Item 1. Financial Statements.

July 2017 Transaction

On July 19, 2017, the Company entered into a Common Stock Purchase Agreement with M2 Equity Partners LLC, a Minnesota limited liability company (“M2”), whereby M2 has purchased 12,100,000 newly issued shares of the Company’s common stock (the “Common Stock”) for an aggregate purchase price of $347,500 (the “Purchase Price”), pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and/or Rule 506(b) promulgated thereunder.  Prior to the closing (the “Closing”) of the Common Stock Purchase Agreement, the Company had the following outstanding securities: (i) 2,926,486 shares of Common Stock; (ii) 2,008 shares of Series A 6% Convertible Preferred Stock (the “Preferred Stock”); and (iii) 1,928,571 warrants (the “Warrants”) to acquire 1,928,571 shares of Common Stock that were issued in connection with the issuance of our Preferred Stock. In connection with this purchase of Common Stock, certain of the Company’s shareholders agreed to cancel an aggregate 1,584,200 shares of the Company’s Common Stock for an aggregate amount of $15,842; and 2,008 shares of the Company’s Preferred Stock and all outstanding Warrants for an aggregate amount of $53,841, with an additional sum of approximately $4,700 due to those shareholders who have agreed to cancel their respective shares of Preferred Stock and Warrants being reserved for the payment of miscellaneous expenses or other liabilities of the Company not provided for in the schedules and exhibits to the Common Stock Purchase Agreement, and any remainder of this sum will be paid to these shareholders, pro rata, based upon the respective percentage that the aggregate amount being paid for the cancellation of the Preferred Stock and Warrants bears, if any, to these additional funds, following payment of any such miscellaneous expenses or other liabilities of the Company.  $10,750 of the Purchase Price is being held in the Trust Account of the Company’s legal counsel to be expended on behalf of the Company or deposited into a new bank account to be opened by the Company.

As a result of the cancellation of the 1,584,200 shares of Common Stock, Preferred Stock and Warrants immediately prior to or simultaneous with the Closing, the Company had 1,342,286 shares of Common Stock issued and outstanding (the “Existing Shares”) and no shares of Preferred Stock or Warrants issued and outstanding; and taking into account the share cancellation and the 12,100,000 share Common Stock purchase and issuance, the Company presently has issued and outstanding (i) 13,442,286 shares of its Common Stock, consisting of (a) the 1,342,286 Existing Shares, and (b) the 12,100,000 shares purchased by M2; and (ii) no other securities (as defined in the Securities Act) issued or outstanding.

The Company will use the remainder of the $347,500 to, among other items set forth in the schedules and exhibits to the Common Stock Purchase Agreement, pay or compromise all outstanding indebtedness and other liabilities of the Company, amounting to approximately $262,367, which includes a payment of an aggregate of $10,000 ($5,000 to each) to our two directors and executive officers, with the understanding that our then current assets will consist of approximately $10,750, our Property, consisting of our oil and gas lease assets that we presently own, along with other intangible assets, and following the payment of the indebtedness and other liabilities and financial obligations of the Company, there will be no liabilities of the Company at Closing.

M2 has agreed to pay M2 Capital Advisors, Inc., a Minnesota corporation (“M2 Capital”), which is wholly-owned by Mark Savage, a founding member of M2, an Introduction Fee of $25,000 for introducing the Company to M2. These funds will be divided between M2 Capital and Elev8 Marketing, a firm owned by Matt Atkinson, who is also a founding member of M2 and M2’s sole Manager, and will be utilized to repay these entities for legal costs and miscellaneous expenses incurred by them in connection with the formation and funding of M2.

The Closing of the Common Stock Purchase Agreement resulted in a change in control of the Company.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

NOTE 3 – BASIS OF PRESENTATION

The accompanying unaudited financial statements of Dala Petroleum, Inc. have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructionsrespect to Form 10-Q and Article 8 of Regulation S-X. The results of operations for the interim period ended June 30, 2017 shown in this report areAccordingly, they do not necessarily indicative of results to be expected for the full fiscal year ending September 30, 2017. In the opinioninclude all of the Company’s management, the information contained herein reflectsand footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentationstatement of the Company’s results for the interim periods presented. Interim results are not necessarily indicative of operations, financial position and cash flows. Thethe results for the full year. These unaudited interim financial statements should be read in conjunction with the audited financial statements inof the Company’s Form 10-KCompany for the year ended September 30, 2016 filed on January 13, 2017 and Management’s Discussion and Analysis of Financial Condition and Results of Operations.December 31, 2020.

Use of Estimates

The timelyaccompanying 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 revenuerevenues 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, stock-based compensation, and customer lists. Actual results could differ significantly from those estimates.

Accounting for DerivativesBasis of Consolidation

The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.

Impairment of Long-Lived Assets

The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

The Company measures itscondensed consolidated financial assets and liabilities in accordance with generally accepted accounting principles. For certain of our financial instruments, including cash, accounts payable, accrued expenses, and short-term loans the carrying amounts approximate fair value due to their short maturities.

We follow 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.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. Thesestatements 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.

Unproved oil and natural gas properties are accounted for and measured under Regulation S-X, Rule 4-10.

We currently measure and report at fair value other intangible assets (due to our impairment analysis) and derivative liabilities using ASC 820-10, Fair Value Measurement.  The fair value of intangible assets has been determined using the present value of estimated future cash flows method.  The fair value of derivative liabilities is measured using the Black-Scholes option pricing method.  The following tables summarizes our non-financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2017 and September 30, 2016:

Oil and Natural Gas Properties

The Company follows the full cost method of accounting for oil and natural gas operations whereby all costs related to the exploration and development of oil and natural gas properties are initially capitalized into a single cost center (“full cost pool”). Such costs include land acquisition costs, a portion of employee salaries related to Property development, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling directly related to acquisition, and exploration activities. Internal salaries are capitalized based on employee time allocated to the acquisition of leaseholds and development of oil and natural gas properties. The Company did not capitalize interest for the period ended June 30, 2017 as it was not required.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

Proceeds from Property sales will generally be credited to the full cost pool, with no gain or loss recognized, unless such a sale would significantly alter the relationship between capitalized costs and the proved reserves attributable to these costs.

The Company assesses all items classified as unproved Property on a quarterly basis for possible impairment or reduction in value. The assessment includes consideration of the following factors, among others: intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of proved reserves, and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such Property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and amortization.  The costs of drilling exploratory dry holes are included in the amortization base immediately upon determination that the well is dry.

Capitalized costs associated with impaired properties and properties having proven reserves, estimated future development costs, and asset retirement costs under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 410-20-25 are depleted and amortized on the unit-of-production method based on the estimated gross proved reserves.  The costs of unproved properties are withheld from the depletion base until such time as they are developed, impaired, or abandoned.

Under the full cost method of accounting, capitalized oil and natural gas Property costs less accumulated depletion, net of deferred income taxes, may not exceed a ceiling amount equal to the present value, discounted at 10%, of estimated future net revenues from proved oil and natural gas reserves plus the cost of unproved properties not subject to amortization (without regard to estimates of fair value), or estimated fair value, if lower, of unproved properties that are subject to amortization. Should capitalized costs exceed this ceiling, which is tested on a quarterly basis, an impairment is recognized. The present value of estimated future net revenues is computed by applying prices based on a 12-month unweighted average of the oil and natural gas prices in effect on the first day of each month, less estimated future expenditures to be incurred in developing and producing the proved reserves (assuming the continuation of existing economic conditions), less any applicable future taxes.  If such capitalized costs exceed the ceiling, the Company will record a write-down to the extent of such excess as a non-cash charge to earnings.  Any such write-down will reduce earnings in the period of occurrence and result in a lower depreciation, depletionthree wholly-owned corporate subsidiaries, KonaTel Nevada, Apeiron Systems and amortization rate in future periods.  A write-down may not be reversed in future periods even though higher oil and natural gas prices may subsequently increase the ceiling.IM Telecom. All significant intercompany transactions are eliminated.

In April 2015, the Company participated in the completion of a well in which the Company owns a 10% non-operated working interest targeting the Simpson and Viola formations, Kansas. That well was determined to be dry in June 2015.

During the period ended June 30, 2017, the Company incurred total $0 in oil and natural gas expenditures.

As of September 30, 2015, the Company’s oil and natural gas properties were determined to be impaired thereby reducing the unproved oil and natural gas properties to $608,000.  No additional impairment was realized for the year ended September 30, 2016 or the period ended June 30, 2017.

On May 10, 2016, the Company entered into a Partial Cancellation Agreement (the “PCA”) by and among its subsidiary, Dala Petroleum Corp., a Nevada corporation (“Dala NV”), Chisholm II, and certain members of Chisholm II (the “Chisholm Members”) through which Chisholm II (after receiving shares from certain of Chisholm Members) returned a total of 8,567,800 shares of the Company’s common stock to the Company’s treasury for cancellation.  In exchange for the return of these shares for cancellation, the Company returned 55,000 acres of the Company’s Property rights, held in the form of oil and gas leases from Chisholm II (approximately 68.75% of its total holdings), to Chisholm II.

Revenue Recognition

The Company recognizes oil and natural gas revenues from our interests in producing wells when production is delivered to, and title has transferred to, the purchaser and to the extent the selling price is reasonably determinable.

The Company uses the sales method of accounting for balancing of natural gas production and would recognize a liability if the existing proven reserves were not adequate to cover the current imbalance situation. For the nine months ended June 30, 2017, no revenue has been recognized as all wells are still unproved and non-producing.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

Asset Retirement Obligation

Asset retirement obligation (“ARO”) reflects the estimated present value of the amount of dismantlement, removal, site reclamation and similar activities associated with the Company’s oil and natural gas properties. Inherent in the fair value calculation of the ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments.   As of June 30, 2017, the Company had no ARO liability as no wells have been established.

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 other than employees 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 as defined by ASC 505-50.

Income Taxes

The Company follows ASC Topic 740 for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.

Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.

The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities. As of June 30, 2017, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax positions with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore this standard has not had a material effect on the Company.

Net LossIncome/(Loss) Per Share

The Company follows ASC Topic 260 to account for the loss per share. Basic lossincome/(loss) per common share calculations are determined by dividing net lossincome/(loss) by the weighted average number of shares of common stock outstanding during the period. Diluted lossincome/(loss) per common share calculations are determined by dividing net lossincome/(loss) by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods whenDilutive common share equivalents are computed by using the “Treasury Stock Method,” which computes the number of new shares that may potentially be created by unexercised options. Diluted common share equivalents are stock equivalents, if any, are anti-dilutive theybased compensation options. The dilutive common shares for the quarter ended March 31, 2021, are not consideredincluded in the computation.  Ascomputation of diluted earnings per share, because to do so would be anti-dilutive.

The following table reconciles the shares outstanding and net income (loss) used in the computations of both basic and diluted earnings per share of common stockholders:

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company has incurred losses forto concentrations of credit risk, consist primarily of receivables, cash, and cash equivalents.

All cash and cash equivalents are held at high credit financial institutions. These deposits are generally insured under the period ended June 30, 2017,FDIC’s deposit insurance coverage; however, from time to time, the potentially dilutive shares totaling 0 are anti-dilutive and are thus not added into the loss per share calculations.  Due to the anti-dilutive impact the weighted average dilutive shares outstanding for the period ended June 30, 2017, for basic and dilutive shares, are the same.deposit levels may exceed FDIC coverage levels.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

Segment Information

In accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information,” the Company is required to report financial and descriptive information about its reportable operating segments. The Company does not have any operating segments as of June 30, 2017, and September 30, 2016.

NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU No. 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for annual reporting periods beginning after December 15, 2017.  Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effectconcentration of the standard on its ongoing financial reporting.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Topic 205) Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The guidance requires management to perform an evaluation each annual and interim reporting period of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within the one-year period after the date that the financial statements are issued. If such conditions are identified, the guidance requires an entity to provide certain disclosures about the principal conditions or events that gave rise to the substantial doubt about the entity’s ability to continue as a going concern, management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations and management’s plans to alleviate or mitigate substantial doubt about the entity’s ability to continue as a going concern. The guidance is currently effective. The Company currently does not expect the adoption of ASU 2014-15 to have a material impact on its financial statements.

In November 2014, the FASB issued ASU No. 2014-16, Derivatives and Hedging (Topic 815) Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or Equity. This update amends existing guidance with the objective to eliminate the use of different methods in practicerisk with respect to trade receivables from customers and other cellular providers. As of March 31, 2021, the considerationCompany had a significant concentration of redemption features in relation to other features when determining whether the naturereceivables (defined as customers whose receivable balances are greater than 10% of a host contract is more akin to debt or equity and thereby reduce existing diversity under GAAP in accounting for hybrid financial instruments issuedtotal receivables) due from two (2) customers in the formamounts of $107,918 and $198,884, or 22.13% and 40.78% of total accounts receivable, respectively. As of December 31, 2020, the Company had a share.  The amendments clarify how current GAAP should be interpreted in evaluating the economic characteristics and riskssignificant concentration of a host contract in a hybrid financial instrument that is issuedreceivables (defined as customers whose receivable balances are greater than 10% of total receivables) due from two (2) customers in the formamounts of a share.$194,509, or 52.4%, and $52,843, or 14.2%, respectively.

The amendments clarify that no single term or feature would necessarily determine the economic characteristics and risksConcentration of a host contract, but rather, the natureMajor Customer

A significant amount of the host contract depends uponrevenue is derived from contracts with major customers and cellular partners. For the economic characteristics and risksthree months ended March 31, 2021, the Company had one (1) customer that accounted for $830,134 or 34.7% of revenue. For the entire hybrid financial instrument.  In addition,three-month period ended March 31, 2020, the amendments in this update clarifyCompany had one (1) customer that in evaluating the natureaccounted for $555,826, or 28.4%, of a host contract, an entity should assess the substancerevenue.

Effect of the relevant terms and features when considering how to weight those terms and features. The guidance applies to all entities that are issuers of, or investor in, hybrid instruments that are issued in the form of a share.   The effects of initially adopting the amendments in this update should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective.  Retrospective application is permitted to all relevant prior periods.  The updates in this pronouncement are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2016.  The Company is currently evaluating the adoption of ASU 2014-16 and the impact of the updates upon the Company.  The Company plans on adopting the pronouncement for periods beginning after December 15, 2016 and does not anticipate early adoption of this pronouncement.Recent Accounting Pronouncements

The Company has evaluated all other recent accounting pronouncements and believes that none of them will have a significant effect on the Company’s financial statement.statements.

Dala Petroleum Corp.

NotesNOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following major classifications as of March 31, 2021, and December 31, 2020 :

Depreciation and amortization related to Condensed Consolidated Financial StatementsProperty and Equipment amounted to $12,969 and $7,216 for the three-month periods ended March 31, 2021, and 2020, respectively. Depreciation and amortization expense are included as a component of operating expenses in the accompanying statements of operations.

June 30, 2017

(unaudited)NOTE 3 – RIGHT-OF-USE ASSETS

Right-of-Use Assets consist of assets accounted for under ASC 842. The assets are recorded at present value using implied interest rates between 3.29% and 5.34%.

The Company has Right-of-Use Assets through leases of property under three (3) non-cancelable leases. As of March 31, 2021, the Company had two (2) properties with lease terms in excess of one (1) year. These lease liabilities expire May 15, 2022 and March 31, 2026, respectively. The current lease liability expires December 1, 2021. In January 2021, the Company entered into a new, five (5) year lease for its corporate headquarters located in Plano, TX.

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

The Company also leases three (3) office/retail spaces on a month-to-month basis. Total lease expense for the three months ended March 31, 2021, and 2020, amounted to $10,653 and $20,619, respectively, for these leases.

NOTE 4 – INTANGIBLE ASSETS

Intangible Assets with definite useful life consist of licenses, customer lists and software that were acquired through acquisitions.

Intangible Assets with indefinite useful life consist of a Lifeline License granted by the FCC.

The Lifeline License, because of the nature of the asset and the limitation on the number of granted licenses by the FCC, will not be amortized. The Lifeline License was acquired through an acquisition. The fair market value of the License as of March 31, 2021, was $634,252.

Amortization expense amounted to $200,583 for the three months ended March 31, 2021, and 2020, respectively. Amortization expense is included as a component of operating expenses in the accompanying statements of operations.

Amortization expense is expected to be as follows:

NOTE 5 – RELATED PARTY TRANSACTIONSNOTES PAYABLE

On June 2, 2014, the Company issued 10,000,000 shares of its common stock to Chisholm II in exchange for oil and gas assets.  Chisholm II was the sole stockholder of Dala Petroleum Corp. (a Nevada corporation) prior to the Merger.

The Company had a service agreement, which has been suspended by the Company since May 2015 and has since been cancelled, with Chisholm II to use its existing technical exploration team for general and administrative-type services on behalf of the Company.  The Company was obligated to pay Chisholm II $25,000 per month plus expenses for these services under the Master Services Agreement.  For the year ended September 30, 2015, the Company paid $225,472 and had accrued $50,000 for its services prior to suspending the Master Services Agreement and cancelling all amounts due thereunder.

In June 2014, the Company entered into an Option Participation Agreement with Chisholm II, whereby Chisholm II granted the Company the option, at the Company’s own election, to participate for up to twenty-five percent (25%) of Chisholm II’s share of each drilling operation in search for oil or gas in the State of Kansas undertaken by Chisholm II.  The Company has not elected to participate in the Option Participation Agreement since April 2015.

On June 15, 2015,2020, the Company received the funds from a Promissory Note (the “Pacific Note”Small Business Administration (“SBA”) Emergency Injury Disaster Loan (“EIDL”) in the amount of $99,999$150,000. The maturity date of the 30-year note is June 2050. Interest will accrue at a rate of 3.75% per annum. Payments will begin in favorJune 2021.

The Company also received three (3) separate SBA Payroll Protection Loans in the amounts of Pacific Oil & Gas, LLC (the “Pacific”). The Pacific Note bears$186,300, $101,800 and $20,900, for a total of $309,000. Each loan includes an interest rate of 12% per annum1% and all principal and accrued interest will be due and payable by the Company to Pacific on December 31, 2015. The Note is secured by a Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing Statement that was filed on June 25, 2015 against the Company’s Evans 9-1 lease in McPherson County, Kansas. The trustee of Pacific is the Company’s director, Clancy Cottman, and the funds delivered to the Company by Pacific were provided by a group of the Company’s Series A 6% Convertible Preferred shareholders.

On December 22, 2015, the Company entered into four Promissory Notes (the “Notes”) in the total amount of $20,000 in favor of Chisholm Partners II, LLC, Mill City Ventures III, LLC (“Mill City”), Lane Ventures, Inc. and Alpha Capital Anstalt (collectively, the “Lenders”). The Notes all bear an interest rate of 12% per annum and all principal and accrued interest will be due and payable by the Company to the Lenders on December 22, 2016. The Note is unsecured. The managing partner of Chisholm Partners II, LLC is the Company’s director, Clancy Cottman. The other three Lenders are the shareholders in the Company’s Series A 6% Convertible Preferred offering.  On July 16, 2016, a principal of Mill City, Daniel Ryweck (“Ryweck”), was appointed as a Director of the Company.  

On January 26, 2016, the Company entered into a letter agreement through which Pacific Oil & Gas, LLC extended the maturity date of that certain Promissory Note dated JuneApril 14, 2022. On March 8, 2015 and made pursuant to the terms and conditions of the Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing Statement dated June 8, 2015. See Note 6.

On January 28, 2016,2021, the Company entered into a Promissory Note (the “Mill City Note”)was informed that the payroll protection loans in the amounts of $101,800 and $20,900 had been forgiven by the SBA. An application of forgiveness for the loan in the amount of $30,000$186,300 was submitted to the SBA on April 21, 2021. All loan proceeds have been recorded as forgiven and have been recorded as Other Income in favor of Mill City Ventures III, LLC (the “Lender”). The Mill City Note bears an interest rate of 12% per annum and all principal and accrued interest will be due and payable by2020.

In conjunction with the Notes Payable, the Company to the Lender on January 28, 2017. The Mill City Note is unsecured. The Lender is a shareholder in the Company’s Series A 6% Convertible Preferred offering. The funds have been used by the Company to pay liabilities and to maintain the Company’s listing on the OTCQB.

On February 17, 2016, a supermajority of more than 67% of the shareholders of the Series A 6% Convertible Preferred Stock approved certain corporate transactionsreceived $10,000 in an effort to settle certain violations of the Series A 6% Convertible Preferred Stock Certificate of Designation and other documents related to the sale of Series A 6% Convertible Preferred Stock in 2014. The transactions approved by a supermajority of the Series A 6% Convertible Preferred Shareholders are to be implemented by the Board of Directors at the Board’s discretion. The approved transactions include the following: (i) the approval of a potential settlement agreement with Chisholm Partners II, LLC and certain members of Chisholm II, (ii) the approval of the amendment of the Certificate of Designation for the Series A 6% Convertible Preferred Stock modifying the Conversion Price to $0.05, (iii) the Removal of Section 7, “Certain Adjustments” in the Series A 6% Convertible Preferred Stock Certificate of Designation (iv) the modification of the permitted indebtedness allowable under the Series A 6% Convertible Preferred Stock Certificate of Designation to $200,000, (v) the approval of promissory notes with related parties in anSBA Emergency Injury Disaster Grant. This amount up to $60,000, (vi) the waiver of the right of redemption upon Triggering Events for the Company’s violations of Section 10 of the Certificate of Designation, (vii) the waiver of the accrual of the late fee for unpaid dividendswas recorded as of January 1, 2016, (viii) the waiver of the first right of refusal to purchase shares from other Series A 6% Convertible Preferred Shareholders, and (ix) waiver of the “Most Favored Nation” provision in the SPA for the Series A 6% Convertible Preferred Stock, among other things. None of the items approved by the shareholders have yet been effected by the Board.Other Income.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

On February 17, 2016, the CompanySeptember 30, 2020, IM Telecom entered into a promissory note with Mill City for $30,000.  The note matures on January 28, 2017 and bears interest at the rate of 12%.  During the year ended September 30, 2016, the Company accrued $5,125 interest expense under this note.  This note is in default as of June 30, 2017.  See Note 6.

On May 10, 2016, the Company entered intoagreement to repay a Partial Cancellation Agreement (the “PCA”) by and among its subsidiary, Dala Petroleum Corp., a Nevada corporation (“Dala NV”), Chisholm Partners II, LLC, a Louisiana limited liability company (“Chisholm II”)(a company that is managed by one of the Company’s then-directors), and certain members of Chisholm II (the “Chisholm Members”)(some of which are beneficially controlled by the Company’s then-officer and then-directors) through which Chisholm II (after receiving shares from certain of its Chisholm Members) is to return a total of 8,567,800 shares of the Company common stock to the Company’s treasury for cancellation.  In exchange for the return of these shares for cancellation, the Company assigned 55,000 acres of the Company’s Property rights (approximately 65% of its total holdings) to Chisholm II. On May 10, 2016, the Company terminated the Master Services Agreement entered into with Chisholm II on June 3, 2014 and all amounts due thereunder were released by Chisholm II.

On May 10, 2016, the Company and one of its creditors, Pacific Oil & Gas Company, LLC (a company managed by Clancy Cottman, the Company’s then-director), restated the Pacific Note by assigning the amounts due to three different creditors based on their initial participation in the Pacific Note. The reallocation in the Restated Promissory Note (the “Restated Pacific Note”) is as follows:

The above notes, as of June 30, 2017, are in default.

As part of the settlement with the Preferred Shareholders, and in association with the PCA, on May 10, 2016 certain creditors of the Company agreed to release and waive all amounts owed to them by the Company. Chisholm Partners II, LLC (a company that is managed by Clancy Cottman, one of the Company’s then-directors), Clancy Cottman (then a director of the Company), Jon Wimbish (then a director of the Company), William Gumma (then a director and officer of the Company), E. Will Gray II (a former director of the Company), Pacific Oil & Gas, LLC (managed by Clancy Cottman, one of the Company’s then-directors) all released the Company from any amounts due to them. The releases were offset to additional paid-in capital.

On October 18, 2016, the Company entered into a promissory note with Mill City for $10,000.  The promissory note bears an interest rate of 12% per annum and all principal and accrued interest of $11,200 will be due and payable by the Company to Mills City on October 17, 2017. As of June 30, 2017, the accrued interest was $930.  See Note 6.

On December 16, 2016, the Company entered into a promissory note with Mill City for $12,500. The note is payable on December 15, 2017Federal Universal Service Fund overpayment in the amount of $14,000.$67,105. The term of the note bearsis twelve (12) months and interest will accrue at a rate of 12% which is payable on December 15, 2017.12.75% per annum. As of June 30, 2017,March 31, 2021, the accrued interestbalance of this note was $814.  See Note 6.$37,340. The Company anticipates that this note will be paid in full by August 31, 2021.

NOTE 6 – NOTES PAYABLECONTINGENCIES AND COMMITMENTS

Notes payable, all classified as current at June 30, 2017Litigation

From time to time, the Company may be subject to legal proceedings and September 30, 2016, consistsclaims which arise in the ordinary course of business. As of March 31, 2021, there are no ongoing legal proceedings.

Contract Contingency

The Company has the normal obligation for the completion of its cellular provider contracts in accordance with the appropriate standards of the following:industry and that may be provided in the contractual agreements.

Dala Petroleum Corp.Letters of Credit

Notes to Condensed Consolidated Financial Statements

June 30, 2017The Company had no outstanding letters of credit as of March 31, 2021.

(unaudited)

NOTE 7 – SEGMENT REPORTING

On June 15, 2015,

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 received funds fromis a demanded Promissory Note (the “Note”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. Previously, the Company had reported four (4) segments of Hosted Services, Mobile Services, Lifeline ETC and Lifeline VETC. The Company has made the decision to consolidate and align its segment reporting by the type of service offering and believes that this reporting will provide for a more accurate view of its lines of operation.

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

Hosted Services – This segment includes a suite of hosted CPaaS services including SIP/VoIP services, SMS/MMS, BOT integration, NLP (“Natural Language Processing”), ML, mobile numbers, toll free numbers, DID landline numbers, SMS to Email, Database Dip, SD-WAN, wireless data services, voice termination and numerous API driven services.  Apeiron Systems developed, owns, and supports its hosted service platform through its dedicated national telecommunications network. Apeiron Systems provides telecommunications services to application developers, call centers and small and medium size businesses. Apeiron Systems markets these services through the Apeiron Systems website, independent sales agents, ISOs and SCOs.

Mobile Services – This segment includes retail and wholesale cellular voice/text/data services and mobile data (IoT or “Internet of Things”) services. Mobile voice/text/data and mobile data services are supported by a blend of reseller agreements with select national wireless carriers and national wireless wholesalers.  A wireless communications service reseller does not own the wireless network infrastructure 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 it entered into on Junemay include voice/text/data or wireless data only plans. Sometimes equipment is provided, which can include, but is not limited to, phones, tablets, modems, routers and accessories. Also included as mobile services are the resale of cellular services to low-income consumers that qualify for the federal Lifeline program. This portion of mobile services is operated by IM Telecom, operating under its Infiniti Mobile brand.

The following table reflects the result of operations of the Company’s reportable segments:

NOTE 8 2015– STOCKHOLDERS’ EQUITY

Common Stock

The Company has not issued any common stock through March 31, 2021, nor for the year ended December 31, 2020.

Stock Compensation

The Company offers stock option equity awards to directors and key employees. Options vest in tranches and expire in five (5) years. For the three months ended March 31, 2021, and 2020, the Company recorded vested options expense of $31,344 and $10,257, respectively. The option expense not taken as of March 31, 2021, is $21,087, with a weighted average term of 2.2 years.

The following table represents stock option activity as of and for the three months ended March 31, 2021:

NOTE 9 – SUBSEQUENT EVENTS

Below are events that have occurred since March 31, 2021:

SBA Payroll Protection Program

In April, 2021, the Company made application to the SBA to forgive the PPP loan made to the Company in the amount of $99,999$186,300 and is awaiting a determination.

Small Business Administration (“SBA”) Emergency Injury Disaster Loan (“EIDL”) Expansion

As a result of an SBA announcement that EIDL loan maximums had been extended, in favor of Pacific Oil & Gas, LLC (the “Lender”). The Note bears an interest rate of 12% per annum and all principal and accrued interest will be due and payable byApril 2021, the Company requested an increase in the loan amount originally received in June, 2020, of $150,000, to the Lender on December 31, 2015. The Note is secured by a Mortgage, Deedtotal of Trust, Assignment$500,000, or additional loan proceeds of Production, Security Agreement and Financing Statement that was filed on June 25, 2015 against the Company’s Evans 9-1 lease in McPherson County, Kansas. The trustee of the Lender is the Company’s director, Clancy Cottman, and the funds delivered to$350,000. To date, the Company byhas not received a loan increase decision from the Lender were provided by a group of the Company’s Series A 6% Convertible Preferred shareholders. As of June 30, 2017, the Company received proceeds of $97,500.  On January 26, 2016, Lender extended the maturity date to March 1, 2016.  During the period ended May 26, 2016, the Company accrued $10,849 interest expense under this note.  On May 26, 2016, as part of the PCA (see Note 2), the Lender forgave the principal and interest of $110,848.  On May 10, 2016, the Company and the Lender (a company managed by Clancy Cottman, the Company’s then-director), restated the Pacific Note by assigning the amounts due to four different creditors based on their initial participation in the Pacific Note as reflected in the Restated Pacific Note (see Note 5). The restated Pacific note was accounted for by separate notes.  The balance of $39,771 (includes principal and accrued interest) that was forgiven was offset to additional paid-in capital.SBA.

As part of the settlement with the Preferred Shareholders, and in association with the PCA, on May 10, 2016 certain creditors of the Company agreed to release and waive all amounts owed to them by the Company, including all amounts owed to Pacific Oil & Gas, LLC under the Restated Pacific Note.Emergency Broadband Benefit Program (“EBB”)

On December 22, 2015,27, 2020, the Company entered into a promissory note with Mill City Ventures III, Ltd. for $5,195. The note matures on December 22, 2016Consolidated Appropriations Act, 2021 (the “Act”), became law and bears interest at the rateestablished an Emergency Broadband Connectivity Fund of 12%. As of June 30, 2017, the accrued interest was $951.  This note is in default as of June 30, 2017.

On December 22, 2015, the Company entered into a promissory note with Chisholm Partners II, LLC for $7,002. The note matures on December 22, 2016 and bears interest at the rate of 12%. During the period ended May 26, 2016, the Company accrued $322 interest expense under this note.  On May 26, 2016, as part of the PCA (see Note 2), the Lender forgave the principal and interest of $7,324 as offset to additional paid-in capital.  This note is in default as of June 30, 2017.

On December 22, 2015, the Company entered into a promissory note with Lane Ventures, Inc. for $488.  The note matures on December 22, 2016 and bears interest at the rate of 12%.  During the nine months ended June 30, 2017, the Company accrued $15 interest expense under this note.  As of June 30, 2017, the accrued interest was $89.  This note is in default as of June 30, 2017.

On December 22, 2015, the Company entered into a promissory note with Alpha Capital Anstalt for $7,315.  The note matures on December 22, 2016 and bears interest at the rate of 12%.  During the nine months ended June 30, 2017, the Company accrued $221 interest expense under this note.  As of June 30, 2017, the accrued interest was $2,460.  This note is in default as of June 30, 2017.

On February 17, 2016, the Company entered into a promissory note with Mill City Ventures III, Ltd. for $30,000.  The note matures on January 28, 2017 and bears interest at the rate of 12%.  During the nine months ended June 30, 2017, the Company accrued $907 interest expense under this note.  As of June 30, 2017, the accrued interest was $6,940.  This note is in default as of June 30, 2017.  See Note 5.

On March 30, 2016, the Company entered into a promissory note with Alpha Capital Anstalt for $40,010.  The note matures on March 30, 2017 and bears interest at the rate of 12%.  During the nine months ended June 30, 2017, the Company accrued $1,210 interest expense under this note.  As of June 30, 2017, the accrued interest was $6,024.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

On October 18, 2016, the Company entered into a promissory note with Mill City for $10,000.  The promissory note bears an interest rate of 12% per annum and all principal and accrued interest of $11,200 will be due and payable by the Company to Mills City on October 17, 2017. As of June 30, 2017, the accrued interest was $1,387.  See Note 5.

On December 16, 2016, the Company entered into a promissory note with Mill City for $12,500. The note is payable on December 15, 2017$3.2 billion in the amountUnited States Treasury to help low-income Americans afford Internet service during the COVID-19 pandemic. The Act directed the FCC to use the fund to establish an EBB under which eligible low-income households may receive a discount off the cost of $14,000. The note bears interest of 12% which is payable on December 15, 2017.  As of June 30, 2017, the accrued interest was $814.  See Note 5.

broadband service and certain connected devices, and participating providers will receive a reimbursement for such discounts. On December 22, 2016, the promissory notes with Mill City, Ltd., Lane Ventures, Inc., and Alpha Capital Anstalt, matured, and are in default (see Note 5).

On January 4, 2017, the Company entered into April 6, 2021, IM Telecom, d/b/a promissory note with Alpha Capital Anstalt for $12,510. The note is payable on January 3, 2018Infiniti Mobile, made application to participate in the amountEBB program. We anticipate that for the length of $14,000.this program, reimbursement revenues of IM Telecom will increase by approximately 70% over current month over month revenues. The note bears interest of 12%.  As of June 30, 2017,FCC has announced that the accrued interest was $736.  EBB will launch on May 12, 2021.

On January 31, 2017, theIncentive Stock Option Grants

The Company entered into a promissory note with Mill City for $10,000.  The note is payablegranted two (2) quarterly director 25,000 share Incentive Stock Options, one to Jeffrey Pearl on January 31, 2018.  The note bears interest of 12%.  As of June 30, 2017, the accrued interest was $931.

On March 6, 2017, the Company entered into a promissory note with Alpha Capital Anstalt for $10,000.  The note is payable on March 6, 2018.  The note beards interest of 12%.  As of June 30, 2017, the accrued interest was $388.

On May 10, 2016, the Company and one of its creditors, Pacific Oil & Gas Company, LLC (a company managed by Clancy Cottman, the Company’s then-director), restated the Pacific Note by assigning the amounts due to three different creditors based on their initial participation in the Pacific Note. The reallocation in the Restated Promissory Note (the “Restated Pacific Note”) is as follows:

As of June 30, 2017, these notes are in default.

NOTE 7 – PREFERRED CONVERTIBLE STOCK AND WARRANTS

As discussed above in Note 2, in fiscal year 2014, the Company sold 2,025 units consisting of a total of 2,025 shares of Series A 6% Convertible Preferred Stock and 2,893,725 warrants at the price of $1,000 per unit.  Proceeds received totaled $2,025,000 (with a net of offering costs of $1,990,000).  The warrants were valued at $711,044 and this amount was separated from the value of the preferred stock.  Each $1,000 unit consisted of (i) one share of Series A 6% Convertible Preferred Stock that is convertible at any time at the option of the holder into common stock at the conversion price of $0.70 per common share based on the total dollar amount invested (subject to adjustment) and (ii) 1,429 warrants (issued for each Series A 6% Convertible Preferred Stock sold in each unit) to purchase common shares of the CompanyApril 28, 2021, at an exercise price of $1.35 for three years of the “Effective Date, “ defined as the earliest date of the following$0.597, fully vested; and one to occur: (a) the initial registration statement required by the Offering Documents has been declared effective by the United States Securities and Exchange Commission (the “SEC”), (b) all of the underlying shares have been sold pursuant to SEC Rule 144 or may be sold pursuant to SEC Rule 144 without the requirement for the Company to be in compliance with the current public information required under SEC Rule 144 and without volume or manner-of-sale restrictions or (c) following the one year anniversary of June 3, 2014.  A total of 2,008 shares of Series A 6% Convertible Preferred Stock, exercisable into 2,868,571 shares of common stock, remain issued and outstanding as of June 30, 2017. The 6% per annum dividends are cumulative and payable quarterly in cash or,Robert Beaty on May 12, 2021, at the Company’s option, in shares of the Company’s common stock. The Company discontinued paying the quarterly dividend as of July 1, 2015 and the amount owed thereunder has been accruing since that time until May 10, 2016 at which time all accrued dividends on 675 of the 2,025 shares were waived and cancelled by those certain preferred shareholders.  The cancelled dividends were accounted for by offsetting to additional paid-in capital.

As the Series A 6% Convertible Preferred Stock is contingently redeemable at a fixed price and such redemption would not be solely within the control of the Company, the preferred stock is classified outside of stockholders’ equity, as “temporary equity” between liabilities and stockholders’ equity on the Company’s consolidated balance sheet.

The Series A 6% Convertible Preferred Stock has no voting rights.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

On February 17, 2016, a supermajority of more than 67% of the shareholders of the Series A 6% Convertible Preferred Stock approved certain corporate transactions in an effort to settle certain violations of the Series A 6% Convertible Preferred Stock Certificate of Designation and other documents related to the sale of Series A 6% Convertible Preferred Stock in 2014. The transactions approved by a supermajority of the Series A 6% Convertible Preferred Shareholders are to be implemented by the Board of Directors at the Board’s discretion. The approved transactions include the following: (i) the approval of a potential settlement agreement with Chisholm Partners II, LLC and certain members of Chisholm II, (ii) the approval of the amendment of the Certificate of Designation for the Series A 6% Convertible Preferred Stock modifying the Conversion Price to $0.05, (iii) the Removal of Section 7, “Certain Adjustments” in the Series A 6% Convertible Preferred Stock Certificate of Designation, (iv) the modification of the permitted indebtedness allowable under the Series A 6% Convertible Preferred Stock Certificate of Designation to $200,000, (v) the approval of promissory notes with related parties in an amount up to $60,000, (vi) the waiver of the right of redemption upon Triggering Events for the Company’s violations of Section 10 of the Certificate of Designation, (vii) the waiver of the accrual of the late fee for unpaid dividends as of January 1, 2016, (viii) the waiver of the first right of refusal to purchase shares from other Series A 6% Convertible Preferred Shareholders, and (ix) waiver of the “Most Favored Nation” provision in the SPA for the Series A 6% Convertible Preferred Stock, among other things. None of the items approved by the shareholders have yet been effected by the Board.

Upon the occurrence of a triggering event, each holder shall have the right to require the Company to redeem all of the Series A 6% Convertible Preferred Stock in cash at the redemption amount which is the sum of (a) the greater of (i) 130% of the stated value, and (ii) the product of (y) the VWAP on the trading day immediately preceding the date of the triggering event and (z) the stated value divided by the then conversion price, (b) all accrued but unpaid dividends thereon, if any, and (c) all liquidated damages and other costs, expenses or amounts due in respect of the Series A 6% Convertible Preferred Stock.

On November 17, 2014, one of the Company’s shareholders of Series A 6% Convertible Preferred Stock, Chienn Consulting Company, converted 17 shares of its Series A 6% Convertible Preferred Stock into 24,286 shares of the Company’s common stock. As of June 30, 2017, 2,008 Convertible Preferred Shares remain outstanding.

Effective December 31, 2015, the valuation of the derivative from the warrants using the Black Sholes model was no longer a liability given the decrease in the Company’s stock and the exercise price of the warrants.

NOTE 8 – SHAREHOLDERS’ EQUITY

Common Stock

On June 2, 2014, the Company issued 10,000,000 shares of its common stock to Chisholm II in exchange for oil and natural gas assets recorded at $1,898,947.

As discussed above, the Company completed a reverse merger with Dala, with Dala being the acquirer for financial reporting purposes.  At the date of the Merger, Westcott had 2,500,000 shares of common stock outstanding, which are now outstanding for the merged Company. The total amount of shares issued and outstanding post-Merger, as of December 31, 2014 was 12,500,000 shares of common stock.

On November 17, 2014, one of the Company’s shareholders of Series A 6% Convertible Preferred Stock, Chienn Consulting Company, converted 17 shares of its Series A 6% Convertible Preferred Stock into 24,286 shares of the Company’s common stock.

As part of the Partial Cancellation Agreement executed in May 2016 (see Note 2), 9,597,800 shares of common stock were returned to the Company and recorded in treasury.

As of June 30, 2017, there are a total of 2,926,486 common shares outstanding.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

Stock-Based Compensation

On June 2, 2014, the Company granted options to acquire common shares to its Chief Executive Officer and two directors, totaling 600,000 options.  The options have an exercise price of $0.70 per share for terms of six years.  Of the total stock options, 400,000 vest equally over the next four years and 200,000 vest equally over the next two years.$0.66, fully vested. The total fair value of these options at the date of grant was estimated to be $400,087, and was determined using the Black-Scholes option pricing model with expected lives of 4.25 (four-year vesting) and 3.75 years (two-year vesting), a risk-free interest rate of 1.92%, a dividend yield of 0% and expected volatility of 195%.  The expected termsexercise prices were determined using the simplified method.  For the nine months ended June 30, 2017, the Company recorded approximately $0 of stock-based compensation expense.

On December 21, 2015, ninety days after the resignation of a former officerbased upon 110% of the Company, his 400,000 stock options expired.

On May 9, 2016, two former directors of the Company each voluntarily cancelled 100,000 stock options awarded on June 2, 2014, related to the Partial Cancellation Agreement and their subsequent resignations.

As of June 30, 2017, there are no outstanding stock options.

NOTE 9 – DERIVATIVES

The Series A 6% Convertible Preferred Stock issued by the Company had a full-ratchet down-round provision on the exercise price, in which the investors’ conversion price is adjusted down to the share price of future financings.  Therefore, prior to June 30, 2017, following ASC 815-40, the warrants and the conversion feature of the preferred stock are not considered indexed to our own stock, and as such, the fair value of the embedded derivative liabilities are reflected on the balance sheet prior to June 30, 2017.

On February 17, 2016, a supermajority of more than 67% of the shareholders of the Series A 6% Convertible Preferred Stock approved certain corporate transactions in an effort to settle certain violations of the Series A 6% Convertible Preferred Stock Certificate of Designation and other documents related to the sale of Series A 6% Convertible Preferred Stock in 2014. The transactions approved by a supermajority of the Series A 6% Convertible Preferred Shareholders are to be implemented by the Board of Directors at the Board’s discretion. The approved transactions include the following: (i) the approval of a potential settlement agreement with Chisholm Partners II, LLC and certain members of Chisholm II, (ii) the approval of the amendment of the Certificate of Designation for the Series A 6% Convertible Preferred Stock modifying the Conversion Price to $0.05, (iii) the Removal of Section 7, “Certain Adjustments” in the Series A 6% Convertible Preferred Stock Certificate of Designation, (iv) the modification of the permitted indebtedness allowable under the Series A 6% Convertible Preferred Stock Certificate of Designation to $200,000, (v) the approval of promissory notes with related parties in an amount up to $60,000, (vi) the waiver of the right of redemption upon Triggering Events for the Company’s violations of Section 10 of the Certificate of Designation, (vii) the waiver of the accrual of the late fee for unpaid dividends as of January 1, 2016, (viii) the waiver of the first right of refusal to purchase shares from other Series A 6% Convertible Preferred Shareholders, and (ix) waiver of the “Most Favored Nation” provision in the SPA for the Series A 6% Convertible Preferred Stock, among other things.  Items (i) through (iv) were approved by the Board of Directors, items (v) through (ix) listed above were not approved specifically by the Board of Directors.

NOTE 10 – REGISTRATION RIGHTS PENALTY

In connection with the private placement and sale of 2,025 units of Series A 6% Convertible Preferred Stock and related warrants at the price of $1,000 per unit, the Company was required to register certain shares of common stock as part of a Registration Rights Agreement.

The Company granted the investors’ registration rights on the underlying shares related to the Series A 6% Convertible Preferred Stock and warrants.  The registration rights agreement provided for a liquidated damages provision imposed upon the Company of 1.5% of the gross proceeds per month for each month that the shares are not registered.  The liquidated damages are not to exceed 9% which was met in 2015.  The Company filed a registration statement that was effective on September 12, 2014 that did not register all of the underlying shares of the Series A 6% Convertible Preferred Stock the warrants and the dividend payments required to be registered in the Registration Rights Agreement.  As of June 30, 2017, and September 30, 2016, the Company incurred registration rights penalty of $0 and $0, respectively.

20

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

NOTE 11 – CONCENTRATIONS

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to a concentration of credit risk, consist principally of temporary cash investments.

The Company places its temporary cash investments with financial institutions insured by the FDIC. No amounts exceeded federally insured limits as of June 30, 2017. There have been no losses in these accounts through June 30, 2017.

Concentration of Supplier

The Company does not rely on any particular suppliers for its services.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

The Company, as a lessee of oil and gas properties, is subject to various federal, state and local laws and regulations relating to discharge of materials into, and protection of, the environment.  These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages.  We believe our operations are in substantial compliance with existing requirements of governmental bodies.

NOTE 13 – GOING CONCERN

The Company has not generated any revenues, has recurring net losses, a working capital deficiency as of June 30, 2017 of $354,121, and used cash in operations of $67,532 and $82,162 for the nine months ended June 30, 2017 and 2016, respectively. In addition, as of June 30, 2017, the Company had an accumulated deficit and stockholders’ deficiency of $3,052,361 and $1,536,046, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The accompanying consolidated unaudited financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The ability of the Company to continue its operations is dependent on the execution of management’s plans, which include the raising of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. If the Company were not to continue as a going concern, it would likely not be able to realize its assets at values comparable to the carryingmarket value or the fair value estimates reflected in the balances set out in the preparation of the consolidated financial statements.

There can be no assurances that the Company will be successful in generating additional cash from the equity/debt markets or other sources to be used for operations. The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary. Based on the Company’s current resources, the Company will not be able to continue to operate without additional immediate funding. Should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets, if necessary.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company is attempting to commence explorations and generate revenue; however, the Company’s future cash position may not be sufficient to support its daily operations.  While the Company believes in the viability of its strategy in the exploration and development of its unproved properties and the Company’s ability to raise additional funds, until such time it is able to generate sufficient revenue to support its operations, there can be no assurances to that effect.  The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and in its ability to raise additional funds, until such time the Company can generate sufficient revenues to support its operations.

Dala Petroleum Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2017

(unaudited)

In the event the Company is unable to raise funding in the near term, we will not be able to pay our liabilities. In the event we are unable to raise adequate funding in the future for our operations and to pay our outstanding debt obligations, and if our current creditors elect to foreclose on the outstanding debts then owed, we would be forced to liquidate our assets or may be forced to seek bankruptcy protection, which could result in the value of our outstanding securities declining in value or becoming worthless.

The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 14 – SUBSEQUENT EVENT

On July 19, 2017, the Company entered into a Common Stock Purchase Agreement with M2 Equity Partners LLC, a Minnesota limited liability company (“M2”), whereby M2 has purchased 12,100,000 newly issued sharesclosing public trading price of the Company’s common stock (the “Common Stock”) foron these respective dates.

The Company also granted an aggregate purchaseof 135,000 Incentive Stock Options to three (3) employees on May 17, 2021, at an exercise price of $347,500 (the “Purchase Price”), pursuant to Section 4(a)(2) of$0.73 per shares, which was the Securities Act of 1933, as amended (the “Securities Act”), and/fair market value or Rule 506(b) promulgated thereunder.  Prior to the closing (the “Closing”) of the Common Stock Purchase Agreement, the Company had the following outstanding securities: (i) 2,926,486 shares of Common Stock; (ii) 2,008 shares of Series A 6% Convertible Preferred Stock (the “Preferred Stock”); and (iii) 1,928,571 warrants (the “Warrants”) to acquire 1,928,571 shares of Common Stock that were issued in connection with the issuance of our Preferred Stock. In connection with this purchase of Common Stock, certainpublic trading price of the Company’s shareholders agreed to cancel an aggregate 1,584,200 shares of the Company’s Common Stock for an aggregate amount of $15,842; and 2,008 shares of the Company’s Preferred Stock and all outstanding Warrants for an aggregate amount of $53,841, with an additional sum of approximately $4,700 due to those shareholders who have agreed to cancel their respective shares of Preferred Stock and Warrants being reserved for the payment of miscellaneous expenses or other liabilities of the Company not provided for in the schedules and exhibits to the Common Stock Purchase Agreement, and any remainder of this sum will be paid to these shareholders, pro rata, based upon the respective percentage that the aggregate amount being paid for the cancellation of the Preferred Stock and Warrants bears, if any, to these additional funds, following payment of any such miscellaneous expenses or other liabilities of the Company.  $10,750 of the Purchase Price is being held in the Trust Account of the Company’s legal counsel to be expended on behalf of the Company or deposited into a new bank account to be opened by the Company.

As a result of the cancellation of the 1,584,200 shares of Common Stock, Preferred Stock and Warrants immediately prior to or simultaneous with the Closing, the Company had 1,342,286 shares of Common Stock issued and outstanding (the “Existing Shares”) and no shares of Preferred Stock or Warrants issued and outstanding; and taking into account the share cancellation and the 12,100,000 share Common Stock purchase and issuance, the Company presently has issued and outstanding (i) 13,442,286 shares of its Common Stock, consisting of (a) the 1,342,286 Existing Shares, and (b) the 12,100,000 shares purchased by M2; and (ii) no other securities (as defined in the Securities Act) issued or outstanding.

The Company will use the remainder of the $347,500 to, among other items set forth in the schedules and exhibits to the Common Stock Purchase Agreement, pay or compromise all outstanding indebtedness and other liabilities of the Company, amounting to approximately $262,367, which includes a payment of an aggregate of $10,000 ($5,000 to each) to our two directors and executive officers, with the understanding that our then current assets will consist of approximately $10,750, our Property, consisting of our oil and gas lease assets that we presently own, along with other intangible assets, and following the payment of the indebtedness and other liabilities and financial obligations of the Company, there will be no liabilities of the Company at Closing.

M2 has agreed to pay M2 Capital Advisors, Inc., a Minnesota corporation (“M2 Capital”), which is wholly-owned by Mark Savage, a founding member of M2, an Introduction Fee of $25,000 for introducing the Company to M2. These funds will be divided between M2 Capital and Elev8 Marketing, a firm owned by Matt Atkinson, who is also a founding member of M2 and M2’s sole Manager, and will be utilized to repay these entities for legal costs and miscellaneous expenses incurred by them in connection with the formation and funding of M2.

The Closing of the Common Stock Purchase Agreement resulted in a change in control of the Company.  See Note 2 and the heading the “July 2017 Transaction.”

On July 25, 2017, we resolved to issue 250,000 shares of our common stock as compensation.  We issued 50,000 shares to Daniel Ryweckon May 17, 2021. These grants respectively vest one-third for hiseach year of service, commencing on our board of directors, and 200,000 to our attorney Leonard W. Burningham for his legal services in the change of control and pursuant to an Engagement Letter.May 17, 2022.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking Statements

Statements madeWhen used in this Quarterly Report, whichthe words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act regarding events, conditions and financial trends that may affect our future plans of operations, business strategy, operating results, and financial position.  Persons reviewing this Quarterly Report are cautioned that any forward-looking statements are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, resultsguarantees of operations, future performance and our business, including, without limitation, (i) our abilityare subject to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.

Forward-looking statements involve inherent risks and uncertainties and important factors (many of which are beyond our control) that could cause actual results tomay differ materially from those set forth inincluded within the forward-looking statements including the following: general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.

Accordingly, results actually achieved may differ materially from expected results in these statements.  Forward-looking statements speak only as of the date they are made.  We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Plan of Operations

Our revenues and future profitability are substantially dependent on our ability to raise additional funds. We have suspended drilling and other exploration and development operations until the market conditions related to the price of oil have improved; however, subsequent to June 30, 2017, however the Company is presently evaluating potential options for the extension of terms of the leases comprising the oil and gas leases it presently holds an interest in (the “Property”) and funding the development of the Property, either singly or as a joint venture or with a working interest, carried or fully funded.

We have substantially cut administrative expenses to conserve our cash resources.  The management and directors are no longer paid any salary or bonus.  We also are not immediately planning any other leasing activity in our areas of operation.  We continue to search for a financial and/or operational partner to assist in developing our oil and gas properties.  If we were to partner with another entity, we would consider all options in developing our properties.

During the nine months ended June 30, 2017, and 2016, the Company incurred $0 and $0 in oil and gas expenditures, respectively. As a result of various factors.  Such factors are discussed further below under “Trends and Uncertainties,” and include general economic factors and conditions that may directly or indirectly impact our financial condition or results of operations.

Overview of Current and Planned Business Operations

Our Hosted Services (“CPaaS or Communications Platform as a Service”) include SIP/VoIP services, SMS/MMS, BOT integration, mobile numbers, toll free numbers, DID landline numbers, SMS to Email, Database Dip, SD-WAN, voice termination and numerous API driven services. Apeiron Systems developed, owns, and supports its services through its dedicated national telecommunications network. Apeiron Systems provides telecommunications services to application developers, call centers and small and medium size businesses. It markets these services through the dry holes encountered,Apeiron Systems website, independent sales agents, ISOs (“Independent Sales Organizations”) and Social Media Optimization (“SCO”).

Our Mobile Services include our retail and wholesale cellular voice/text/data services and mobile data (IoT – “Internet of Things”) services. We consolidated our wholesale and retail mobile services with Apeiron Systems’ hosted CPaaS services, providing Apeiron Systems with a bundled portfolio of mobile and hosted CPaaS services. Its mobile voice/text/data and mobile data services are supported by a blend of reseller agreements with select national wireless carriers and national wireless wholesalers.  A wireless communications service reseller does not own the Company expensed $0wireless network infrastructure over which services are provided to its customers. Apeiron Systems’ 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. It primarily markets its mobile services through independent sales agents and ISOs via the “Apeiron” brand. These agents and ISOs generally market to small and medium sized businesses throughout the United States.  This type of marketing is also considered B2B (“Business to Business”) sales.

Our Lifeline ETC services operate under its own FCC approved Compliance Plan and FCC wireless ETC designation in eight states, which currently include Georgia, Kentucky, Maryland, Nevada, Oklahoma, South Carolina, Vermont, and Wisconsin.  IM Telecom, operating under its Infiniti Mobile brand, currently markets its Lifeline service through its Internet presence, its storefronts in Tulsa and Wagoner, Oklahoma, and through ISOs that specialize in the distribution of Lifeline services.  These ISOs typically support teams of field agents who market directly to Lifeline eligible individuals requesting Lifeline service.  We provide phones and wireless voice/text/data service to Lifeline eligible individuals requesting Lifeline service. In some states, and depending on government requirements, we may only provide voice/text service with no mobile data.

Our Lifeline VETC services operate through a single VETC agent agreement with another ETC.  Following our acquisition of IM Telecom, thereby securing our own FCC approved Lifeline ETC license, we are phasing out this segment, and we no longer distribute Lifeline service under this single VETC agent agreement; however, we continue to collect monthly commissions for those Lifeline lines that we distributed, and which remain active under this single VETC agent agreement.

Results of Operations

Comparison of the quarter ended March 31, 2021, to the quarter ended March 31, 2020

For the quarter ended March 31, 2021, we had $2,392,838 in revenues from operations compared to the quarter ended March 31, 2020, where we had $1,957,355 in revenue from operations. The cost capitalized as impairment expenseof revenue for the nine monthsquarter ended June 30, 2017.March 31, 2021, was $1,481,677, compared to $1,192,177 for the quarter ended March 31, 2020. We had a gross profit of $911,161 for the quarter ended March 31, 2021, and $765,178 for the quarter ended March 31, 2020.

M2 is partyFor the quarters ended March 31, 2021, and 2020 respectively, total operating expenses were $1,141,641 and $955,169, for an increase of $186,472. The increase was primarily a result of increases in payroll and operating and maintenance expenses.

For the quarter ended March 31, 2021, non-operating expenses were interest expense of $2,242, compared to other income (legal judgment) of $301,373 and interest expense of $10,549 for the quarter ended March 31, 2020.

For the quarter ended March 31, 2021, we had a binding Letternet loss of Intent dated July 24, 2017, with KonaTel, Inc., a Nevada corporation (respectively, “KonaTel” and$232,722. For the “KonaTel LOI”).  Under the KonaTel LOI, M2 is to introduce KonaTel to a publicly-traded company that would be willing to acquire KonaTel, thereby making KonaTel a “successor” publicly-held company and a wholly-owned subsidiaryquarter ended March 31, 2020, we had net income of the publicly-held company; and M2 intends to introduce the Company to KonaTel as the publicly-traded candidate to acquire KonaTel with the Closing of the Common Stock Purchase Agreement referenced in Note 2 of$100,833.

In comparing our Condensed Consolidated Financial Statements in this Quarterly Report, subject to an anticipated closing atof Operations between the earlythree-month periods ended March 31, 2021, and 2020, respectively, the Company continued the process of September 30, 2017, ordiversifying the completion of an audit of KonaTel’s financial statementsservice mix. Revenues for both Hosted Services and Mobile Services were up from the quarter ended March 31, 2020. Hosted Service revenue increased by 31.9%, while Mobile Service revenue increased by 13.5%. Gross profit margin overall was 38.1% for the yearsthree months ended March 31, 2021, compared to 39.1% for the three months ended March 31, 2020. Hosted Services profit margin was 37.2% compared to 37.3% for the three months ended March 31, 2021, and 2020, respectively. Mobile Service gross profit margin was 39% compared to 40.7% for the three months ended March 31, 2021, and 2020, respectively.

Liquidity and Capital Resources

As of March 31, 2021, we had $569,336 in cash and cash equivalents on hand.

In comparing liquidity between the three-month periods ending March 31, 2021, and March 31, 2020, cash assets increased by 150.51%. This increase was due to increased business, increased cash-flow performance and the use of government emergency programs. Liabilities and total overall debt showed a 16.71% increase in the three-month period ended March 31, 2021, when compared to March 31, 2020. Going forward, equity investment, growth of new services and a potential increase in EIDL debt are expected to provide additional liquidity for our business.

Overall, the current ratio (current assets divided by our current liabilities) declined slightly to 0.92 as of March 31, 2021, compared to December 31, 2015, and 2016, and a review2020, of its interim financial statements for the six months ended June 30, 2017.  No assurance can be given that the acquisition of KonaTel will be completed..94. Working capital increased by 1.03%.

KonaTel was organized under the laws of the State of Nevada on October 14, 2014, as a full service cellular provider that delivers cellular products and services to individual and business customers in various retail and wholesale markets.  Through its network, it provides these services nationwide.  KonaTel has one retail store in Johnstown, New York, that currently has six employees; its principal executive office location is in Johnstown, Pennsylvania, where it has 14 employees, including its sole owner; and in Dallas, Texas, it has three employees that handle Virtual ETC., one of its divisions.  For additional information about this potential acquisition, see the Company’s 8-K Current Report dated July 19, 2017, filed with the SEC on July 20, 2017, in Item 8.01.Cash Flow from Operations

Our common stock currently trades on the OTCQB under the symbol “DALP.”

23

Results of Operations

Three Months Ended June 30, 2017 and 2016

During the three months ended June 30, 2017March 31, 2021, cash flow used in operating activities was $114,538, and 2016, we had no revenues, respectively, and we incurred $14,341 and $16,817, respectively, of general and administrative expenses.  For the period ended June 30, 2017, those expenses included $7,000 of legal and accounting fees, consulting and other professional fees.  As a result, we incurred a net loss attributable to common stock of $(0.01) per share for the three months ended June 30, 2017.  Our net loss for the period ended June 30, 2017March 31, 2020, cash flow provided by operating activities was $20,542.$395,085.

Nine months Ended June 30, 2017 and 2016Cash Flows from Investing Activities

During the ninethree months ended June 30, 2017 and 2016, we hadMarch 31, 2021, no revenues, respectively, and we incurred $57,741 and $145,640, respectively, of general and administrative expenses.cash flow was used in investing activities. For the period ended June 30, 2017, those expenses included $38,800 of legal and accounting fees, consulting and other professional fees.  As a result, we incurred a net loss attributable to common stock of $(0.05) per share for the ninethree months ended June 30, 2017.  Our net loss for the period ended June 30, 2017 was $74,369.

Liquidity and Capital Requirements

We had $44,700 inMarch 31, 2020, cash on hand and negative working capital of $354,121 at June 30, 2017.  We believe these funds will be sufficient to enable us to fund our principal business operations through at least the next 30 days.   The Company plans to raise additional capital from the sale of its securities (including, without limitation common stock, preferred stock, promissory notes, etc.) and achieve operating revenues with the development of its oil and gas properties. In the event the Company is unable to raise funding in the near term, we will not be able to pay our liabilities. In the event we are unable to raise adequate funding in the future for our operations and to pay our outstanding debt obligations, and if our current creditors elect to foreclose on the outstanding debts then owed, we would be forced to liquidate our assets or may be forced to seek bankruptcy protection, which could result in the value of our outstanding securities declining in value or becoming worthless.

Cash flows used in operating activities was $67,532 in cash for the nine months ended June 30, 2017, primarily the result of our loss of $74,369.

Cash flowsflow used in investing activities was $0$3,168 for the ninepurchase of assets.