Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2018 | Nov. 01, 2018 | |
Document And Entity Information | ||
Entity Registrant Name | KonaTel, Inc. | |
Entity Central Index Key | 845,819 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current? | Yes | |
Is Entity Emerging Growth Company? | true | |
Entity Ex Transition Period | true | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding | 32,942,286 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,018 |
Consolidated Balance Sheets (Un
Consolidated Balance Sheets (Unaudited) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 |
Current Assets | ||
Cash and Cash Equivalents | $ 63,008 | $ 94,149 |
Accounts Receivable | 1,120,317 | 744,082 |
Notes Receivable | 91,667 | 0 |
Inventory, Net | 6,664 | 45,910 |
Prepaid Expenses | 0 | 103,567 |
Total Current Assets | 1,281,656 | 987,708 |
Property and Equipment, Net | 108,812 | 142,067 |
Oil and natural gas properties, at costs, using the full cost method of accounting, unproved | 4,013 | 37,475 |
Intangible Assets, Net | 33,569 | 184,628 |
Other Assets | 337,150 | 4,340 |
Total assets | 1,765,200 | 1,356,218 |
Current Liabilities | ||
Accounts Payable and Accrued Expenses | 1,511,888 | 1,374,709 |
Amount Due to Stockholder | 110,000 | 223,327 |
Revolving Line of Credit | 153,141 | 153,141 |
Deferred Revenue | 73,140 | 36,835 |
Customer Deposits | 28,854 | 28,854 |
Total Current Liabilities | 1,877,023 | 1,816,866 |
Total Liabilities | 1,877,023 | 1,816,866 |
Stockholders' Equity | ||
Common Stock | 32,942 | 27,192 |
Additional Paid-In Capital | 4,301,717 | 2,703,033 |
Accumulated Deficit | (4,446,482) | (3,190,873) |
Total Stockholders' Equity | (111,823) | (460,648) |
Total Liabilities and Stockholders' Equity | $ 1,765,200 | $ 1,356,218 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Sep. 30, 2018 | Dec. 31, 2017 |
Statement of Financial Position [Abstract] | ||
Common stock, par value in dollars | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 32,942,286 | 27,192,286 |
Common stock, shares outstanding | 32,942,286 | 27,192,286 |
Consolidated Statements of Oper
Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Income Statement [Abstract] | ||||
Revenue | $ 2,453,514 | $ 2,674,663 | $ 7,591,218 | $ 9,347,497 |
Cost of Revenue | 1,892,988 | 2,208,155 | 6,481,979 | 7,635,916 |
Gross Profit | 560,526 | 466,508 | 1,109,239 | 1,711,581 |
Operating expenses | ||||
Payroll and Related | 336,660 | 548,503 | 1,120,388 | 1,902,267 |
Operating and Maintenance | 332,718 | 82,099 | 936,212 | 291,135 |
Bad Debt | 0 | 0 | 15,210 | 82,809 |
Utilities and Facilities | 41,883 | 47,889 | 147,389 | 146,895 |
Depreciation and Amortization | 61,582 | 299,730 | 206,172 | 350,819 |
General and administrative | 26,560 | 20,165 | 64,485 | 63,986 |
Marketing and Advertising | 4,995 | 12,217 | 42,284 | 42,753 |
Taxes and Insurance | 21,437 | 5,451 | 124,771 | 45,298 |
Total Operating Expenses | 825,835 | 1,016,054 | 2,656,911 | 2,925,962 |
Other Income (Expense) | ||||
Gain on Sale of Assets | 318,257 | 0 | 318,257 | 0 |
Other Income | 456 | 0 | 4,757 | 0 |
Interest Expense, Net | (7,087) | (4,620) | (30,951) | (22,573) |
Total Other Income (Expenses) | 311,626 | (4,620) | 292,063 | (22,573) |
Net Income (Loss) | $ 46,317 | $ (554,166) | $ (1,255,609) | $ (1,236,954) |
Net Income (Loss) per Share: | ||||
Basic | $ 0 | $ (0.04) | $ (0.04) | $ (0.09) |
Diluted | $ 0 | $ (0.04) | $ (0.04) | $ (0.09) |
Weighted Average Number of Shares: | ||||
Basic | 32,942,286 | 13,692,286 | 31,423,055 | 13,692,286 |
Diluted | 36,977,340 | 13,692,286 | 31,423,055 | 13,692,286 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Cash Flows from Operating Activities | ||
Net Loss | $ (1,255,609) | $ (1,236,954) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and Amortization | 206,172 | 350,819 |
Bad Debt | 15,210 | 82,809 |
Stock-based compensation | 454,434 | 0 |
Gain on Sale of Business Component | (318,257) | 0 |
Changes in Operating Assets and Liabilities, net of effects of acquisition: | ||
Accounts Receivable | (391,445) | 147,741 |
Notes Receivable | 8,333 | 0 |
Inventory | 39,246 | (22,608) |
Prepaid Expenses | (229,749) | (38,284) |
Accounts Payable and Accrued Expenses | 140,998 | 474,567 |
Deferred Revenue | 36,305 | (59,262) |
Customer Deposits | 0 | (49,350) |
Other Assets | 506 | 0 |
Net cash used in operating activities | (1,293,856) | (350,522) |
Cash Flows from Investing Activities | ||
Proceeds from Sale of Business Component | 226,043 | 0 |
Capital Expenditures | 0 | (5,845) |
Net cash provided in investing activities | 226,043 | (5,845) |
Cash Flows from Financing Activities | ||
Proceeds from issuance of common stock | 1,150,000 | 0 |
Proceeds from Stockholder | 0 | 460,000 |
(Repayments of) Proceeds From Revolving Lines of Credit, Net | 0 | (32,233) |
Advances made by Stockholder | 100,000 | 0 |
Repayments of amounts due to Stockholder | (213,328) | 0 |
Net cash provided by financing activities | 1,036,672 | 427,767 |
Net increase (decrease) in cash | (31,141) | 71,400 |
Cash at beginning of period | 94,149 | 116,838 |
Cash at end of period | 63,008 | 188,238 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 20,359 | 18,672 |
Cash paid for taxes | 0 | 0 |
Non-cash investing and financing activities: | ||
Sale of Business Component, Notes Receivable | (100,000) | 0 |
Sale of Business Component, Accounts Payable and Accrued Expenses, net of Cash | $ 3,819 | $ 0 |
Organization
Organization | 9 Months Ended |
Sep. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | NOTE 1 – ORGANIZATION KonaTel Inc., formerly known as Dala Petroleum Corp. (the “Company,” “we,” “our,” or “Dala”), 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. |
Transactions
Transactions | 9 Months Ended |
Sep. 30, 2018 | |
Business Combinations [Abstract] | |
Transactions | NOTE 2 – TRANSACTIONS June 2014 Merger On June 2, 2014, the Company, its newly formed and wholly-owned subsidiary, Dala Acquisition Corp., a Nevada corporation (“Merger Subsidiary”), and Dala Petroleum Corp., a Nevada corporation (“Dala Nevada”), executed and delivered an Agreement and Plan of Merger (the “Merger Agreement”), whereby Merger Subsidiary merged with and into Dala Nevada, and Dala Nevada was the surviving company under the merger and became a wholly-owned subsidiary of then-named Westcott (the “Merger”) on the closing of the Merger. As a result of the Merger, Westcott issued 10,000,000 shares of its common stock in exchange for all of the outstanding shares of common stock of Dala Nevada, which shares were distributed to Dala Nevada’s sole shareholder, Chisholm Partners II, LLC, a Louisiana limited liability company (“Chisholm II”), and were then distributed on a pro rata basis to its members. As a condition precedent to the Merger, Westcott raised $2,025,000 from persons who were “accredited investors” in consideration of the sale of 2,025 shares of its Series A 6% Convertible Preferred Stock and 2,893,725 warrants at an offering price of $1,000 per unit. Each $1,000 unit consisted of (i) one share of Series A 6% Convertible Preferred Stock that was 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; and (ii) 1,429 warrants (issued for each share of Series A 6% Convertible Preferred Stock sold in each unit) to purchase common shares of the Company at an exercise price of $1.35 with a life of three years as of the “Effective Date” defined as the earliest date of the following to occur: (a) the initial registration statement required by the offering documents had been declared effective by the United States Securities and Exchange Commission (the “SEC”); (b) all of the underlying shares had 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 included therein; or (c) following the one year anniversary of June 3, 2014. The Merger was accounted for as a reverse-merger and recapitalization of Dala. Dala Nevada previously possessed rights to engage in oil and natural gas exploration and development in north central Kansas, with total acreage of approximately 80,000 acres (the “Property”). Since the time of the Merger (until the closing of the KonaTel Nevada Merger), we had been operating as an early-stage oil exploration company focused on the Property, which had oil potential at depths of less than 6,000 feet. In May, 2015, the Company temporarily suspended its exploration program due to the decline in the price of oil and difficult market conditions and its current Property interest are nominal; however, the Company is evaluating potential options for the sale of its remaining Property leases and geologic and seismic data on the area in which the Property is located. May 2016 Transaction The Company entered into a Partial Cancellation Agreement (the “PCA”) by and among its subsidiary, Dala Nevada, Chisholm II and certain members of Chisholm II (the “Chisholm Members”), through which Chisholm II (after receiving shares from these Chisholm Members) returned a total of 8,567,800 shares of the Company’s common stock to the Company for cancellation. In exchange for the return of these shares for cancellation, the Company assigned 55,000 acres of the Company’s then owned Property rights (approximately 68.75% of its total holdings) to Chisholm II. Pursuant to terms of the PCA, on May 26, 2016, the 8,567,800 shares of common stock delivered by Chisholm Members were cancelled on the books and records of the Company. Prior to that, the Company assigned 55,000 acres of its then leased Property to Chisholm II. On May 16, 2016, as approved by the Board of Directors of the Company as part of a settlement with its Preferred shareholders, the Company filed an Amended and Restated Certificate of Designation of the Company’s Series A 6% Convertible Preferred Stock (the “COD”), which (i) changed the conversion price of its outstanding preferred stock from $0.70 per share to $0.05 per share; and (ii) eliminated Section 7 “Certain Adjustments” of the COD. Pursuant to terms of the PCA, on July 28, 2016, the 1,030,000 shares of common stock delivered after the initial closing by Baldo Sanso (360,000 shares of common stock), Robert Sali (610,000 shares of common stock) and Chris Dabbs (60,000 shares of common stock) were cancelled on the books and records of the Company. The reduction was offset to additional paid-in capital. 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”). The purchase was made in a transaction that was deemed to be exempt from the registration provisions of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of thereof and/or Rule 506(b) promulgated thereunder. Prior to the closing (the “Closing”) of the Common Stock Purchase Agreement, the following securities of the Company were outstanding: (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 the 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 all 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 had 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. Any amount remaining from this sum was to 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 bore, 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 was 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, and these funds have been disbursed in payment of expenses or paid to the Company or those persons entitled to them. 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 then had 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 used 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 included a payment of an aggregate of $10,000 ($5,000 to each) to our then two directors and executive officers, with the understanding that our then current assets would consist of approximately $10,750, our remaining Property, consisting of our oil and gas lease assets that we then owned, along with other intangible assets, and following the payment of the indebtedness and other liabilities and financial obligations of the Company, there would be no liabilities of the Company at Closing. M2 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 were divided between M2 Capital and Elev8 Marketing, a firm owned by Matthew Atkinson, who is also a founding member of M2 and M2’s sole Manager, and were utilized to repay these entities for legal costs and miscellaneous expenses incurred by them in connection with the formation and funding of M2. Mr. Savage was appointed the President and Chief Financial Officer and a director at the Closing, and is presently a director of the Company; and Mr. Atkinson was elected as the Secretary at the Closing, and presently serves in that capacity with the Company. The Closing of the Common Stock Purchase Agreement resulted in a change in control of the Company. December 2017 Transaction On November 15, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement” and the “Merger”) with Mark Savage, our then President, a director (currently serving as a director) and a beneficial shareholder, Matthew Atkinson, our Secretary, a beneficial shareholder and the Manager of our then principal shareholder, M2, and M2 and our wholly-owned Nevada acquisition subsidiary, Dala Subsidiary Corp., on the one hand; and KonaTel Nevada and D. Sean McEwen, KonaTel Nevada’s President and sole shareholder, on the other hand. The Merger was closed on December 18, 2017, and Articles of Merger were filed on that date with the Secretary of State of the State of Nevada whereby KonaTel Nevada was the surviving corporation and became our wholly-owned subsidiary. The Company issued 13,500,000 shares of our one mill ($0.001) par value common stock comprised of “restricted securities” as defined in SEC Rule 144 promulgated under the Securities Act, in exchange for all of the outstanding shares of common stock of KonaTel Nevada. Post-Merger, and except as discussed below about conditions to the closing of the Merger, there were approximately 27,192,286 outstanding shares of our common stock, 13,500,000 shares of which were owned by Mr. McEwen; 12,100,000 shares of which were then owned by M2 (Messrs. Savage and Atkinson are members of M2 and collectively owned approximately 65.2% of M2, which equated to an indirect beneficial ownership of approximately 3,950,000 shares of our common stock each, and with Mr. Atkinson being the sole Manager of M2, he was also considered to be the beneficial owner of all of M2’s shares of our common stock; and 1,692,286 shares, which were owned by public shareholders. On April 24, 2018, the 12,100,000 shares of our common stock that were acquired by M2 under the Common Stock Purchase Agreement referenced above were distributed to its members, pro rata, in accordance with their respective membership interests. As a condition to the KonaTel Nevada Merger, the Company entered into Shareholder Voting Agreement between Mr. Savage, Mr. Atkinson, M2 and Mr. McEwen whereby Mr. McEwen was granted an irrevocable proxy coupled with an interest from each of the foregoing, together with the following rights, including a right of veto, for a period of two (2) years, on the following matters: (i) an increase in the compensation of any employee of the Company by more than $20,000 in any one calendar year and for these purposes, the term compensation includes any form of remuneration or monetary benefit; (ii) the issuance of stock, the creation of a new class of stock, the grant of options or warrants, modification of any shareholder, option holder or warrant holder’s rights, grants, conversion rights or the taking of any other action that directly or indirectly dilutes the outstanding securities of the Company, excepting the current private placement of common stock of the Company for an equity funding of $1,300,000 through the offer and sale of 6,500,000 shares of the Company’s common stock solely to “accredited investors”; (iii) the issuance of debt in excess of $100,000 in the aggregate in any one calendar year; (iv) the approval of a plan of merger, reorganization or conversion; (v) the sale, transfer or other conveyance of assets of the Company having an aggregate value in excess of $100,000 in any one calendar year, other than in the ordinary course of the business; and (vi) the entry into a contract or other transaction having a total aggregate contractual liability for the Company in excess of $100,000 in any one calendar year. The Company also entered into a Lock-Up/Leak-Out Agreement with Mr. Savage, Mr. Atkinson, M2 and Mr. McEwen respecting the resale of their respective shares of common stock beneficially owned or subsequently acquired in the Company covering an 18 month period commencing at the closing of the Merger. At the Effective Time of the Merger, the Company changed its fiscal year from September 30 to a calendar year end of December 31 to coincide with the calendar fiscal year end of KonaTel Nevada; and the “S Corporation Election” of KonaTel Nevada was terminated. The parties agreed to make all necessary tax elections to achieve a direct tax accounting cut-off as of the date of the S Corporation Election termination for purposes of reporting the applicable short period S and C corporation tax returns, as applicable. The Merger was accounted for as a reverse-merger and recapitalization of the Company. Accordingly, the 2016 legal capital of KonaTel Nevada was adjusted retroactively to reflect the December 31, 2016, legal capital of Dala. July 2018 Transaction On August 9, 2018, the Company entered into an Asset Purchase Agreement with Telecon Wireless Resources, Inc., a New York corporation (the “Telecon Wireless”); and KonaTel, Inc., a Nevada corporation and our wholly-owned subsidiary (“KonaTel Nevada”), whereby KonaTel Nevada sold Telecon Wireless various assets, including furniture, fixtures, equipment, account receivable and customer lists, among other assets, which were utilized in the Company’s wireless services and telecommunications operations conducted under the name “Telecon Wireless” in its retail store located in Johnstown, New York, for a purchase price of approximately $406,000. Telecon Wireless was formed by the previous General Manager of these operations at this location, William Sullivan, who has personally guaranteed the obligations of Telecon Wireless under the Asset Purchase Agreement. These assets were sold “as is, where is,” with a “Cut-Off Date” of July 31, 2018. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 customer lists. Actual results could differ from those estimates. 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. Allowance for Doubtful Receivables The allowance for doubtful receivables is determined by management based on customer credit history, specific customer circumstances and general economic conditions. Periodically, management reviews 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 September 30, 2018, and December 31, 2017, management has determined that no allowance for doubtful receivables is necessary. Notes Receivable The Company entered into an Assets Sale Agreement with Telecon Wireless Resources, Inc, with an effective date of July 31, 2018. As part of the Agreement, the Company agreed to hold a one-year note of $100,000 to be paid in 12 payments of $8,333. As of September 30, 2018, the outstanding amount, including principal and interest was $91,667. The Note in the Agreement did not reference an interest rate. The note is being recorded with an implied interest rate of 5.00%. Inventory Inventory consists primarily of the cost of cellular phones and cellular accessories. Inventory is reported at the lower of cost and net realizable value. Cost is determined by the first-in, first-out (“FIFO”) method. Due to the rapidly changing technology within the industry, inventory is evaluated on a regular basis to determine if any obsolescence exists. As of September 30, 2018, and December 31, 2017, the allowance for inventory obsolescence amounted to $807 and $10,083, respectively. 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 September 30, 2018 and December 31, 2017. Goodwill and Intangible Assets Goodwill represents the excess of cost over the fair value of net assets acquired in connection with business acquisitions. Goodwill is tested at the reporting unit level, which is defined as an operating segment or a component of an operating segment that constitutes a business for which financial information is available and is regularly reviewed by management. The Company assesses goodwill for impairment at least annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment. The annual impairment review is completed at the end of the year. If the carrying amount of a reporting unit exceeds its fair value, the Company measures the possible goodwill impairment based upon an allocation of the estimate of fair value to the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible assets, based upon known facts and circumstances as if the acquisition occurred currently. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized to the extent the carrying value of goodwill exceeds the implied fair value of the goodwill. It was determined that Goodwill of $80,867 created through the reverse merger was fully impaired as of December 31, 2017. Intangible assets consist of customer lists arising from acquisitions which are amortized on a straight line basis over three years, their estimated useful lives. Other Assets Other Assets represent items classified long-term assets in accordance with the Statement of Financial Accounting Standards ASC 210-10-45. Through September 30, 2018, the Company had made payments on behalf of IM Telecom, LLC in the amount of $333,316. These amounts were paid as part of a Purchase and Sale of Membership Interest, which was effective as of February 7, 2018. See additional information in Note 11 – Contingencies and Commitments, Escrowed Contract and Part II – Other Information, Item 5. Customer Deposits Before entering into a contract with a sub-reseller customer, the Company will require the customer to either secure a formal letter of credit with a bank, or require a certain level of cash collateral deposits from the customer. These collateral requirements are determined by management and may be adjusted upward or downward depending on the volume of business with the sub-reseller customer, or if management’s assessment of credit risk for a sub-reseller customer would change. The Company held $28,854 in collateral deposits from various sub-reseller customers at September 30, 2018 and December 31, 2017. Such amounts represent collateral received from the sub-resellers in order to contract with the Company. The related contracts have an option to terminate the contract within a period of less than one year, and accordingly, these collateral deposits are classified as current liabilities in the accompanying balance sheet. 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. 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. 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. 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. 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 table summarizes our non-financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2018: Fair Value Measurements at September 30, 2018 Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable Total Assets Inputs Inputs Carrying (Level 1) (Level 2) (Level 3) Value Description Unproved oil and natural gas properties $ - $ - $ 4,013 $ 4,013 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 September 30, 2018, as it was not required. 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, depletion 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. During the period ended September 30, 2018, and December 31, 2017, the Company incurred a total of $0 in oil and natural gas expenditures. During the nine months ended September 30, 2018, we reduced the ceiling under the full cost method through amortization expense of $33,464. No impairment was realized for the period ending September 30, 2018, or the year ended December 31, 2017. Other long term assets consist of security deposits to vendors. The Company has reviewed the other long term assets for impairment and determined that no impairment need realized for the period ending September 30, 2018, or the year ended December 31, 2017. Revenue Recognition Services revenues are generated from cellular and telecommunication services. The revenue is derived from wholesale and retail services. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This update provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. We have adopted this update. We do not believe this guidance will impact the recognition of our primary source of revenue from our wholesale and retail customers. The adoption of this guidance did not have a material impact on our consolidated financial statements. Cost of Revenue Cost of Revenue includes the cost of communication services, equipment and accessories, shipping costs, and commissions of sub-agents. 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 Beginning on December 18, 2018, the Effective Date of the KonaTel Nevada Merger, KonaTel Nevada terminated its S Corporation status. For the short-tax year, there was no tax provision of federal or state taxes in the financial statements. As of September 30, 2018, because of a net loss, there was no tax expense provision of federal or state taxes in the financial statements. The sale of the Company’s New York retail operations to Telecon Wireless resulted in both a capital gain and an ordinary gain. The gains on the sale would be taxed at the corporate income tax rate of 21%. The gain of $318,257, with a tax effect of $66,834, is included in the net loss carryforward. Because of this, there was no tax expense provision of federal or state taxes in the financial statements. Prior to the closing of Merger, with the consent of its shareholders, KonaTel Nevada had elected under the Internal Revenue Code and for Pennsylvania tax purposes to be an S Corporation. In lieu of corporation income taxes, the shareholders of a S Corporation are taxed on their proportionate share of the Company’s taxable income. Therefore, no provision for federal or state income tax is included in the financial statements. The Company evaluates tax positions taken and determines whether it is more-likely-than-not that the tax position will be sustained upon examination based on the technical merits of the position. Management has reviewed its tax positions regarding state nexus as well as its status as a pass-through entity and has determined there are no such positions that fail to meet the more-likely-than-not criterion. Net Loss Per Share The Company follows ASC Topic 260 to account for the loss per share. Basic loss per common share calculations are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share calculations are determined by dividing net loss by the weighted average number of common shares and dilutive common share equivalents outstanding. Concentrations of Credit Risk 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 also has a concentration of risk with respect to trade receivables from sub-resellers. As of September 30, 2018, and December 31, 2017, the Company had a significant concentration of receivables due from three and two major customers, respectively (defined as customers whose receivable balances are greater than 10% of total accounts receivable). These customers represented approximately 87% of the total accounts receivable as of September 30, 2018, and approximately 78% of total accounts receivable as of December 31, 2017. Concentration of Major Customer A significant amount of the revenue is derived from contracts with major sub-reseller customers. For the period ended September 30, 2018, and 2017, the Company had two and three, respectively, major sub-reseller customers which amounted to approximately 51% and 87%, respectively, of total revenues. For the year ended December 31, 2017, the Company had two major sub-reseller customers which amounted to approximately 43% of total revenues. Segment Reporting The Company operates within four reportable segments. The Company’s management evaluates performance and allocates resources based on the profit or loss from operations. Because the Company is a 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 a Wholesale unit, a Retail unit, a Virtual ETC unit, and Gas & Oil Operations. The Wholesale unit purchases bulk rate services at a discounted unit and provides services to retail providers. The Retail and Virtual ETC units provide services to the end user through the use of agents and direct selling to the customer. The Gas & Oil Operations consist of leaseholds of property for the purpose of exploration and development of oil and natural gas properties. Effect of 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 Company has determined that this pronouncement has very little impact on the financial statements. The Company has determined that the cumulative effect transition method would be applied. 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. On February 25, 2016, the FASB issued Accounting Standards Update No. 2016- 02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. Early application is permitted. The Company has determined that adoption of the standard will begin January 1, 2019. The Company currently has four equipment operating leases and one Property lease; and the Property lease expires in April 2019. The Company has determined that this pronouncement has very little impact on the financial statements. The Company has evaluated all other recent accounting pronouncements and believes that none will have a significant effect on the Company’s financial statement. Emerging Growth Company The Company is an emerging growth company and has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. |
Property and Equipment
Property and Equipment | 9 Months Ended |
Sep. 30, 2018 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | NOTE 4 – PROPERTY AND EQUIPMENT Property and equipment consist of the following major classifications as of September 30, 2018, and December 31, 2017: September 30, 2018 December 31, 2017 Leasehold Improvements $ 46,950 $ 46,950 Furniture and Fixtures 75,901 87,201 Billing Software 217,163 217,163 Office Equipment 86,887 89,590 426,901 440,904 Less: Accumulated Depreciation and Amortization (318,088) (298,837) $ 108,812 $ 142,067 Depreciation expense amounted to $21,649 and $66,829 for the nine month periods ended September 30, 2018, and 2017, respectively. Depreciation and amortization expense are included as a component of operating expenses in the accompanying statements of operations. |
Intangible Assets
Intangible Assets | 9 Months Ended |
Sep. 30, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible Assets | NOTE 5 – INTANGIBLE ASSETS Intangible Assets consist of customer lists that were acquired through acquisitions: September 30, 2018 December 31, 2017 Customer Lists $ 1,135,961 $ 1,135,961 Less: Accumulated Amortization (1,102,392) (951,333) $ 33,569 $ 184,628 Amortization expense amounted to $151,059 and $283,990 for the nine month periods ended September 30, 2018, and 2017, respectively. Amortization expense is included as a component of operating expenses in the accompanying statements of operations. Future amortization over the next year will be $33,569, which fully amortizes intangible assets. |
Lines of Credit
Lines of Credit | 9 Months Ended |
Sep. 30, 2018 | |
Debt Disclosure [Abstract] | |
Lines of Credit | NOTE 6 – LINES OF CREDIT The Company has three lines of credit with a bank which provide aggregate maximum borrowing availability of $1,050,000 as of September 30, 2018, and December 31, 2017. The lines of credit are payable on demand and bear interest at a variable rate with a floor set at 5.25%. Outstanding advances under these line of credit arrangements amounted to $153,141 as of September 30, 2018, and December 31, 2017. The lines of credit matured in April 2018. The maturity date has been verbally extended by the bank on a month-to-month basis. The lines are secured by the general assets of the Company and aggregate amounts drawn under the line of credit may be limited to a borrowing base, as defined. The revolving lines of credit are guaranteed by an officer of the Company. |
Operating Leases
Operating Leases | 9 Months Ended |
Sep. 30, 2018 | |
Leases [Abstract] | |
Operating Leases | NOTE 7 – OPERATING LEASES The Company leases property under non-cancelable operating leases with terms in excess of one year. The current property lease in excess of one year expires April 30, 2019. Future minimum lease payments over the next three years under the terms of these operating leases are as follows: Period Ended September 30, 2018 $ 16,525 2019 38,558 The Company also leases an office space on a month-to-month basis. Total lease expense for the nine months ended September 30, 2018, and 2017 amounted to $110,023 and $112,203, respectively. |
Amount Due to Shareholder
Amount Due to Shareholder | 9 Months Ended |
Sep. 30, 2018 | |
Related Party Transactions [Abstract] | |
Amount Due to Shareholder | NOTE 8 – AMOUNT DUE TO SHAREHOLDER During 2018, Gary Stevens advanced the Company $100,000. The amount was used for working capital purposes. The note consisted of a $5,000 loan fee, plus an annual interest rate of 8.00%. This amount was paid in April, 2018. During 2017, certain of the Company’s principal shareholders, D. Sean McEwen, Matthew Atkinson, and Mark Savage, advanced the Company $191,500, $17,063 and $14,764, respectively. The amounts advanced were used for working capital purposes and bear no interest and do not have a maturity date. Interest expense is imputed based on the applicable federal rate of 1.52%. Amounts due to Matthew Atkinson and Mark Savage were fully paid on March 8, 2018. D. Sean McEwen received $41,500 on March 8, 2018, and $10,000 each on June 25, 2018, July 25, 2018, August 25, 2018, and September 25, 2018, as partial payments. As of September 30, 2018, D. Sean McEwen is owed $110,000. |
Related Party Transactions
Related Party Transactions | 9 Months Ended |
Sep. 30, 2018 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | NOTE 9 – RELATED PARTY TRANSACTIONS Transactions with Shareholders As of September 30, 2018, amounts due from advances to shareholders were $110,000. The details of the advances are set forth in NOTE 8. |
Retirement Plan
Retirement Plan | 9 Months Ended |
Sep. 30, 2018 | |
Retirement Benefits [Abstract] | |
Retirement Plan | NOTE 10 – RETIREMENT PLAN The Company sponsors a 401(k) profit sharing plan for its employees, whereby participants may contribute through salary deductions as defined, not to exceed certain IRS limits. The plan also provides for an employer matching contribution and also discretionary employer contributions. As of November 3, 2017, the Company no longer provided an employer match. The Company contributed $27,684 for the period ended September 30, 2017. |
Contingencies and Commitments
Contingencies and Commitments | 9 Months Ended |
Sep. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Contingencies and Commitments | NOTE 11 – CONTINGENCIES AND COMMITMENTS Litigation From time to time, the Company may be subject to legal proceedings and claims which arise in the ordinary course of business. As of September 30, 2018, there are no 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 industry and that may be provided in the contractual agreements. Escrowed Contract Effective February 7, 2018, the Company entered into an Agreement for the Purchase and Sale of Membership Interest dated as of February 5, 2018 (the “PSMI”), with the transaction documents being deposited in escrow on February 7, 2018, respecting the acquisition of 100% of the membership interest in IM Telecom, LLC, an Oklahoma limited liability company (“IM Telecom”), from its sole owner, Trevan Morrow (“Mr. Morrow”). The principal asset of IM Telecom is a “Lifeline Program” license (a Federal Communications Commission [the “FCC”] approved Compliance Plan), the transfer of ownership of which requires prior approval of the FCC. The PSMI provided that if the transfer of the beneficial ownership of the Lifeline Program license to us was not approved by the FCC prior to April 30, 2018, or a later date agreed upon by the parties, either party may terminate the PSMI; and the parties had agreed to continue the PSMI, with the FCC subsequently publishing notice of the approval of the transfer of the ownership of the Lifeline Program license to the Company on October 23, 2018. The parties are in the process of finalizing the closing of the PSMI, anticipated to be concluded by year end 2018. Letters of Credit Going Concern As the Company did not generate net income during the nine month periods ending September 30, 2018, and 2017, we have been dependent upon equity financing to support our operations. In addition to losses of $1,255,609 and $1,236,954 for the nine month periods ending September 30, 2018, and 2017, respectively, we have experienced negative cash flow from operations of $1,293,856 and $350,522 in 2018, and 2017. The accumulated deficit as of September 30, 2018, is $4,446,482. We believe we have ameliorated any “going concern” issues by generating additional cash flow since the completion of our merger with KonaTel Nevada on December 18, 2017; receiving cash investments through the private placement of shares of our common stock; and revenues from the growth of our Virtual ETC program, all of which has contributed to an improvement in our working capital, without the use of additional lines of credit or borrowings. Additionally, we also have two options to finance our mobile phone equipment purchases whereby multiple equipment suppliers provide us short term credit terms of up to 60 days on mobile phone purchases and a bank line of credit for purchases of select mobile phones. As a result of the sale of a component of the retail operations to Telecon Wireless, our irrevocable standby letter of credit arrangements with certain cellular carriers in the aggregate amount was reduced to $275,000 from $593,000, as noted in NOTE 11. The letters of credit serve as collateral and security for various resale contracts the Company has with their suppliers. |
Segment Reporting
Segment Reporting | 9 Months Ended |
Sep. 30, 2018 | |
Segment Reporting [Abstract] | |
Segment Reporting | NOTE 12 – SEGMENT REPORTING The Company operates within four reportable segments. The Company’s management evaluates performance and allocates resources based on the profit or loss from operations. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Because the Company is a 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 Company’s reportable segments consist of a Wholesale unit, a Retail unit, a Virtual ETC unit, and Gas & Oil Operations. The Wholesale unit purchases bulk rate services at a discounted cost. The Wholesale unit then sells to providers that provide services to the end-user. The Retail unit provides these same services to the end-user. The Wholesale unit had 17 and 18 customers for the periods ended September 30, 2018, and 2017, respectively. The Retail Unit had an average lines/customers of 7.606 and 7,208 for the periods ended September 30, 2018, and 2017, respectively. The Gross Profit per line for Wholesale was $3.19 and $2.46 for the nine month periods ended September 30, 2018, and 2017, respectively. The Gross Profit per line for Retail was $20.58 and $24.36 for the nine month periods ended September 30, 2018, and 2017, respectively. The Virtual ETC unit had average lines/phones of 17,871 and 3,132 for the nine month periods ended September 30, 2018, and 2017, respectively. The Gross profit per Virtual ETC line was ($1.51) and $.31 for the nine month periods ended September 30, 2018, and 2017, respectively. The following table reflects the result of operations of the Company’s reportable segments: Wholesale Retail Virtual ETC Gas & Oil Total For the nine months ended September 30, 2018 Revenue $ 1,679,859 $ 2,249,981 $ 3,661,378 $ - $ 7,591,218 Net Income (Loss) $ (256,953) $ 490,927 $ (1,456,121) $ (33,462) $ (1,255,609) Gain on Sale of Assets $ - $ 318,257 $ - $ - $ 318,257 Depreciation and amortization $ 45,264 $ 27,646 $ 99,440 $ 33,462 $ 206,172 Additions to property and equipment $ - $ - $ - $ - $ - For the three months ended September 30, 2018 Revenue $ 581,817 $ 563,774 $ 1,307,923 $ - $ 2,453,514 Net Income (Loss) $ (98,198) $ 506,691 $ (358,164) $ (4,012) $ 46,317 Gain on Sale of Assets $ - $ 318,257 $ - $ - $ 318,257 Depreciation and amortization $ 14,693 $ 9,732 $ 33,145 $ 4,012 $ 61,582 Additions to property and equipment $ - $ - $ - $ - $ - For the nine months ended September 30, 2017 Revenue $ 6,054,755 $ 2,827,073 $ 465,669 $ - $ 9,347,497 Net Loss $ (471,492) $ (761,291) $ (4,171) $ - $ (1,236,954) Depreciation and amortization $ 133,722 $ 215,914 $ 1,183 $ - $ 350,819 Additions to property and equipment $ - $ 5,845 $ - $ - $ 5,845 For the three months ended September 30, 2017 Revenue $ 1,550,227 $ 948,355 $ 176,081 $ - $ 2,674,663 Net Income (Loss) $ (183,836) $ (399,169) $ 28,839 $ - $ (554,166) Depreciation and amortization $ 112,199 $ 186,348 $ 1,183 $ - $ 299,730 Additions to property and equipment $ - $ - $ - $ - $ - |
Preferred Convertible Stock and
Preferred Convertible Stock and Warrants | 9 Months Ended |
Sep. 30, 2018 | |
Equity [Abstract] | |
Preferred Convertible Stock and Warrants | NOTE 13 – 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 was 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 share of Series A 6% Convertible Preferred Stock sold in each unit) to purchase common shares of the Company at an exercise price of $1.35 for three years of the “Effective Date,” defined as the earliest date of the following to occur: (a) the initial registration statement required by the offering documents had been declared effective by 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 thereof; 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, were issued and outstanding as of September 30, 2017. The 6% per annum dividends are cumulative and payable quarterly in cash or, 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 had 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 certain preferred shareholders. The cancelled dividends were accounted for by offsetting to additional paid-in capital. As the Series A 6% Convertible Preferred Stock was 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 had no voting rights. 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 were to be implemented by the Board of Directors at the Board’s discretion. The approved transactions included the following: (i) the approval of a potential settlement agreement with Chisholm Partners II, LLC and certain Chisholm Members; (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 COD 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 COD; (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. Upon the occurrence of a triggering event, each holder had the right to require the Company to redeem all of the Series A 6% Convertible Preferred Stock in cash at the redemption amount which was 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 September 30, 2017, there were no Series A 6% Convertible Preferred Stock shares 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. Effective July 19, 2017, the remaining 2008 outstanding shares of Series A 6% Convertible Preferred Stock, along with all Warrants issued in connection with their sale in 2014, were cancelled. See the “July 2017 Transaction” in NOTE 2 above. |
Shareholders' Equity
Shareholders' Equity | 9 Months Ended |
Sep. 30, 2018 | |
Equity [Abstract] | |
Shareholders' Equity | NOTE 14 – 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 Nevada, with Dala Nevada being the acquirer for financial reporting purposes. At the date of that Merger, the Company had 2,500,000 shares of common stock outstanding. 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 PCA executed in May 2016 (see NOTE 2), 9,597,800 shares of common stock were returned to the Company and recorded in treasury and were returned to the authorized but unissued shares of the Company. On July 19, 2017, the Company issued 12,100,000 shares of common stock to M2. On July 25, 2017, the Company issued 250,000 shares of our common stock as compensation and for a general release. We issued 50,000 shares to Daniel Ryweck for his service on our board of directors, and 200,000 to our attorney, Leonard W. Burningham, Esq., for certain of his legal services in the change of control involving M2 and pursuant to his Engagement Letter. As discussed above, the Company completed a reverse-merger with KonaTel Nevada, with KonaTel Nevada being the acquirer for financial reporting purposes. At the date of the KonaTel Nevada Merger, the Company issued 13,500,000 shares of common stock to D. Sean McEwen, who was then the sole shareholder of KonaTel Nevada. At the date of the KonaTel Nevada Merger, 12,100,000 shares were owned by M2 (Messrs. Mark Savage and Matthew Atkinson were members of M2 and collectively owned approximately 65.2% of M2, which equated to an indirect beneficial ownership of approximately 3,950,000 shares of our common stock each), and with Mr. Atkinson being the sole Manager of M2, he was also the then beneficial owner of all of M2’s shares of our common stock; and 1,692,286 shares, which were owned by public shareholders. On April 24, 2018, the 12,100,000 shares of our common stock that were acquired by M2 under the Common Stock Purchase Agreement referenced above were distributed to its members, pro rata, in accordance with their respective membership interests. On March 8, 2018, we issued 4,750,000 shares of our common stock in a private placement to “accredited investors” at $0.20 per share for an aggregate amount of $950,000. On April 16, 2018, we issued 1,000,000 shares of our common stock in a private placement to “accredited investors” at $0.20 per share for an aggregate amount of $200,000. During the nine months period ended September 30, 2018, the Company recorded vested options expense of $454,434. Also, see NOTE 2 above. Stock Compensation The Company offered stock option outstanding equity awards to directors and key employees. Options vested in tranches and do not expire for five years. During the nine months period ended September 30, 2018, the Company recorded vested options expense of $454,434. The following table represents stock option activity as of and for the nine months ended September 30, 2018: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Life Aggregate Intrinsic Value Options Outstanding – December 31, 2017 3,925,000 $ 0.21 4.2 $ - Granted 150,000 $ 0.33 4.4 Exercised Forfeited Options Outstanding – September 30, 2018 4,075,000 $ 0.22 4.2 $ - Options Vested and Expected to Vest, September 30, 2018 4,075,000 $ 0.22 4.2 $ - Exercisable and Vested, September 30, 2018 1,698,750 $ 0.25 4.2 $ - |
Income Tax
Income Tax | 9 Months Ended |
Sep. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Tax | NOTE 15 – INCOME TAX For the periods ending September 30, 2018, and 2017, there was no provision for income taxes and deferred tax assets have been entirely offset by valuation allowances. Prior to the Merger with KonaTel Nevada, and, with the consent of its sole shareholder, KonaTel Nevada had elected under the Internal Revenue Code and for Pennsylvania tax purposes to be an S Corporation. In lieu of corporation income taxes, the shareholders of an S Corporation are taxed on their proportionate share of the Company’s taxable income. Therefore, no provision for federal or state income tax is included in the financial statements. The Company evaluates tax positions taken and determines whether it is more-likely-than-not that the tax position will be sustained upon examination based on the technical merits of the position. Management has reviewed its tax positions regarding state nexus as well as its status as a pass-through entity and has determined there are no such positions that fail to meet the more-likely-than-not criterion. On November 30, 2017, the Company adopted ASU 2015-17, “Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). The Company’s tax expense differs from the “expected” tax expense for Federal income tax purposes (computed by applying the United States Federal tax rate of 21% to loss before taxes). The tax effects of the temporary differences between reportable financial statement income and taxable income are recognized as deferred tax assets and liabilities. The tax effect of significant components of the Company’s deferred tax assets and liabilities at September 30, 2018 and 2017, respectively, are as follows: September 30, 2018 2017 Deferred tax assets: Net operating loss carryforward $ 525,922 $ 602,349 Total gross deferred tax assets 525,922 602,349 Less: Deferred tax asset valuation allowance (525,922) (602,349) Total net deferred tax assets - - Deferred tax liabilities: Depreciation - - Total deferred tax liabilities - - Total net deferred taxes $ - $ - In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Because of the historical earnings history of the Company, the net deferred tax assets for 2017 were fully offset by a 100% valuation allowance. The valuation allowance for the remaining net deferred tax assets was $1,442,386 and $1,058,669 as of September 30, 2018 and 2017, respectively. On December 22, 2017, the United States Government passed new tax legislation that, among other provisions, will lower the corporate tax rate from 35% to 21%. In addition to applying the new lower corporate tax rate in 2018 and thereafter to any taxable income we may have, the legislation affects the way we can use and carry forward net operating losses previously accumulated and results in a revaluation of deferred tax assets recorded on our balance sheet. Given that the deferred tax assets are offset by a full valuation allowance, these changes will have no net impact on the Company’s financial position and net loss. However, if and when we become profitable, we will receive a reduced benefit from such deferred tax assets. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | NOTE 16 – SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date of this filing, and with the exception of the following, no material subsequent events have occurred: Effective October 1, 2018, Dennis E. Miller resigned as a director for personal reasons and unvested stock options to acquire 50,000 shares of our common stock that were granted to Mr. Miller on February 12, 2018, under an Incentive Stock Option Agreement, expired; the remaining 50,000 shares granted to Mr. Miller were vested and do not expire until February 11, 2023. On October 2, 2018, the Company’s irrevocable standby letter of credit arrangements with certain cellular carriers in the aggregate amount was reduced to $275,000 from $593,000, as noted in Note 11. The letters of credit serve as collateral and security for various resale contracts the Company has with their suppliers. Jeffrey Pearl was elected to fill the vacancy on our Board of Directors resulting from Mr. Miller’s resignation, effective October 28, 2018. As part of his designation as director, he will receive a monthly cash payment of $2,000; and a quarterly stock option grant of 25,000 shares of our common stock, with the shares vesting on the date of the grant and being valued at 110% of the fair market value or the closing price of our common stock on the date of the grant ($0.45 times 110% = $0.495 per share). On October 23, 2018, the FCC published a notice of the approval of the transfer of the ownership of the Lifeline Program license to the Company under our IM Telecom PSMI agreement. The parties are in the process of finalizing the closing of the PSMI, which is anticipated to be concluded by year end 2018. See NOTE 11, under the heading “Escrowed Contract.” |
Accounting Policies (Policies)
Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
Basis of Presentation | 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 customer lists. Actual results could differ from those estimates. |
Cash and Cash Equivalents | 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 Account Receivables | 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. |
Allowance for Doubtful Receivables | Allowance for Doubtful Receivables The allowance for doubtful receivables is determined by management based on customer credit history, specific customer circumstances and general economic conditions. Periodically, management reviews 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 September 30, 2018, and December 31, 2017, management has determined that no allowance for doubtful receivables is necessary. Notes Receivable The Company entered into an Assets Sale Agreement with Telecon Wireless Resources, Inc, with an effective date of July 31, 2018. As part of the Agreement, the Company agreed to hold a one-year note of $100,000 to be paid in 12 payments of $8,333. As of September 30, 2018, the outstanding amount, including principal and interest was $91,667. The Note in the Agreement did not reference an interest rate. The note is being recorded with an implied interest rate of 5.00%. |
Inventory | Inventory Inventory consists primarily of the cost of cellular phones and cellular accessories. Inventory is reported at the lower of cost and net realizable value. Cost is determined by the first-in, first-out (“FIFO”) method. Due to the rapidly changing technology within the industry, inventory is evaluated on a regular basis to determine if any obsolescence exists. |
Property and Equipment | 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 September 30, 2018 and December 31, 2017. |
Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill represents the excess of cost over the fair value of net assets acquired in connection with business acquisitions. Goodwill is tested at the reporting unit level, which is defined as an operating segment or a component of an operating segment that constitutes a business for which financial information is available and is regularly reviewed by management. The Company assesses goodwill for impairment at least annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment. The annual impairment review is completed at the end of the year. If the carrying amount of a reporting unit exceeds its fair value, the Company measures the possible goodwill impairment based upon an allocation of the estimate of fair value to the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible assets, based upon known facts and circumstances as if the acquisition occurred currently. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized to the extent the carrying value of goodwill exceeds the implied fair value of the goodwill. It was determined that Goodwill of $80,867 created through the reverse merger was fully impaired as of December 31, 2017. Intangible assets consist of customer lists arising from acquisitions which are amortized on a straight line basis over three years, their estimated useful lives. Other Assets Other Assets represent items classified long-term assets in accordance with the Statement of Financial Accounting Standards ASC 210-10-45. Through September 30, 2018, the Company had made payments on behalf of IM Telecom, LLC in the amount of $333,316. These amounts were paid as part of a Purchase and Sale of Membership Interest, which was effective as of February 7, 2018. See additional information in Note 11 – Contingencies and Commitments, Escrowed Contract and Part II – Other Information, Item 5. |
Customer Deposits | Customer Deposits Before entering into a contract with a sub-reseller customer, the Company will require the customer to either secure a formal letter of credit with a bank, or require a certain level of cash collateral deposits from the customer. These collateral requirements are determined by management and may be adjusted upward or downward depending on the volume of business with the sub-reseller customer, or if management’s assessment of credit risk for a sub-reseller customer would change. The Company held $28,854 in collateral deposits from various sub-reseller customers at September 30, 2018 and December 31, 2017. Such amounts represent collateral received from the sub-resellers in order to contract with the Company. The related contracts have an option to terminate the contract within a period of less than one year, and accordingly, these collateral deposits are classified as current liabilities in the accompanying balance sheet. |
Impairment of Long-Lived Assets | 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. |
Fair Market Value of Assets | 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. 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. 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. 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. |
Oil and Natural Gas Properties | 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 September 30, 2018, as it was not required. 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, depletion 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. |
Revenue Recognition | Revenue Recognition Services revenues are generated from cellular and telecommunication services. The revenue is derived from wholesale and retail services. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This update provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. We have adopted this update. We do not believe this guidance will impact the recognition of our primary source of revenue from our wholesale and retail customers. The adoption of this guidance did not have a material impact on our consolidated financial statements. |
Stock-Based Compensation | 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 | Income Taxes Beginning on December 18, 2018, the Effective Date of the KonaTel Nevada Merger, KonaTel Nevada terminated its S Corporation status. For the short-tax year, there was no tax provision of federal or state taxes in the financial statements. As of September 30, 2018, because of a net loss, there was no tax expense provision of federal or state taxes in the financial statements. The sale of the Company’s New York retail operations to Telecon Wireless resulted in both a capital gain and an ordinary gain. The gains on the sale would be taxed at the corporate income tax rate of 21%. The gain of $318,257, with a tax effect of $66,834, is included in the net loss carryforward. Because of this, there was no tax expense provision of federal or state taxes in the financial statements. Prior to the closing of Merger, with the consent of its shareholders, KonaTel Nevada had elected under the Internal Revenue Code and for Pennsylvania tax purposes to be an S Corporation. In lieu of corporation income taxes, the shareholders of a S Corporation are taxed on their proportionate share of the Company’s taxable income. Therefore, no provision for federal or state income tax is included in the financial statements. The Company evaluates tax positions taken and determines whether it is more-likely-than-not that the tax position will be sustained upon examination based on the technical merits of the position. Management has reviewed its tax positions regarding state nexus as well as its status as a pass-through entity and has determined there are no such positions that fail to meet the more-likely-than-not criterion. |
Net Loss Per Share | Net Loss Per Share The Company follows ASC Topic 260 to account for the loss per share. Basic loss per common share calculations are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share calculations are determined by dividing net loss by the weighted average number of common shares and dilutive common share equivalents outstanding. |
Concentration of Credit Risk | Concentrations of Credit Risk 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 also has a concentration of risk with respect to trade receivables from sub-resellers. As of September 30, 2018, and December 31, 2017, the Company had a significant concentration of receivables due from three and two major customers, respectively (defined as customers whose receivable balances are greater than 10% of total accounts receivable). These customers represented approximately 87% of the total accounts receivable as of September 30, 2018, and approximately 78% of total accounts receivable as of December 31, 2017. |
Concentration of Major Customer | Concentration of Major Customer A significant amount of the revenue is derived from contracts with major sub-reseller customers. For the period ended September 30, 2018, and 2017, the Company had two and three, respectively, major sub-reseller customers which amounted to approximately 51% and 87%, respectively, of total revenues. For the year ended December 31, 2017, the Company had two major sub-reseller customers which amounted to approximately 43% of total revenues. |
Segment Reporting | Segment Reporting The Company operates within four reportable segments. The Company’s management evaluates performance and allocates resources based on the profit or loss from operations. Because the Company is a 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 a Wholesale unit, a Retail unit, a Virtual ETC unit, and Gas & Oil Operations. The Wholesale unit purchases bulk rate services at a discounted unit and provides services to retail providers. The Retail and Virtual ETC units provide services to the end user through the use of agents and direct selling to the customer. The Gas & Oil Operations consist of leaseholds of property for the purpose of exploration and development of oil and natural gas properties. |
Effect of Recent Accounting Pronouncements | Effect of 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 Company has determined that this pronouncement has very little impact on the financial statements. The Company has determined that the cumulative effect transition method would be applied. 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. On February 25, 2016, the FASB issued Accounting Standards Update No. 2016- 02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. Early application is permitted. The Company has determined that adoption of the standard will begin January 1, 2019. The Company currently has four equipment operating leases and one Property lease; and the Property lease expires in April 2019. The Company has determined that this pronouncement has very little impact on the financial statements. The Company has evaluated all other recent accounting pronouncements and believes that none will have a significant effect on the Company’s financial statement. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
Schedule of Fair Value Assets and Liabilities Measured on Recurring Basis | Fair Value Measurements at September 30, 2018 Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable Total Assets Inputs Inputs Carrying (Level 1) (Level 2) (Level 3) Value Description Unproved oil and natural gas properties $ - $ - $ 4,013 $ 4,013 |
Property and Equipment (Tables)
Property and Equipment (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property and Equipment | September 30, 2018 December 31, 2017 Leasehold Improvements $ 46,950 $ 46,950 Furniture and Fixtures 75,901 87,201 Billing Software 217,163 217,163 Office Equipment 86,887 89,590 426,901 440,904 Less: Accumulated Depreciation and Amortization (318,088) (298,837) $ 108,812 $ 142,067 |
Intangible Assets (Tables)
Intangible Assets (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Intangible Assets and Goodwill | September 30, 2018 December 31, 2017 Customer Lists $ 1,135,961 $ 1,135,961 Less: Accumulated Amortization (1,102,392) (951,333) $ 33,569 $ 184,628 |
Operating Leases (Tables)
Operating Leases (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Leases [Abstract] | |
Schedule of Future Minimum Lease Payments for Operating Leases | Period Ended September 30, 2018 $ 16,525 2019 38,558 |
Segment Reporting (Tables)
Segment Reporting (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Segment Reporting [Abstract] | |
Schedule of Segment Reporting Information | Wholesale Retail Virtual ETC Gas & Oil Total For the nine months ended September 30, 2018 Revenue $ 1,679,859 $ 2,249,981 $ 3,661,378 $ - $ 7,591,218 Net Income (Loss) $ (256,953) $ 490,927 $ (1,456,121) $ (33,462) $ (1,255,609) Gain on Sale of Assets $ - $ 318,257 $ - $ - $ 318,257 Depreciation and amortization $ 45,264 $ 27,646 $ 99,440 $ 33,462 $ 206,172 Additions to property and equipment $ - $ - $ - $ - $ - For the three months ended September 30, 2018 Revenue $ 581,817 $ 563,774 $ 1,307,923 $ - $ 2,453,514 Net Income (Loss) $ (98,198) $ 506,691 $ (358,164) $ (4,012) $ 46,317 Gain on Sale of Assets $ - $ 318,257 $ - $ - $ 318,257 Depreciation and amortization $ 14,693 $ 9,732 $ 33,145 $ 4,012 $ 61,582 Additions to property and equipment $ - $ - $ - $ - $ - For the nine months ended September 30, 2017 Revenue $ 6,054,755 $ 2,827,073 $ 465,669 $ - $ 9,347,497 Net Loss $ (471,492) $ (761,291) $ (4,171) $ - $ (1,236,954) Depreciation and amortization $ 133,722 $ 215,914 $ 1,183 $ - $ 350,819 Additions to property and equipment $ - $ 5,845 $ - $ - $ 5,845 For the three months ended September 30, 2017 Revenue $ 1,550,227 $ 948,355 $ 176,081 $ - $ 2,674,663 Net Income (Loss) $ (183,836) $ (399,169) $ 28,839 $ - $ (554,166) Depreciation and amortization $ 112,199 $ 186,348 $ 1,183 $ - $ 299,730 Additions to property and equipment $ - $ - $ - $ - $ - |
Shareholders' Equity (Tables)
Shareholders' Equity (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Equity [Abstract] | |
Schedule of Share-Based Compensation , Stock Options, Activity | Number of Shares Weighted Average Exercise Price Weighted Average Remaining Life Aggregate Intrinsic Value Options Outstanding – December 31, 2017 3,925,000 $ 0.21 4.2 $ - Granted 150,000 $ 0.33 4.4 Exercised Forfeited Options Outstanding – September 30, 2018 4,075,000 $ 0.22 4.2 $ - Options Vested and Expected to Vest, September 30, 2018 4,075,000 $ 0.22 4.2 $ - Exercisable and Vested, September 30, 2018 1,698,750 $ 0.25 4.2 $ - |
Income Tax (Tables)
Income Tax (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Schedule of Deferred Tax Assets and Liabilities | September 30, 2018 2017 Deferred tax assets: Net operating loss carryforward $ 525,922 $ 602,349 Total gross deferred tax assets 525,922 602,349 Less: Deferred tax asset valuation allowance (525,922) (602,349) Total net deferred tax assets - - Deferred tax liabilities: Depreciation - - Total deferred tax liabilities - - Total net deferred taxes $ - $ - |
Transactions (Details Narrative
Transactions (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2014 | |
Effective date of acquisition | Jun. 2, 2014 | ||||
Acquisition, shares issued | 10,000,000 | ||||
Acquisition purchase price | $ 1,150,000 | $ 0 | |||
Common stock outstanding, shares | 32,942,286 | 27,192,286 | |||
Preferred stock oustanding shares | 2,008 | 2,008 | |||
Warrants issued | 2,893,725 | ||||
Proceeds from issuance of stock | $ 2,025,000 | ||||
Series A preferred convertible stock, units issued | 0 | 2,025 | |||
Series A convertible preferred stock, conversion terms | The conversion price was changed from $0.70 per share to $0.05 per share. | 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 and (ii) 1,429 warrants (issued for each Series A 6% Convertible Preferred Stock sold in each unit) to purchase common shares of the Company at an exercise price of $1.35 with a life of three years as of the "Effective Date" defined as the earliest date of the following 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. | |||
Common stock, par value | $ 0.001 | $ 0.001 | |||
Gain on disposition of intangible assets | $ 406,000 | ||||
Chisholm Partners II, LLC | |||||
Common and preferred shares cancelled | 8,567,800 | ||||
Partial Cancellation Agreement, description | In exchange for the return of 8,567,800 shares of Common Stock 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. | ||||
Shares returned and cancelled | 1,030,000 | ||||
M2 Equity Partners LLC | Common Stock Purchase Agreement | |||||
Effective date of acquisition | Jul. 19, 2017 | ||||
Acquisition agreement terms | Post-Merger, there were approximately 27,192,286 outstanding shares of our common stock, 13,500,000 shares of which are owned by Mr. McEwen; 12,100,000 shares of which were then owned by M2 (Messrs. Savage and Atkinson are members of M2 and collectively owned approximately 65.2% of M2, which equated to an indirect beneficial ownership of approximately 3,950,000 shares of our common stock each, and with Mr. Atkinson being the sole Manager of M2, he was then also the beneficial owner of all of M2's shares of our common stock; and 1,692,286 shares, which were owned by public shareholders. | Prior to 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"). | |||
Acquisition, shares issued | 12,100,000 | ||||
Acquisition purchase price | $ 347,500 | ||||
Common stock cancelled, shares | 1,584,200 | ||||
Common stock shares outstanding after cancellation prior to or simultaneous with the closing | 1,342,286 | ||||
Payment to repurchase common stock | $ 15,842 | ||||
Common and preferred shares cancelled | 2,008 | ||||
Payment to repuchase preferred stock and warrants | $ 53,841 | ||||
Purchase price funds held in Trust | $ 10,750 | ||||
Miscellaneous expenses and other liabilities | $ 262,367 | ||||
Contingent consideration arrangement, description | The Company used 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. | ||||
Preferred stock oustanding shares | 0 | ||||
Warrants outstanding | 0 | ||||
Restricted shares issued | 13,500,000 | ||||
Common stock, par value | $ 0.001 | ||||
Shares distributed to members | 12,100,000 | ||||
Shareholder voting agreement, description | The Company entered into Shareholder Voting Agreement between the Company, Mr. Savage, Mr. Atkinson, M2 and Mr. McEwen whereby Mr. McEwen was granted an irrevocable proxy coupled with an interest from each of the foregoing, together with the following rights, including a right of veto, for a period of two (2) years, on the following matters: (i) an increase in the compensation of any employee of the Company by more than $20,000 in any one calendar year and for these purposes, the term compensation includes any form of remuneration or monetary benefit; (ii) the issuance of stock, the creation of a new class of stock, the grant of options or warrants, modification of any shareholder, option holder or warrant holder's rights, grants, conversion rights or the taking of any other action that directly or indirectly dilutes the outstanding securities of the Company, excepting the current private placement of common stock of the Company for an equity funding of $1,300,000 through the offer and sale of 6,500,000 shares of the Company's common stock solely to "accredited investors"; (iii) the issuance of debt in excess of $100,000 in the aggregate in any one calendar year; (iv) the approval of a plan of merger, reorganization or conversion; (v) the sale, transfer or other conveyance of assets of the Company having an aggregate value in excess of $100,000 in any one calendar year, other than in the ordinary course of the business; and (vi) the entry into a contract or other transaction having a total aggregate contractual liability for the Company in excess of $100,000 in any one calendar year. |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies - Schedule of Fair Value Assets and Liabilities on Recurring Basis (Details) | Sep. 30, 2018USD ($) |
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
Unproved Oil and Gas Property, Successful Effort Method | $ 4,013 |
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 1 | |
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
Unproved Oil and Gas Property, Successful Effort Method | 0 |
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 2 | |
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
Unproved Oil and Gas Property, Successful Effort Method | 0 |
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 3 | |
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
Unproved Oil and Gas Property, Successful Effort Method | $ 4,013 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies (Details Narrative) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2018USD ($) | Sep. 30, 2017USD ($) | Sep. 30, 2018USD ($)Integer | Sep. 30, 2017USD ($) | Dec. 31, 2017USD ($) | |
Notes Receivable | |||||
Notes receivable, outstanding | $ 91,667 | $ 91,667 | $ 0 | ||
Inventory | |||||
Allowance for inventory obsolescence | 807 | 807 | 10,083 | ||
Customer Deposits | |||||
Collateral deposits | 28,854 | 28,854 | 28,854 | ||
Oil and Gas Properties | |||||
Oil and natural gas expenses | 0 | $ 0 | |||
Amortization expense | 33,464 | ||||
Income Tax | |||||
Gain on Sale of Assets | 318,257 | $ 0 | 318,257 | $ 0 | |
Tax effect | $ 66,834 | ||||
Goodwill and Intangible Assets | |||||
Estimated useful lives | 3 years | ||||
Goodwill impairment loss | $ 80,867 | ||||
Other prepaid assets | 333,316 | $ 333,316 | |||
Segment Reporting | |||||
Number of reportable segments | Integer | 4 | ||||
Revenue from Contract with Customer | |||||
Concentration Risk | |||||
Concentration risk, percentage | 51.00% | 87.00% | |||
Revenue from Two Major Sub-Reseller Customers | |||||
Concentration Risk | |||||
Concentration risk, percentage | 43.00% | ||||
Customer Concentration Risk | |||||
Concentration Risk | |||||
Concentration risk, percentage | 87.00% | 78.00% | |||
Leasehold Improvements | |||||
Property and Equipment | |||||
Depreciation method and terms | Depreciated on the straight-line method over their estimated useful life. Amortized over the lesser of the lease term or estimated useful life | ||||
Furniture and Fixtures | |||||
Property and Equipment | |||||
Depreciation method and terms | Depreciated on the straight-line method over periods ranging from 5-7 years | ||||
Equipment | |||||
Property and Equipment | |||||
Depreciation method and terms | Depreciated on the straight-line method over periods ranging from 5-7 years | ||||
Vehicles | |||||
Property and Equipment | |||||
Depreciation method and terms | Depreciated on the straight-line method over periods ranging from 5-7 years | ||||
Billing Software | |||||
Property and Equipment | |||||
Depreciation method and terms | Depreciated on the straight-line method over 3 years | ||||
Telecon Wireless Resources, Inc. | |||||
Notes Receivable | |||||
Notes receivable | 100,000 | $ 100,000 | |||
Notes receivable, commitment | 8,333 | 8,333 | |||
Notes receivable, outstanding | $ 91,667 | $ 91,667 | |||
Implied interest rate | 5.00% | 5.00% |
Property and Equipment - Schedu
Property and Equipment - Schedule of Property and Equipment (Details) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 |
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment | $ 426,901 | $ 440,904 |
Less: Accumulated Depreciation and Amortization | (318,088) | (298,837) |
Property, plant and equipment, net | 108,812 | 142,067 |
Leasehold Improvements | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment | 46,950 | 46,950 |
Furniture and Fixtures | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment | 75,901 | 87,201 |
Billing Software | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment | 217,163 | 217,163 |
Office Equipment | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment | $ 86,887 | $ 89,590 |
Property and Equipment (Details
Property and Equipment (Details Narrative) - USD ($) | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 21,649 | $ 66,829 |
Intangible Assets - Schedule of
Intangible Assets - Schedule of Intangible Assets and Goodwill (Details) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Customer Lists | $ 1,135,961 | $ 1,135,961 |
Less: Accumulated Amortization | (1,102,392) | (951,333) |
Intangible assets, net | $ 33,569 | $ 184,628 |
Intangible Assets (Details Narr
Intangible Assets (Details Narrative) - USD ($) | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization of intangible assets | $ 151,059 | $ 283,990 |
Future amortization expense of intangible assets | $ 33,569 |
Lines of Credit (Details Narrat
Lines of Credit (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2018 | Dec. 31, 2017 | |
Debt Disclosure [Abstract] | ||
Line of credit, maximum borrowing | $ 1,050,000 | $ 1,050,000 |
Line of credit, interest rate description | Bears interest at a variable rate with a floor set at 5.25%. | Bears interest at a variable rate with a floor set at 5.25%. |
Line of credit, advances | $ 153,141 | $ 153,141 |
Line of credit, maturity date | Apr. 30, 2018 | Apr. 30, 2018 |
Line of credit, maturity date, description | The maturity date has been verbally extended by the bank on a month-to-month basis. |
Operating Leases - Schedule of
Operating Leases - Schedule of Future Minimum Lease Payments (Details) | Sep. 30, 2018USD ($) |
Leases [Abstract] | |
Future minimum lease payments for the period ended September 30, 2018 | $ 16,525 |
Future minimum lease payments for the period ended September 30, 2019 | $ 38,558 |
Operating Leases (Details Narra
Operating Leases (Details Narrative) - USD ($) | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Leases [Abstract] | ||
Operating lease expense | $ 110,023 | $ 112,203 |
Amount Due to Shareholder (Deta
Amount Due to Shareholder (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Proceeds from related parties | $ 100,000 | $ 0 | |
Amount Due to Shareholder | 110,000 | $ 223,327 | |
Gary Stevens | |||
Proceeds from related parties | 100,000 | ||
Loan fee | $ 5,000 | ||
Interest rate | 8.00% | ||
Repayment of related party debt | $ 100,000 | ||
D. Sean McEwen | |||
Proceeds from related parties | $ 191,500 | ||
Interest expense, federal rate | 1.52% | ||
Repayment of related party debt | 81,500 | ||
Amount Due to Shareholder | 110,000 | ||
Matthew Atkinson | |||
Proceeds from related parties | $ 17,063 | ||
Interest expense, federal rate | 1.52% | ||
Repayment of related party debt | 17,063 | ||
Mark Savage | |||
Proceeds from related parties | $ 14,764 | ||
Interest expense, federal rate | 1.52% | ||
Repayment of related party debt | $ 14,764 |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 |
Amount Due to Shareholders | $ 110,000 | $ 223,327 |
D. Sean McEwen | ||
Amount Due to Shareholders | $ 110,000 |
Retirement Plan (Details Narrat
Retirement Plan (Details Narrative) | 9 Months Ended |
Sep. 30, 2017USD ($) | |
Retirement Benefits [Abstract] | |
Company contributions to employee retirement plan | $ 27,684 |
Contingencies and Commitments (
Contingencies and Commitments (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Contingencies, description | The Company entered into an Agreement for the Purchase and Sale of Membership Interest dated as of February 5, 2018 (the "PSMI"), with the transaction documents being deposited in escrow on February 7, 2018, respecting the acquisition of 100% of the membership interest in IM Telecom, LLC, an Oklahoma limited liability company ("IM Telecom"), from its sole owner, Trevan Morrow ("Mr. Morrow"). The principal asset of IM Telecom is a "Lifeline Program" license (a Federal Communications Commission [the "FCC"] approved Compliance Plan), the transfer of ownership of which requires prior approval of the FCC. The PSMI provided that if the transfer of the beneficial ownership of the Lifeline Program license to us was not approved by the FCC prior to April 30, 2018, or a later date agreed upon by the parties, either party may terminate the PSMI; and the parties had agreed to continue the PSMI, with the FCC subsequently publishing notice of the approval of the transfer of the ownership of the Lifeline Program license to the Company on October 23, 2018. The parties are in the process of finalizing the closing of the PSMI, anticipated to be concluded by year end 2018. | ||||
Net loss | $ 46,317 | $ (554,166) | $ (1,255,609) | $ (1,236,954) | |
Cash flow from operations | (1,293,856) | $ (350,522) | |||
Accumulated deficit | (4,446,482) | (4,446,482) | $ (3,190,873) | ||
Standby Letters of Credit | |||||
Letter of credit | $ 275,000 | $ 275,000 | $ 593,000 |
Segment Reporting - Schedule of
Segment Reporting - Schedule of Segment Reporting Information (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Segment Reporting Information [Line Items] | ||||
Revenue | $ 2,453,514 | $ 2,674,663 | $ 7,591,218 | $ 9,347,497 |
Net Income (Loss) | 46,317 | (554,166) | (1,255,609) | (1,236,954) |
Gain on Sale of Assets | 318,257 | 0 | 318,257 | 0 |
Depreciation and amortization | 61,582 | 299,730 | 206,172 | 350,819 |
Additions to property and equipment | 5,845 | |||
Wholesale | ||||
Segment Reporting Information [Line Items] | ||||
Revenue | 581,817 | 1,550,227 | 1,679,859 | 6,054,755 |
Net Income (Loss) | (98,198) | (183,836) | (256,953) | (471,492) |
Depreciation and amortization | 14,693 | 112,199 | 45,264 | 133,722 |
Retail | ||||
Segment Reporting Information [Line Items] | ||||
Revenue | 563,774 | 948,355 | 2,249,981 | 2,827,073 |
Net Income (Loss) | 506,691 | (399,169) | 490,927 | (761,291) |
Gain on Sale of Assets | 318,257 | 318,257 | ||
Depreciation and amortization | 9,732 | 186,348 | 27,646 | 215,914 |
Additions to property and equipment | 5,845 | |||
Virtual ETC | ||||
Segment Reporting Information [Line Items] | ||||
Revenue | 1,307,923 | 176,081 | 3,661,378 | 465,669 |
Net Income (Loss) | (358,164) | 28,839 | (1,456,121) | (4,171) |
Depreciation and amortization | 33,145 | 1,183 | 99,440 | 1,183 |
Gas & Oil | ||||
Segment Reporting Information [Line Items] | ||||
Revenue | 0 | 0 | 0 | 0 |
Net Income (Loss) | (4,012) | 0 | (33,462) | 0 |
Depreciation and amortization | $ 4,012 | $ 0 | $ 33,462 | $ 0 |
Segment Reporting (Details Narr
Segment Reporting (Details Narrative) | 9 Months Ended | |
Sep. 30, 2018$ / PerUnitInteger | Sep. 30, 2017$ / PerUnitInteger | |
Number of reportable segments | 4 | |
Wholesale | ||
Number of customers/average lines | 17 | 18 |
Gross profit per line | $ / PerUnit | 3.19 | 2.46 |
Retail | ||
Number of customers/average lines | 7,606 | 7,208 |
Gross profit per line | $ / PerUnit | 20.58 | 24.36 |
Virtual ETC | ||
Number of customers/average lines | 17,871 | 3,132 |
Gross profit per line | $ / PerUnit | (1.51) | 0.31 |
Preferred Convertible Stock a_2
Preferred Convertible Stock and Warrants (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2014 | |
Equity [Abstract] | |||
Series A preferred convertible stock, units issued | 2,025 | ||
Series A preferred convertible stock, price per unit | $ 1,000 | ||
Series A preferred convertible stock, conversion basis | Each 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 to purchase common shares of the Company at an exercise price of $1.35 for three years of the "Effective Date" defined as the earliest date of the following 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. | ||
Series A preferred convertible stock, dividend rate | 6.00% | ||
Conversion of Series A Convertible Preferred stock | 17 | ||
Common stock issued as a result of conversion of Series A Convertible Preferred stock | 24,286 | ||
Series A preferred convertible stock, shares outstanding | 2,008 | 2,008 | |
Series A preferred convertible stock, shares cancelled | 2,008 | ||
Number of common shares contingently issuable upon conversion of preferred stock | 2,868,571 | ||
Proceeds from issuance of convertible preferred stock, net of offering costs | $ 2,025,000 | ||
Warrants issued | 2,893,725 | ||
Value of warrants issued | $ 711,044 | ||
Preferred stock dividends forfeited, shares | 675 | ||
Supermajority of shareholders approval of certain corporate transactions, description | 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 included 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 $60,000; (vi) the waiver of the right of redemption upon Triggering Events for the Company's violations of Section 10 of the Certificate of Designation; (vii) the waiver of the accrual of the late fee for unpaid dividends as of January 1, 2016; (viii) the waiver of the first right of refusal to purchase shares from other Series A 6% Convertible Preferred Shareholders; and (ix) waiver of the "Most Favored Nation" provision in the SPA for the Series A 6% Convertible Preferred Stock, among other things. |
Shareholders' Equity - Schedule
Shareholders' Equity - Schedule of Share-Based Compensation , Stock Options, Activity (Details) | 9 Months Ended |
Sep. 30, 2018USD ($)$ / sharesshares | |
Share-Based Compensation Arrangement By Share-Based Payment Award Options Outstanding | |
Options outstanding, December 31, 2017 | shares | 3,925,000 |
Granted | shares | 150,000 |
Options outstanding, September 30, 2018 | shares | 4,075,000 |
Options vested and expected to vest, September 30, 2018 | shares | 4,075,000 |
Options exercisable and vested, September 30, 2018 | shares | 1,698,750 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price | |
Weighted average exercise price outstanding, December 31, 2017 | $ / shares | $ 0.21 |
Weighted average exercise price, granted | $ / shares | 0.33 |
Weighted average exercise price outstanding, September 30, 2018 | $ / shares | 0.22 |
Weighted average exercise price, options vested and expected to vest, September 30, 2018 | $ / shares | 0.22 |
Weighted average exercise price, exercisable and vested, September 30, 2018 | $ / shares | $ 0.25 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures | |
Weighted average remaining contractual life outstanding, December 31, 2017 | 4 years 3 months |
Weighted average remaining contractual life, granted | 4 years 6 months |
Weighted average remaining contractual life outstanding, September 30, 2018 | 4 years 3 months |
Weighted average remaining contractual life, options vested and expected to vest, September 30, 2018 | 4 years 3 months |
Weighted average remaining contractual life, exercisable and vested, September 30, 2018 | 4 years 3 months |
Average intrinsic value outstanding, December 31, 2017 | $ | $ 0 |
Average intrinsic value outstanding, September 30, 2018 | $ | 0 |
Average intrinsic value, vested and expected to vested, September 30, 2018 | $ | 0 |
Average intrinsic value, exercisable and vested, September 30, 2018 | $ | $ 0 |
Shareholders' Equity (Details N
Shareholders' Equity (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Jun. 30, 2018 | Mar. 31, 2018 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2014 | |
Stock-based compensation expense, vested options | $ 454,434 | $ 0 | |||||
Business acquisition, shares issued | 10,000,000 | ||||||
Common shares outstanding | 32,942,286 | 27,192,286 | |||||
Conversion of Series A Convertible Preferred stock | 17 | ||||||
Common stock issued as a result of conversion of Series A Convertible Preferred stock | 24,286 | ||||||
Private Placement | |||||||
Common stock issued | 1,000,000 | 4,750,000 | |||||
Common stock issued, price per share | $ 0.20 | $ 0.20 | |||||
Common stock issued, aggregate value | $ 200,000 | $ 950,000 | |||||
Director | |||||||
Issuance of common stock for services, shares | 50,000 | ||||||
Leonard W. Burningham | |||||||
Issuance of common stock for services, shares | 200,000 | ||||||
M2 Equity Partners LLC | Common Stock Purchase Agreement | |||||||
Business acquisition, shares issued | 12,100,000 | ||||||
Common stock cancelled and returned to treasury | 2,008 | ||||||
Shares distributed to members | 12,100,000 | ||||||
Common Stock | |||||||
Business acquisition, shares issued | 13,500,000 | 10,000,000 | |||||
Oil and gas assets acquired | $ 1,898,947 | ||||||
Common shares outstanding | 1,692,286 | 12,500,000 | |||||
Conversion of Series A Convertible Preferred stock | 17 | ||||||
Common stock issued as a result of conversion of Series A Convertible Preferred stock | 24,286 | ||||||
Common stock cancelled and returned to treasury | 9,597,800 |
Income Tax - Schedule of Deferr
Income Tax - Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($) | Sep. 30, 2018 | Sep. 30, 2017 |
Deferred Tax Assets | ||
Net operating loss carryforward | $ 525,922 | $ 602,349 |
Total gross deferred tax assets | 525,922 | 602,349 |
Less: Deferred tax asset valuation allowance | (525,922) | (602,349) |
Total net deferred tax assets | 0 | 0 |
Deferred Tax Liabilities | ||
Depreciation | 0 | 0 |
Total deferred tax liabilities | 0 | 0 |
Total net deferred taxes | $ 0 | $ 0 |
Income Tax (Details Narrative)
Income Tax (Details Narrative) - USD ($) | Sep. 30, 2018 | Sep. 30, 2017 |
Income Tax Disclosure [Abstract] | ||
Deferred tax asset valuation allowance | $ (525,922) | $ (602,349) |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | 1 Months Ended | 9 Months Ended | |
Oct. 31, 2018 | Sep. 30, 2018 | Dec. 31, 2017 | |
Subsequent Event [Line Items] | |||
Stock options, vested, maturity | 4 years 3 months | ||
Standby Letters of Credit | |||
Subsequent Event [Line Items] | |||
Letter of credit | $ 275,000 | $ 593,000 | |
Subsequent Event | Standby Letters of Credit | |||
Subsequent Event [Line Items] | |||
Letter of credit | $ 275,000 | ||
Subsequent Event | Director | |||
Subsequent Event [Line Items] | |||
Stock options, vested | 50,000 | ||
Stock options, vested, maturity | 5 years | ||
Directors compensation, description | Jeffrey Pearl was elected to fill the vacancy on our Board of Directors effective October 28, 2018. As part of his designation as director, he will receive a monthly cash payment of $2,000; and a quarterly stock option grant of 25,000 shares of our common stock, with the shares vesting on the date of the grant and being valued at 110% of the fair market value or the closing price of our common stock on the date of the grant ($0.45 times 110% = $0.495 per share). |