KonaTel, Inc. 10-K

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA KONATEL, INC. FINANCIAL STATEMENTS December 31, 2024, and 2023 TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders’ Equity (Deficit) F-5 Consolidated Statements of Cash Flow F-6 Notes to Consolidated Financial Statements F-7 ( This space intentionally left blank ) 30 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of KonaTel, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of KonaTel, Inc. KONATEL INC (the Company) as of December 31, 2024 and 2023 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, 2024 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, 2024 and 2023 , and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024 , in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 of the financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit of ($7,747,873). The losses in conjunction with uncertainty around of the success of management’s future plans, raise substantial doubt about its ability to continue as a going concern. Management’s plans are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. F- 1 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 11 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. Additionally, we note the company has repriced their options and these repricings require complex accounting calculations. How We Addressed the Matter in Our Audit We gained an understanding of management’s processes and methodology to develop the estimates. We reviewed the underlying option agreements. 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 and related repricings. We also evaluated the adequacy of the disclosures related to these fair value measurements. /s/ Haynie & Company Haynie & Company Salt Lake City, Utah April 15, 2025 PCAOB # 457 We have served as the Company’s auditor since 2019. ( This space intentionally left blank .) F- 2 KONATEL, INC. CONSOLIDATED BALANCE SHEETS December 31, 2024 December 31, 2023 Assets Current Assets Cash and Cash Equivalents $ 1,679,345 $ 777,103 Accounts Receivable, Net 1,533,015 1,496,799 Notes Receivable 1,000,000 — Inventory, Net 163,063 1,229,770 Prepaid Expenses 94,496 129,706 Other Current Assets 112,170 — Total Current Assets 4,582,089 3,633,378 Property and Equipment, Net 15,128 24,184 Other Assets Intangible Assets, Net 323,468 634,251 Right of Use Asset 319,549 443,328 Other Assets 74,328 74,543 Total Other Assets 717,345 1,152,122 Total Assets $ 5,314,562 $ 4,809,684 Liabilities and Stockholders’ Equity Current Liabilities Accounts Payable and Accrued Expenses $ 2,277,597 $ 3,709,691 Loans Payable, Net of Loan Fees — 3,655,171 Right of Use Operating Lease Obligation - Current 113,740 127,716 Income Tax, Payable 184,051 — Total Current Liabilities 2,575,388 7,492,578 Long Term Liabilities Right of Use Operating Lease Obligation - Long Term 227,776 330,511 Total Long Term Liabilities 227,776 330,511 Total Liabilities 2,803,164 7,823,089 Commitments and Contingencies Stockholders’ Equity Common stock, $ 0.001 par value, 50,000,000 shares authorized, 43,503,658 outstanding and issued at December 31, 2024 and 43,145,720 outstanding and issued at December 31, 2023 43,504 43,146 Additional Paid In Capital 10,215,767 9,182,140 Accumulated Deficit ( 7,747,873 ) ( 12,238,691 ) Total Stockholders’ Equity 2,511,398 ( 3,013,405 ) Total Liabilities and Stockholders’ Equity $ 5,314,562 $ 4,809,684 The accompanying notes are an integral part of these consolidated financial statements. F- 3 KONATEL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2024 2023 Revenue $ 15,503,251 $ 18,223,745 Cost of Revenue 12,088,944 14,850,105 Gross Profit 3,414,307 3,373,640 Operating Expenses Payroll and Related Expenses 5,310,549 3,995,698 Operating and Maintenance 6,086 5,804 Credit Loss 1,448 215 Professional and Other Expenses 1,646,755 1,526,947 Utilities and Facilities 210,438 191,556 Depreciation and Amortization 9,056 12,352 General and Administrative 213,149 155,734 Marketing and Advertising 99,759 154,533 Application Development Costs 140,880 138,600 Taxes and Insurance 315,258 312,804 Total Operating Expenses 7,953,378 6,494,243 Operating Loss ( 4,539,071 ) ( 3,120,603 ) Other Income and Expense Gain on Sale 9,247,726 Interest Expense ( 104,737 ) ( 820,254 ) Other Income/(Expense), net 70,951 30 Total Other Income and Expenses 9,213,940 ( 820,224 ) Income Before Income Taxes 4,674,869 ( 3,940,827 ) Income Tax Expense 184,051 — Net Income (Loss) $ 4,490,818 $ ( 3,940,827 ) Loss per Share Basic $ 0.10 $ ( 0.09 ) Diluted $ 0.10 $ ( 0.09 ) Weighted Average Outstanding Shares Basic 43,402,219 42,773,269 Diluted 43,526,417 42,773,269 The accompanying notes are an integral part of these consolidated financial statements. F- 4 KONATEL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) Common Shares Additional Accumulated Shares Amount Paid-in Capital Deficit Total Balances as of January 1, 2023 42,240,406 $ 42,240 $ 8,710,987 $ ( 8,297,864 ) $ 455,363 Exercised Stock Options 905,314 906 213,596 — 214,502 Stock Based Compensation — — 257,557 — 257,557 Net Loss — — — ( 3,940,827 ) ( 3,940,827 ) Balances as of December 31, 2023 43,145,720 $ 43,146 $ 9,182,140 $ ( 12,238,691 ) $ ( 3,013,405 ) Exercised Stock Options 357,938 358 40,892 — 41,250 Stock Based Compensation — — 992,735 — 992,735 Net Income — — — 4,490,818 4,490,818 Balances as of December 31, 2024 43,503,658 $ 43,504 $ 10,215,767 $ ( 7,747,873 ) $ 2,511,398 The accompanying notes are an integral part of these consolidated financial statements. Common Shares Additional Paid-in Capital Accumulated Deficit F- 5 KONATEL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For Years Ended December 31, 2024 2023 Cash Flows from Operating Activities: Net Income (Loss) $ 4,490,818 $ ( 3,940,827 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and Amortization 9,056 12,352 Gain on Sale of IM Telecom (49%) ( 9,247,726 ) — Loan Origination Cost Amortization 49,579 161,474 Credit Loss 1,448 215 Stock-based Compensation 992,735 257,557 Non-Compensatory Stock Options Exercised — 123,750 Change in Right of Use Asset 123,778 110,358 Change in Lease Liability ( 116,711 ) ( 118,382 ) Changes in Operating Assets and Liabilities: Accounts Receivable ( 37,664 ) 13,104 Inventory 1,066,707 ( 703,433 ) Prepaid Expenses ( 76,960 ) ( 68,465 ) Accounts Payable and Accrued Expenses ( 1,432,094 ) 2,360,760 Income Tax Payable 184,051 — Other Assets 216 ( 495 ) Net cash used in operating activities ( 3,992,767 ) ( 1,792,032 ) Cash Flows from Investing Activities Sale of IM Telecom (49%) 9,558,509 — Notes Receivable ( 1,000,000 ) — Net cash provided by investing activities 8,558,509 — Cash Flows from Financing Activities Proceeds from Note Payable — 554,750 Repayments of Note Payable ( 3,704,750 ) — Loan Origination Costs — ( 132,000 ) Cash Received From Stock Options Exercised 41,250 90,751 Net cash provided by (used in) financing activities ( 3,663,500 ) 513,501 Net Change in Cash 902,242 ( 1,278,531 ) Cash - Beginning of Year 777,103 2,055,634 Cash - End of Period $ 1,679,345 $ 777,103 Supplemental Disclosure of Cash Flow Information Cash paid for interest $ 54,750 $ 419,525 Cash paid for taxes $ — $ — The accompanying notes are an integral part of these consolidated financial statements. F- 6 KONATEL, INC. Notes to Consolidated Financial Statements NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Overview of Company KonaTel Nevada (as defined below) was organized under the laws of the State of Nevada on October 14, 2014, by its founder and then sole shareholder, D. Sean McEwen, to conduct the business of a full-service MVNO (“Mobile Virtual Network Operator”) provider that delivered cellular products and services to individual and business customers in various retail and wholesale markets. KonaTel Inc., formerly known as Dala Petroleum Corp. (“KonaTel,” the “Company,” “we,” “our,” or “us”), also formerly known as “Westcott Products Corporation,” was incorporated as “Light Tech, Inc.” under the laws of the State of Nevada on May 24, 1984. A subsidiary in the name “Westcott Products Corporation” was organized by us under the laws of the State of Delaware on June 24, 1986, for the purpose of changing our name and domicile to the State of Delaware. On June 27, 1986, we merged with the Delaware subsidiary, with the survivor being Westcott Products Corporation, a Delaware corporation (“Westcott”). On December 18, 2017, we acquired KonaTel, Inc, a Nevada sub S-Corporation (“KonaTel Nevada”), in a merger with our acquisition subsidiary under which KonaTel Nevada became our wholly owned subsidiary. On December 31, 2018, we acquired Apeiron Systems, Inc., a Nevada corporation d/b/a “Apeiron” (“Apeiron Systems”), which is also our wholly owned subsidiary. Apeiron Systems was organized in 2013 and is an international hosted services CPaaS (“Communications Platform as a Service”) provider that designed, built, owns and operates its private core network, supporting a suite of real-time business communications services and Applications Programming Interfaces (“APIs”). As an Internet Telephony Service Provider (“ITSP”), Apeiron Systems holds a Federal Communications Commission (“FCC”) numbering authority license. Some of Apeiron Systems’ hosted services include SIP/VoIP services, SMS/MMS processing, BOT integration, NLP (“Natural Language Processing”), ML (“Machine Learning”) and number services, including mobile, toll free and DID landline numbers, SMS to Email services, Database Dip services, SD-WAN, voice termination, and numerous API driven services including voice, messaging and network management. On January 31, 2019, we acquired IM Telecom, an Oklahoma limited liability company, d/b/a Infiniti Mobile, (“IM Telecom” or “Infiniti Mobile”), which became our wholly owned subsidiary. Infiniti Mobile is an FCC licensed ETC (“Eligible Telecommunications Carrier”) and is one of approximately nineteen (19) FCC licensed carriers to hold an FCC approved Lifeline Compliance Plan in the United States. Under the Lifeline program, Infiniti Mobile is currently authorized to provide government subsidized mobile telecommunications services to eligible low-income Americans currently in forty (40) states with pending Study Area Codes (SACs) applications with the FCC in an additional eight (8) states. On January 22, 2024 (the “Effective Date”), KonaTel and IM Telecom entered into a Membership Interest Purchase Agreement with Excess Telecom, Inc., a Nevada corporation (respectively, “Excess Telecom” and the “Excess Telecom Membership Interest Purchase Agreement”). Pursuant to the Membership Interest Purchase Agreement, KonaTel agreed to sell a membership interest in IM Telecom (the “Membership Interest”) to Excess Telecom, initially 49 % (the “Initial Closing”), with the remaining 51% (the “Final Closing”) subject to final change of control approval by the “FCC.” Additional agreements were also executed by the parties at the Initial Closing Date of the Membership Interest Purchase Agreement, including a Management Service Agreement, a Master Distribution Agreement and an Amended and Restated Operating Agreement (collectively, the “Transaction Documents”). Basis of Presentation The accompanying financial statements have been prepared using the accrual basis of accounting. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include the allowance for doubtful receivables, allowance for inventory obsolescence, the estimated useful lives of property and equipment, and intangible assets. Actual results could differ from those estimates. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. Basis of Consolidation The consolidated financial statements for the year ended December 31, 2024, and 2023, include the Company and its three (3) owned corporate subsidiaries, KonaTel Nevada, Apeiron Systems, and IM Telecom. All significant intercompany transactions are eliminated. F- 7 Cash and Cash Equivalents Cash and Cash Equivalents include cash on hand and all short-term investments with maturities of three months or less. Trade Accounts Receivable The Company accounts for trade receivables based on amounts billed to customers. Past due receivables are determined based on contractual terms. The Company does not accrue interest and does not require collateral on any of its trade receivables. Net receivables from transactions with customers were $ 1,533,015 and $ 1,496,799 as of December 31, 2024, and December 31, 2023, respectively. Allowance for Credit Losses The allowance for credit losses is determined by management based on customer credit history, specific customer circumstances and general economic conditions. Periodically, management reviews our accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. As of December 31, 2024, and 2023, management has determined that no allowance for credit losses is necessary. Inventory Inventory consists primarily of the cost of cellular phones and tablets. Inventory is reported at the lower of cost or net realizable value. Cost is determined by the first-in, first-out (“FIFO”) method. As of December 31, 2024, total inventory owned by the Company was $ 163,063 . 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, 2024, and 2023, the allowance for inventory obsolescence was $ 0 . Property and Equipment Property and equipment are recorded at cost and are depreciated on the straight-line method over their estimated useful lives. Leasehold improvements are amortized over the lesser of the lease term or estimated useful life, furniture and fixtures, equipment, and vehicles are depreciated over periods ranging from five to seven (5-7) years, and billing software is depreciated over three (3) years which represents the estimated useful life of the assets. Maintenance and repairs are charged to expense as incurred while major replacements and improvements are capitalized. When property and equipment are retired or sold, the cost and applicable accumulated depreciation are removed from the respective accounts and the related gain or loss is recognized. The Company recognizes impairment losses for long-lived assets whenever changes in circumstances result in the carrying amount of the assets exceeding the sum of the expected future cash flows associated with such assets. Management has concluded that no impairment reserves are required as of December 31, 2024, and 2023. Intangible Assets The Company accounts for intangible assets in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As of December 31, 2024, intangible assets include our ETC License. Other Assets Other Assets represent items classified as long-term assets in accordance with the Statement of Financial Accounting Standards ASC 210-10-45. Other Assets include security deposits held with vendors. Customer Deposits Before entering into a contract with a sub-reseller customer, the Company requires the customer to either secure a formal letter of credit with a bank or require a certain level of cash collateral deposits from the customer. These collateral requirements are determined by management and may be adjusted upward or downward depending on the volume of business with the sub-reseller customer, or if management’s assessment of credit risk for a sub-reseller customer would change. F- 8 The Company held $ 0 in collateral deposits from various sub-reseller customers at December 31, 2024, and 2023, respectively. Notes Receivable On January 22, 2024, the Company accepted a $ 1,000,000 note receivable from Excess Telecom as part of the 49% membership interest sale of IM Telecom. Payment of the note is contingent upon the satisfaction of certain underlying provisions noted in the Membership Interest Purchase Agreement. There is no stated interest or term under this note. Fair Market Value of Assets The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain of our financial instruments, including cash, accounts payable, accrued expenses, deposits received from customers for receivables and short-term loans the carrying amounts approximate fair value due to their short maturities. Long-term assets purchased through acquisitions are valued at the Fair Market Value of the asset at the time of acquisition. The Fair Market Value is based on observable inputs of assets in active market- places for fixed assets, and estimations and assumptions developed by us for Other Intangibles. The Company follows accounting guidance for financial and non-financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices, which are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use. Leases In February 2016, the FASB updated the accounting guidance related to leases. The most significant change in the updated accounting guidance requires lessees to recognize lease assets and liabilities on the balance sheet for all operating leases with the exception of short-term leases. The standard also expands the disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. For a lessee, the recognition, measurement and presentation of expenses and cash flows arising from a lease did not significantly change from previous guidance. See NOTE 5. Upon adoption, we recorded $ 151,471 for operating lease assets and liabilities, which includes the impact of fair value adjustments, prepaid and deferred rent. As of December 31, 2024, and December 31, 2023, our operating lease liabilities were $ 341,516 and $ 458,227 , respectively. Revenue Recognition Services revenues are generated from cellular and telecommunication services. The revenue is derived from wholesale and retail services. Telecommunications and mobile telecommunication services include network platforms, voice, data, and text services. The Company recognizes revenue as telecommunications and mobile services are provided in service revenue. Telecommunications and mobile services are billed and paid on a monthly basis. These bills include an amount for the monthly recurring charge and a usage charge. We earn revenue from contracts with customers, primarily through the provision of telecommunications and other services. We account for these revenues under Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers.” This standard update, along with related subsequently issued updates, clarifies the principles for recognizing revenue and develops a common revenue standard under U.S. GAAP. The standard update also amends current guidance for the recognition of costs to obtain and fulfill contracts with customers such that incremental costs of obtaining and direct costs of fulfilling contracts with customers will be deferred and amortized consistent with the transfer of the related good or service. The adoption of this guidance did not have a material impact on the consolidated financial statements. F- 9 We distribute government subsidized mobile services through Master Agents. As part of the distribution process, we deliver mobile phones and/or tablets (devices) to our Master Agents, who then are responsible to subscribe qualifying consumers under a government sponsored program (ACP and/or Lifeline). In most cases, devices that have been delivered to our Master Agents are subscribed to and activated by qualifying consumers within sixty (60) days, at which point we would receive a subsidy from a governing body (the Universal Service Administrative Company (“USAC”) or certain states) and recognize revenue. Once a device is activated, and the intended service provided under the government program is deemed to have occurred, the program revenue is recognized, the expense is recognized, and the device is removed from inventory. Excess Telecom (Related Party) Revenue ( see NOTE 14 below) Pursuant to the Excess Telecom Membership Interest Purchase Agreement and the related Master Distribution Agreement, Excess Telecom markets under the IM Telecom license, in the same manner as other distribution partners. Annual revenue generated from Excess Telecom and marketed under the IM Telecom license was $ 108,328,000 for 2024. Annual management expense, directly related to the Excess Telecom revenues, was $ 108,328,000 for 2024. Excess Telecom revenues and expenses are recorded on IM Telecom’s books, but are not presented on our statements since they are netted. Deferred Revenue Services for cellular and telecommunication services have a monthly recurring charge that is billed in advance. This charge covers a thirty (30) or thirty-one (31)-day period. This charge is deferred for the period in which it was received and recorded as revenue at the conclusion of this period. Costs, mainly from outside providers, associated with the deferred revenue are recognized in the same period as revenue is recognized. Cost of Revenue Cost of Revenue includes the cost of communication services, equipment and accessories, shipping costs, and agent compensation. Advertising/Marketing Costs for advertising/marketing of products and services, as well as other promotional and sponsorship costs, are charged to selling, general and administrative expense in the periods in which they are incurred. Advertising/marketing expense was $ 99,759 and $ 154,533 for 2024, and 2023, respectively. The decrease in advertising/marketing costs was a result of a small investment into marketing for Infiniti Mobile throughout our independent agent footprint. Stock-based Compensation The Company records stock-based compensation in accordance with the guidance in ASC 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This requires that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award. The Company accounts for equity instruments issued in exchange for the receipt of goods or services from nonemployees in accordance with ASC 718-10 and the conclusions reached by the ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services. Income Taxes Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the consolidated financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rate are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. F- 10 The benefits of uncertain tax positions are recorded in the Company’s Consolidated Financial Statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. The Company records interest and penalties related to unrecognized tax benefits in interest expense in the Company’s Consolidated Statements of Operations. Net Income (Loss) Per Share Basic income (loss) per share of common stock attributable to common stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net income (loss) per share of common stock attributable to common stockholders when their effect is dilutive. The dilutive common shares for the year ended December 31, 2023, 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 641,155 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, 2024 2023 Numerator Net Income (Loss) $ 4,490,818 $ ( 3,940,827 ) Denominator Weighted-average common shares outstanding 43,402,219 42,773,269 Dilutive impact of stock options 54,163 — Weighted-average common shares outstanding, diluted 43,526,417 42,773,269 Net income per common share Basic $ 0.10 $ ( 0.09 ) Diluted $ 0.10 $ ( 0.09 ) Concentrations of Credit Risk Trade Account Receivables Sales Revenue Customer Concentration Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of receivables, cash, and cash equivalents. All cash and cash equivalents and restricted cash and cash equivalents are held at high credit financial institutions. These deposits are generally insured under the FDIC’s deposit insurance coverage; however, from time to time, the deposit levels may exceed FDIC coverage levels. The Company has a concentration of risk with respect to trade receivables from customers and cellular providers. As of December 31, 2024, the Company had a significant concentration of receivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from one (1) customer in the amount of $ 1,055,337 or 68.5 %. It should be noted that the largest customer is the state of California, as administered by the California Public Utilities Commission (CPUC). As of December 31, 2023, the Company had a significant concentration of receivables from two (2) customers in the amounts of $ 1,024,308 or 68.5 % and $ 283,536 or 19.0 %. Concentration of Major Customer A significant amount of the revenue is derived from contracts with major customers. For the year ended December 31, 2024, the Company had two (2) customers that accounted for $ 5,295,202 or 34.2 % and $ 3,483,080 or 22.5 % of revenue, respectively. 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. 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 Program. F- 11 Effect of Recent Accounting Pronouncements The Company has evaluated all recent accounting pronouncements and believes that none will have a significant effect on the Company’s financial statement. NOTE 2 – GOING CONCERN With no visible progress towards an extension of the ACP Program, or the creation of a similar program, the Company may face further cost reduction measures, including additional reductions in our workforce. Although the Company eliminated its outstanding debt and increased its cash position earlier in 2024, the uncertainty surrounding the ACP and Lifeline Programs or the creation of other similar support programs, the Company’s ability to remain a going concern is dependent upon the success of IM Telecom’s ongoing health care initiative, Apeiron System’s SMS messaging, POTS replacement and VIVA-US Telecommunications, Inc. initiatives. The lack of our success in one or more of these foregoing initiatives raises substantial doubt about our ability to remain a going concern for the twelve (12) month period from the date of this Annual Report. In order to mitigate any going concern risks, we continue to focus on our mobile services segment in California with the California Lifeline Program, through its’ additional state funding and Linkup program. We also shifted our focus to our ongoing health care sales initiative as well as Apeiron System’s SMS messaging and POTS replacement initiatives. If necessary, we will also consider additional reductions in force, which will create more than a twelve (12) month net working capital in order to mitigate further risk. NOTE 3 – INVENTORY 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, 2024, and December 31, 2023, the Company had inventory of $ 163,063 and $ 1,229,770 , respectively. NOTE 4 – SIGNIFICANT TRANSACTIONS CCUR Loan and Payoff 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 Loan”). The term was for a period of twelve ( 12 ) months, at an initial interest rate of 15 %, with two (2) successive six-month optional extensions. 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 %. In 2024, as a result of the Excess Telecom Membership Interest Purchase Agreement, the CCUR loan was paid off in the amount of $ 3,681,660 . ACP Finance Line of Credit In 2023, IM Telecom entered into a structured credit, non-dilutive facility, with ACP Financing VII, LLC. The facility was used for mobile device purchases in 2024 in support of our mobile services group. Approximately $ 1,500,000 was immediately available under the terms of the agreement. Due to the expiration of the ACP Program, all outstanding amounts due to ACP Finance were paid off in November, 2024. F- 12 NOTE 5 – PROPERTY AND EQUIPMENT Property and equipment consist of the following major classifications as of December 31, 2024, and 2023: Property and Equipment - Schedule of Property and Equipment December 31, 2024 December 31, 2023 Lease Improvements Lease Improvements $ 46,950 $ 46,950 Furniture and Fixtures Furniture and Fixtures 102,946 102,946 Billing Software 217,163 217,163 Office Equipment Office Equipment 94,552 94,552 461,611 461,611 Less: Accumulated Depreciation ( 446,483 ) ( 437,427 ) Property and equipment, net $ 15,128 $ 24,184 Depreciation expense amounted to $ 9,056 and $ 12,352 for the years ended December 31, 2024, and 2023, respectively. Depreciation expense is included as a component of operating expenses in the accompanying statements of operations. NOTE 6 – RIGHT-OF-USE ASSETS Minimum Maximum Right-of-Use Assets consist of assets accounted for under ASC 842. The assets are recorded at present value using implied interest rates between 4.75 % and 7.50 %. The Right-of-Use Assets were $ 319,549 and $ 443,328 in 2024 and 2023, respectively. The Company has right-of-use assets through leases of properties under non-cancelable leases. As of December 31, 2024, the Company had four (4) leased properties. 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, 2024, was $ 341,516 . 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 2025 $ 129,543 2026 $ 65,968 2027 $ 54,000 2028 $ 54,000 2029 $ 54,000 Thereafter $ 36,000 Total $ 393,511 Less Interest $ 51,995 Present value of minimum lease payments $ 341,516 Less Current Maturities $ 113,740 Long Term Maturities $ 227,776 The weighted average term of the right-to-use leases is 55.6 months recorded with a weighted average discount of 7.08 %. For the year ended December 31, 2024, total lease expense was $ 164,308 . NOTE 7 – INTANGIBLE ASSETS Intangible Assets with definite useful life consist of licenses, customer lists and software that were acquired through acquisitions: Intangible Assets - Schedule of Acquired Finite-Lived Intangible Assets December 31, 2024 2023 Customer List $ 1,135,962 $ 1,135,962 Software 2,407,001 2,407,001 ETC License 323,468 634,251 Less: Amortization ( 3,542,963 ) ( 3,542,963 ) Net Amortizable Intangibles 323,468 634,251 Right of Use Assets - net 319,549 443,328 Intangible Assets net $ 643,017 $ 1,077,579 F- 13 Amortization expense amounted to $ 0 and $ 0 for the years ended December 31, 2024, and 2023, 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. Intangible Assets with indefinite useful life consist of the Lifeline license granted by the FCC. The license, because of the nature of the asset and the limitation on the number of granted Lifeline licenses by the FCC, will not be amortized. The license was acquired through an acquisition. The fair market value of the license as of December 31, 2024 was $ 323,468 , and as of December 31, 2023, was $ 634,251 . During the first quarter of 2024, the Company entered into a Membership Interest Purchase Agreement with Excess Telecom to sell 49% of IM Telecom in consideration of the sum of $10,000,000. As a result of this transaction, we reduced the value of our ETC License by 49% in 2024 . NOTE 8 – LINES OF CREDIT The Company has no lines of credit as of December 31, 2024. NOTE 9 – CONTINGENCIES AND COMMITMENTS Litigation From time to time, the Company may be subject to legal proceedings and claims that arise in the ordinary course of business. As of December 31, 2024, there are no such legal proceedings. Contract Contingencies The Company has the customary obligation for the completion of its cellular provider contracts in accordance with the appropriate standards of the industry and that may be provided in the contractual agreements. The Membership Interest Purchase Agreement with Excess Telecom includes the right to distribute Lifeline services under the IM Telecom license. The completion of the sale of IM Telecom is contingent upon approval of the sale by the FCC, as IM Telecom is the holder of a Lifeline license and is designated as an Eligible Telecommunications Carrier (“ETC”) for purposes of marketing Lifeline services to low-income consumers. Regulatory Determinations The Company has no outstanding regulatory determinations as of December 31, 2024. Tax Audits In June of 2021, the Company received an audit determination and assessment from the State of Pennsylvania related to sales and use tax for the audit period of January 1, 2016, through September 30, 2019. The assessment was in the amount of $ 115,000 , including interest and penalties calculated on sales made inside and outside Pennsylvania. The Company recorded the full amount of this assessment in 2022. The Company appealed the assessment in August, 2021, and at the request of the state, provided additional information to support its appeal. The Company’s position is that Pennsylvania has no sales tax authority to levy and collect sales tax on sales made outside of Pennsylvania. The State of Pennsylvania rejected an appeal by the Company. On November 6, 2023, the Company agreed to a payment plan with the State of Pennsylvania. The Company will pay $ 5,500 per month, over a twenty-four (24) month period, which commenced in December, 2023. As of December 31, 2024, the Company has paid $ 71,500 . Letters of Credit The Company had no outstanding letters of credit as of December 31, 2024. N OTE 10 – SEGMENT REPORTING In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (ASU 2023-07). Beginning with our 2024 annual reporting, we adopted ASU No. 2023-07, which requires that a public entity disclose, on an interim and annual basis, significant segment expense categories and amounts that are regularly provided to its chief operating decision maker (“CODM”) and included in each reported measure of segment profit or loss. An entity must also disclose, by reportable segment, the amount and composition of other expenses. The standard requires an entity disclose the title and position of its CODM and explain how the CODM uses these reported measures in assessing segment performance and determining how to allocate resources. F- 14 Our segments are comprised of strategic business units or other operations that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We have two reportable segments: Hosted Serves and Mobile Services. Our CODM is our President. Our CODM uses operating income to evaluate performance and allocate resources, including capital allocations, when managing the business. Our CODM manages operations through the review of actual and forecasted “Operations and Support Expenses” information at a segment and business unit level, of which segments are primarily evaluated on a direct cost basis and comprised of equipment, compensation, network and technology, sales, advertising and other costs. Direct costs are incurred in support of products and services offered by the business units, such as equipment costs (predominantly wireless devices), network access, rents, leases, sales support, customer provisioning and compensation expenses. The Company operates within two ( 2 ) reportable segments. The Company’s management evaluates performance and allocates resources based on the profit or loss from operations. Because the Company is a recurring revenue service business with very few physical assets, management does not use total assets by segment to make decisions regarding operations, and therefore, the total assets disclosure by segment has not been included. The reportable segments consist of Hosted Services and Mobile Services. Mobile Services reporting will now consist of our post-paid and pre-paid cellular business. Hosted Services – Our Hosted Services include a suite of hosted CPaaS services within the Apeiron Systems’ cloud platform, including Cloud IVRs, Voicemail, Fax, Call Recording and other services provided with local, toll-free and international phone numbers. Apeiron also delivers public and private IP network services from its national redundant network backbone, including MPLS, Dedicated Internet and LTE Wireless WAN solutions. Additionally, Apeiron’s Cloud Services include Information Data Dips, SD-WAN and IoT data and device management. These Hosted Services are marketed nationally and internationally through the Apeiron website, its sales staff, independent sales agents and ISOs. Mobile Services – Our Mobile Services include retail and wholesale cellular voice/text/data services and IoT mobile data services through our subsidiaries Apeiron Systems and IM Telecom. Mobile voice/text/data and IoT mobile data services are supported by a blend of reseller agreements with select national wireless carriers and national wireless wholesalers. A wireless communications service reseller typically does not own the wireless network infrastructure over which services are provided to its customers. Mobile voice/text/data and mobile data solutions are generally sold as traditional post-paid service plans that may include voice/text/data or wireless data only plans. Sometimes equipment is provided, which can include, but is not limited to, phones, tablets, modems, routers and accessories. Also included in our Mobile Services segment is the distribution of government subsidized mobile voice service and mobile data service by IM Telecom under its Infiniti Mobile brand and FCC license to low-income American households that qualify for the FCC’s Lifeline mobile voice service program and/or the FCC’s ACP mobile data program. Even though government programs like Lifeline have existed since 1985, these programs, along with newer programs like the ACP Program, are subject to change and may have a material impact on our Mobile Services business if changed, reduced or eliminated. The following table reflects the result of operations of the Company’s reportable segments: Segment Reporting - Reconciliation of Revenues to Segment Contribution For the year ended December 31, 2024 Depreciation Operating Operating and Other Income Revenues Expenses* Amortization Gain/Loss (Loss) Segment Hosted Services $ 5,581,069 $ 6,476,001 $ 8,757 $ — $ ( 903,689 ) Mobile Services 9,922,182 10,396,667 299 — ( 474,784 ) Segment Total Operating Segments 15,503,251 16,872,668 9,056 — ( 1,378,473 ) Corporate Parent administration support Parent Administration Support — 3,378,435 — — ( 3,146,606 ) Gain on sale of subsidiary — — — 9,247,726 9,247,726 Total Corporate Total Corporate — 3,378,435 — 9,247,726 6,101,120 KonaTel, Inc. $ 15,503,251 $ 20,251,103 $ 9,056 $ 9,247,726 $ 4,490,818 F- 15 For the year ended December 31, 2023 Depreciation Operating Operating and Other Income Revenues Expenses* Amortization Gain/Loss (Loss) Segment Hosted Services $ 5,054,210 $ 5,465,812 $ 11,944 $ — $ ( 423,546 ) Mobile Services 13,169,535 13,932,900 408 — ( 763,773 ) Segment Total 18,223,745 19,398,712 12,352 — ( 1,187,319 ) Corporate Parent administration support — 2,753,508 — — ( 2,753,508 ) Gain on sale of subsidiary — — — — — Total Corporate — 2,753,508 — — ( 2,753,508 ) KonaTel, Inc. $ 18,223,745 $ 22,152,220 $ 12,352 $ — $ ( 3,940,827 ) *Operating Expenses includes Cost of Revenue, Operating Expenses, Other Income/Expense and Income Tax Expense. NOTE 11 – 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. Mr. McEwen was the sole shareholder of KonaTel Nevada and received merger consideration of 13,500,000 shares of the Company’s common stock and 1,500,000 non-compensatory options to acquire shares of the Company’s Common Stock under the merger, at an exercise price of $ 0.22 per share, vesting quarterly, from March 18, 2018, to December 18, 2019. See NOTE 11 below. Chief Executive Officer In 2024, D. Sean McEwen, the Chairman and CEO of the Company, exercised 375,000 equity stock options for 375,000 shares of common stock at a price of $ 0.22 per share. On September 17, 2024, the Company’s Board of Directors adopted resolutions to extend Mr. McEwen’s expiration dates on his last two (2) 187,500 share option tranches by one (1) year, or to respectively expire at midnight on September 17, 2025, and December 17, 2025 . Stock Compensation The Company offers incentive stock option equity awards to directors and key employees. Options vest in tranches and typically expire in five (5) years. During the year ended December 31, 2024, and 2023, the Company recorded options expense of $ 992,735 and $ 257,557 , respectively. The option expense not taken as of December 31, 2024, is $ 2,565,244 , with a weighted average term of 3.30 years. In 2024, 100,000 share incentive stock options were granted to one (1) employee. During the year ended December 31, 2024, 75,000 shares were exercised by one (1) independent member of the Board of Directors. The Aggregate Intrinsic Value is based on the market value of the Company’s common stock of $ 0.18 on December 31, 2024. The estimated grant date fair value of stock option grants was calculated using the Black-Scholes-Merton option-pricing model using the following assumptions: Stockholders’ Equity - Schedule of Fair Value of Stock Options Valuation Assumptions 2024 2023 Weighted average volatility 170.23 % 181.29 % Weighted average expected term (years) 5.00 5.00 Risk free interest rate 4.54 % 4.53 % Expected dividend yield — — F- 16 The following table represents incentive stock option activity as of and for the year ended December 31, 2024: Stockholders’ Equity - Schedule of Share-Based Compensation, Stock Option Activity Number of Weighted Average Weighted Average Aggregate Shares Exercise Price Remaining Life Intrinsic Value Options Outstanding – December 31, 2023 6,000,000 $ 0.75 3.69 $ 872,463 Granted 100,000 0.47 Exercised 450,000 0.41 Forfeited — — Options Outstanding – December 31, 2024 5,650,000 $ 0.78 3.80 $ 612,418 Exercisable and Vested, December 31, 2024 54,163 0.51 1.72 ( 18,110 ) The following table represents stock option activity as of and for the year ended December 31, 2023: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Life Aggregate Intrinsic Value Options Outstanding: December 31, 2022 4,405,000 $ .59 3.22 $ 2,260,138 Granted 3,245,000 .86 Exercised ( 950,000 ) .53 Forfeited ( 700,000 ) Options Outstanding: December 31, 2023 6,000,000 $ .75 3.69 $ 872,463 Exercisable and Vested: December 31, 2023 641,155 $ .50 1.58 $ 247,547 In 2023, 3,245,000 share incentive stock options were granted to two (2) independent members of the Board of Directors and twelve (12) employees. Each independent Board member was granted 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. NOTE 12 – INCOME TAX The Company provides for income taxes using an asset and liability-based approach. Deferred income tax assets and liabilities are recorded to reflect the future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Tax Cuts and Jobs Act was enacted on December 22, 2017, which reduced the U.S. corporate statutory tax rate from 35% to 21%. The Company changed its effective federal rate to 21% as the expected rate for our deferred tax items. The significant components of net deferred tax assets (liabilities) were as follows at December 31, 2024, and 2023: Income Tax - Schedule of Deferred Tax Assets and Liabilities December 31, 2024 2023 Net operating losses $ 573,726 $ 1,657,095 Depreciation and amortization ( 18,493 ) ( 14,128 ) Stock option expense 426,275 304,978 Valuation allowance ( 981,508 ) ( 1,947,945 ) Net Deferred Tax Asset $ — $ — F- 17 As of December 31, 2024, 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, 2024, and 2023 is set forth below: For the Year Ended December 31, 2024 2023 Tax at statutory federal rate $ 184,051 $ ( 850,623 ) Non-deductible expenses and other — — Change in valuation allowance ( 184,051 ) 850,623 Benefit from income taxes $ — $ — As of December 31, 2024, the Company has a net operating loss carry-forward for U.S. federal income tax purposes of approximately ($ 2,732,030 ) will expire in 2044. This carryforward is available to offset future taxable income, if any, and will expire, if not used, from 2037 through 2042. The utilization of the net operating loss carry-forward is dependent upon the tax laws in effect at the time the net operating loss carry-forward can be utilized and may be limited by changes in ownership control of the Company. The Company’s U.S. federal tax return, constituting the return of the major taxing jurisdictions, are subject to examination by the taxing authorities for all open years as prescribed by applicable statute. No income tax waivers have been executed that would extend the period subject to examination beyond the period prescribed by statute. The Company is no longer subject to U.S. federal tax examinations for tax years before and including December 31, 2019. During the years ended December 31, 2024, and 2023, the Company did not incur interest and penalties. NOTE 13 – REDUCTION IN FORCE: KEY EMPLOYEES Upon shutdown of the Affordable Connectivity Program, the Company decided to reduce operational costs to pair the spend with its ongoing revenues. As such, a reduction in force was executed that contained several key individuals. Multiple replacement revenue initiatives have been ongoing for some time and continue to mature. In an effort to support specific initiatives (Healthcare vertical and Viva-US), KonaTel created consulting arrangements to keep key employees (Jason N. Welch and B. Todd Murcer) to maintain their expertise in the business with the intent to rehire the same key individuals upon successful launch of the growth initiatives. Messrs. Welch and Murcer have been very active since the reduction in force to keep sales and operational items in place while the new programs launch. Additionally, and to provide headroom for these growth initiatives, KonaTel extended the exercise option deadline in each independent stock option plan by one hundred eighty (180) days. This took place in a Board resolution on February 1, 2025. This extension is also discussed below in Note 14 as a subsequent event. NOTE 14 – SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date of this filing, and except for the following, no material subsequent events have occurred: Amendments and/or Restatements to the Excess Telecom Membership Interest Purchase Agreement On January 22, 2024 (the “Effective Date”), KonaTel and IM Telecom entered into a Membership Interest Purchase Agreement with Excess Telecom. Pursuant to the Membership Interest Purchase Agreement, KonaTel agreed to sell a membership interest in IM Telecom to Excess Telecom, 49 % at the Initial Closing, with the remaining 51% at the Final Closing, subject to the final change of control approval by the FCC. Additional Transaction Documents were also executed by the parties at the Initial Closing Date of the Membership Interest Purchase Agreement, including a Management Service Agreement, a Master Distribution Agreement and an Amended and Restated Operating Agreement. On March 4, 2025, certain of the initial Transaction Documents with Excess Telecom were restated by signature; these restatements became effective as of the date or dates set forth at the beginning of each of the referenced Transaction Documents and copies of which accompany our 8-KA Current Report dated January 22, 2024, filed with the SEC on March 10, 2025. IM Telecom and Excess Telecom have been working together to establish best practices in compliance and building an expanded ETC footprint in the United States. In addition to our approved Federal Compliance Plan, IM Telecom has increased its state-authorized ETC approvals and is now approved in forty (40) states. Although these state approvals are complete, IM F- 18 Telecom is currently awaiting FCC delivery of Study Area Codes (“SACs”) to begin operating in eight (8) additional states. In furtherance of this process, certain of the initial Transaction Documents have been restated by signature dated March 4, 2025, but effective of the date or dates set forth at the beginning of each of the referenced Transaction Documents. The primary purpose for amending the original Management Services Agreement (the “MSA”) is to further specify items that concur with the intent to operate IM Telecom in compliance with FCC regulations and to ensure continuity of our working relationship with Excess Telecom during the process of FCC approval. IM Telecom and Excess Telecom have been working collaboratively while awaiting FCC change of control approval. We remain committed to compliance in all areas of our business. The Amended and Restated Management Services Agreement has been updated to include several items. These items include specific termination language, cure period language and the establishment of a sunset term in the event of an MSA termination. Schedule A was added to specify compensation for services rendered under the original MSA. As written in Section 2(vii), the Company shall have final authority and responsibility on all regulatory, legality and compliance issues, including initial enrollment standards, customer transfers and submission of claims for federal or state reimbursements from USAC or any other governmental body or the administrator for such governmental bodies; provided, that all such activities shall be undertaken in a commercially prudent manner and the Manager shall not take any actions that would cause the Compliance Plan, ETC Designations or ACP approval to be terminated, suspended or otherwise lapse. “USAC” stands for the Universal Service Administration Company, which is a not-for profit corporation that manages the FCC’s Universal Service Fund (respectively, “USAC” and “USF”). The parties formalized their working relationship by adding a Master Distribution Agreement, wherein Excess Telecom has been and continues to be a master distributor of IM Telecom until final change of control approval from the FCC and the final closing of the Transaction Documents is completed. The original Membership Interest Purchase Agreement predetermines a Master Distribution Agreement (“MDA”) whereby KonaTel, DBA Infiniti Mobile, becomes the non-exclusive master distributor under IM Telecom upon FCC final change of control approval and the final closing of the Membership Interest Purchase Agreement. Each MDA identifies the duties for each party under the MDA to act in a legal, professional and ethical manner and in compliance with all applicable laws, rules, regulations and orders. Only minor and non-material modifications were made to the existing IM Telecom Amended and Restated Operating Agreement to align with our ongoing business practices used since the inception of the execution of the Transaction Documents. For additional information on the initial and amended Transaction Documents, see our 8-K Current Report of dated January 22, 2024, and filed with the SEC on January 30, 2024, and our 8-KA Current Report dated January 22, 2024, filed with the SEC on March 10, 2025, which are Hyperlinked in in Section 9 – Financial Statements and Exhibits, Item 9.01, Part IV, Item 15, below, and are incorporated herein by reference. Extension of Incentive Stock Options to Key Employees The Board of Directors adopted a resolution to extend the option deadline for certain key employees (under their Employment Agreements) who were given notice of termination as a result of the official termination of the ACP Program. These employees, given the return of certain growth initiatives for the Company, would be available to return to further our business. Post-employment afforded a ninety (90) day exercise period of vested options, whereby this extension, given their possible return to the Company, extended the exercise period by one hundred eighty (180) days. Beaty Stock Option Exercise Director Subsequent Events On February 11, 2025, Robert Beaty, an independent Board member, conveyed to the Company 13,934 shares of the Company’s common stock at a price of $ 0.30 per share, in an exempt transaction pursuant to Section 16b-3(c), and in full payment of the exercise of 25,000 incentive stock options granted to him in 2019 at a price of $ 0.1672 per share, which was 110% of the fair market value of our common stock on the date of such grant. Pearl Stock Option Exercise On January 27, 2025, Jeffrey Pearl, an independent Board member, conveyed to the Company 13,307 shares of the Company’s common stock at a price of $ 0.31 per share, in an exempt transaction pursuant to Section 16b-3(c), and in full payment of the exercise of 25,000 incentive stock options granted to him in 2019 at a price of $ 0.165 per share, which was 110% of the fair market value of our common stock on the date of such grant. F- 19 Health Care Initiative and VIVA-Contract Our ongoing health care initiative experienced an initial launch in March, 2025 and Advice Letter Number 20 is pending before the California Public Utilities Commission authorizing an expanded launch to all current Medicaid recipients within the state. The program launch timing for our VIVA-US Telecommunications, Inc. (“VIVA-US”) sales initiative has now been tentatively set for June 2025. Payment Received on Note Receivable On March 11, 2025, the Company received a payment of $ 150,000 on the note receivable ($1,000,000) due from Excess Telecom that is referenced under “Notes Receivable” in NOTE 1 above. ( This space intentionally left blank) F- 20 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During our two (2) most recent fiscal years, no independent accountant who was previously engaged as the principal accountant to audit our financial statements, or an independent accountant who was previously engaged to audit a significant subsidiary and on whom the principal accountant expressed reliance in its report, has resigned (or indicated it has declined to stand for re-election after the completion of the current audit) or was dismissed.