What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-04-17 · 319 added, 270 removed, 559 unchanged (51% of the section changed)

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and

the Board of Directors and

Stockholders of KonaTel, Inc.

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.

on the Financial Statements

have audited the accompanying consolidated balance sheets of KonaTel, Inc.

(the Company) as of December 31, 2023 and 2022, and the related

consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period

ended December 31, 2023, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the

consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,

2023 and 2022, and the results of its consolidated operations and its cash flows for each of the years in the two-year period ended December

31, 2023, in conformity with accounting principles generally accepted in the United States of America.

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.

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 consolidated financial statements.

audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether

due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below

are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated

to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and

(2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter

in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit

matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Stock Based Compensation

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.

How We Addressed the Matter in Our Audit

We gained an understanding of the management’s

processes and methodology to develop the estimates.

Audit Matters

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.

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

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.

We Addressed the Matter in Our Audit

gained an understanding of 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

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.

Haynie & Company

Salt Lake City, Utah

April 1, 2024

We have served as the Company’s auditor

have served as the Company’s auditor since 2019.

KONATEL, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2023

December 31, 2022

Current Assets

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Prepaid Expenses

Other Current Asset

Other Current Assets

Total Current Assets

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Intangible Assets, Net

Right of Use Asset

Total Other Assets

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Right of Use Operating Lease Obligation - Long Term

Note Payable - long term

Total Long Term Liabilities

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Total Stockholders’ Equity

( 3,013,405 )

Total Liabilities and Stockholders’ Equity

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Total Operating Expenses

Operating Income/(Loss)

Operating Loss

( 3,120,603 )

( 2,554,685 )

Other Income and Expense

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Total Other Income and Expenses

Net Income (Loss)

$ ( 3,940,827 )

Earnings (Loss) per Share

$ ( 2,952,360 )

Loss per Share

Weighted Average Outstanding Shares

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Common Shares

Paid-in Capital

Balances as of January 1, 2022

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Stock Based Compensation

( 2,952,360 )

Balances as of December 31, 2022

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$ ( 12,238,691 )

$ ( 3,013,405 )

The accompanying notes are an integral part of these

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Cash Flows from Operating Activities:

Net Income (Loss)

$ ( 3,940,827 )

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

$ ( 2,952,360 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and Amortization

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Stock-based Compensation

Non-Compensatory Stock Options Exercised

Change in Right of Use Asset

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Accounts Payable and Accrued Expenses

Deferred Revenue

Net cash provided by (used in) operating activities

Net cash used in operating activities

( 1,792,032 )

( 1,821,869 )

Cash Flows from Investing Activities

Purchase of Assets

Sale of Assets

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Cash Flows from Financing Activities

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Cash received from Stock Options Exercised

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net Change in Cash

( 1,278,531 )

Cash - Beginning of Year

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

in ten (10) states.

in eleven (11) states.

Basis of Presentation

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The consolidated financial statements for the year

ended December 31, 2022, include the Company and its three (3) wholly owned corporate subsidiaries, KonaTel Nevada, Apeiron Systems, and

Infiniti Mobile (January through December).

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 (January through December).

ended December 31, 2023, and 2022, include the Company and its three (3) wholly owned corporate subsidiaries, KonaTel Nevada, Apeiron

Systems, and IM Telecom.

All significant intercompany transactions are eliminated.

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does not require collateral on any of its trade receivables.

Net receivables from transactions with customers were $ 1,496,799 and $ 1,510,118

as of December 31, 2023 and December 31, 2022, respectively.

Allowance for Doubtful Receivables

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Inventory consists primarily of the cost of cellular

phones and cellular accessories.

phones and tablets.

Inventory is reported at the lower of cost or net realizable value.

Cost is determined by the first-in,

first-out (“FIFO”) method.

Cost is determined by the first-in, first-out

(“FIFO”) method.

As of December 31, 2023, total inventory owned by the Company was $ 1,229,770 .

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fair value less costs to sell.

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

As of December 31, 2023, intangible assets include our ETC License.

Other Assets represent items classified as long-term

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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

sub-reseller customers at December 31, 2023, and 2022, 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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As of December 31, 2023,

and December 31, 2021, our operating lease assets and liabilities were $ 576,609 and $ 187,117 , respectively.

and December 31, 2022, our operating lease liabilities were $ 458,227 and $ 576,609 , respectively.

Revenue Recognition

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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.

and direct costs of fulfilling contracts with customers will be deferred and amortized consistent with the transfer of the related good

The adoption of this guidance did not have a material impact on the consolidated financial statements.

We distribute government subsidized mobile services

through Master Agents.

As part of the distribution process, we deliver mobile phones and/or tablets (devices) to our Master Agents, who

then are responsible to subscribe qualifying consumers under a government

sponsored program (ACP and/or Lifeline).

cases, devices that have been delivered to our Master Agents are subscribed to and activated by qualifying consumers within sixty (60)

days, at which point we would receive a subsidy from a governing body ( the

“Universal Service Administrative Company” or “ USAC”

or certain states) and recognize revenue.

Once a device is activated, and the intended service provided under the government program is

deemed to have occurred, the program revenue is recognized, the expense is recognized, and the device is removed from inventory.

Deferred Revenue

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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.

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 $ 154,533 and $ 106,402 for 2023, and 2022, 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 “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.

The increase in advertising/marketing

costs was a result of the expansion of the marketing for Infiniti Mobile throughout our independent agent footprint.

Stock-based Compensation

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Net Income (Loss) Per Share

Basic income (loss) per share of common stock attributable to common

stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average shares of common

stock outstanding for the period.

Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying

outstanding stock-based awards using the treasury stock method or the if-converted method, as applicable, are included when calculating

diluted net income (loss) per share of common stock attributable to common stockholders when their effect is dilutive.

The dilutive common

shares for 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

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.

dilutive common shares for the years ended December 31, 2023, and 2022, are not included in the computation of diluted earnings per share

because to do so would be anti-dilutive.

As of December 31, 2023, there were potentially 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 Diluted

Years Ended December 31,

Net Income (Loss)

$ ( 3,940,827 )

$ ( 2,952,360 )

Weighted-average common shares outstanding

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Concentrations of Credit Risk

Trade Account Receivables

Sales Revenue

Customer Concentration

Financial instruments which potentially subject the

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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

to trade receivables from customers and cellular providers.

As of December 31, 2022, the Company had a significant concentration of receivables

(defined as customers whose receivable balances are greater than 10% of total receivables) due from two (2) customers in the amounts of

$ 859,334 or 57.0 % and $ 255,136 or 16.9 %.

As of December 31, 2021, the Company had a significant concentration of receivables from two

(2) customers in the amounts of $ 783,431 , or 63.9 %, and $ 194,647 , or 15.9 %.

Company has a concentration of risk with respect to trade receivables from customers and cellular providers.

As of December 31, 2023,

the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total

receivables) due from two (2) customers in the amounts of $ 1,024,308 or 68.5 % and $ 283,536 or 19.0 %.

should be noted that the largest customer is the federal government, as administered by USAC, under the authority of the FCC).

of December 31, 2022, the Company had a significant concentration of receivables from two (2) customers in the amounts of $ 859,334 or

57.0 % and $ 255,136 or 16.9 %.

Concentration of Major Customer

A significant amount of the revenue is derived from

contracts with major customers.

For the year ended December 31, 2022, the Company had two (2) customers that accounted for $ 12,852,384

or 64.2 % of revenue and $ 3,431,875 or 17.1 %, of the revenue.

For the year ended December 31, 2021, the Company had two (2) customers that

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

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.

significant amount of the revenue is derived from contracts with major customers.

For the year ended December 31, 2023, the Company had

two (2) customers that accounted for $ 10,492,430 or 57.6 % and $ 3,000,498 or 16.5 % of revenue, respectively.

For the year ended December

31, 2022, the Company had two (2) customers that accounted for $ 12,852,384 or 64.2 % and $ 3,431,875 or 17.1 % of revenue, respectively.

The loss of a major customer would have a negative impact on the Company, and would subsequently require the Company to make significant

changes to reduce expenses.

It should be noted that the largest customer is

the federal government, as administered by USAC under the authority of the FCC ,

as part of our participation in the federal Lifeline and ACP programs.

Effect of Recent Accounting Pronouncements

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pronouncements and believes that none will have a significant effect on the Company’s financial statement.

NOTE 2 – INVENTORY

Inventory primarily consists of sim cards, cell phones and

tablets, which are stored at our warehouse, or have been delivered to distributors in the field.

Inventories are stated at cost using

the first-in, first-out (“FIFO”) valuation method.

On a monthly basis, inventory is counted at our warehouse facility, and

is reviewed for obsolescence and counted for accuracy with distributors.

At December 31, 2023, and December 31, 2022, the Company had

inventory of $ 1,229,770 and $ 526,337 , respectively.

NOTE 3 – SIGNIFICANT TRANSACTIONS

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

Between March and July of 2019, IM Telecom purchased

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

Subsequently, a dispute arose between the parties regarding the amount

of the debt, a lack of sufficient transaction documentation and problems with some of the handsets.

On or about December 2019, the debt

was transferred to Euler Hermes North America Insurance Company.

On April 22, 2020, the parties entered into an agreement to settle the

matter whereby IM Telecom agreed to pay $ 80,000 in monthly payments of $4,000 over twenty (20) months .

The first payment was made on May

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

CCUR Loan ( and Extension)

In 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.

(as “Collateral

Agent”), and Symbolic Logic, Inc., whereby the Company pledged its assets to secure $ 3,150,000 in debt financing (the “CCUR

The term was for a period of twelve ( 12 ) months, at an initial interest rate of 15 %, with two (2) successive six-month optional

As a condition of securing the CCUR 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 were amortized over a 12-month period.

The Company incurred an additional $ 20,248 in legal expense related to the closing,

which amount was also amortized over a 12-month period.

Proceeds of the CCUR Loan were used to retire the $ 150,000 SBA “EIDL”

Loan and were used in an ongoing capacity to support the acceleration of our mobile services growth strategy.

In 2023, the Company exercised the first draw under

the First Amendment to the NPA of $ 500,000 .

As part of the First Amendment to NPA, the Company paid $ 15,000 to CCUR, which was equal

to 1.5% of the initial delayed draw, and the initial interest rate established in the NPA was increased by 3 %.

Line of Credit

In December 2023, IM Telecom entered into a structured

credit, non-dilutive facility with ACP Financing VII, LLC.

The facility is used for mobile device purchases in support of our growing

mobile services group.

Approximately $ 1,500,000

was immediately available under the terms of the agreement.

NOTE 4 – PROPERTY AND EQUIPMENT

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Billing Software

Office Equipment Office Equipment

Office Equipment

Accumulated Depreciation

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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:

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, 2023, was $ 458,227 .

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

2028 and Thereafter

Less Interest

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

Intangible Assets - Schedule of Acquired Finite-Lived Intangible Assets

Customer List

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Intangible Assets net

Amortization expense amounted to $ 0 and $ 802,334

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.

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

as of December 31, 2022.

Amortization expense amounted to $ 0 and $ 0 for the

years ended December 31, 2023, and 2022, respectively.

Amortization expense is included as a component of operating expenses in the accompanying

statements of operations.

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

Intangible Assets with indefinite useful life consist

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Regulatory Determination

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.

The Company has no outstanding regulatory determinations

as of December 31, 2023.

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

The Company recorded the full amount of this assessment in 2022.

The Company appealed the assessment in August, 2021, and at the request

of the state, provided additional information to support its appeal.

The Company’s position is that Pennsylvania has no sales tax

authority to levy and collect sales tax on sales made outside of Pennsylvania.

The State of Pennsylvania rejected an appeal by the Company.

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.

On November 6, 2023, the Company agreed to a payment plan with the State of Pennsylvania.

The Company will pay $ 5,500 per month, over

a twenty-four (24) month period, which commenced in December, 2023.

Letters of Credit

The Company had no outstanding letters of credit as

December 31, 2022.

of December 31, 2023.

N OTE 9 – SEGMENT REPORTING

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Sometimes equipment is provided, which can include,

but is not limited to, phones, tablets, modems, routers

and accessories.

Also included in our Mobile Services

segment is the distribution of government subsidized mobile voice service and mobile data service by IM Telecom under its Infiniti Mobile

brand and FCC license to low-income American households that qualify for the FCC’s Lifeline mobile voice service program and/or

the FCC’s ACP mobile data program.

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

with newer programs like the ACP program, are subject to change and may have a material impact on our Mobile Services business if changed,

reduced or eliminated.

The following table reflects the result of operations

of the Company’s reportable segments:

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

Also included in our Mobile Services segment is the distribution

of government subsidized mobile voice service and mobile data service by IM Telecom under its Infiniti Mobile brand and FCC license to

low-income American households that qualify for the FCC’s Lifeline mobile voice service program and/or the FCC’s ACP mobile

data program.

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

ACP program, are subject to change and may have a material impact on our Mobile Services business if changed, reduced or eliminated.

The following table reflects the result of operations of the

Company’s reportable segments:

Segment Reporting - Schedule of Segment

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Non-Compensatory Stock Options

Sole Shareholder

Effective December

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See NOTE 11 below.

Chief Executive Officer

Sean McEwen, the Chairman and CEO of the

Company, exercised 750,000 equity stock options for 750,000 shares of common stock at a price of $ 0.22 per share.

Stock Compensation

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In 2023, 3,245,000 share incentive stock options were

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

granted to two (2) independent members of the Board of Directors and twelve (12) employees.

Each independent Board member was granted

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.

25,000 shares in the first and second quarter of 2023, for a total of 50,000 shares each.

Three (3) key employees were granted a total

of 2,050,000 share options.

An independent member of the Board of Directors was granted 750,000 share options, and a total of 345,000

share options were granted among nine (9) employees.

During the year ended December 31, 2023, 200,000 shares were exercised by two (2)

independent members of the Board of Directors.

During the year ended 2023, 700,000 partially vested share options were forfeited by two

(2) key employees of the Company.

The Aggregate Intrinsic Value is based on the market value of the Company’s common stock of $0.89

on December 31, 2023.

The estimated grant date fair value of stock option

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December 31, 2022

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.

In 2022, 900,000 share incentive stock options were 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 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 2022, 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 Company.

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

NOTE 11 – INCOME TAX

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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:

The significant components of net deferred tax assets

(liabilities) were as follows at December 31, 2023, and 2022:

Income Tax - Schedule of Deferred Tax Assets

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( 1,947,945 )

( 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:

As of December 31, 2023, the Company had no unrecognized tax

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

A reconciliation

of the expected income tax benefit at the U.S.

Federal income tax rate to the income tax benefit actually recognized for the years ended

December 31, 2023, and 2022 is set forth below:

For the Year Ended

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$ ( 850,623 )

$ ( 619,996 )

Non-deductible expenses and other

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federal income tax purposes of approximately ($ 7,890,930 ).

This carry-forward is available to offset future

This carryforward is available to offset future

taxable income, if any, and will expire, if not used, from 2037 through 2042.

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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.

Subsequent Event

Excess Telecom Sale of IM Telecom

On January 22,

2024 (the “Effective Date”), the Company and IM Telecom entered into a Membership Interest Purchase Agreement (the “Excess

Purchase Agreement”) with Excess Telecom, Inc., a Nevada corporation (“Excess”), pursuant to which we conveyed

49 % of our Membership Interest in IM Telecom to Excess on the “Initial Closing Date”

in consideration of the sum of $ 10,000,000 , and will convey the remaining 51% of the Membership Interest in IM Telecom to Excess for the

sum of $100.00 on the Final Closing.

The Final Closing is conditioned upon obtaining the necessary federal and state governmental approvals

for a change in control of IM Telecom (the “Approvals”), among other customary closing conditions.

If on or before December

31, 2024, the ACP Connectivity Program is renewed by the United States Congress for a duration of greater than four (4) months (the “ACP

Renewal Condition”), Excess will pay the Company an additional sum of $ 5,000,000 (the “ACP Renewal Earnout).

The parties also

entered into a Management Services Agreement governing the management of the business of IM Telecom to be effective until the earlier

of the Final Closing or ninety-nine (99) years, and whereby IM Telecom and Excess will be managing IM Telecom until final regulatory approval;

and a Master Distribution Agreement whereby the Company, doing business as “Infiniti Mobile,” a tradename of IM Telecom that

was excluded from the Excess Purchase Agreement, will be a master distributor of IM Telecom’s wireless services, products, Lifeline

services, ACP services to potential customers and such other ancillary services relating to Lifeline and ACP services offered to the Company’s

customers under the Licenses held by IM Telecom (the “Services”), the term of which will commence upon the Final Closing and

continue for a period of not less than ten (10) years.

The current employees of IM Telecom will novate to employees of Company under these

The CCUR Loan and the total liability of Company under

the ACP Financing Installment Sale Agreement, which are referenced above in NOTE 3, were paid in full on the Initial Closing Date of the

Excess Purchase Agreement.

The total payoff amount for the CCUR Loan was $ 3,681,660 , inclusive of unpaid interest

and legal fees.

The total payoff amount under the ACP Finance

Installment Sale Agreement was $ 1,462,345 .

These respective payments eliminated all of the Company’s long-term debt.

Additional information about the Excess Purchase Agreement

and related agreements is contained in the Company’s 8-K Current Report dated April 6, 2023, and filed with the SEC on April

Extension of 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.

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

Jeffrey Pearl, an independent Board member, was granted

25,000 quarterly incentive stock options on January 30, 2023, at an exercise price of $ 0.880 , fully vested, which was 110% of the fair

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

25,000 quarterly incentive stock options on February 13, 2023, at an exercise price of $ 0.814 , fully vested, which was 110% of the fair

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

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

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.

On January 23, 2024, the Company exercised its rights

under the aforementioned assigned agreement, seeking an extension of 180 days for closing or such longer period as may be required to

satisfy the required Governmental Approvals to closing.

Affordable Connectivity Program (ACP) Wind Down

On February 7, 2024 the FCC announced that the Affordable

Connectivity Program would stop accepting new enrollments and stated the last fully funded month for the program is April, 2024.

All consumers

in the program as of this enrollment freeze date will receive their benefit until the program ends unless Congress votes to extend the

Under IM Telecom’s national ETC license, the

Company will continue to enroll and provide services to qualifying consumers in the FCC Lifeline program.

The Lifeline program is a separate

program under the FCC, and remains committed and viable in support of providing affordable communication services for low-income consumers.

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.

McEwen exercised his fifth tranche of 187,500 non-compensatory stock options for 187,500 shares of common stock at a price of

$ 0.22 per share or an aggregate price of $ 41,250 , which shares were issued on March 15, 2024.

Stock Option Grant

On March 27, 2024, we granted 100,000 incentive

stock options to an employee who will serve as the Director of Sales for Apeiron Systems at an exercise price of $ 0.626 .

These options

vest as follows, and they expire on the earlier of March 27, 2029, or ninety (90) days from resignation or termination of employment:

33,333 on March 27, 2024;

33,333 on March 27, 2025;

and 33,334 on March 27, 2026 .

Change of Tax Year

The Company petitioned the IRS to change our tax period

to a calendar tax year to coincide with our financial year.

Additions to our State ETC Designations

As of this date,

we have filed for multiple state ETC designations, and have received additional ETC designations in Alabama, Colorado, Michigan, Missouri,

Rhode Island, Tennessee, West Virginia, and Wyoming.

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