for under the purchase

The purchase price allocation to assets and liabilities assumed in the transaction was:

Accounts Receivable

Prepaid Expenses and Deposits

Furniture and Equipment at Fair Value

Accounts Payable

Net Assets Acquired

Glosser Arbitration Settlement

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On February 14, 2020, the Company, on behalf of Apeiron

Systems, made a partial payment of $5,000 towards the surplus net working capital balance of $31,013 Apeiron Systems owed to Mr.

On March 5, 2020, the Company, on behalf of Apeiron Systems, paid Yanson $26,013, representing the final payment of the surplus net working

capital balance owed to Yanson.

Systems, made a partial payment of $ 5,000 towards the surplus net working capital balance of $31,013 Apeiron Systems owed to one (1) of

its officers, Vyacheslav Yanson.

On March 5, 2020, the Company, on behalf of Apeiron Systems, paid Mr.

Ploude $225,000.

The remaining surplus

net working capital balance of $54,117 was paid to Mr.

Yanson $ 26,013 , representing the

final payment of the surplus net working capital balance owed to Mr.

On March 8, 2020, the Company, on behalf of Apeiron Systems,

paid another of its officers, Joshua Ploude, $ 225,000 towards the surplus net working capital balance owned to Mr.

The remaining

surplus net working capital balance of $ 54,117 owed to Mr.

Ploude was paid to Mr.

Ploude during 2020.

With the final payment of $54,117

Ploude, the Company has fully satisfied its surplus net working capital obligation under the Apeiron Systems Merger Agreement.

Euler Hermes/Sky Phone Settlement

Between March and July 2019, IM Telecom purchased

Between March and July of 2019, IM Telecom purchased

wireless handsets from Sky Phone, LLC in the amount of $ 192,293 .

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The first payment was made on May

As of August 2021, the settlement had been paid in full.

SBA Paycheck Protection Program

On April 14, 2020 the operating companies of the Company

made loan applications to participate in the Small Business Administration’s Paycheck Protection Program created as a result of

the COVID-19 pandemic.

On April 15, 2020, the loan applications of Apeiron Systems, IM Telecom and KonaTel Nevada were approved and loan

proceeds in the amounts of $101,800, $20,900 and $186,300, respectively, were received.

The Company has followed all prescribed loan forgiveness

guidelines provided by our local bank and the SBA by using these loan proceeds to fund employee payrolls.

made loan applications to participate in the Small Business Administration’s (SBA”) Paycheck Protection Program (“PPP”)

created as a result of the COVID-19 pandemic.

On April 15, 2020, the PPP loan applications of Apeiron Systems, IM Telecom and KonaTel

Nevada were approved and loan proceeds in the amounts of $ 101,800 , $ 20,900 and $ 186,300 , respectively, were received.

The Company followed

all prescribed PPP loan forgiveness guidelines provided by our local bank and the SBA.

As of December 31, 2021, all PPP loans have been

forgiven by the SBA.

In 2020, the Company was granted a $ 150,000 Economic

Injury Disaster Loan (“EIDL”) from the SBA.

The term of the loan is thirty (30) years, at an interest rate of 3.75% on advanced

Installment payments were to begin twelve (12) months following the loan date.

The SBA has subsequently granted automatic deferments

of payments through March of 2022.

NOTE 3 – PROPERTY AND EQUIPMENT

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of December 31, 2021, and 2020:

Leasehold Improvements

Furniture and Fixtures

and Equipment - Schedule of Property and Equipment

Leasehold Improvements Leasehold Improvements

Furniture and Fixtures Furniture and Fixtures

Billing Software

Office Equipment

Accumulated Depreciation and Amortization

Office Equipment Office Equipment

Accumulated Depreciation

Property and equipment, net

Depreciation and amortization amounted to $30,783

and $30,642 for the years ended December 31, 2020, and 2019, respectively.

Depreciation and amortization expense are included as a component

of operating expenses in the accompanying statements of operations.

Depreciation expense amounted to $ 30,683 and $ 30,783

for the years ended December 31, 2021, and 2020, respectively.

Depreciation expense is included as a component of operating expenses in

the accompanying statements of operations.

NOTE 4 – RIGHT-OF-USE ASSETS

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The assets are recorded at present value using implied interest rates between 3.29 % and 5.34 %.

The net Right-of-Use Assets

The Right-of-Use Assets

were $ 173,524 and $ 80,578 in 2021 and 2020, respectively.

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of properties under non-cancelable leases.

As of December 31, 2020, the Company had two (2) properties with lease terms in excess of one

These lease liabilities expire April 30, 2022, and December 31, 2021.

As of December 31, 2021, the Company had one (1) property with lease terms in excess of (1)

This lease liability expires December 31, 2026.

Lease payables as of December 31, 2020, are $ 81,722 .

lease liability payments under the terms of these leases are as follows:

Future lease liability payments

under the terms of these leases are as follows:

Less Interest

Present value of minimum lease payments

Less Current Maturities

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NOTE 5 – INTANGIBLE ASSETS

Intangible Assets with definite useful life consist of licenses, customer

lists and software that were acquired through acquisitions:

Customer Lists

Accumulated Amortization

Intangible Assets with definite useful life consist

of licenses, customer lists and software that were acquired through acquisitions:

Customer List

( 3,542,963 )

( 2,740,629 )

Net Amortizable Intangibles

Right of Use Assets - net

Intangible Assets net

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the accompanying statements of operations.

Amortization expense is expected to be as follows:

With the exception of the license granted by the FCC, all intangible assets are fully amortized

as of December 31, 2021.

Intangible Assets with indefinite useful life consist

of a license granted by the FCC:

The License, because of the nature of the asset and

the limitation on the number of granted licenses by the FCC, will not be amortized.

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.

fair market value of the License as of December 31, 2020, and December 31, 2019, was $634,252.

The fair market value of the license

as of December 31, 2021, and December 31, 2020, was $ 634,251 .

NOTE 6 – LINES OF CREDIT

The Company previously had two (2) lines of credit

with a bank which provided aggregate maximum borrowing availability of $1,050,000 as of 2020, and 2019, respectively.

The lines of credit

were payable on demand and bore interest at a variable rate with rate ranges from 7.5% to 8.0%.

Outstanding advances under these lines

of credit arrangements amounted to $0 as of December 31, 2020, and $12,237 as of December 31, 2019.

The lines of credit matured in 2020

and were paid in full on January 5, 2020, and February 14, 2020.

with a bank, which provided aggregate maximum borrowing availability of $ 1,050,000 as of 2020.

The lines of credit were payable on demand

and bore interest at a variable rate with rate ranges from 7.5% to 8.0%.

The lines of credit matured in 2020 and were paid in full on

January 5, 2020, and February 14, 2020, respectively.

The Company had no outstanding lines of credit as of December 31, 2021.

NOTE 7 – AMOUNT DUE TO STOCKHOLDER

As of January 1, 2018, D.

Sean McEwen was owed $191,500.

This advance matured and final payment was received in October, 2019.

During 2019, Joshua Ploude, CEO of Apeiron Systems,

advanced the Company $200,000.

The amount was used to provide a vendor security deposit.

The note carried a 10% per annum interest rate

until May 1, 2019, at which time, increased to 12% per annum.

The note had an original maturity date of July 10, 2019.

The loan was extended

without a defined maturity end date.

The amount due as of December 31, 2019, was $151,357.

The advance was fully repaid with interest

on November 25, 2020.

The total amount of repayment for the years ended

December 31, 2020, and 2019, to stockholders was $151,357 and $147,251, respectively.

The Company received a $ 200,000 advance from a shareholder in 2019, who

is also the CEO of Apeiron Systems.

The loan accrued interest at a range rate between 10% and 12% .

As of October, 2020, the loan had been

NOTE 8 – CONTINGENCIES AND COMMITMENTS

From time to time, the Company may be subject to legal

proceedings and claims which arise in the ordinary course of business.

As of December 31, 2020, there are no legal proceedings.

proceedings and claims that arise in the ordinary course of business.

As of December 31, 2021, there are no such legal proceedings.

Contract Contingencies

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Pursuant to an Independent Contractor Agreement (the

“ICA”) effective October 17, 2019, between the Company and Charles L.

Schneider, Jr., in the event that Infiniti Mobile is

granted its request for Eligible Telecommunications Carrier (“ETC”) status from the California Public Utilities Commission

(“CPUC”) to distribute Lifeline cellular phone service within the State of California, Mr.

Schneider will be granted a one

(1) year Warrant, with a customary “cashless”

exercise feature, to purchase 250,000 shares of the Company’s common

stock at an exercise price to be determined on the date of any such approval.

The ICA was for a term of one (1) year, extendable by the

parties yearly.

“ICA”) effective October 17, 2019, between the Company and Charles L.

Schneider, Jr., in the event that Infiniti Mobile was

granted its request for ETC status from the California Public Utilities Commission (“CPUC”) to distribute Lifeline cellular

phone service within the State of California, Mr.

Schneider was to be granted a one (1) year warrant, with a customary “cashless”

exercise feature, to purchase 250,000 shares of the Company’s common stock at an exercise price to be determined on the date of

any such approval.

The ICA was for a term of one (1) year, and extendable by the parties yearly.

This agreement expired prior to December

Regulatory Determination

On May 17, 2019, IM Telecom was notified by the United

States Administrative Company (“USAC”) of an over-payment of Universal Service Fund reimbursements in the amount of $168,277.

On July 25, 2019, the Company entered into a Letter of Acknowledgement with the FCC and requested a twenty-four (24)-month payment plan

regarding the repayment of the over-payment amounts.

While awaiting approval of this repayment plan, the Company continued to make monthly

payments against the outstanding balance.

On October 15, 2020, the Company received approval of the payment plan and signed a promissory

note with Universal Service Administrative Company to repay the remainder of the unpaid balance in the amount of $67,105.

a commencement date of November 13, 2020, a term of twelve (12) months, with an annual interest rate of 12.75%.

The Company agreed to

pay Universal Services Administration Company $5,986 per month for twelve (12) months, and a $1,000 Administrative Fee due on October

As of December 31, 2020, the outstanding balance on this promissory note was $56,559.

The Company entered into a Settlement Agreement and

Release with the former owner of IM Telecom regarding this matter, effective September 4, 2019, which was the date of delivery of the

fully executed Settlement Agreement and Release that was dated August 22, 2019, and filed with the SEC on September 4, 2019.

Settlement Agreement and Release, and as part of the previous owner’s obligations to indemnify and hold the Company harmless from

any liability arising from the breach of any representations and warranties in the initial PSMI dated February 5, 2019, and filed with

the SEC on February 6, 2019, which included this liability, the vested $0.20 per share 500,000 share incentive stock option grant that

was awarded to the previous owner at the closing of the PSMI was cancelled and deemed null and void, and the previous owner was released

from any liability for the $168,277 over-payment.

All of the other terms and conditions of the PSMI remain in full force and effect, including

the continuing indemnification provisions regarding all other representations and warranties.

On May 17, 2019, IM Telecom was notified by USAC of

an over-payment of Universal Service Fund reimbursements in the amount of $168,277.

On July 25, 2019, the Company entered into a Letter

of Acknowledgement with the FCC and requested a twenty-four (24)-month payment plan regarding the repayment of the over-payment amounts.

While awaiting approval of this repayment plan, the Company continued to make monthly payments against the outstanding balance.

15, 2020, the Company received approval of the payment plan and signed a promissory note with USAC to repay the remainder of the unpaid

balance in the amount of $67,105.

The loan had a commencement date of November 13, 2020, a term of twelve (12) months, with an annual

interest rate of 12.75%.

The Company agreed to pay USAC $5,986 per month for twelve (12) months, and a $1,000 Administrative Fee due on

October 15, 2020.

The promissory note was paid in full in August of 2021.

Letters of Credit

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December 31, 2021.

Going Concern

The Company generated net income during the year ended

December 31, 2020.

In 2019 and 2018, the Company had been dependent upon equity financing to support its operations.

In addition to net

income of $238,618 and loss of $1,584,904 for the years ended December 31, 2020, and 2019, respectively, the Company experienced cash

provided by operations of $571,546 and $107,298, respectively.

The accumulated deficit as of December 31, 2020, is $5,968,489.

The Company has ameliorated any substantial doubt

issues by generating additional cash flow since the completion of our merger with KonaTel Nevada on December 18, 2017;

the acquisition

of Apeiron Systems and IM Telecom;

receiving cash investments through the private placement of shares of our common stock;

from the growth of IM Telecom, all of which has contributed to an improvement in our working capital, without the use of additional lines

of credit or borrowings.

In addition, the Company took advantage of the Paycheck Protection Program under the CARES Act of 2020.

Our overall goal was to increase margins through cost

controls and selection of higher margin product offerings.

From 2019 to 2020, our gross margins increased from 31.3% to 37.8% respectively.

Our net operating income (pre-depreciation and amortization expenses) improved 133% from 2019 to 2020.

We decreased operating expenses

by 13.4% in 2020, as we continue to streamline customer offerings to drive costs down over an extended period of time.

We continue to

be confident that with aggressive management and business development that we will continue to eliminate any going concern issues.

N OTE 9 – SEGMENT REPORTING

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decisions regarding operations, and therefore, the total assets disclosure by segment has not been included.

Previously, the Company had

reported four (4) segments of Hosted Services, Mobile Services, Lifeline ETC and Lifeline VETC.

The Company has made the decision to consolidate

and align its segment reporting by the type of service offering and believes that this reporting will provide for a more accurate view

of its lines of operation.

The reportable segments consist of Hosted Services

& Mobile Services.

and Mobile Services.

Mobile Services reporting will now consist of our post-paid and pre-paid cellular business.

Hosted Services – This segment includes

a suite of hosted CPaaS services including SIP/VoIP services, SMS/MMS, BOT integration, NLP (“Natural Language Processing”),

ML, mobile numbers, toll free numbers, DID landline numbers, SMS to Email, Database Dip, SD-WAN, wireless data services, voice termination

and numerous API driven services.

Apeiron Systems developed, owns, and supports its hosted service platform through its dedicated

national telecommunications network.

Apeiron Systems provides telecommunications services to application developers, call centers and

small and medium size businesses.

Apeiron Systems markets these services through the Apeiron Systems website, independent sales agents,

ISOs and SCOs.

Mobile Services –

This segment includes retail and wholesale cellular voice/text/data services and mobile data (IoT or “Internet of Things”)

services Mobile voice/text/data and 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 does not own the wireless network infrastructure

a suite of hosted CPaaS services within the Apeiron Systems’ cloud platform, including Cloud IVRs, Voicemail, Fax, Call Recording

and other services provided with local, toll-free, and international phone numbers.

Apeiron also delivers public and private IP network

services from its national redundant network backbone including MPLS, Dedicated Internet and LTE Wireless WAN solutions.

Additionally,

Apeiron’s Cloud Services include Information Data Dips, SD-WAN, and IoT data and device management.

These Hosted Services are marketed

nationally through Apeiron’s website, its own sales staff, independent sales agents, and ISOs.

Mobile Services – This segment includes

retail and wholesale cellular voice/text/data services and IoT mobile data services through our subsidiaries Apeiron Systems and IM Telecom.

Mobile voice/text/data and IoT mobile data services are supported by a blend of reseller agreements with select national wireless carriers

and national wireless wholesalers.

A wireless communications service reseller typically does not own the wireless network infrastructure

over which services are provided to its customers.

Mobile voice/text/data and mobile data solutions are generally sold as traditional

post-paid service plans that may include voice/text/data or wireless data only plans.

Sometimes equipment is provided which can include,

but is not limited to, phones, tablets, modems, routers, and accessories.

Also included as mobile services are the resale of cellular

services to low-income consumers that qualify for the federal Lifeline program.

The portion of mobile services is operated by IM Telecom,

operating under its Infiniti Mobile brand.

post-paid service plans that may include voice/text/data or wireless data only

Sometimes equipment is provided, which can

include, but is not limited to, phones, tablets, modems, routers and accessories.

Also included in our Mobile Services segment is the

distribution of cellular voice service and mobile data service by IM Telecom under its Infiniti Mobile brand to low-income American households

that qualify for the FCC’s Lifeline voice service program and the FCC’s temporary EBB mobile data program, with EBB to eventually

be replaced by FCC’s ACP in 2022.

Even though government programs like Lifeline have existed since 1985, these programs, along with

newer programs like the temporary EBB program and future ACP program, are subject to change and may have a material impact on our Mobile

Services business if changed, reduced, or eliminated.

The following table reflects the result of operations

of the Company’s reportable segments:

Segment Reporting - Schedule of Segment

Reporting Information

Hosted Services

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Stock Compensation

The Company offers stock option equity awards to directors

and key employees.

Options vested in tranches and expire in five (5) years.

During the year ended December 31, 2020, and 2019, the Company

recorded vested options expense of $80,603 and $338,333 respectively.

The option expense not taken as of December 31, 2020, is $1,058,593,

with a weighted average term of 2.2 years.

The stock option valuation as of December 31, 2020

was computed using the Black-Scholes-Merton pricing model using an average stock price of $0.141, a strike price of $0.155, an expected

term of five (5) years, volatility of 280.02% and a risk-free discount rate of 0.9%.

The stock option valuation as of December 31, 2019

was computed using the Black-Scholes-Merton pricing model using a stock price of $.152, a strike price of $.15, an expected term of five

(5) years, volatility of 258.10% and a risk-free discount rate of 1.52%.

The estimated grant-fair value of stock option grants

was calculated using the Black-Scholes-Merton option-pricing model using the following assumptions:

The Company offers incentive stock option equity awards

to directors and key employees.

Options vest in tranches and expire in five (5) years, subject to conditions of their grant.

year ended December 31, 2021, and 2020, the Company recorded vested options expense of $ 341,515 and $ 80,603 , respectively.

expense not taken as of December 31, 2021, is $ 1,306,337 , with a weighted average term of 2.25 years.

In 2021, 1,635,000 share incentive stock options were

granted to two (2) independent members of the Board of Directors and six (6) key employees.

Each independent Board member was granted

25,000 shares per quarter of service for 2020 and 2021 for a total of 200,000 shares each.

The key employees were granted 1,435,000 share

options as part of their employment agreements.

During the year ended December 31, 2021, 923,210 shares were exercised.

250,000 of these

options were exercised by one (1) former Board member who received his options at the time of the KonaTel Nevada merger in 2017 and who

was not an independent director, and 250,000 of these options were exercised by an officer who also received his options at the time of

the KonaTel Nevada merger;

the remaining 423,120 options were exercised by a former key employee.

During the year, 251,880 share options

were forfeited.

The forfeited options were 76,880 granted to a former key employee and 175,000 granted to former independent Board members.

The Aggregate Intrinsic Value is based on the market value of the Company’s common stock of $1.75 on December 31, 2021.

Basic net 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 estimated grant date fair value of stock option

grants was calculated using the Black-Scholes-Merton option-pricing model using the following assumptions:

Stockholders’ Equity - Schedule of Fair Value of Stock Options Valuation Assumptions

Weighted average

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as of and for the year ended December 31, 2021:

Stockholders’ Equity - Schedule of

Share-Based Compensation, Stock Option Activity

Weighted Average

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Intrinsic Value

Options Outstanding – December 31, 2019

Options Outstanding – December 31, 2020

Exercisable and Vested, December 31, 2020

In 2020, 400,000 share options were granted to two

(2) members of the Board of Directors.

Each member was granted 25,000 shares per quarter of service for 2019 and 2020 for a total of 200,000

During the year, 350,000 share options were forfeited.

The forfeited options were 300,000 from a key employee and 50,000

from a board member who had resigned and had not exercised his options prior to their expiration.

The Aggregate Intrinsic Value is based

on the market value of the Company’s common stock of $0.421 on December 31, 2020.

Options Outstanding:

December 31, 2020

Options Outstanding:

December 31, 2021

Exercisable and Vested:

December 31, 2021

The following table represents stock option activity

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Intrinsic Value

Options Outstanding – December 31, 2018

Options Outstanding – December 31, 2019

Exercisable and Vested, December 31, 2019

In 2019, 1,100,000 share options were granted.

share options were granted as part of the acquisition of IM Telecom.

600,000 share options were granted to key employees.

During the year,

1,550,000 share options were forfeited.

The forfeited options were 1,000,000 from a key employee, 500,000 from the IM Telecom acquisition

amendment, and 50,000 from a board member who had resigned and not exercised the options prior to their expiration.

Options Outstanding:

December 31, 2019

Options Outstanding:

December 31, 2020

Exercisable and Vested:

December 31, 2020

In 2020, 400,000 share options were granted to two

(2) independent members of the Board of Directors.

Each member was granted 25,000 shares per quarter of service for 2019 and 2020 for

a total of 200,000 shares each.

During the year 2020, 400,000 share options were forfeited.

The forfeited options were 300,000 from a

key employee and 100,000 from an independent Board member who had resigned and had not exercised his options prior to their expiration

following resignation.

The Aggregate Intrinsic Value is based on the market value of the Company’s common stock of $0.421 on December

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NOTE 11 – INCOME TAX

For the years ending December 31, 2020, and December

For the years ending December 31, 2021, and 2020,

there was no provision for income taxes and deferred tax assets have been entirely offset by valuation allowances.

The components of the provision for income taxes for

the years ended December 31, 2021, and 2020 consisted of the following:

Tax - Schedule of Components of Income Tax Expense

Total Current

Total Deferred

Deferred tax assets:

Net loss carryforward

Directors' fees

Stock option expense

Total deferred tax assets

Deferred tax liabilities:

The reconciliation of taxes at the federal statutory rate to our provision

for income taxes for the years ended December 31, 2021 and 2020

Tax at statutory federal rate

Loss carryforward at statutory tax federal rate

Provision for income tax

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The tax effect of significant components of the Company’s

deferred tax assets and liabilities at December 31, 2021, and 2020, respectively, are as follows:

Income Tax - Schedule of Deferred Tax

Assets and Liabilities

Deferred tax assets:

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income and tax planning strategies in making this assessment.

Because of the historical earnings history of the

Company, the net deferred tax assets for 2020 and 2019 were fully offset by a 100% valuation allowance.

The total NOL as of December 31,

2020, is $1,587,111.

On December 22, 2017, the United States Government passed new tax legislation that, among other provisions, will

lower the corporate tax rate from 35% to 21%.

In addition to applying the new lower corporate tax rate in 2018 and thereafter to

any taxable income the Company may have, the legislation affects the way the Company can use and carry forward net operating losses previously

accumulated and results in a revaluation of deferred tax assets recorded on our balance sheet.

Given that the deferred tax assets

are offset by a full valuation allowance, these changes did not have an impact on the Company’s financial position and net loss.

As long as the Company continues to be profitable, the Company will receive a reduced benefit from such deferred tax assets.

The total NOL as of December 31, 2021, is $ 1,518,534 ,

represented below based on year of expiration;

Income Tax - Schedule of Operating Loss Carryforward

NOTE 12 – SUBSEQUENT EVENTS

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the date of this filing, and with the exception of the following, no material subsequent events have occurred:

Loss of Significant Employee

Effective February 19, 2021 one (1) of our significant

employees, Vyacheslav “Slava” Yanson resigned his position as Chief Technology Officer of Apeiron Systems.

The Company is

in the process of evaluating several channels for replacing Mr.

Yanson’s industry knowledge and expertise.

Forgiveness of CARES Act Paycheck Protection Program

During March 2021, the Company received confirmation

from the Small Business Administration that the PPP loans for Apeiron Systems ($101,800) and IM Telecom ($20,900) respectively have been

Application for forgiveness for the remaining loan to KonaTel Nevada in the amount of $186,300 is in process.

New Leased Headquarters Office Space

On December 18, 2020, the Company entered into a lease

agreement for an office suite in Plano, TX to commence on January 25, 2021.

Lease payments are deferred until May 1, 2021.

on May 1, 2021 lease payments will be $3,650 per month for the 12-month period ended April 30, 2022.

The lease term is five (5) years.

100,000 Incentive Stock Options granted to Terry Addington,

a director who resigned effective January 1, 2020, expired on January 1, 2021.

The Company granted two (2) quarterly director 25,000

share Incentive Stock Options, one to Jeffrey Pearl on January 28, 2021, at an exercise price of $0.4895, fully vested;

and one to Robert

Beaty on February 12, 2021, at an exercise price of $0.44, fully vested.

The exercise prices were based upon 110% of the fair market value

of our common stock on these respective dates.

On April 1, 2021, the Company also granted 150,000

Incentive Stock Options to an employee at an exercise price of $ 0.32 , with 50,000 shares

vesting annually on April 1, 2022, 2023 and 2024.

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Changes of Officers and Directors

Effective January 1, 2022, Charles D.

hired as President and Chief Operating Officer of the Company.

Griffin will lead the Company’s sales and marketing divisions

and all Company operations, subject to advice and consultation with the Chairman and CEO, D.

McEwen and the Company executed a third amendment

to his Employment Agreement, effective April 12, 2022.

Effective February 4, 2022, Paul LaPier resigned his

position as Vice President of Finance and Secretary of the Company.

LaPier has agreed to continue to assist the Company as a consultant

through December 31, 2022.

Effective January 24, 2022, the Company elected Todd

Murcer as Executive Vice President of Finance and Secretary to replace Mr.

Welch was elected as the President of IM

Telecom, effective February 14, 2022.

The Company entered into Employment Agreements with

Murcer and Welch, effective January 24, 2022, and February 14, 2022, respectively, or the effective dates of their respective

Employment Agreements.

Effective February 28, 2022, Nicholas Metherd resigned

as the COO of IM Telecom.

Metherd has agreed to continue to assist the Company as a consultant through December 21, 2022

Increase in Common Stock reserved for Employee

Stock Option Grants

Effective February 10, 2022, the Board of Directors

of the Company increased the shares reserved for issuance under its 2018 Incentive Stock Option Plan by an additional 2,000,000 shares.

Employee Stock Option Grants

Murcer was granted 350,000 incentive stock options

as of the effective date of his Employment Agreement at an exercise price of $ 1.165 per share, vesting on the four (4) year anniversary

dates of the grants, at the fair market value of our common stock on the date of grant or January 24, 2022.

Jeffrey Pearl, an independent Board member, was granted

25,000 quarterly incentive stock options on January 28, 2022, at an exercise price of $ 1.342 , fully vested, which was 110% of the fair

market value of our common stock on the date of grant.

Robert Beaty, an independent Board member, was granted

25,000 quarterly incentive stock options on February 12, 2022, at an exercise price of $ 1.138 , fully vested, which was 110% of the fair

market value of our common stock on the date of grant.

Welch was granted 350,000 incentive stock options

as of the effective date of his Employment Agreement at an exercise price of $ 1.04 per share, vesting on the four (4) year anniversary

dates of the grants, at the fair market value of our common stock on the date of grant or February 12, 2022.

SBA EIDL Loan

The Company received notice on March 16, 2022, of

an additional six (6) month automatic repayment deferment on its $ 150,000 SBA EIDL loan, with monthly loan payments to commence on or

about September 2022.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data