iQSTEL Inc - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2020

[ ]Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to__________

Commission File Number: 000-55984

iQSTEL Inc.

(Exact name of registrant as specified in its charter)

Nevada		45-2808620
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

300 Aragon Avenue, Suite 375 Coral Gables, FL 33134
(Address of principal executive offices)

(954) 951-8191
(Registrant’s telephone number)


(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

[ ] Large accelerated filer	[ ] Accelerated filer
[X] Non-accelerated filer	[X] Smaller reporting company
	[ ] Emerging growth company

If an emerging growth company, indicate by check mark if the registrant 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. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 85,373,720 common shares as of November 11, 2020

TABLE OF CONTENTS
		Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4:	Controls and Procedures	29
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	30
Item 1A:	Risk Factors	30
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3:	Defaults Upon Senior Securities	30
Item 4:	Mine Safety Disclosures	30
Item 5:	Other Information	30
Item 6:	Exhibits	31

Item 1. Financial Statements

iQSTEL INC

Consolidated Balance Sheets

(Unaudited)

			September 30,		December 31,
			2020		2019
ASSETS
Current Assets
	Cash and cash equivalents	$	647,334	$	270,503
	Accounts receivable, net		1,961,608		2,759,164
	Due from related parties		290,284		316,860
	Prepaid and other current assets		69,427		91,970
Total Current Assets			2,968,653		3,438,497

Property and equipment, net			354,466		287,970
Intangible asset			21,875		-
Goodwill			1,537,742		1,455,960
Deferred tax assets			441,519		420,519
	TOTAL ASSETS	$	5,324,255	$	5,602,946

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
	Accounts payable		1,802,925		2,291,921
	Due to related parties		94,616		34,631
	Loans payable - net of discount of $474 and $0		1,369,580		89,671
	Loans payable - related parties		1,975,342		1,885,708
	Current portion of convertible notes - net of discount of $416,316 and $597,654		1,279,011		1,251,096
	Other current liabilities		761,212		848,484
	Derivative liabilities		658,203		4,744,134
Total Current Liabilities			7,940,889		11,145,645

	Convertible notes - net of discount of $2,556 and $48,558		2,444		11,442
	Loans payable		269,112		178,021
	Employee benefits, non-current		155,080		38,253
TOTAL LIABILITIES			8,367,525		11,373,361

Stockholders' Deficit
	Preferred stock: 1,200,000 authorized; $0.001 par value - no shares issued and outstanding		-		-
	Common stock: 300,000,000 authorized; $0.001 par value 78,186,210 and 18,008,591 shares issued and outstanding, respectively		78,186		18,008
	Additional paid in capital		9,391,402		3,240,528
	Accumulated deficit		(11,673,729)		(8,125,257)
	Accumulated other comprehensive loss		(39,099)		(181)
Deficit attributed to stockholders of iQSTEL Inc.			(2,243,240)		(4,866,902)
Deficit attributable to noncontrolling interests			(800,030)		(903,513)
Total stockholders' Deficit			(3,043,270)		(5,770,415)
	TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	5,324,255	$	5,602,946

The accompanying notes are an integral part of these unaudited consolidated financial statements.

iQSTEL INC

Consolidated Statements of Comprehensive Loss

(Unaudited)

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
			2020		2019		2020		2019

Revenues		$	13,291,698	$	4,172,547	$	29,439,196	$	12,589,109
Cost of revenue			13,158,685		3,929,137		28,735,016		12,001,850
Gross profit			133,013		243,410		704,180		587,259

Operating expenses
	General and administration		958,787		492,782		3,161,330		1,024,842
	Total operating expenses		958,787		492,782		3,161,330		1,024,842

Operating loss			(825,774)		(249,372)		(2,457,150)		(437,583)

Other income (expense)
	Other income		4,412		-		29,144		2,600
	Other expenses		(61)		(5,149)		(8,118)		(5,524)
	Interest expense		(913,592)		(1,009,467)		(2,368,107)		(1,785,629)
	Change in fair value of derivative liabilities		1,096,265		(2,254,035)		1,350,513		(2,801,706)
	Loss on settlement of debt		(331,475)		-		(48,245)		-
	Total other income (expense)		(144,451)		(3,268,651)		(1,044,813)		(4,590,259)

Net loss before provision for income taxes			(970,225)		(3,518,023)		(3,501,963)		(5,027,842)
	Income taxes		-		852		-		852
Net loss			(970,225)		(3,517,171)		(3,501,963)		(5,026,990)
Less: Net income attributable to noncontrolling interests			(26,224)		15,668		46,509		15,668
Net loss attributed to stockholders of iQSTEL Inc.		$	(944,001)	$	(3,532,839)	$	(3,548,472)	$	(5,042,658)

Comprehensive income (loss)
	Net loss	$	(970,225)	$	(3,517,171)	$	(3,501,963)	$	(5,026,990)
	Foreign currency adjustment		(42,722)		44,593		(76,310)		44,593
Total comprehensive loss			(1,012,947)	$	(3,472,578)	$	(3,578,273)	$	(4,982,397)
Less: Comprehensive income (loss) attributable to noncontrolling interests			(47,158)		37,519		9,117		37,519
Net comprehensive loss attributed to stockholders of iQSTEL Inc.		$	(965,789)	$	(3,510,097)	$	(3,587,390)	$	(5,019,916)

Basic and Diluted loss per common share		$	(0.01)	$	(0.22)	$	(0.07)	$	(0.33)

Weighted average number of common shares outstanding – Basic and Diluted			73,045,296		15,933,527		53,705,271		15,446,876

The accompanying notes are an integral part of these unaudited consolidated financial statements.

iQSTEL INC

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Three and Nine Months Ended September 30, 2020 and 2019

(Unaudited)

						Additional Paid in Capital				Accumulated Comprehensive Loss				Non		Total
		Common Stock						Accumulated Deficit						Controlling		Shareholders'
		Shares		Amount				Accumulated Deficit				Total		Interest		Deficit
Balance - December 31, 2019		18,008,591	$	18,008	$	3,240,528	$	(8,125,257)	$	(181)	$	(4,866,902)	$	(903,513)	$	(5,770,415)

	Common stock issued for settlement of debt	4,308,510		4,309		198,191		-		-		202,500		-		202,500
	Common stock issued for services	4,173,000		4,173		445,861		-		-		450,034		-		450,034
	Common stock issued for forbearance of debt	50,000		50		2,850		-		-		2,900		-		2,900
	Common stock issued for conversion of debt	17,208,350		17,208		256,760		-		-		273,968		-		273,968
	Common stock issued for exercised cashless warrant	2,235,697		2,235		(2,235)		-		-		-		-		-
	Common stock to be issued for acquisition of Itsbchain LLC	-		-		50,000		-		-		50,000		-		50,000
	Resolution of derivative liabilities	-		-		2,567,348		-		-		2,567,348		-		2,567,348
	Foreign currency translation adjustments	-		-		-		-		(1,672)		(1,672)		(1,606)		(3,278)
	Net loss	-		-		-		(3,890,490)		-		(3,890,490)		(18,713)		(3,909,203)
Balance - March 31, 2020		45,984,148	$	45,983	$	6,759,303	$	(12,015,747)	$	(1,853)	$	(5,212,314)	$	(923,832)	$	(6,136,146)

	Common stock issued for cash	4,500,000		4,500		355,500		-		-		360,000		-		360,000
	Common stock issued for conversion of debt	16,613,263		16,614		410,918		-		-		427,532		-		427,532
	Common stock issued for exercised cashless warrant	997,889		998		(998)		-		-		-		-		-
	Common stock issued for settlement of debt	200,000		200		67,140		-		-		67,340		-		67,340
	Resolution of derivative liabilities	-		-		1,094,240		-		-		1,094,240		-		1,094,240
	Acquisition of IOT Lab	-		-		-		-		-		-		94,366		94,366
	Foreign currency translation adjustments	-		-		-		-		(15,458)		(15,458)		(14,852)		(30,310)
	Net income	-		-		-		1,286,019		-		1,286,019		91,446		1,377,465
Balance - June 30, 2020		68,295,300	$	68,295	$	8,686,103	$	(10,729,728)	$	(17,311)	$	(1,992,641)	$	(752,872)	$	(2,745,513)

	Common stock issued for cash	4,437,500		4,437		350,568		-		-		355,005		-		355,005
	Common stock issued for conversion of debt	1,991,864		1,992		63,939		-		-		65,931		-		65,931
	Common stock issued for settlement of debt	1,766,946		1,767		94,071		-		-		95,838		-		95,838
	Common stock issued for service	1,694,600		1,695		116,249		-		-		117,944		-		117,944
	Resolution of derivative liabilities	-		-		80,472		-		-		80,472		-		80,472
	Foreign currency translation adjustments	-		-		-		-		(21,788)		(21,788)		(20,934)		(42,722)
	Net loss	-		-		-		(944,001)		-		(944,001)		(26,224)		(970,225)
Balance - September 30, 2020		78,186,210	$	78,186	$	9,391,402	$	(11,673,729)	$	(39,099)	$	(2,243,240)	$	(800,030)	$	(3,043,270)

		Common Stock				Additional Paid in		Accumulated		Accumulated Comprehensive					Non Control			Total Shareholders'
		Shares		Amount		Capital		Deficit		Loss		Total		Interest			Deficit
Balance - December 31, 2018		15,022,650	$	15,023	$	1,054,718	$	(2,667,388)	$	-	$	(1,597,647)	$	-		$	(1,597,647)

	Common stock issued in conjunction with convertible notes	254,074		254		249,746		-		-		250,000		-			250,000
	Capital contribution	-		-		10,000		-		-		10,000		-			10,000
	Net loss	-		-		-		(1,025,578)		-		(1,025,578)		-			(1,025,578)
Balance - March 31, 2019		15,276,724	$	15,277	$	1,314,464	$	(3,692,966)	$	-	$	(2,363,225)	$	-		$	(2,363,225)

	Common stock issued for conversion of debt	76,335		76		4,924		-		-		5,000		-			5,000
	Resolution of derivative liabilities	-		-		181,326		-		-		181,326		-			181,326
	Common stock issued in conjunction with convertible notes	122,857		123		244,577		-		-		244,700		-			244,700
	Net loss	-		-		-		(484,241)		-		(484,241)		-			(484,241)
Balance - June 30, 2019		15,475,916	$	15,476	$	1,745,291	$	(4,177,207)	$	-	$	(2,416,440)	$	-		$	(2,416,440)

	Common stock issued for acquisition	343,512		344		449,656		-		-		450,000		(918,471)			(468,471)
	Common stock issued in conjunction with convertible notes	284,285		284		322,916		-		-		323,200		-			323,200
	Debt forgiveness	-		-		406,080		-		-		406,080		-			406,080
	Foreign currency translation adjustments	-		-		-		-		22,742		22,742		21,851			44,593
	Net loss	-		-		-		(3,532,839)		-		(3,532,839)		15,668			(3,517,171)
Balance - September 30, 2019		16,103,713	$	16,104	$	2,923,943	$	(7,710,046)	$	22,742	$	(4,747,257)	$	(880,952)		$	(5,628,209)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

iQSTEL INC

Consolidated Statements of Cash Flows

(Unaudited)

			Nine Months Ended
			September 30,
			2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss	$	(3,501,963)	$	(5,026,990)
	Adjustments to reconcile net loss to net cash used in operating activities:
	Stock based compensation		617,978		-
	Write-off of due from related party		43,375		-
	Depreciation and amortization		49,318		26,473
	Amortization of debt discount		1,497,268		1,273,768
	Change in fair value of derivative liabilities		(1,350,513)		2,801,706
	Gain on settlement of debt		48,245		-
	Prepayment and Default penalty		245,546		-
	Changes in operating assets and liabilities:		-
	Accounts receivable		527,627		440,471
	Accounts receivable - related party		-		-
	Other current assets		26,762		4,086
	Accounts payable		(221,583)		(827,381)
	Other current liabilities		491,427		(22,332)
	Deferred tax asset		-		(852)
	Net cash used in operating activities		(1,526,513)		(1,331,051)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Acquisition of subsidiary, net of cash acquired		15,781		239,516
	Purchase of property and equipment		(78,306)		-
	Payment of loan receivable - related party		(17,187)		(24,500)
	Collection from due from related parties - related party		388		-
	Net cash provided by (used in) investing activities		(79,324)		215,016
CASH FLOWS FROM FINANCING ACTIVITIES:
	Bank overdraft		-		(82)
	Proceeds from loans payable		933,280		446,824
	Repayments of loans payable		(607,447)		(534,651)
	Proceeds from loans payable - related parties		20,182		46,438
	Repayment of loans payable - related parties		(20,197)		(38,400)
	Contribution		-		10,000
	Common stock issued		715,004		-
	Proceeds from convertible notes		1,420,000		2,058,250
	Repayment of convertible notes		(492,190)		(660,401)
	Net cash provided by financing activities		1,968,632		1,327,978
Effect of exchange rate changes on cash			14,036		(6,239)
Net change in cash and cash equivalents			376,831		205,704
Cash and cash equivalents, beginning of period			270,503		4,570
Cash and cash equivalents, end of period		$	647,334	$	210,274
Supplemental cash flow information
	Cash paid for interest	$	641,390	$	530,572
	Cash paid for taxes	$	-	$	-
Non-cash transactions:
	Derivative liabilities recognized as debt discount	$	1,006,642	$	1,005,350
	Common stock issued in conjunction with convertible notes	$	-	$	817,900
	Common stock issued for conversion of debt	$	767,431	$	5,000
	Common stock issued for cashless warrant exercised	$	3,233	$	-
	Resolution of derivative liabilities	$	3,742,060	$	181,326
	Debt forgiveness	$	-	$	406,080
	Common stock issued for settlement of debt	$	365,678	$	-
	Amount owing for acquisition of IOT	$	60,000	$	-
	Common stock issued for forbearance of debt	$	2,900	$	-
	Replacement of convertible notes to note payable	$	1,000,000	$	-

The accompanying notes are an integral part of these unaudited consolidated financial statements.

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 1 -ORGANIZATION AND DESCRIPTION OF BUSINESS

Organization and Operations

iQSTEL Inc. (“iQSTEL”, “we”, “us”, or the “Company”) was incorporated under the laws of the State of Nevada on June 24, 2011 under the name of PureSnax International, Inc. and changed its name to iQSTEL Inc. on August 7, 2018.

The Company has been engaged in the business of telecommunication services as a wholesale carrier of voice, SMS and data for other telecom companies around the World with more than 150 active interconnection agreements with mobile companies, fix line companies and other wholesale carriers.

Acquisition

On April 15, 2020, we entered into a Company Acquisition Agreement (the “Agreement”) with Francisco Bunt regarding the acquisition of 51% of the shares in loT Labs, LLC (“loT Labs”). The loT Labs’ principal business activity is the sale of Short Messages (SMS) between USA and Mexico.

COVID-19

A novel strain of coronavirus (COVID-19) was first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. The Company has instituted some and may take additional temporary precautionary measures intended to help ensure the well-being of its employees and minimize business disruption. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s results of operations and financial position at September 30, 2020. The full extent of the future impacts of COVID-19 on the Company’s operations is uncertain. A prolonged outbreak could have a material adverse impact on financial results and business operations of the Company, including the timing and ability of the Company to collect accounts receivable and the ability of the Company to continue to provide high quality services to its clients. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of November 13 2020, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained.

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.

In the opinion of the Company’s management, the accompanying unaudited interim financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2020 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on April 15, 2020.

Consolidation Policy

The consolidated financial statements of the Company include the accounts of the Company and its owned subsidiaries, Etelix.com USA, LLC, SwissLink Carrier AG, ITSBCHAIN, LLC, QGLOBAL SMS, LLC and loT Labs, LLC. All significant intercompany balances and transactions have been eliminated in consolidation.

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of Estimates

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) 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. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.

Foreign Currency Translation and Re-measurement

The Company translates its foreign operations to U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”.

The Company’s, Etelix’s, ITSBCHAIN, LLC’s, QGLOBAL SMS, LLC’s and loT Labs LLC’s functional currency and reporting currency is the U.S. dollar, SwissLink’s functional currency is the Swiss Franc (“CHF”).

SwissLink translates their records into U.S. dollars as follows:

·Assets and liabilities at the rate of exchange in effect at the balance sheet date

·Equities at historical rate

·Revenue and expense items at the average rate of exchange prevailing during the period

Adjustments arising from such translations are included in accumulated other comprehensive income in stockholders’ equity.

		September 30,		December 31,
		2020		2019
Spot CHF: USD exchange rate	$	1.0849	$	1.0333
Average CHF: USD exchange rate	$	1.0528	$	1.0122

Accounts Receivable and Allowance for Uncollectible Accounts

Substantially all of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company reviews its allowance for doubtful accounts daily, past due balances over 60 days and a specified amount are reviewed individually for collectability. Account balances are charged off after all means of collection have been exhausted and the potential for recovery is considered remote. As of September 30, 2020 and December 31, 2019, the Company had no valuation allowance for doubtful accounts for the Company’s accounts receivable and recorded no bad debt expense for the nine months ended September 30, 2020 and 2019.

Concentrations of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents and related party payables that it will likely incur in the near future. The Company places its cash and cash equivalents with financial institutions of high creditworthiness. At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits; however, management believes that there is no unusual risk present, as the Company places its cash with financial institutions which management considers being of high quality.

During the nine months ended September 30, 2020, fourteen customers represented 80% of our consolidated revenues. During the nine months ended September 30, 2019, six customers represented 79% of our consolidated revenues. 39% of the revenue comes from customers under prepayment conditions which means there is no credit or bad debt risk on that portion of the customers portfolio.

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition

The Company recognizes revenue from telecommunication services in accordance with ASC 606, “Revenue from Contracts with Customers.”

The Company recognizes revenue related to monthly usage charges and other recurring charges during the period in which the telecommunication services are rendered, provided that persuasive evidence of a sales arrangement existed, and collection was reasonably assured. Management considers persuasive evidence of a sales arrangement to be a written interconnection agreement. The Company’s payment terms vary by clients.

Lease

The Company leases office space for corporate and network monitoring activities and to house telecommunications equipment.

In accordance with ASC 842, “Leases”, we determine if an arrangement is a lease at inception.

The office lease meets the definition of a short-term lease because the lease term is 12 months or less. Consequently, consistent with Company’s accounting policy election, the Company does not recognize the right-of-use asset and the lease liability arising from this lease.

Retirement Benefit Costs

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Company’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognized in full in the period in which they occur. They are recognized outside the income statement and are presented in other comprehensive income. Past service cost is recognized immediately in the income statement in the period in which it occurs.

The retirement benefit obligation recognized in the balance sheet represents the present value of the defined obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of the scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation.

Recent Accounting Pronouncements

Management has considered all recent accounting pronouncements issued since the last audit of our financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.

NOTE 3 - GOING CONCERN

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company does not have significant cash, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. In addition, the Company incurred a net loss of $3,501,963 for the nine months ended September 30, 2020 and has negative working capital as of September 30, 2020. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 3 - GOING CONCERN (Continued)

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish its business plan and eventually attain profitable operations.

During the next year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and marketing expenses. The Company may experience a cash shortfall and be required to raise additional capital.

Historically, the Company has relied upon funds from its stockholders. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon its operations and its stockholders.

NOTE 4 - ACQUISITION

On April 15, 2020, we entered into a Company Acquisition Agreement (the “Agreement”) with Francisco Bunt regarding the acquisition of 51% of the shares in loT Labs. The Company’s principal business activity is the sale of Short Messages (SMS) between USA and Mexico.

We have agreed to pay a total of $180,000 for the 51% interest in the Company. The consideration shall occur with an installment of $60,000 on the date of the execution of the Agreement, followed by a second payment of $60,000 at closing and a final payment of $60,000 that is set to occur 60 days following the closing date. Under the Agreement, Mr. Bunt has the right to request that any of the aforementioned payments be made in shares of our common stock, which the parties have agreed to value at $2.00 per share. The shares are subject to adjustment after 180 days and up to 360 days after issuance if our stock trades at less than $2.00 per share. The Agreement provides for a right of return to Mr. Bunt of the shares in the Company if we fail to make timely payments.

The following table summarizes the fair value of the consideration paid by the Company and the fair value amounts assigned to the assets acquired on the acquisition date:

		April 15,
		2020
Fair Value of Consideration:
Cash	$	180,000
Total Purchase Price	$	180,000

loT Labs has been included in our consolidated results of operations since the acquisition date.

The following table summarizes the identifiable assets acquired and liabilities assumed upon acquisition of IoT Labs and the calculation of goodwill:

Total purchase price	$	180,000
Cash		135,781
Other current assets		953
Property and equipment		34,075
Intangible asset		21,875
Total identifiable assets		192,684
Accounts payable		(100)
Total liabilities assumed		(100)
Net assets		192,584
Non-controlling interest		94,366
Total net assets		98,218
Goodwill	$	81,782

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 4 – ACQUISITION (Continued)

Unaudited combined proforma results of operations for the nine months ended September 30, 2020 and 2019 as though the Company acquired loT Labs on January 1, 2019, are set forth below:

	Nine Months Ended
	September 30,
	2020		2019
Revenues	$	40,313,358	$	32,007,532
Cost of revenues		39,418,379		31,354,143
Gross profit		894,979		653,389

Operating expenses		3,211,867		40,313,358
Operating loss		(2,316,888)		39,418,379

Other expense		(1,044,813)		(4,590,259)
Net Loss	$	(3,361,701)	$	(5,004,853)

NOTE 5 – PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets at September 30, 2020 and December 31, 2019 consist of the following:

	September 30,		December 31,
	2020		2019
Advance payment to suppliers	$	6,600	$	6,600
Other receivable		61,006		78,936
Prepaid expenses		1,221		5,834
Tax receivable		600		600
	$	69,427	$	91,970

NOTE 6 – PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2020 and December 31, 2019 consist of the following:

	September 30,		December 31,
	2020		2019
Telecommunication equipment	$	258,790	$	249,169
Telecommunication software		514,652		436,124
Other equipment		46,371		8,497
Total property and equipment		819,813		693,790
Accumulated depreciation and amortization		(465,347)		(405,820)
Total property and equipment	$	354,466	$	287,970

Depreciation expense for the nine months ended September 30, 2020 and 2019 amounted to $49,318 and $26,473, respectively.

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 7 –LOANS PAYABLE

Loans payable at September 30, 2020 and December 31, 2019 consist of the following:

	September 30,		December 31,			Interest
	2020		2019		Term	rate
Unique Funding Solutions_2	$	2,000	$	2,000	Note was issued on October 12, 2018 and due on January 17, 2019	28.6%
YES LENDER LLC		-		25,500	October 17, 2019 and due on March 31, 2020	30.0%
Complete Business Solutions_8		-		52,170	December 24, 2010 and due on June 09, 2020	26.0%
Nicolas Arvelo		5,000		5,000	Note was issued on November 20, 2019 and due on November 20, 2020	12.0%
Martin Mendoza Diaz		5,000		5,000	Note was issued on November 20, 2019 and due on November 20, 2020	12.0%
Martus		104,363		99,399	Note was issued on October 23, 2018 and due on January 3, 2022	5.0%
Swisspeers AG		56,259		78,623	Note was issued on April 8, 2019 and due on October 4, 2022	7.0%
Apollo Management Group, Inc		63,158		-	Note was issued on March 18, 2020 and due on December 15, 2020	12.0%
Apollo Management Group, Inc 2		68,421		-	Note was issued on March 25, 2020 and due on December 15, 2020	12.0%
Apollo Management Group, Inc 3		66,316		-	Note was issued on April 1, 2020 and due on October 1, 2021	12.0%
Apollo Management Group, Inc 4		73,684		-	Note was issued on April 2, 2020 and due on October 2, 2021	12.0%
Apollo Management Group, Inc 5		36,842		-	Note was issued on April 7, 2020 and due on October 7, 2021	12.0%
Apollo Management Group, Inc 6		84,211		-	Note was issued on April 15, 2020 and due on October 15, 2021	12.0%
Apollo Management Group, Inc 7		77,095		-	Note was issued on April 20, 2020 and due on December 15, 2020	12.0%
Apollo Management Group, Inc 11		21,961		-	Note was issued on July 1, 2020 and due on December 15, 2020	12.0%
Apollo Management Group, Inc 12		21,053		-	Note was issued on August 7, 2020 and due on December 15, 2020	12.0%
Labrys Fund		490,000		-	Note was issued on June 26, 2020 and due on April 1, 2021	12.0%
M2B Funding Corp		300,000		-	Note was issued on September 1, 2020 and due on September 1, 2021	12.0%
YES LENDER LLC 3		55,313		-	Note was issued on August 3, 2020 and due on January 12, 2021	26.0%
Darlene Covi19		108,490		-	Note was issued on April 1, 2020 and due on March 31, 2025	0.0%
Total		1,639,166		267,692
Less: Unamortized debt discount		(474)		-
Total loans payable		1,638,692		267,692
Less: Current portion of loans payable		(1,369,580)		(89,671)
Long-term loans payable	$	269,112	$	178,021

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 7 –LOANS PAYABLE (Continued)

Loans payable to related parties at September 30, 2020 and December 31, 2019 consist of the following:

	September 30,		December 31,
	2020		2019
Alonso Van Der Biest	$	80,200	$	80,200
Alvaro Quintana		10,587		10,587
49% of Shareholder of SwissLink		1,667,575		1,588,261
49% of Shareholder of SwissLink		216,980		206,660
Total		1,975,342		1,885,708
Less: Current portion of loans payable		1,975,342		1,885,708
Long-term loans payable	$	-	$	-

During the nine months ended September 30, 2020 and 2019, the Company borrowed amounts from third parties totaling $933,280 and $446,824, which includes original issue discount and financing costs of $34,316 and $17,953, respectively, and repaid the principal amount of $607,447 and $534,651, respectively.

During the nine months ended September 30, 2020 and 2019, the Company recorded interest expense of $180,843 and $154,507 and recognized amortization of discount, included in interest expense, of $33,842 and $17,953, respectively.

NOTE 8 – OTHER CURRENT LIABILITIES

Other current liabilities at September 30, 2020 and December 31, 2019 consist of the following:

	September 30,		December 31,
	2020		2019
Accrued liabilities	$	10,938	$	2,700
Credit card liabilities		-		4,987
Accrued interest		271,560		365,345
Salary payable - management		352,131		268,231
Employee benefits		111,355		192,288
Other current liabilities		15,228		14,933
	$	761,212	$	848,484

NOTE 9 - CONVERTIBLE NOTES

At September 30, 2020 and December 31, 2019, convertible notes consist of the following:

	September 30,		December 31,
	2020		2019
Promissory notes – Issued in fiscal year 2019, with variable conversion features	$	5,000	$	1,908,750
Promissory notes – Issued in fiscal year 2020, with variable conversion features		1,695,327		-
Total convertible notes payable		1,700,327		1,908,750
Less: Unamortized debt discount		(418,872)		(646,212)
Total convertible notes		1,281,455		1,262,538

Less: current portion of convertible notes		1,279,011		1,251,096
Long-term convertible notes	$	2,444	$	11,442

During the nine months ended September 30, 2020 and 2019, the Company recorded interest expense of $689,996 and $349,027 and recognized amortization of discount, included in interest expense, of $1,463,426 and $1,255,815, respectively.

During the nine months ended September 30, 2020 and 2019, the Company repaid notes of $492,190 and $660,401 and accrued interest including prepayment penalty of $552,631 and $295,000.

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 9 - CONVERTIBLE NOTES (Continued)

Conversion

During the nine months ended September 30, 2020, the Company converted notes with principal amounts of $681,118 and accrued interest of $86,313 into 35,813,477 shares of common stock. The corresponding derivative liability at the date of conversion of $3,742,060 was settled through additional paid in capital.

Settlement

On June 10, 2020, the Company settled a convertible note with accrued interest of $64,230 with a total of 650,000 share issuances. The Company issued 200,000 shares in June, 225,000 shares in July and 503,571 shares in August, which included 278,571 true-up shares. As a result, the Company recognized a loss on settlement of debt of $24,699.

On June 26, 2020, the Company issued a loan payable of $700,000 to Labrys Fund to settle the previously-outstanding convertible notes with accrued interest of $986,340. As a result, the Company recognized a gain on settlement of debt of $286,340 (Note 7).

On July 22, 2020, the Company settled a convertible note with accrued interest of $ 64,363 and an original common stock purchase warrant to purchase 20,000 shares of common stock with a total of 650,000 share issuances. During the period ended September 30, 2020, the Company issued 1,038,375 shares which included 388,375 true-up shares. As a result, the Company recognized a loss on settlement of debt of $9,886.

On September 1, 2020, the Company entered into a Multipurpose agreement and issued a new note which a principal balance of $1,045,327 to replace the 15 notes issued from January 2020 to May 2020 which an aggregate principal amount was $985,556 and an aggregate accrued interest was $59,771. The Company also issued another promissory note of $300,000 (Note 7). As a result, the Company recognized a loss on settlement of debt of $300,000.

Promissory Notes - Issued in fiscal year 2019

During the year ended December 31, 2019, the Company issued a total of $2,544,250 in notes with the following terms:

·Terms ranging from 6 months to 3 years.

·Annual interest rates ranging from of 8% to 12%.

·Convertible at the option of the holders at issuance or 180 days from issuance.

·Conversion prices are typically based on the discounted (39% or 0% discount) lowest trading prices of the Company’s shares during various periods prior to conversion.

The convertible notes were also provided with a total of 661,216 common shares and warrant to purchase up to 92,000 shares of common stock at exercise price of $2.5 per share for 3 years.

Certain notes allow the Company to redeem the notes at rates ranging from 110% to 150% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the notes include original issue discount and financing costs totaling $278,000 and the Company received cash of $2,266,250.

Promissory Notes - Issued in fiscal year 2020

During the nine months ended September 30, 2020, the Company issued a total of $2,708,771 in notes with the following terms:

·Terms 12 months.

·Annual interest rates 5% or 12%.

·Convertible at the option of the holders 90 or 180 days from issuance.

·Conversion prices are typically based on the discounted (25% or 60% discount) lowest trading prices of the Company’s shares during 30 trading day periods prior to conversion. Certain note has a capped conversion price of $0.025.

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 9 - CONVERTIBLE NOTES (Continued)

Notes allow the Company to redeem the notes at a range from 120% to 125% provided that no redemption is allowed after the 180^th or 185^th day. Likewise, the notes include original issue discount and financing costs totaling $229,444 and the Company received cash of $1,420,000. Certain convertible notes were also provided with a total of 6,500,000 warrants.

Derivative liabilities

The Company determined that the conversion option in the notes met the definition of liabilities in accordance with ASC Topic No. 815 - 40, “Derivatives and Hedging - Contracts in Entity’s Own Stock.” The Company will bifurcate the embedded conversion options in the notes once the notes become convertible and account for them as derivative liabilities.

The Company valued the conversion features of convertible notes and warrants using the Black Scholes valuation model. The fair value of the derivative liability for all the note and warrants that became convertible for the nine months ended September 30, 2020, amounted to $2,047,278. $1,006,642 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $1,040,636 was recognized as a “day 1” derivative loss.

The fair value of the derivative liability for all the notes and warrants that became convertible for the year ended December 31, 2019 amounted to $4,916,471. $1,313,350 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $3,603,121 was recognized as a “day 1” derivative loss.

Warrants

A summary of activity during the nine months ended September 30, 2020 follows:

	Warrants Outstanding
		Weighted Average
	Shares	Exercise Price
Outstanding, December 31, 2019	367,343	$	0.480
Granted	6,500,000		-
Reset	10,813,001		0.012
Cashless Exercised	(4,097,010)		-
Forfeited/canceled	(7,083,334)		-
Outstanding, September 30, 2020	6,500,000	$	0.024

The reset feature of warrants associated with the convertible notes was effective at the time that a separate convertible note with lower exercise price was issued. As a result of the reset features for warrants, the warrants increased by 10,813,001 at $0.0012 per share. We accounted for the issuance of the warrants as a liability and recognized the derivative liability.

The following table summarizes information relating to outstanding and exercisable warrants as of September 30, 2020:

Warrants Outstanding				Warrants Exercisable
Number of Shares	Weighted Average Remaining	Weighted Average Exercise Price		Number of Shares	Weighted Average Exercise Price
Number of Shares	Contractual life (in years)	Weighted Average Exercise Price		Number of Shares	Weighted Average Exercise Price
6,500,000	5.70	$	0.024	6,500,000	$	0.024

The intrinsic value of the warrants as of September 30, 2020 is $303,250.

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 10 - DERIVATIVE LIABILITIES

The Company analyzed the conversion options for derivative accounting consideration under ASC 815, “Derivatives and Hedging,” and determined that the instrument should be classified as a liability since the conversion options become effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

Fair Value Assumptions Used in Accounting for Derivative Liabilities.

ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of September 30, 2020 and December 31, 2019. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the Black-Scholes valuation model.

The estimated fair values of the liabilities measured on a recurring basis are as follows:

	Nine Months Ended	Year Ended
	September 30,	December31,
	2020	2019
Expected term	0.02 - 6.00 years	0.03 - 5.00 years
Expected average volatility	74% - 550%	4% - 639%
Expected dividend yield	-	-
Risk-free interest rate	0.05% - 2.56%	1.44% - 2.57%

The following table summarizes the changes in the derivative liabilities during the nine months ended September 30, 2020:

Fair Value Measurements Using Significant Observable Inputs (Level 3)
Balance - December 31, 2019	$	4,744,134

Addition of new derivatives recognized as debt discounts		1,006,642
Addition of new derivatives recognized as loss on derivatives		1,040,636
Settled on issuance of common stock		(3,742,060)
Change in fair value of the derivative		(2,391,149)
Balance - September 30, 2020	$	658,203

The aggregate (gain) loss on derivatives during the nine months ended September 30, 2020 and 2019 was as follows:

	Nine Months Ended
	September 30,
	2020		2019
Addition of new derivatives recognized as loss on derivatives	$	1,040,636	$	3,062,299
(Gain) loss on change in fair value of the derivative		(2,391,149)		(260,593)
	$	(1,350,513)	$	2,801,706

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 11 – STOCKHOLDERS’ EQUITY

The Company’s authorized capital consists of 300,000,000 shares of common stock with a par value of $0.001 per share.

During the nine months ended September 30, 2020, the Company issued 60,177,619 shares of common stock, valued at fair market value on issuance as follows;

·8,937,500 shares issued for cash of $715,004

·6,275,456 shares issued for settlement of debt of $365,678

·5,867,600 shares issued for services valued at $567,978

·50,000 shares issued for forbearance of debt of $2,900

·35,813,477 shares issued for conversion of debt of $767,431

·3,233,586 shares issued for cashless exercised warrant

As of September 30, 2020 and December 31, 2019, 78,186,210 and 18,008,591 shares of common stock were issued and outstanding, respectively.

Due from related party

During the nine months ended September 30, 2020, the Company loaned $17,187 to related parties who are a shareholder and a former director, collected $388 and wrote off amounts totaling $43,375.

As of September 30, 2020, and December 31, 2019, the Company had due from related parties of $290,284 and $316,860, respectively. The amounts are unsecured, non-interest bearing and due on demand.

Due to related parties

During the nine months ended September 30, 2020, the Company borrowed $182 from the CFO of the Company and repaid $197 to the CEO and CFO.

During the nine months ended September 30, 2020, the Company borrowed $20,000 from Francisco Bunt who owns 49% of loT Labs and repaid $20,000.

As of September 30, 2020, and December 31, 2019, the Company had amounts due to related parties of $94,616, which included $60,000 to Francisco Bunt (Note 4) and $34,631, respectively. The amounts are unsecured, non-interest bearing and due on demand.

Employment agreements

On June 25, 2018, the Company entered into Employment Agreements with the following persons: (i) Leandro Iglesias as President, CEO and Chairperson of the Company’s Board of Directors with an annual salary of $54,000; (ii) Juan Carlos Lopez Silva as Chief Commercial Officer with an annual salary of $54,000; and Alvaro Quintana Cardona as Chief Operating Officer and Chief Financial Officer with an annual salary of $30,000. The Employment Agreements have a term of 36 months, are renewable automatically for 24 month periods, unless the Company gives written notice at least 90 days prior to termination of the initial 36 month term. The Company shall have the right to terminate any of the employment agreements at any time without prior notice, but in that event, the Company shall pay these persons salaries and other benefits they are entitled to receive under their respective agreements for three years.

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 12 - RELATED PARTY TRANSACTIONS (Continued)

On May 2, 2019, the Company entered into Employment Agreements with the following persons: (i) Leandro Iglesias as President, CEO and Chairperson of the Company’s Board of Directors with an annual salary of $168,000 with an annual bonus of 3% of our net income; (ii) Juan Carlos Lopez Silva as Chief Commercial Officer with an annual salary of $120,000 with an annual bonus of 3% of our net income; and Alvaro Quintana Cardona as Chief Operating Officer and Chief Financial Officer with an annual salary of $144,000 with an annual bonus of 3% of our net income. The Employment Agreements have a term of 36 months, are renewable automatically for 24-month periods, unless the Company gives written notice at least 90 days prior to termination of the initial 36-month term. The Company shall have the right to terminate any of the employment agreements at any time without prior notice, but in that event, the Company shall pay these persons salaries and other benefits they are entitled to receive under their respective agreements for three years. The above executive officers agreed to two year non-compete and non-solicit restrictive covenants with the Company. If any of the executive officers are terminated for cause they shall forfeit any rights to severance.

On March 3, 2020, Oscar Brito resigned as a member of our Board of Directors. There was no known disagreement with Mr. Brito on any matter relating to our operations, policies or practices. The Company provided the severance package as follows;

·2,000,000 shares of common stock valued at $300,000

·Additional 173,000 shares in order to apply the anti-dilution protection, valued at $10,034

·Forgiveness of amounts due to the Company totaling $43,375

·Cash payment of $15,000.

We also appointed Mr. Brito as an advisor to our Board of Directors and agreed to pay him $5,000 per month for such services.

On March 16, 2020, our Board of Directors adopted a Director Compensation Plan that applies to members of our Board of Directors. Below are the features of the plan:

·All Directors shall receive reimbursement for reasonable travel expenses incurred to attend Board and committee meetings.

·All Directors shall be compensated $3,000 monthly for their service as Directors.

·In lieu of the cash compensation set forth above, each Director may elect to receive shares of the Corporation's Common Stock equal to the total cash compensation divided by the average market value of the Company's Common Stock during the last 10 trading days and applying a discount of 10%.

·Directors Alvaro Cardona and Leandro Iglesias shall each receive 1,000,000 shares of the Company’s Common Stock, valued at $70,000 each, for their service as members of the Board of Directors for the period from June 2018 to December 2019.

During the nine months ended September 30, 2020 and 2019, the Company recorded management fees of $378,000 and $226,000 and paid $91,600 and $116,200, respectively. During the nine months ended September 30, 2020, the Company settled accrued salary – management of $202,500 and issued 4,308,510 shares. As at September 30, 2020 and December 31, 2019, the Company accrued management salaries of $352,131 and $268,231, respectively.

NOTE 13 – COMMITMENTS AND CONTIGENCIES

Leases and Long-term Contracts

The Company has not entered into any long-term leases, contracts or commitments.

Lease

The Company leases facilities which the term is 12 months. For the nine months ended September 30, 2020 and 2019, the Company incurred $16,100 and $17,600, respectively.

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 14 – SEGMENT

At September 30, 2020, the Company operates in one industry segment, telecommunication services, and two geographic segments, USA and Switzerland, where current assets and equipment are located.

Operating Activities

The following table shows operating activities information by geographic segment for the three and nine months ended September 30, 2020 and 2019:

Three months Ended September 30, 2020

	USA		Switzerland		Elimination		Total
Revenues	$	11,763,153	$	1,535,881	$	(7,336)	$	13,291,698
Cost of revenue		11,830,752		1,335,269		(7,336)		13,158,685
Gross profit		(67,599)		200,612		-		133,013

Operating expenses
General and administration		784,662		174,125		-		958,787

Operating income (loss)		(852,261)		26,487		-		(825,774)

Other income (expense)		(131,391)		(13,060)		-		(144,451)
Net income	$	(983,652)	$	13,427	$	-	$	(970,225)

Three months Ended September 30, 2019

	USA		Switzerland		Elimination		Total
Revenues	$	3,637,957	$	534,590	$	-	$	4,172,547
Cost of revenue		3,486,658		442,479		-		3,929,137
Gross profit		151,299		92,111		-		243,410

Operating expenses
General and administration		380,146		112,636		-		492,782

Operating income (loss)		(228,847)		(20,525)		-		(249,372)

Other income (expense)		(3,256,348)		(12,303)		-		(3,268,651)

Income credit		-		852		-		852
Net loss	$	(3,485,195)	$	(31,976)	$	-	$	(3,517,171)

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 14 – SEGMENT (Continued)

Nine months Ended September 30, 2020

	USA		Switzerland		Elimination		Total
Revenues	$	25,531,523	$	3,917,085	$	(9,412)	$	29,439,196
Cost of revenue		25,339,224		3,405,204		(9,412)		28,735,016
Gross profit		192,299		511,881		-		704,180

Operating expenses
General and administration		2,658,721		502,609		-		3,161,330

Operating income (loss)		(2,466,422)		9,272		-		(2,457,150)

Other income (expense)		(1,022,167)		(22,646)		-		(1,044,813)
Net loss	$	(3,488,589)	$	(13,374)	$	-	$	(3,501,963)

Nine months Ended September 30, 2019

	USA		Switzerland		Elimination		Total
Revenues	$	12,054,519	$	534,590	$	-	$	12,589,109
Cost of revenue		11,559,371		442,479		-		12,001,850
Gross profit		495,148		92,111		-		587,259

Operating expenses
General and administration		912,206		112,636		-		1,024,842

Operating income (loss)		(417,058)		(20,525)		-		(437,583)

Other income (expense)		(4,577,956)		(12,303)		-		(4,590,259)

Income credit		-		852		-		852
Net loss	$	(4,995,014)	$	(31,976)	$	-	$	(5,026,990)

As of August 7, 2019, having completed all conditions under the Purchase Agreement, the Company acquired SwissLink located in Switzerland.

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 14 – SEGMENT (Continued)

Asset Information

The following table shows asset information by geographic segment at September 30, 2020 and December 31, 2019:

September 30, 2020	USA		Switzerland		Elimination		Total
Assets
Current assets	$	3,146,769	$	675,725	$	(853,841)	$	2,968,653
Non-current assets	$	3,490,235	$	534,882	$	(1,669,515)	$	2,355,602
Liabilities
Current liabilities	$	6,419,048	$	2,375,682	$	(853,841)	$	7,940,889
Non-current liabilities	$	2,444	$	424,192	$	-	$	426,636

December 31, 2019		USA		Switzerland		Elimination		Total
Assets
Current assets	$	3,073,654	$	1,174,856	$	(810,013)	$	3,438,497
Non-current assets	$	3,146,894	$	456,070	$	(1,438,515)	$	2,164,449
Liabilities
Current liabilities	$	9,041,421	$	2,914,237	$	(810,013)	$	11,145,645
Non-current liabilities	$	11,442	$	216,274	$	-	$	227,716

NOTE 15 - SUBSEQUENT EVENTS

Subsequent to September 30, 2020 and through the date that these financials were made available, the Company had the following subsequent events:

On November 1, 2020, our board of directors approved amended employments in favor of our Chief Executive Officer, Leandro Iglesias, our Chief Financial Officer, Alvaro Quintana, and our Chief Commercial Officer, Juan Carlos Lopez Silva.

The amended employment agreement in favor of Mr. Iglesias extended the term of employment from 36 months to 60 months. The now five year employment agreement with Mr. Iglesias provides that we will compensate him with a salary of $17,000 monthly and he is eligible for quarterly bonus of 250,000 shares of our common stock. If we do not have the cash available, the agreement provides that Mr. Iglesias may convert his accrued salary/bonus into shares of our common stock or newly created Series A Preferred Stock. For common shares, the amount of accrued salary to be converted into shares must be determined by considering the average price per share of the Company’s common stock on the OTC Markets during the last 10 days and applying a discount of 25%.” For Series A Preferred Shares, the amount of accrued salary to be converted into shares is the per share conversion price for common shares multiplied by ten US Dollars ($10). Mr. Iglesias has a further right to convert any common shares under his control into Series A Preferred shares at any time at a rate of ten (10) common shares for each Series A Preferred share.

The amended employment agreement in favor of Mr. Quintana extended the term of employment from 36 months to 60 months. The now five year employment agreement with Mr. Quintana provides that he is eligible for quarterly bonus of 200,000 shares of our common stock. If we do not have the cash available, the agreement provides that Mr. Quintana may convert his accrued salary/bonus into shares of our common stock or newly created Series A Preferred Stock. For common shares, the amount of accrued salary to be converted into shares must be determined by considering the average price per share of the Company’s common stock on the OTC Markets during the last 10 days and applying a discount of 25%.” For Series A Preferred Shares, the amount of accrued salary to be converted into shares is the per share conversion price for common shares multiplied by ten US Dollars ($10). Mr. Quintana has a further right to convert any common shares under his control into Series A Preferred shares at any time at a rate of ten (10) common shares for each Series A Preferred share.

The amended employment agreement in favor of Mr. Silva extended the term of employment from 36 months to 60 months. Mr. Silva is eligible for quarterly bonuses of 150,000 shares of our common stock. If we do not have the cash available, the agreement provides that Mr. Iglesias may convert his accrued salary/bonus into shares of our common stock at the average price of our common stock during the last 10 days after applying a discount of 25%.

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

September 30, 2020

NOTE 15 - SUBSEQUENT EVENTS (Continued)

On November 3, 2020, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series A Preferred Stock, consisting of up 10,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series A Preferred Stock will participate on an equal basis per-share with holders of our common stock in any distribution upon winding up, dissolution, or liquidation. Holders of Series A Preferred Stock are entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of 51% of the total vote of shareholders.

The rights of the holders of Series A Preferred Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on November 3, 2020

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

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview

iQSTEL Inc. (the “Company”) (OTC Pink: IQST) is a leading-edge 21st Century Enhanced Telecommunications Service Provider offering a wide range of cloud-based enhanced services to the Tier-1 and Tier-2 carriers, enterprise market, as well as the retail market. iQSTEL offers international and domestic VoIP services, SMS exchange for A2P and P2P, Internet of Things (IoT) applications, 4G & 5G international infrastructure connectivity, as well as blockchain-based payment and phone number mobility platforms to international and domestic Tier-1 carrier for VoIP, SMS, and Data.

Our principal place of business is located at 300 Aragon Avenue, Suite 375 Coral Gables, FL 33134. General information about us can be found at www.iqstel.com. The information contained on or connected to our website is not incorporated by reference into this Quarterly Report on Form 10-Q and should not be considered part of this or any other report filed with the SEC.

Results of Operations

Revenues

Our total revenue reported for the three months ended September 30, 2020 was $13,291,698, compared with $4,172,547 for the three months ended September 30, 2019. These numbers reflect an increase of 218.55% quarter over quarter on our consolidated revenues. Our total revenue reported for the nine months ended September 30, 2020 was $29,439,196, compared with $12,589,109 for the nine months ended September 30, 2019.

When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2020:

Subsidiary		Revenue Nine Months Ended September 30, 2020
Etelix.com USA, LLC	$	10,705,409
SwissLink Carrier AG		3,917,085
QGlobal LLC		277,577
IoT Labs LLC		14,539,125
	$	29,439,196

The continued growth of our revenue is the result of the development of our business strategy, which includes the strengthening of our commercial and operating activities and new acquisitions.

Cost of Revenues

Our total cost of revenues for the three months ended September 30, 2020 increased to $13,158,685, compared with $3,929,137 for the three months ended September 30, 2019. Our total cost of revenues for the nine months ended September 30, 2020 increased to $28,735,016, compared with $12,001,850 for the nine months ended September 30, 2019.

Our cost of revenues consists of direct charges from vendors that the Company incurs to deliver services to its customers. These costs primarily consist of usage charges for calls and SMS terminated in vendor’s network.

The behavior in the costs shows a logical correlation with the behavior of the revenue commented above. We have reached a higher volume of sales and every additional unit sold (minutes and SMS) has its corresponding termination cost.

Operating Expenses

Operating expenses increased to $958,787 for the three months ended September 30, 2020 from $492,782 for the three months ended September 30, 2019. Operating expenses increased to $3,161,330 for the nine months ended September 30, 2020 from $1,024,842 for the nine months ended September 30, 2019. The detail by major category for the nine months ended September 30, 2020 and 2019 is reflected in the table below.

		Nine Months Ended September 30,
		2020		2019
Salaries, Wages and Benefits	$	845,258	$	393,966
Technology		34,016		138,326
Professional Fees		268,552		328,604
Legal & Regulatory		3,225		-
Bad debts		92,875		-
Travel & Events		1,386		12,884
Public Cost		84,265		27,521
Advertising		926,279		50,000
Bank Services and Fees		75,463		15,035
Depreciation and Amortization		49,318		26,473
Office, Facility and Other		162,715		32,033

Sub Total		2,543,352		1,024,842

Stock-based compensation		617,978		-
Total Operating Expense	$	3,161,330	$	1,024,842

The main reasons for the overall increase in operating expenses for the nine months ended September 30, 2020 compared to the same period of 2019 is that in 2020 we are reflecting the costs corresponding to 5 operating subsidiaries (Etelix.com, SwissLink, ItsBchain, QGlobal and IoT Labs) plus the corporate costs corresponding to iQSTEL itself; while in 2019 operating expenses corresponded only to Etelix, a portion corresponding to SwissLink (this subsidiary is consolidated since August 15, 2019) and corporate costs of iQSTEL; as shown in the table below.

		Nine Months Ended September 30,
		2020		2019		Difference
iQSTEL	$	2,242,336	$	577,269	$	1,665,067
Etelix		259,844		334,937		(75,093)
SwissLink		502,609		112,636		389,973
ItsBchain		52,684		-		52,684
QGlobal		52,608		-		52,608
IoT Labs		51,249		-		51,249
	$	3,161,330	$	1,024,842	$	2,136,488

The most significant difference is generated by iQSTEL which is due to the following: (1) the Salaries, Wages and Benefits as a result of the new employment agreements with the Management Team members valid from May 2019, where the aggregated monthly salaries varied from $11,500 to $36,000, and the implementation starting on January 2020 of a compensation for Board Members of 3,000 monthly; (2) Advertising corresponds to the third-party consultancy for the design and implementation of a Social Media communication strategy oriented to build and enhance our companies and brand image; and (3) Stock-based compensation.

Operating Income

The Company showed negative Operating Income for the three months ended September 30, 2020 of $825,774 compared with a negative result of $249,372 for the three months ended September 30, 2019.

The Company showed negative Operating Income for the nine months ended September 30, 2020 of $2,457,150 compared with a negative result of $437,583 for the nine months ended September 30, 2019.

The increase of the numbers for the nine month period above is primarily due to the costs associated with the operation of the public entity (iQSTEL, Inc.) estimated in the amount of $2,242,336.

Other Expenses/Other Income

We had other expenses of $144,451 for the three months ended September 30, 2020, as compared with other expenses of $3,268,651 for the same period ended 2019. We had other expenses of $1,044,813 for the nine months ended September 30, 2020, as compared with other expenses of $4,590,259 for the same period ended 2019. The decrease in other expenses is a result of the positive change in fair value of derivative liabilities.

Net Income

We finished the three months ended September 30, 2020 with a net loss of $970,225, as compared to a loss of $3,517,171 during the three months ended September 30, 2019. We finished the nine months ended September 30, 2020 with a loss of $3,501,963, as compared to a loss of $5,026,990 during the nine months ended September 30, 2019.

The reasons for specific components are discussed above. Overall, these are the main concepts impacting the net result: (1) an increment in interest expenses of $582,478 year over year to total $2,368,107; and (2) the Operating Expenses of the public entity of $2,242,336.

Liquidity and Capital Resources

As of September 30, 2020, we had total current assets of $2,968,653 and current liabilities of $7,940,889, resulting in a working capital deficit of $4,972,236‬. This compares with the working capital deficit of $7,707,148‬ at December 31, 2019. This decrease in working capital deficit, as discussed in more detail below, is primarily the result of the increase of $376,831 in the cash position and a reduction of $4,085,931 in the derivative liabilities.‬ ‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬

Our operating activities used $1,526,513 in the nine months ended September 30, 2020 as compared with $1,331,051 used in operating activities in the nine months ended September 30, 2019.

Investing activities used $79,324 for the nine months ended September 30, 2020. Uses of funds on investing activities were the purchase of property and equipment for value of $78,306 and net payment of loans between related parties of $17,187.

Financing activities provided $1,968,632 in the nine months ended September 30, 2020 compared with $1,327,978 provided in the nine months ended September 30, 2019. Our positive financing cash flow in 2020 was largely the result of the net proceeds from loans $325,833, net proceeds from convertible notes $927,810; and proceed from the subscription of new common stocks under our Regulation A offering $715,004.

Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. The Company has received the qualification of an Offering Statement under Regulation A for the sale of up to 24,000,000 common shares. This offering is being conducted on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold. We also plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

Inflation

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the nine month period ended September 30, 2020.

Critical Accounting Polices

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are disclosed in Note 2 of our audited consolidated financial statements included in the Form 10-K filed with the Securities and Exchange Commission.

Off Balance Sheet Arrangements

As of September 30, 2020, there were no off-balance sheet arrangements.

Recent Accounting Pronouncements

The recent accounting pronouncements that are material to our financial statements are disclosed in Note 2 of our consolidated audited financial statements included in the Form 10-K filed with the Securities and Exchange Commission and in Note 2 of our unaudited consolidated financial statements included herein.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

Item 4. Controls and Procedures

Disclosure Controls and Procedures - Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report.

These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were ineffective as of September 30, 2020. Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

We believe that our financial statements presented in this quarterly report on Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.

Inherent Limitations - Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.

Changes in Internal Control over Financial Reporting - There were no changes in our internal control over financial reporting during the three month period ended September 30, 2020, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any material pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

Item 1A: Risk Factors

See Risk Factors contained in our Form 10-K filed with the SEC on April 15, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933.

During the nine months ended September 30, 2019, we issued:

·8,937,500 shares issued for cash of $715,004

·6,275,456 shares issued for settlement of debt of $365,678

·5,867,600 shares issued for services valued at $567,978

·50,000 shares issued for forbearance of debt of $2,900

·35,813,477 shares issued for conversion of debt of $767,431

·3,233,586 shares issued for cashless exercised warrant

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

N/A

Item 5. Other Information

None

Item 6. Exhibits

Exhibit Number		Description of Exhibit
31.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 formatted in Extensible Business Reporting Language (XBRL).
		**Provided herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on November 13, 2020 on its behalf by the undersigned thereunto duly authorized.

IQSTEL INC.

/s/Leandro Iglesias

Leandro Iglesias

Principal Executive Officer

/s/ Alvaro Quintana Cardona

Alvaro Quintana Cardona

Principal Financial and Accounting Officer