Item 1. Business
ITEM 1. BUSINESS
Corporate History and Business Development
We were 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. At that time, all of our prior operations were conducted through Lee Building Products and T. A. Kilgore &
Company, which owned and operated a home center in League City, Texas, about 30 miles southeast of downtown Houston, Texas. During 1990,
we ceased these operations, and the secured lenders took possession our assets.
We changed our name to “Dala Petroleum Corp.”
on August 29, 2014; and then to “KonaTel, Inc.” on February 5, 2018, following the closing of two respective mergers that
are discussed below.
On March 11, 2000, our Board of Directors began the
process of re-entering the development stage, and on June 2, 2014, we completed a merger with Dala Petroleum Corp., a Nevada corporation
(respectively, “Dala Nevada” and the “Dala Merger”). Dala Nevada was wholly owned by Chisholm Partners II, LLC,
a Louisiana limited liability company (“Chisholm II”). We operated as an early-stage oil exploration company focused on our
leased acreage acquired by Dala Nevada until 2016, when Chisholm II returned a total of 8,567,800 shares of the 10,000,000 shares of our
common stock exchanged under the Dala Merger to us for cancellation in exchange for our assignment of approximately 55,000 acres, more
or less, of our leased acreage or approximately 68.75% of our total holdings, to Chisholm II. All of our remaining oil and gas leasehold
interests, comprising leases covering approximately 7,489 and 403 acres, more or less, expired in 2017 and 2018, respectively.
On July 20, 2017, pursuant to a Common Stock Purchase
Agreement dated July 19, 2017, M2 Equity Partners, LLC, a privately held Minnesota limited liability company (“M2”), acquired
12,100,000 shares of our common stock in consideration of the sum of $367,500, which resulted in a change in control of our Company.
On November 13, 2017, we filed an Amended and Restated
Certificate of Incorporation with the State of Delaware, which removed all of the designations of our preferred stock from our Certificate
of Incorporation, while reserving our 50,000,000 authorized and unissued one mill ($0.01) par value shares of preferred stock for future
issuance as the Board of Directors may designate and approve. See Part IV, Item 15, Exhibit 3(i).
Effective December 18, 2017, we completed an Agreement
and Plan of Merger (the “KonaTel Merger Agreement”) with KonaTel, Inc., a Nevada corporation (the “KonaTel Nevada”),
under which KonaTel Nevada became our wholly owned subsidiary on the closing of the merger (the “KonaTel Nevada Merger”),
and we succeeded to the business operations of KonaTel Nevada.
Effective February 7, 2018 (dated as of February 5,
2018), we entered into an Agreement for the Purchase and Sale of Membership Interest (the “PSMI”), with the transaction documents
being deposited in escrow on February 7, 2018, respecting the acquisition of 100% of the membership interest in IM Telecom, LLC, an Oklahoma
limited liability company, (doing business as “Infiniti Mobile”) (“IM Telecom” or “Infiniti Mobile), from
its sole owner, Trevan Morrow (“Mr. Morrow”). The principal asset of IM Telecom, at that time, was a “Lifeline
Program” license of the Federal Communications Commission (“FCC”) (an FCC approved wireless Compliance Plan).
On August 9, 2018, we entered into an Asset Purchase
Agreement (the “Telecon Wireless Agreement”) with Telecon Wireless Resources, Inc., a New York corporation (the “Telecon
Wireless”), whereby we sold various assets, including furniture, fixtures, equipment, account receivable and a customer list, among
other assets and liabilities. Additional information on the Telecon Agreement can be accessed in Part IV, Item 15 hereof, under the heading
“Telecon Wireless Sale Current Report.”
Effective December 31, 2018, we completed an Agreement
and Plan of Merger with Apeiron Systems, Inc., a Nevada corporation (respectively, “Apeiron Systems” and the “Apeiron
Systems Merger Agreement”), under which Apeiron Systems became our wholly owned subsidiary on the closing of the merger (the “Apeiron
Systems Merger”). We issued 7,000,000 shares of our common stock in exchange for all of the outstanding shares of common stock
of Apeiron Systems, to Apeiron Systems’ two (2) shareholders, Joshua Ploude (6,300,000 shares) and Vyacheslav Yanson (700,000 shares),
pro rata, in accordance with their respective equity interests in Apeiron Systems. Closing conditions to the Apeiron Systems Merger Agreement
included, among other conditions, that the Apeiron Systems shareholders would have a $1.00 per share “Guaranteed Value” on
the KonaTel shares they received under the Apeiron
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Systems Merger if the KonaTel shares do not trade
at or above $1.00 for ten (10) consecutive days during the period commencing on December 31, 2020, and ending December 31, 2021, on the
applicable trading market for our common stock during that period, and subject to such shares being continuously owned of record by the
Apeiron Systems shareholders, as outlined in Section 5.10 of the Apeiron Systems Merger Agreement. This condition was fully satisfied
effective June 16, 2021. See the Company’s 8-KA Current Report dated and filed with the SEC on that date and which is available
by Hyperlink in Part IV, Item 15.
On April 14, 2020, our operating subsidiaries made
loan applications to participate in the Small Business Administration’s (the “SBA”) Paycheck Protection Program (the
“PPP”) created under the “Cares Act” 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. We followed all prescribed loan forgiveness guidelines provided by our local bank and the SBA by using these loan proceeds
to fund employee payroll through the 60-day period ending on June 15, 2020. All PPP loans were forgiven by the SBA in 2021.
On December 14, 2020, the shares of the Company’s
common stock were approved for up listing to the OTC Markets OTCQB® Venture Market (“OTCQB”). OTCQB is a venture market
operated by the OTC Markets. To be eligible for quotation on the OTCQB, companies must be current in their reporting obligations under
Section 13 or 15(d) of the Exchange Act and undergo an annual verification and management certification process. Companies must also meet
a minimum bid price test and other financial conditions. The OTC Markets is recognized by the SEC as a “Qualified Interdealer Quotation
System” (“IDQS”) under SEC Rule 15c2-11(e)(6); and the OTCQB is an established public market that provides current public
information to investors that need to analyze, value and trade securities.
On August 25, 2021, the Company filed a registration
statement with the SEC on Form S-8 to register 5,901,884 shares of its common stock underlying granted and unexercised employee incentive
stock options under its 2018 Incentive Stock Option Plan.
BUSINESS
KonaTel Nevada was organized under the laws of the
State of Nevada on October 14, 2014, by its founder and then sole shareholder, D. Sean McEwen, to conduct the business of a full-service
cellular provider that delivered cellular products and services to individual and business customers in various retail and wholesale
markets. Through its sales network, it provided these services nationwide. In furtherance of its proposed business, on November 1, 2014,
it acquired most of the assets of Coast to Coast Cellular, Inc. (“Coast to Coast”), including inventories, property, plant
and equipment and its customer list, all valued at approximately $950,000 net of liabilities in the approximate amount of $415,000; and
on November 1, 2016, it acquired the assets of CS Agency LLC (“CS Agency”), consisting of contract rights related to the
cellular industry, in consideration of assuming liabilities of CS Agency in the approximate amount of $300,000. With the completion of
the KonaTel Nevada Merger, we succeeded to the current and intended business operations of KonaTel Nevada.
On December 31, 2018, we acquired
Apeiron Systems (www.apeiron.io) (“Apeiron Systems” or “Apeiron”), which is also our wholly owned subsidiary.
Apeiron was organized in 2013 and is an international hosted services Communications Platform as a Service (“CPaaS”) provider
that designed, built, owns and operates its national private core network, supporting a suite of business communications services, all
accessible via proprietary Applications Programming Interfaces (“APIs”). As an FCC licensed Internet Telephony Service Provider
(“ITSP”), Apeiron also holds an FCC numbering authority license. Some of Apeiron’s hosted services include Voice over
IP (“VoIP”), cellular and Over-The-Top (“OTT”) telephony, SMS/MMS messaging and broadcast services, numbering
features, including Cloud IVRs, Voicemail, Fax, Call Recording and other services through local, toll-free and international phone numbers.
Supported by its national redundant network, Apeiron also provides public and private IP network services, including Multiprotocol Label
Switching (“MPLS”), Dedicated Internet and LTE Wireless WAN solutions. Apeiron’s cloud services include Information
Data Dips, Software-Defined Wide Area Networking (“SD-WAN”) and Internet of Things (“IoT”) data and device management.
Apeiron primarily distributes its services nationally through its website, its sales staff, independent sales agents, and Independent
Sales Organizations (“ISOs”).
On February 5, 2018, we entered into a purchase agreement
to acquire IM Telecom (www.infinitimobile.com), doing business as Infiniti Mobile (“IM Telecom” or “Infiniti Mobile”).
On October 23, 2018, the FCC approved our acquisition of IM Telecom, and on January 31, 2019, we completed the purchase of IM Telecom.
IM Telecom operates as a wholly owned subsidiary of KonaTel. It is an FCC licensed Eligible Telecommunications Carrier (“ETC”)
and is one of twenty-two (22) original FCC licensed wireless cellular resellers to hold an FCC approved Lifeline Compliance Plan since
2012, of which approximately twelve (12) license holders remain active today. The FCC has not approved (granted) a new wireless reseller
Lifeline Compliance Plan since 2012. As a licensed ETC, IM Telecom is currently authorized to distribute Lifeline subsidized mobile voice/data
service in nine (9) states. In addition to Lifeline, IM Telecom is also an FCC licensed Emergency Broadband Benefit (“EBB”)
provider, authorized to distribute EBB subsidized high-speed mobile data service in the forty-eight (48) contiguous states plus Washington
D.C. and Puerto Rico. EBB is expected to be replaced by the Affordable Connectivity Program (“ACP”) in 2022 under new terms
and conditions. Lifeline is an FCC program that provides subsidized, fixed or mobile telecommunications services to low-income Americans.
EBB is an FCC program that provides subsidized
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high-speed wireless data services to low-income Americans.
IM Telecom distributes Lifeline and EBB services under its Infiniti Mobile brand name through its website, sales staff, retail location
and ISOs. IM Telecom also offers non-Lifeline and non-EBB services throughout the United States.
Apeiron Systems is headquartered in Los Angeles, California.
It also has some management staff in Plano, Texas, customer service and software engineering resources staffed in Johnstown, Pennsylvania
and software engineering services staffed in Europe and Asia. IM Telecom is headquartered in Plano, Texas, and operates a retail operation
in Tulsa, Oklahoma.
We are headquartered in Plano, Texas, shared with
IM Telecom’s offices. Apeiron Systems has thirteen (13) full-time employees; IM Telecom has four (4) full-time employees and two
(2) part-time employees; and we have four (4) full-time employees.
Principal Products
or Services and their Markets
Our principal products and
services, across our two wholly owned subsidiaries, Apeiron Systems and IM Telecom, include our CPaaS suite of services (SIP/VoIP, SMS/MMS),
wholesale and retail mobile voice and mobile data IoT services, wholesale voice termination services, and our ETC and EBB subsidized services
for low-income Americans. Except for our ETC Lifeline services distributed in up to nine (9) states and our EBB services distributed in
the forty-eight (48) contiguous states, Washington D.C. and Puerto Rico, our Apeiron Systems’ products and services are available
worldwide and subject to U.S., international and local/national regulations.
We generate revenue from
two (2) primary sources, Hosted Services and Mobile Services:
· Our Hosted Services include a suite of hosted CPaaS services within 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.
· 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 temporary EBB mobile data program, with EBB to eventually be replaced by
FCC’s ACP program 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.
Distribution Methods of the Products or Services
We primarily distribute our
Hosted Services through our website, sales staff, independent sales agents and ISOs. We primarily distribute our Mobile Services through
our website, sales staff, retail location, independent sales agents and ISOs. In early 2021, we increased our Mobile Service online marketing
effort and by the end of 2021, online mobile service distribution increased by approximately 320% compared to 2020 online distribution.
Sources and Availability of Raw Materials
and the Names of Principal Suppliers
Wholesale wireless services
are sourced either directly from the wireless carrier or from wholesalers that sit between us (Apeiron Systems and IM Telecom) and the
wireless carrier. Carriers can include Verizon, T-Mobile, Sprint, and AT&T. Wholesalers can include Prepaid Wireless Group (“PWG”)
and Telispire.
Wireless resellers like us traditionally do not own
the wireless infrastructure over which services are provided. We purchase services from the following sources:
· Telispire: Verizon voice, text and data service. Telispire, through a contract
with us, has set per unit pricing for voice, text, and data wireless services. Pricing per unit is in the form of a monthly recurring
charge (“MRC”) that may or may not include minutes of use, text units or data units. Additional data units are available for
purchase;
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· AT&T: AT&T voice, text or data service and AT&T IoT service
under a contract with us, has set “unit based” pricing for voice, text, and data and IoT wireless services. Pricing per unit
is in the form of an MRC that may or may not include minutes of use, text units or data units. Additional data units are available for
purchase;
· Verizon Wireless VPP, a Verizon IoT product: Verizon VPP, also through a
contract with us, has set per unit pricing for IoT wireless services. Pricing per unit is in the form of an MRC that includes data units
with defined over plan use pricing;
· Sprint: Sprint voice, text or data service. Sprint, through a contract with
us, has set pricing for bundled voice, text and data wireless services. Pricing bundles are in the form of an MRC that include minutes
of use, text units or data units. Bundled plans include unlimited talk, text and a set amount of data. Larger data plans are available
for purchase for consumers requiring larger data packages; and
· Prepaid Wireless Group (“PWG”): T-Mobile voice, text or data
Lifeline service. PWG, through a contract with us, has set pricing for bundled voice, text and data wireless services. Pricing bundles
are in the form of an MRC that include minutes of use, text units or data units. Larger data plans are available for purchase for consumer
requiring larger voice and data packages.
Patents, Trademarks, Licenses, Franchises,
Concessions, Royalty Agreements or Labor Contracts
Our wholly owned subsidiary, IM Telecom, is an FCC
licensed ETC and is one of the original twenty-two (22) FCC licensed wireless cellular resellers to hold an FCC approved wireless Lifeline
Compliance Plan in the United States since 2012, of which approximately twelve (12) license holders remain active today. As a licensed
ETC, IM Telecom is currently authorized to distribute Lifeline subsidized mobile voice/data service in nine (9) states. IM Telecom is
also an FCC licensed EBB carrier, authorized to distribute EBB subsidized mobile data services in the forty-eight (48) contiguous states
and Washington D.C. and Puerto Rico. Infiniti Mobile also offers non-Lifeline and non-EBB services.
We hold a United States Patent
and Trademark Office registered trademark “Lifeline+®” and use this Trademark in our marketing materials.
Competition
The telecommunications industry is highly competitive.
Our primary cellular competitors include other resellers and national carriers, such as AT&T, Verizon, Sprint, and T-Mobile. These
national cellular carriers are facility-based, are significantly larger than us and enjoy trade name and trademark public recognition,
as well as greater resources, scale, and competitive advantages, among other substantial factors, as compared to us. In addition, our
cellular competitors also include numerous smaller regional carriers, existing MVNOs and ETCs, such as Metro PCS, Cricket Wireless, TracFone
Wireless, QLink Wireless, TruConnect, and Assurance Wireless, many of which offer or may offer cellular, mobile data, Lifeline and EBB
services along with no-contract postpaid and prepaid service plans. Our CPaaS competitors include, but are not limited to, Twilio, Plivo,
Bandwidth, Thinq, VoIP Innovations, Telnyx, Coredial, Vonage/Nexmo, CLX Comm, Genband Kandy, Tropo, Telestax, 2600Hz, and Signal Wire.
Competitive factors within the telecommunications industry include pricing, market saturation, service and product offerings, customer
experience, network investment and quality, development and deployment of technologies, and regulatory changes. Some competitors have
shown a willingness to use aggressive pricing as a source of differentiation. Other competitors have sought to add ancillary services,
like mobile video, to enhance their offerings. Taken together, the competitive factors we face continue to put pressure on margins as
companies compete to retain their current customer base and continue to add new developments, many proprietary or patented, and customers.
Need for any Governmental Approval of Principal
Products or Services
On October 23, 2018, the FCC approved our acquisition
of IM Telecom, an FCC licensed wireless Lifeline carrier. In 1985, during the Reagan administration, the FCC established the Lifeline
Assistance program through generic powers afforded the FCC under Communications Act of 1934. Cellular service was added to the Lifeline
program in 2009. Approximately nineteen (19) ETCs hold an FCC approved wireless reseller Lifeline Compliance Plan, but only about twelve
(12) are active today. The FCC has not approved any new wireless reseller Lifeline Compliance Plans since 2012. Approximately one-half
of our future gross revenues may come from government subsidized mobile voice and mobile data service.
Existing and Probable Government Regulation to Our Current and Intended
Business
The FCC has a number of complex requirements and proceedings
that affect our operations and that could increase our costs or diminish our revenues. For example, the FCC has rules regarding provision
of 911 and E-911 services, porting telephone numbers, roaming, disabilities access, privacy and cyber security, consumer protection, and
the universal service and Lifeline programs, including eligibility, reimbursement and program requirements. Many of these and other issues
are being considered in ongoing
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proceedings, and we cannot predict whether or how
such actions will affect our business, financial condition, or results of operations. Our ability to provide services and generate revenues
could be harmed by adverse regulatory action or changes to existing laws and regulations. In addition, regulation of companies that offer
competing services can impact our business indirectly.
Smaller Reporting Company
We are subject to the reporting requirements of Section
13 of the Exchange Act, and we are subject to the disclosure requirements of Regulation S-K of the SEC, as a “smaller reporting
company.” That designation will relieve us of some of the informational requirements of Regulation S-K and Article 8
of Regulation S-X of the SEC.
Emerging Growth Company
In 2020, our “emerging growth company”
designation as defined in the “Jumpstart Our Business Startups Act of 2012,” or the “JOBS Act,” expired as
of the fifth anniversary of our initial registered public offering. During our “emerging growth company” designation we did
not utilize any financial statement waivers as a result of that designation.
Sarbanes/Oxley Act
We are also subject to the Sarbanes-Oxley Act of 2002. The
Sarbanes/Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies
and strengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management
for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit,
and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members’
appointment, compensation and oversight of the work of public companies’ auditors; management assessment of our internal controls;
auditor attestation to management’s conclusions about internal controls; prohibits certain insider trading during pension fund blackout
periods; requires companies and auditors to evaluate internal controls and procedures; and establishes a federal crime of securities fraud,
among other provisions. Compliance with the requirements of the Sarbanes/Oxley Act could substantially increase our legal and accounting
costs.
Exchange Act Reporting Requirements
Section 14(a) of the Exchange Act requires all companies
with securities registered pursuant to Section 12(g) of the Exchange Act to comply with the rules and regulations of the SEC regarding
proxy solicitations, as outlined in Regulation 14A. Matters submitted to our shareholders at a special or annual meeting thereof or pursuant
to a written consent will require us to provide our shareholders with the information outlined in Schedules 14A or 14C of Regulation 14;
preliminary copies of this information must be submitted to the SEC at least 10 days prior to the date that definitive copies of this
information are forwarded to our shareholders.
We are required to file annual reports on Form 10-K
and quarterly reports on Form 10-Q with the SEC on a regular basis, and are required to timely disclose certain material events (e.g.,
changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business;
and bankruptcy) in a Current Report on Form 8-K.
Number of Total Employees and Number of Full-Time
Employees
Across our companies, we have a total of twenty-three
(23) employees; twenty-one (21) full-time employees and two (2) part-time employees.
Subsidiaries
We have three (3) wholly owned operating subsidiaries:
KonaTel, Inc., a Nevada corporation; IM Telecom, LLC (d/b/a Infiniti Mobile) an Oklahoma limited liability company; and Apeiron Systems,
Inc., a Nevada corporation. Our subsidiary KonaTel, Inc., a Nevada corporation, has remained inactive since the start of 2021.
Additional Information
You may read and copy any materials that we file with
the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may also find all the reports
or registration statements that we have previously filed electronically with the SEC at its Internet site at www.sec.gov in the Edgar
Archives of the SEC.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.