What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-04-17 compared with 2022-04-14 · 321 added, 359 removed, 508 unchanged (57% of the section changed)

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OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Board of Directors and

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and

Stockholders of KonaTel, Inc.

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.

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheets of KonaTel, Inc.

(the Company) as of December 31, 2022, and 2021, and the related consolidated statements of operations,

stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes

(collectively referred to as the financial statements).

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

respects, the consolidated financial position of the Company as of December 31, 2022, and 2021, and the results of its consolidated operations

and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally

accepted in the United States of America.

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.

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

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 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.

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.

Valuation of Stock Based Compensation

Description of the Matter:

As discussed in Note 9 to the consolidated

financial statements, the Company offers stock option awards that involve complex accounting estimates.

Management 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.

How We Addressed the Matter in Our Audit

We gained an understanding of the management’s

processes and methodology to develop the estimates.

We reviewed the underlying option agreements.

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 recalculated the value of the options.

We also evaluated the adequacy of the

disclosures related to these fair value measurements.

/s/ Haynie & Company

Haynie & Company

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April 17, 2023

have served as the Company’s auditor since 2019.

We have served as the Company’s auditor

KONATEL, INC.

CONSOLIDATED BALANCE SHEETS

Years Ended December 31,

Current Assets

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Accounts Payable and Accrued Expenses

Note Payable - current portion

Loans Payable, net of loan fees

Right of Use Operating Lease Obligation - current

Deferred Revenue

Total Current Liabilities

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Total Liabilities

Commitments and contingencies - Footnote 8

Commitments and contingencies

Stockholders’ Equity

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Payroll and Related Expenses

Operating and Maintenance

Professional and Other Expenses

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Marketing and Advertising

Application Development Costs

Taxes and Insurance

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Interest Expense

Other Expenses

Other Income/(Expense), net

Total Other Income and Expenses

Earnings per Share

Net Income (Loss)

$ ( 2,952,360 )

Earnings (Loss) per Share

Weighted Average Outstanding Shares

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consolidated financial statements.

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KONATEL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Common Shares

Paid-in Capital

Balances as of January 1, 2021

$ ( 5,968,490 )

Exercised Stock Options

Stock Based Compensation

Dividends Paid to Apeiron Systems shareholders

Balances as of December 31, 2021

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Stock Based Compensation

( 2,952,360 )

Balances as of December 31, 2022

$ ( 8,297,864 )

Additional Paid-in Capital

Accumulated Deficit

The accompanying notes are an integral part of these

consolidated financial statements.

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Common Shares

Additional Paid-in Capital

Accumulated Deficit

KONATEL, INC.

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Cash Flows from Operating Activities:

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

Net Income (Loss)

$ ( 2,952,360 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and Amortization

Loan Origination Cost Amortization

Stock-based Compensation

Change In Right of Use Assets

Change in Right of Use Asset

Change in Lease Liability

Amount recorded as loan forgiveness of SBA Covid-19 Loans

Changes in Operating Assets and Liabilities:

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Deferred Revenue

Customer Deposits

Net cash provided by operating activities

Net cash provided by (used in) operating activities

( 1,821,869 )

Cash Flows from Investing Activities

Purchase of Assets

Net cash (used in) investing activities

Sale of Assets

Net cash provided by (used in) investing activities

Cash Flows from Financing Activities

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

Proceeds from short-term note payable

Loan origination cost

Repayments of amounts of Notes Payable

Proceeds from Notes Payable

Dividends Paid to Apeiron shareholders

Cash received from Stock Options Exercised

Net cash provided by (used in) financing activities

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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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include SIP/VoIP services, SMS/MMS processing, BOT integration, NLP (“Natural Language Processing”), ML (“Machine Learning”)

number services including mobile, toll free and DID landline numbers, SMS to Email services, Database Dip services, SD-WAN, voice termination,

and numerous API driven services including voice, messaging, and network management.

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

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is currently authorized to provide government subsidized mobile telecommunications services to eligible low-income Americans currently

in eight (8) states.

in ten (10) states.

Basis of Presentation

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include the allowance for doubtful receivables, allowance for inventory obsolescence, the estimated useful lives of property and equipment,

and customer lists.

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.

Basis of Consolidation

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The consolidated financial statements for the year ended December 31, 2021, include the Company

and its three (3) wholly owned corporate subsidiaries, KonaTel Nevada, Apeiron Systems, and Infiniti Mobile (February through December).

and its three (3) wholly owned corporate subsidiaries, KonaTel Nevada, Apeiron Systems, and Infiniti Mobile (January through December).

All significant intercompany transactions are eliminated.

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As of December 31, 2022, total inventory owned by the company was $ 526,337 .

Due to the rapidly changing technology within the

industry, inventory is evaluated on a regular basis to determine if any obsolescence exists.

As of December 31, 2021, and 2020, the allowance

for inventory obsolescence was $ 0 .

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, 2022, and 2021, the allowance for

inventory obsolescence was $ 0 .

Property and Equipment

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Management has concluded that no impairment reserves are required as of December 31, 2022, and 2021.

Intangible Assets – Long-Lived Assets

The Company accounts for long-lived assets in accordance

with the provisions of Statement of Financial Accounting Standards ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived

Assets.” This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever

events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be

held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated

by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying

amount of the assets exceeds the fair value of the assets.

Assets to be disposed of are reported at the lower of the carrying amount or

fair value less costs to sell.

Other Intangibles

The Company accounts for other intangibles in accordance

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

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fair value less costs to sell.

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, 2021, there is no impairment of the value

of the license.

As of December 31, 2022, intangible assets include our ETC License and Right of Use Assets.

Other Assets represent items classified as long-term

assets in accordance with the Statement of Financial Accounting Standards ASC 210-10-45.

Other Assets include vendor deposits and security

deposits that the Company is required to maintain.

Other Assets include security deposits held with

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.

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

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(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.

clarifies the principles for recognizing revenue and develops a common revenue standard under 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.

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Cost of Revenue includes the cost of communication

services, equipment and accessories, shipping costs, and commissions of sub-agents.

Costs for advertising products and services, as well

as other promotional and sponsorship costs, are charged to Selling, general and administrative expense in the periods in which they are

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.

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 expense in the

periods in which they are incurred.

Advertising/marketing expense was $ 106,402 and $ 90,635 for 2022 and 2021, respectively.

increase in advertising/marketing costs was a result of the expansion of the marketing of Infiniti Mobile via independent

Professional and Other Expenses

Previously for 2021, 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.

professional fees and other expenses under the category of “Professional and Other Expenses.” These expenses are now being

presented under the categories of “Operating and Maintenance,” “Professional Services,” and “Application

Development Costs” as this change better represents the types of expenses that were incurred during 2022 and 2021, respectively.

Stock-based Compensation

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Net Income (Loss) Per Share

Basic net income / loss per common share calculations

are determined by dividing net income / loss by the weighted average number of shares of common stock outstanding during the period.

net income / loss per common share calculations are determined by dividing net income / loss by the weighted average number of common

shares and dilutive common share equivalents outstanding.

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

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

common 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 year ended December 31, 2022, are not included in the computation of diluted earnings per share because to do so would be anti-dilutive.

As of December 31, 2021, there were 1,981,926 dilutive shares.

The following table reconciles the shares outstanding and net income used

in the computations of both basic and diluted earnings per share of common stockholders:

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

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Net Income (Loss)

$ ( 2,952,360 )

Weighted-average common shares outstanding

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however, from time to time, the deposit levels may exceed FDIC coverage levels.

Trade Account Receivables

Sales Revenue

The Company has a concentration of risk with respect

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accounted for $ 5,494,625 or 42.8 % and $ 3,617,833 or 28.2 % 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.

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.

It should be noted that our largest

customer is the FCC, as part of our participation in the federal Lifeline and ACP programs.

Effect of Recent Accounting Pronouncements

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NOTE 2 – SIGNIFICANT TRANSACTIONS

Glosser Arbitration Settlement

In August 2019, the Company won an arbitration award

(ratified by the court) from Mr.

Glosser in the amount of $357,914, together with arbitrator’s compensation of $4,957 , for a total

award of $ 362,871 ;

Glosser’s counterclaim was found to be without merit.

The Company and Mr.

Glosser entered into a Settlement

Agreement and Mutual Release on February 24, 2020, pursuant to which this matter was fully settled, resolving all claims, and Mr.

paid the Company $ 300,000 .

Apeiron Systems Working Capital Settlement

On December 31, 2018, the Company and the shareholders

of Apeiron Systems entered into an Agreement and Plan of Merger.

Section 2.2 Estimated Net Working Capital and Section 2.3 Final Settlement

of that agreement provided for a method to calculate and reconcile any surplus or deficit in net working capital amounts as of December

On November 22, 2019, the Company, Apeiron Systems and the Apeiron Systems’ shareholders reached an agreement on the final

surplus net working capital amount of $ 310,130 owed by Apeiron Systems to the Apeiron Systems shareholders under the Apeiron Systems Merger

The net working capital amount was deemed to be payable by Apeiron Systems to the Apeiron Systems shareholders pro rata:

or $ 279,117 to Joshua Ploude and 10% or $ 31,013 to Vyacheslav Yanson.

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 one (1) of

its officers, Vyacheslav Yanson.

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

On June 14, 2022, the Company and its wholly owned

subsidiary companies entered into a Note Purchase Agreement and related Guarantee and Security Agreement with CCUR Holdings, Inc.

collateral agent), and Symbolic Logic, Inc., whereby the Company pledged its assets to secure $ 3,150,000 in debt financing.

for a period of twelve ( 12 ) months, at an interest rate of 15 %, with two successive six-month optional extensions.

As a condition of securing

the loan, the Company paid a 3% origination fee, and other legal and closing expenses to the lender, in the amount of $ 153,284 , resulting

in a net loan balance of $ 2,984,181 .

The loan costs of $ 153,284 and the net loan balance of $ 2,984,181 are to be amortized over a 12-month

The Company incurred an additional $ 20,248 in legal expense related to the closing, which amount will be amortized over a 12-month

Proceeds of the loan were used to retire the $ 150,000 SBA “EIDL” Loan and will be used in an ongoing capacity to support

the acceleration of our mobile services growth strategy.

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 but were deferred through September of 2022.

June 30, 2022, the outstanding balance was paid in full and there are no further obligations due the SBA.

Euler Hermes/Sky Phone Settlement

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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 (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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and Equipment - Schedule of Property and Equipment

Leasehold Improvements Leasehold Improvements

December 31, 2022

December 31, 2021

Lease Improvements Lease Improvements

Furniture and Fixtures Furniture and Fixtures

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of properties under non-cancelable leases.

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.

As of December 31, 2022, the Company had four (4) properties with lease terms in excess of

one (1) year.

Of these four (4) leases, two (2) leases expire in 2025, one (1) lease expires in 2026, and one (1) lease expires in 2030 .

Lease payables as of December 31, 2022, are $ 576,609 .

Future 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:

Right-of-Use Assets

- Schedule of Future Minimum Lease Payments for Operating Leases

Less Interest

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is 68.5 months recorded with a weighted average discount of 6.76 %.

The Company also leases two (2) office spaces on a

month-to-month basis.

Total rent expense for the year ended December 31, 2021, and 2020, amounted to $ 123,843 and $ 109,960 , respectively.

For the year ended December 31, 2022, total lease expense was $ 152,639 .

NOTE 5 – INTANGIBLE ASSETS

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for the years ended December 31, 2022, and 2021, respectively.

Amortization expense is included as a component of operating expenses in

the accompanying statements of operations.

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

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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.

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

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

The Company has no lines of credit as of December

NOTE 7 – CONTINGENCIES AND COMMITMENTS

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of its cellular provider contracts in accordance with the appropriate standards of the industry and that may be provided in the contractual

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 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

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

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

The assessment is in the amount of $115,000, including interest and penalties calculated on sales made inside and outside Pennsylvania.

The Company has recorded the full amount of this assessment.

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 Company initially recorded an expected liability of $7,000, based

on known sales inside Pennsylvania.

The State of Pennsylvania rejected an appeal by the Company.

The Company remains in discussions with

the State of Pennsylvania and is working towards a plan to pay the full amount of the liability, under the possibility of an extended

payout period.

The Company believes this is the best course of action, as following the final payoff of the liability, the Company can

re-open an appeal with the state for a refund of the liability.

Letters of Credit

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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 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.

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,

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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.

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

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

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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

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.

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

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Additions to property and equipment

Gross Margin %

For the year ended December 31, 2021

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Additions to property and equipment

Gross Margin %

NOTE 9 – STOCKHOLDERS’ EQUITY

Non-Compensatory Stock Options

Sole Shareholder

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.

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.

See NOTE 11 below.

Stock Compensation

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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.

Options vest in tranches and typically expire in five (5) years.

During the year ended December 31, 2022,

and 2021, the Company recorded options expense of $ 692,138 and $ 341,515 , respectively.

The option expense not taken as of December 31,

2022, is $ 1,557,516 , with a weighted average term of 3.22 years.

In 2022, 900,000 share incentive stock options were

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

granted to two (2) independent members of the Board of Directors and two (2) 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.

25,000 shares per quarter of service in 2022, for a total of 100,000 shares each.

The key employees were granted 700,000 share options

as part of their employment agreements.

During the year ended December 31, 2022, 625,000 shares were exercised by three (3) former employees

of the Company, who received these options as part of their employment agreements.

During the year, 130,000 share options were forfeited,

of which 50,000 options were forfeited by an independent consultant, and 80,000 options were forfeited by two (2) former employees of

The Aggregate Intrinsic Value is based on the market value of the Company’s common stock of $1.10 on December 31, 2022.

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

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

Weighted average

Weighted average volatility

Weighted average expected term (years)

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Expected dividend yield

The following table represents stock option activity

The following table represents incentive stock option activity

as of and for the year ended December 31, 2022:

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Weighted Average

Exercise Price

Weighted Average

Exercise Price

Remaining Life

Intrinsic Value

Options Outstanding:

December 31, 2020

Options Outstanding:

December 31, 2021

Exercisable and Vested:

December 31, 2021

Options Outstanding – December 31, 2021

Options Outstanding – December 31, 2022

Exercisable and Vested, December 31, 2022

The following table represents stock option activity

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December 31, 2021

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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In 2021, 1,635,000 share options were granted to

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

Each independent director was granted

25,000 shares per quarter of service for a total of 100,000 shares each, and in aggregate, key employees were granted 1,435,000 shares

as part of their employment agreements.

During the year ended December 31, 2021, 923,120 share options were exercised.

Exercised shares

included 250,000 options 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 2021, 175,000

share options were forfeited by a former independent director;

and 76,880 options were utilized in a cashless exercise by a former key

employee under a Severance Agreement and Release.

The “Aggregate Intrinsic Value” is based on the market value of the Company’s

common stock of $1.75 on December 31, 2021.

NOTE 10 – INCOME TAX

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

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.

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.

significant components of net deferred tax assets (liabilities) were as follows at December 31, 2022, and 2021:

Income Tax - Schedule of Deferred Tax Assets

and Liabilities

Net operating losses

Depreciation and amortization

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

Valuation allowance

( 1,178,294 )

Net Deferred Tax Asset

As of December 31, 2022, the Company had no

unrecognized tax benefits that, if recognized, would affect the Company’s effective income tax rate over the next twelve (12)

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, 2022, and 2021 is set forth below:

For the Year Ended

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:

Net operating loss carryforward

Total gross deferred tax assets

Deferred tax asset valuation allowance

Total net deferred tax assets

Deferred tax liabilities:

State - California

Total net deferred taxes

In assessing the realizability of deferred tax assets,

management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those

temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable

income and tax planning strategies in making this assessment.

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

$ ( 619,996 )

Non-deductible expenses and other

Change in valuation allowance

Benefit from income taxes

As of December 31, 2022, the Company has a net operating

loss carry-forward for U.S.

federal income tax purposes of approximately $ 4,047,861 .

This carry-forward 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

federal tax examinations for tax years before and including December 31, 2019.

During the years ended December 31, 2022, and 2021,

the Company did not incur interest and penalties.

11 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through

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

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.

the date of this filing, and except for the following, no material subsequent events have occurred:

Agreement to Acquire Wireless Carrier

On January 24, 2023, the Company entered into a

non-material purchase agreement to acquire 100% of the membership interest of Tempo Telecom, LLC, a

Georgia limited liability company and Eligible Telecommunications Carrier (“ETC”), pending FCC approval, which

the Company estimates could take several months.

Additionally, the Company has assigned its rights under the purchase

agreement to Insight Mobile, Inc., a Delaware corporation, subject to various conditions of

If all conditions are timely satisfied, including the required FCC approval, this transaction will be materially

beneficial to the Company and will not involve any dilution to the Company’s shareholders.

Additional information about

this assignment of the Company’s rights to the referenced purchase agreement is contained in the 8-K Current Report of the

Company dated April 6, 2023, and filed with the SEC on April 17, 2023.

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

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

On February 9, 2023, Robert Beaty conveyed to the

Company 44,686 shares of the Company’s common stock, originally acquired through an unrelated private transaction in 2020, at a

price of $0.7385, in an exempt transaction pursuant to Section 16b-3(e), in full payment of the exercise of 100,000 incentive stock options

granted in 2018, at a price of $.033 per share, 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

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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.

Non-Compensatory Stock Option Grant

Chief Executive Officer

McEwen exercised his first tranche of 187,500 stock options for 187,500 shares of common stock at a price of $ 0.22 per share,

which shares were issued on March 20, 2023.

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