iQSTEL Inc - Quarter Report: 2022 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the quarterly period ended September 30, 2022 | |
| ☐ | 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 |
| ☒ Non-accelerated Filer | ☒ 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: common shares as of November 14, 2022
| 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 | 4 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 9 |
| Item 4: | Controls and Procedures | 9 |
|
PART II – OTHER INFORMATION
| ||
| Item 1: | Legal Proceedings | 10 |
| Item 1A: | Risk Factors | 10 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 10 |
| Item 3: | Defaults Upon Senior Securities | 10 |
| Item 4: | Mine Safety Disclosures | 10 |
| Item 5: | Other Information | 10 |
| Item 6: | Exhibits | 11 |
| 2 |
Item 1. Financial Statements
Our unaudited consolidated financial statements included in this Form 10-Q are as follows:
| F-1 | Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021; |
| F-2 | Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited); |
| F-3 | Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited); and |
| F-4 | Consolidated Statements of Stockholder’s Equity as of September 30, 2022; and 2021. |
| F-5 | Notes to Consolidated Financial Statements (unaudited). |
These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2022 are not necessarily indicative of the results that can be expected for the full year.
| 3 |
iQSTEL INC
Consolidated Balance Sheets
(Unaudited)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 1,294,981 | $ | 3,334,813 | ||||
| Accounts receivable, net | 3,922,778 | 2,540,515 | ||||||
| Inventory | 26,124 | |||||||
| Due from related parties | 351,139 | 424,086 | ||||||
| Prepaid and other current assets | 546,160 | 267,110 | ||||||
| Total Current Assets | 6,141,182 | 6,566,524 | ||||||
| Property and equipment, net | 391,762 | 409,382 | ||||||
| Intangible asset | 99,592 | 99,592 | ||||||
| Goodwill | 5,172,146 | 1,537,742 | ||||||
| Deferred tax assets | 413,438 | 446,402 | ||||||
| TOTAL ASSETS | $ | 12,218,120 | $ | 9,059,642 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | 1,913,304 | 1,474,595 | ||||||
| Due to related parties | 26,613 | 26,613 | ||||||
| Loans payable - net of discount of $0 and $7,406 | 93,204 | 315,450 | ||||||
| Loans payable - related parties | 221,637 | 239,308 | ||||||
| Other current liabilities | 515,223 | 307,049 | ||||||
| Total Current Liabilities | 2,769,981 | 2,363,015 | ||||||
| Loans payable, non-current | 101,590 | 119,295 | ||||||
| Employee benefits, non-current | 144,883 | 156,434 | ||||||
| TOTAL LIABILITIES | 3,016,454 | 2,638,744 | ||||||
| Stockholders' Equity | ||||||||
| Preferred stock: authorized; par value | ||||||||
| Series A Preferred
stock:
designated;
par value, shares issued and outstanding, respectively | 10 | 10 | ||||||
| Series B Preferred
stock:
designated;
par value, shares issued and outstanding | 21 | 21 | ||||||
| Series C Preferred
stock:
designated;
par value, shares issued and outstanding | ||||||||
| Common stock: authorized; par value and shares issued and outstanding, respectively | 151,830 | 147,477 | ||||||
| Additional paid in capital | 29,437,832 | 25,842,982 | ||||||
| Accumulated deficit | (19,511,934 | ) | (18,536,921 | ) | ||||
| Accumulated other comprehensive loss | (37,935 | ) | (36,658 | ) | ||||
| Equity attributed to stockholders of iQSTEL Inc. | 10,039,824 | 7,416,911 | ||||||
| Deficit attributable to noncontrolling interests | (838,158 | ) | (996,013 | ) | ||||
| Total Stockholders' Equity | 9,201,666 | 6,420,898 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 12,218,120 | $ | 9,059,642 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-1 |
iQSTEL INC
Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | 21,936,634 | $ | 16,516,739 | $ | 65,055,661 | $ | 46,842,717 | ||||||||
| Cost of revenue | 20,621,674 | 15,675,687 | 62,410,367 | 45,469,730 | ||||||||||||
| Gross profit | 1,314,960 | 841,052 | 2,645,294 | 1,372,987 | ||||||||||||
| Operating expenses | ||||||||||||||||
| General and administration | 1,256,147 | 957,195 | 3,390,097 | 3,664,473 | ||||||||||||
| Total operating expenses | 1,256,147 | 957,195 | 3,390,097 | 3,664,473 | ||||||||||||
| Operating income (loss) | 58,813 | (116,143 | ) | (744,803 | ) | (2,291,486 | ) | |||||||||
| Other income (expense) | ||||||||||||||||
| Other income | 43,219 | 11,252 | 38,591 | 40,431 | ||||||||||||
| Other expenses | (71,027 | ) | 475 | (54,247 | ) | (421 | ) | |||||||||
| Interest expense | (3,693 | ) | (6,802 | ) | (22,417 | ) | (648,889 | ) | ||||||||
| Change in fair value of derivative liabilities | 317,080 | |||||||||||||||
| Loss on settlement of debt | (528,794 | ) | ||||||||||||||
| Total other income (expense) | (31,501 | ) | 4,925 | (38,073 | ) | (820,593 | ) | |||||||||
| Net income (loss) before provision for income taxes | 27,312 | (111,218 | ) | (782,876 | ) | (3,112,079 | ) | |||||||||
| Income taxes | ||||||||||||||||
| Net income (loss) | 27,312 | (111,218 | ) | (782,876 | ) | (3,112,079 | ) | |||||||||
| Less: Net income attributable to noncontrolling interests | 96,175 | 87,736 | 192,137 | 16,642 | ||||||||||||
| Net loss attributed to stockholders of iQSTEL Inc. | $ | (68,863 | ) | $ | (198,954 | ) | $ | (975,013 | ) | $ | (3,128,721 | ) | ||||
| Comprehensive income (loss) | ||||||||||||||||
| Net income (loss) | $ | 27,312 | $ | (111,218 | ) | $ | (782,876 | ) | $ | (3,112,079 | ) | |||||
| Foreign currency adjustment | (1,096 | ) | 3,406 | (2,503 | ) | 54,398 | ||||||||||
| Total comprehensive income (loss) | 26,216 | $ | (107,812 | ) | $ | (785,379 | ) | $ | (3,057,681 | ) | ||||||
| Less: Comprehensive income attributable to noncontrolling interests | 95,638 | 89,405 | 190,911 | 43,297 | ||||||||||||
| Net comprehensive loss attributed to stockholders of iQSTEL Inc. | $ | (69,422 | ) | $ | (197,217 | ) | $ | (976,290 | ) | $ | (3,100,978 | ) | ||||
| Basic income (loss) per common share | $ | 0.00 | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.02 | ) | |||||
| Diluted income (loss) per common share | $ | 0.00 | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.02 | ) | |||||
| Weighted average number of common shares outstanding - Basic and diluted | 151,750,426 | 141,697,141 | 150,057,315 | 133,173,421 | ||||||||||||
| Weighted average number of common shares outstanding - Diluted | 153,930,452 | 141,697,141 | 150,057,315 | 133,173,421 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-2 |
iQSTEL INC
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the three and nine months ended September 30, 2022 and 2021
(Unaudited)
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid in Capital | Accumulated Deficit | Accumulated Comprehensive Loss | Total | Non Controlling Interest | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||
| Balance - December 31, 2021 | 10,000 | $ | 10 | 21,000 | $ | 21 | 147,477,358 | $ | 147,477 | $ | 25,842,982 | $ | (18,536,921 | ) | $ | (36,658 | ) | $ | 7,416,911 | $ | (996,013 | ) | $ | 6,420,898 | |||||||||||||||||||||||
| Common stock issued for cash | 2,000,000 | 2,000 | 998,000 | 1,000,000 | 1,000,000 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for compensation | 60,000 | 60 | 41,079 | 41,139 | 41,139 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (196 | ) | (196 | ) | (188 | ) | (384) | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | (554,970 | ) | (554,970 | ) | 30,239 | (524,731) | |||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2022 | 10,000 | $ | 10 | 21,000 | $ | 21 | 149,537,358 | $ | 149,537 | $ | 26,882,061 | $ | (19,091,891 | ) | $ | (36,854 | ) | $ | 7,902,884 | $ | (965,962 | ) | $ | 6,936,922 | |||||||||||||||||||||||
| Common stock issued for compensation | 60,000 | 60 | 30,430 | 30,490 | 30,490 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued and to be issued for acquisition of subsidiaries | 1,461,653 | 1,462 | 1,548,538 | 1,550,000 | (33,056 | ) | 1,516,944 | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for asset acquisition | 500,000 | 500 | 324,500 | 325,000 | 325,000 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock payable | 18,900 | 18,900 | 18,900 | ||||||||||||||||||||||||||||||||||||||||||||
| Warrant granted | 500,000 | 500,000 | 500,000 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (522 | ) | (522 | ) | (501 | ) | (1,023) | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | (351,180 | ) | (351,180 | ) | 65,723 | (285,457) | |||||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2022 | 10,000 | $ | 10 | 21,000 | $ | 21 | 151,559,011 | $ | 151,559 | $ | 29,304,429 | $ | (19,443,071 | ) | $ | (37,376 | ) | $ | 9,975,572 | $ | (933,796 | ) | $ | 9,041,776 | |||||||||||||||||||||||
| Common stock issued for compensation | 60,000 | 60 | 20,440 | 20,500 | 20,500 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for settlement of debt | 161,367 | 161 | 80,513 | 80,674 | 80,674 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for asset acquisition | 50,000 | 50 | 32,450 | 32,500 | 32,500 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (559 | ) | (559 | ) | (537 | ) | (1,096) | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | (68,863 | ) | (68,863 | ) | 96,175 | 27,312 | |||||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2022 | 10,000 | $ | 10 | 21,000 | $ | 21 | 151,830,378 | $ | 151,830 | $ | 29,437,832 | $ | (19,511,934 | ) | $ | (37,935 | ) | $ | 10,039,824 | $ | (838,158 | ) | $ | 9,201,666 | |||||||||||||||||||||||
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid in Capital | Accumulated Deficit | Accumulated Comprehensive Loss | Total | Non Controlling Interest | Total Stockholders' Deficit | ||||||||||||||||||||||||||||||||||||
| Balance - December 31, 2020 | 10,000 | $ | 10 | $ | 118,133,432 | $ | 118,133 | $ | 13,267,261 | $ | (14,699,148 | ) | $ | (74,831 | ) | $ | (1,388,575 | ) | $ | (1,006,461 | ) | $ | (2,395,036) | ||||||||||||||||||||||||
| Preferred stock issued for conversion of common stock | 21,000 | 21 | (21,000,000 | ) | (21,000 | ) | 20,979 | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash | 35,862,500 | 35,863 | 3,550,387 | 3,586,250 | 3,586,250 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for service | — | — | 195,000 | 195 | 284,505 | — | — | 284,700 | — | 284,700 | |||||||||||||||||||||||||||||||||||||
| Common stock issued for compensation | 600,000 | 600 | 563,400 | 564,000 | 564,000 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for forbearance of debt | 250,000 | 250 | 49,675 | 49,925 | 49,925 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of debt | 6,080,632 | 6,081 | 416,214 | 422,295 | 422,295 | ||||||||||||||||||||||||||||||||||||||||||
| Cancellation of common stock | (1,294,600 | ) | (1,295 | ) | (88,809 | ) | (90,104 | ) | (90,104) | ||||||||||||||||||||||||||||||||||||||
| Resolution of derivative liabilities | 708,611 | 708,611 | 708,611 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 54,905 | 54,905 | 52,751 | 107,656 | |||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | (1,942,391 | ) | (1,942,391 | ) | 63,902 | (1,878,489) | |||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2021 | 10,000 | $ | 10 | 21,000 | $ | 21 | 138,826,964 | $ | 138,827 | $ | 18,772,223 | $ | (16,641,539 | ) | $ | (19,926 | ) | $ | 2,249,616 | $ | (889,808 | ) | $ | 1,359,808 | |||||||||||||||||||||||
| Common stock issued for compensation | 600,000 | 600 | 411,600 | 412,200 | 412,200 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for settlement of debt | 2,230,394 | 2,230 | 2,054,300 | 2,056,530 | 2,056,530 | ||||||||||||||||||||||||||||||||||||||||||
| Debt forgiveness | 807,103 | 807,103 | 807,103 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (28,899 | ) | (28,899 | ) | (27,765 | ) | (56,664) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | (987,376 | ) | (987,376 | ) | (134,996 | ) | (1,122,372) | ||||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2021 | 10,000 | $ | 10 | 21,000 | $ | 21 | 141,657,358 | $ | 141,657 | $ | 22,045,226 | $ | (17,628,915 | ) | $ | (48,825 | ) | $ | 4,509,174 | $ | (1,052,569 | ) | $ | 3,456,605 | |||||||||||||||||||||||
| Common stock issued for compensation | 60,000 | 60 | 34,478 | 34,538 | 34,538 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 1,737 | 1,737 | 1,669 | 3,406 | |||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | (198,954 | ) | (198,954 | ) | 87,736 | (111,218) | |||||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2021 | 10,000 | $ | 10 | 21,000 | $ | 21 | 141,717,358 | $ | 141,717 | $ | 22,079,704 | $ | (17,827,869 | ) | $ | (47,088 | ) | $ | 4,346,495 | $ | (963,164 | ) | $ | 3,383,331 | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-3 |
iQSTEL INC
Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (782,876 | ) | $ | (3,112,079 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | 111,029 | 1,205,334 | ||||||
| Bad debt | 26,299 | |||||||
| Write-off of due from related party | 7,648 | |||||||
| Depreciation and amortization | 91,221 | 66,924 | ||||||
| Amortization of debt discount | 7,407 | 435,956 | ||||||
| Change in fair value of derivative liabilities | (317,080 | ) | ||||||
| Loss on settlement of debt | 528,794 | |||||||
| Prepayment and default penalty | 122,020 | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (832,263 | ) | (943,615 | ) | ||||
| Inventory | (26,124 | ) | ||||||
| Prepaid and other current assets | (31,714 | ) | (108,338 | ) | ||||
| Due from related parties | (5,143 | ) | ||||||
| Accounts payable | (97,373 | ) | (239,857 | ) | ||||
| Other current liabilities | 50,636 | (131,752 | ) | |||||
| Net cash used in operating activities | (1,488,901 | ) | (2,486,045 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Acquisition of subsidiaries, net of cash acquired | (1,814,132 | ) | (60,000 | ) | ||||
| Purchase of property and equipment | (86,491 | ) | (74,799 | ) | ||||
| Purchase of intangible assets | (27,824 | ) | ||||||
| Payment of loan receivable - related parties | (1,000 | ) | (215,674 | ) | ||||
| Collection of amounts due from related parties | 400 | 226 | ||||||
| Net cash used in investing activities | (1,901,223 | ) | (378,071 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from loans payable | 400,000 | |||||||
| Repayments of loans payable | (232,018 | ) | (331,150 | ) | ||||
| Repayment of loans payable - related parties | (90,787 | ) | ||||||
| Proceeds from common stock issued | 1,100,000 | 3,586,250 | ||||||
| Proceed from issuance of common stock purchase option | 500,000 | |||||||
| Repayment of convertible notes | (250,000 | ) | ||||||
| Net cash provided by financing activities | 1,367,982 | 3,314,313 | ||||||
| Effect of exchange rate changes on cash | (17,690 | ) | (12,709 | ) | ||||
| Net change in cash | (2,039,832 | ) | 437,488 | |||||
| Cash, beginning of period | 3,334,813 | 753,316 | ||||||
| Cash, end of period | $ | 1,294,981 | $ | 1,190,804 | ||||
| Supplemental cash flow information | ||||||||
| Cash paid for interest | $ | 3,333 | $ | 117,198 | ||||
| Cash paid for taxes | $ | $ | ||||||
| Non-cash transactions: | ||||||||
| Common stock issued for asset acquisition | $ | 357,500 | $ | |||||
| Common stock issued and to be issued for acquisition of subsidiaries | $ | 1,550,000 | $ | |||||
| Common stock issued for conversion of debt | $ | $ | 422,295 | |||||
| Resolution of derivative liabilities | $ | $ | 708,611 | |||||
| Related party debt forgiveness | $ | $ | 807,103 | |||||
| Common stock issued for settlement of debt | $ | 80,674 | $ | 2,056,530 | ||||
| Common stock issued for forbearance of debt | $ | $ | 49,925 | |||||
| Preferred stock issued for conversion of common stock | $ | $ | 21,000 | |||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-4 |
iQSTEL INC
Notes to the Unaudited Consolidated Financial Statements
September 30, 2022
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 B-Maven Inc. The Company changed its name to PureSnax International, Inc. on September 18, 2015; and more recently it 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, fixed line companies and other wholesale carriers.
Acquisitions
On May 13, 2022, we entered into a Company Acquisition Agreement regarding the acquisition of 51% of the shares in Whisl telecom LLC (“Whisl”).
On June 1, 2022, we entered into a Company Acquisition Agreement regarding the acquisition of 51% of the shares in Smartbiz Telecom LLC (“Smartbiz”).
Both acquisitions are detailed in Note 4.
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
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 (“GAAP”) for annual financial statements.
In the opinion of the Company’s management, the accompanying unaudited interim consolidated 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, 2022 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated 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, 2021 filed with the SEC on April 15, 2022.
Consolidation Policy
The consolidated financial statements of the Company include the accounts of the Company and its owned subsidiaries, Etelix.com USA, LLC (“Etelix”), SwissLink Carrier AG (“Swisslink”), ITSBCHAIN, LLC (“ItsBchain”), QGLOBAL SMS, LLC (“QGlobal”), IoT Labs, LLC (“IoT Labs”), Global Money One Inc (“Global Money One”), Whisl telecom LLC (“Whisl”) and Smartbiz Telecom LLC (“Smartbiz”). All significant intercompany balances and transactions have been eliminated in consolidation.
| F-5 |
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP 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.
Business Combinations
In accordance with ASC 805-10, “Business Combinations”, the Company accounts for all business combinations using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and non-controlling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that the Company holds in the acquired company prior to the acquisition is re-measured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and the existing book value. Results of operations of the acquired entity are included in the Company’s results from the date of the acquisition onward and include amortization expense arising from acquired tangible and intangible assets.
Foreign Currency Translation and Re-measurement
The Company translates its foreign operations to the U.S. dollar in accordance with ASC 830, “Foreign Currency Matters”.
The functional currency and reporting currency of the Company, Etelix, QGlobal, Itsbchain, IoT Labs, Global Money One, Whisl, and Smartbiz is the U.S. dollar, while the functional currency of SwissLink is the Swiss Franc (“CHF”).
SwissLink translates their records into the U.S. dollar 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 (loss) in stockholders’ equity.
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 and 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. During the nine months ended September 30, 2022 and 2021, the Company recorded bad debt expense of $26,299 and $0 respectively.
The Company has adopted ASC 260, ”Earnings per Share” which requires presentation of basic earnings per share on the face of the statements of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation. In the accompanying financial statements, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants unless the result would be antidilutive. There were 4,800,000 warrants outstanding during the nine months ended September 30, 2022, which were included in the calculation of the diluted earnings per share. There were no other potentially dilutive shares of common stock outstanding for the nine months ended September 30, 2021.
| F-6 |
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. 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.
During the nine months ended September 30, 2022, 10 customers represented 87% of our revenues. During the nine months ended September 30, 2021, 6 customers represented 87% of our revenues.
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 is reasonably assured. Management considers persuasive evidence of a sales arrangement to be a written interconnection agreement. The Company’s payment terms vary by clients.
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 consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has suffered recurring losses from operations and does not have an established source of revenues sufficient to cover its operating costs. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 in the industry and continuing its marketing efforts. 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.
| F-7 |
NOTE 4 – ACQUISITIONS
On May 13, 2022, we entered into a Company Acquisition Agreement (Purchase Agreement) with US Acquisitions, LLC, a California limited liability company (Seller) concerning the contemplated sale by Seller and the purchase by us of 51% of the membership interests Seller held in Whisl, a Texas limited liability company. Whisl provides local US termination for Voice through its FCC license of VoIP Service number 832742; and is in the process to obtain a C-Lec FCC License over next 12 months. Whisl is one of the premier Intermediate Voice Providers in the USA. It has been a carrier since 2017 with billions of minutes traversing its network and provides its customers with multiple levels of Redundancy, Diversity, and Disaster Recovery for their applications and ability to make changes to underlying carrier configuration in real time. Whisl offers a single carrier solution for Voice Global services, and its customers benefit from hundreds of interconnection agreements that the company has cultivated since its inception. Pursuant to the Purchase Agreement, the closing of the purchase of the 51% membership interests was $1,800,000, which consisted of $1,250,000 in cash and $550,000 in our restricted common stock to Seller, which amounts to shares of common stock.
On June 1, 2022, we entered into a Purchase Agreement for the purchase of 51% of the membership interests in Smartbiz, a Florida Corporation which provides telecommunication services, dedicated to VoIP business for wholesale and retail markets. The purchase price for the acquisition was $1,800,000, which consisted of $800,000 in cash and $1,000,000 in our common stock to the seller, which amounts to shares of common stock.
Smartbiz and Whisl have been included in our consolidated results of operations since the acquisition dates.
The following table summarizes the fair value of the consideration paid by the Company:
Whisl
| May 13, | ||||
| Fair Value of Consideration: | 2022 | |||
| Cash | $ | 1,000,000 | ||
| Payable to seller | 250,000 | |||
| 1,461,653 shares of common stock | 550,000 | |||
| Total Purchase Price | $ | 1,800,000 | ||
Smartbiz
| June 1, | |||||
| Fair Value of Consideration: | 2022 | ||||
| Cash | $ | 725,000 | |||
| Payable to seller | 75,000 | ||||
| shares of common stock | 1,000,000 | ||||
| Total Purchase Price | $ | 1,800,000 | |||
The following table summarizes the identifiable assets acquired and liabilities assumed upon acquisition of Smartbiz and Whisl and the calculation of goodwill:
Whisl
| Total purchase price | $ | 1,800,000 | ||
| Cash | 141,113 | |||
| Accounts receivable | 109,762 | |||
| Total identifiable assets | 250,875 | |||
| Accounts payable | (241,426 | ) | ||
| Other current liabilities | (2,075 | ) | ||
| Total liabilities assumed | (243,501 | ) | ||
| Net assets | 7,374 | |||
| Non-controlling interest | 3,613 | |||
| Total net assets | 3,761 | |||
| Goodwill | $ | 1,796,239 |
| F-8 |
Smartbiz
| Total purchase price | $ | 1,800,000 | ||
| Cash | 19,755 | |||
| Accounts receivable | 789,515 | |||
| Total identifiable assets | 809,270 | |||
| Accounts payable | (807,265 | ) | ||
| Other current liabilities | (76,839 | ) | ||
| Total liabilities assumed | (884,104 | ) | ||
| Net assets | (74,834 | ) | ||
| Non-controlling interest | (36,669 | ) | ||
| Total net assets | (38,165 | ) | ||
| Goodwill | $ | 1,838,165 |
Unaudited combined proforma results of operations for the nine months ended September 30, 2022 and 2021 as though the Company acquired Smartbiz and Whisl on January 1, 2021, are set forth below:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | 69,165,130 | $ | 59,028,492 | ||||
| Cost of revenues | 66,683,557 | 56,430,726 | ||||||
| Gross profit | 2,481,573 | 2,597,766 | ||||||
| Operating expenses | 4,322,526 | 4,724,857 | ||||||
| Operating loss | (1,840,953 | ) | (2,127,091 | ) | ||||
| Other expense | (38,073 | ) | (820,593 | ) | ||||
| Net Loss | $ | (1,879,026 | ) | $ | (2,947,684 | ) | ||
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Telecommunication equipment | $ | 301,462 | $ | 258,871 | ||||
| Telecommunication software | 581,545 | 618,125 | ||||||
| Other equipment | 97,096 | 108,805 | ||||||
| Total property and equipment | 980,103 | 985,801 | ||||||
| Accumulated depreciation and amortization | (588,341 | ) | (576,419 | ) | ||||
| Property and equipment, net | $ | 391,762 | $ | 409,382 | ||||
Depreciation and amortization expense for the nine months ended September 30, 2022 and 2021 amounted to $91,221 and $66,924, respectively.
| F-9 |
NOTE 6 –LOANS PAYABLE
Loans payable at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, | December 31, | Interest | |||||||||||
| 2022 | 2021 | Term | rate | ||||||||||
| Bridge Loan | $ | $ | 222,222 | Note was issued on November 1, 2020 and due on January 30, 2022 | 18.0% | ||||||||
| Martus | 93,204 | 100,634 | Note was issued on October 23, 2018 and due on January 3, 2023 | 5.0% | |||||||||
| Swisspeers AG | 9,605 | Note was issued on April 8, 2019 and originally due on October 4, 2022 | 7.0% | ||||||||||
| Darlene Covid19 | 101,590 | 109,690 | Note was issued on April 1, 2020 and due on March 31, 2025 | 0.0% | |||||||||
| Total | 194,794 | 442,151 | |||||||||||
| Less: Unamortized debt discount | (7,406 | ) | |||||||||||
| Total loans payable | 194,794 | 434,745 | |||||||||||
| Less: Current portion of loans payable | (93,204 | ) | (315,450 | ) | |||||||||
| Long-term loans payable | $ | 101,590 | $ | 119,295 | |||||||||
During the nine months ended September 30, 2022 and 2021, the Company borrowed from third parties totaling $0 and $444,444, which includes original issue discount and financing costs of $0 and $44,444 and repaid the principal amount of $232,018 and $331,150, respectively.
During the nine months ended September 30, 2022 and 2021, the Company recorded interest expense of $22,417 and $179,504 and recognized amortization of discount, included in interest expense, of $7,406 and $63,666, respectively. In 2021, the Company recorded interest expense from convertible notes of $33,430 and recognized amortization of discount, included in interest expense, of $372,290.
During the nine months ended September 30, 2021, a related party loan of $807,103 (Euro 735,000) was forgiven and the Company recorded it as additional paid in capital.
Loans payable to related parties at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| 49% of Shareholder of SwissLink | $ | $ | ||||||
| 49% of Shareholder of SwissLink | ||||||||
| Total | 221,637 | 239,308 | ||||||
| Less: Current portion of loans payable –related parties | 221,637 | 239,308 | ||||||
| Long-term loans payable – related parties | $ | $ | ||||||
| F-10 |
NOTE 7 – OTHER CURRENT LIABILITIES
Other current liabilities at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accrued liabilities | $ | 30,825 | $ | 61,153 | ||||
| Payable for acquisition of subsidiaries | 75,000 | |||||||
| Accrued interest | 8,173 | |||||||
| Salary payable - management | 89,628 | 92,229 | ||||||
| Salary payable | 3,708 | |||||||
| Employee benefits | 112,309 | 105,221 | ||||||
| Other current liabilities | 203,753 | 40,273 | ||||||
| $ | 515,223 | $ | 307,049 | |||||
NOTE 8 – STOCKHOLDERS’ EQUITY
The Company’s authorized capital consists of shares of common stock with a par value of per share.
Series A Preferred Stock
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 stockholders at a rate of 51% of the total vote of stockholders.
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.
As of September 30, 2022 and December 31, 2021, shares of Series A Preferred Stock were issued and outstanding.
Series B Preferred Stock
On November 11, 2020, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series B Preferred Stock, consisting of up 200,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series B Preferred Stock will receive a liquidation preference of $81 per share in any distribution upon winding up, dissolution, or liquidation of the Company before junior security holders, as provided in the designation. Holders of Series B Preferred Stock are entitled to receive as, when, and if declared by the Board of Directors, dividends in kind at an annual rate equal to twenty four percent (24%) of $81 per share for each of the then outstanding shares of Series B Preferred Stock, calculated on the basis of a 360-day year consisting of twelve 30-day months. Holders of Series B Preferred Stock do not have voting rights but may convert into common stock after twelve months from the issuance date, at a conversion rate of one thousand (1,000) shares of Common Stock for every one (1) share of Series B Preferred Stock. Upon conversion, the shares are subject to a one-year leak-out restriction on sales into the market of no more than 5% previous month’s stock liquidity.
As of September 30, 2022 and December 31, 2021, shares of Series B Preferred Stock were issued and outstanding.
| F-11 |
Series C Preferred Stock
On January 7, 2021, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series C Preferred Stock, consisting of up 200,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series C Preferred Stock will rank junior to the Series B Preferred Stock, but on par with common stock and Series A Preferred Stock in any distribution upon winding up, dissolution, or liquidation of the company, as provided in the designation. The holders of shares of Series C Preferred Stock have no dividend rights except as may be declared by the Board in its sole and absolute discretion, out of funds legally available for that purpose. Holders of Series C Preferred Stock do not have voting rights but may convert into common stock after twenty four months from the issuance date, at a conversion rate of one thousand (1,000) shares of Common Stock for every one (1) share of Series C Preferred Stock. Upon conversion, the shares are subject to a one-year restriction on sales into the market of no more than 5% previous month’s stock liquidity.
The rights of the holders of Series C Preferred Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on January 7, 2021.
As of September 30, 2022 and December 31, 2021, Series C Preferred Stock was issued or outstanding.
Common Stock
During the nine months ended September 30, 2022, the Company issued shares of common stock, valued at fair market value on issuance as follows:
| • | shares issued for cash of $1,000,000 |
| • | shares for compensation to our directors valued at |
| • | shares for acquisition of Whisl valued at $550,000 |
| • | shares for asset acquisition valued at $357,500 |
| • | shares for settlement of debt valued at $80,674 |
As of September 30, 2022 and December 31, 2021, and shares of common stock were issued and outstanding, respectively.
Common Stock Purchase Option
On April 25, 2022, we entered into a Common Stock Purchase Option Agreement with Apollo Management Group, Inc. to subscribe for and purchase from the Company, shares of Common Stock with an exercise price per share of $2.00; and an initial exercise date September 30, 2022. The purchase price of this option is $500,000.
NOTE 9 - RELATED PARTY TRANSACTIONS
Due from related parties
During the nine months ended September 30, 2022 and 2021, the Company advanced $1,000 and $35,674 to related parties and collected $100 and $226, respectively.
During the nine months ended September 30, 2021, the Company loaned $180,000 to our CEO and wrote off amounts totaling $8,004.
During the nine months ended September 30, 2021, the Company wrote off due from related party of $7,648.
As of September 30, 2022 and December 31, 2021, the Company had amounts due from related parties of $351,139 and $424,086. The loans are unsecured, non-interest bearing and due on demand.
Due to related parties
During the nine months ended September 30, 2022 and 2021, the Company repaid $0 and $90,787 to certain members of Company management.
As of September 30, 2022 and December 31, 2021, the Company had amounts due to related parties of $26,613.
Employment agreements
During the nine months ended September 30, 2022 and 2021, the Company recorded management fees of $405,000 and $414,000, bonus of $0 and $976,200 and paid $407,602 and $411,300, respectively. Additionally, management received stock-based compensation of and during the nine months ended September 30, 2022 and 2021, respectively.
| F-12 |
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Leases and Long-term Contracts
The Company has not entered into any long-term leases, contracts or commitments. The Company leases facilities which the term is 12 months. For the nine months ended September 30, 2022 and 2021, the Company incurred $56,405 and $32,023, respectively.
NOTE 11 - SEGMENTS
At September 30, 2022, 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, 2022 and 2021:
Three months ended September 30, 2022
| USA | Switzerland | Elimination | Total | ||||||||||||
| Revenues | $ | 22,364,201 | 1,291,688 | $ | (1,719,255 | ) | $ | 21,936,634 | |||||||
| Cost of revenue | 21,226,541 | 1,114,388 | (1,719,255 | ) | 20,621,674 | ||||||||||
| Gross profit | 1,137,660 | 177,300 | 1,314,960 | ||||||||||||
| Operating expenses | |||||||||||||||
| General and administration | 1,089,194 | 166,953 | 1,256,147 | ||||||||||||
| Operating income | 48,466 | 10,347 | 58,813 | ||||||||||||
| Other expense | (29,411 | ) | (2,090 | ) | (31,501) | ||||||||||
| Net income | $ | 19,055 | $ | 8,257 | $ | $ | 27,312 | ||||||||
Three months Ended September 30, 2021
| USA | Switzerland | Elimination | Total | ||||||||||||
| Revenues | $ | 15,347,282 | 1,189,230 | $ | (19,773 | ) | $ | 16,516,739 | |||||||
| Cost of revenue | 14,706,065 | 989,395 | (19,773 | ) | 15,675,687 | ||||||||||
| Gross profit | 641,217 | 199,835 | 841,052 | ||||||||||||
| Operating expenses | |||||||||||||||
| General and administration | 738,578 | 218,617 | 957,195 | ||||||||||||
| Operating loss | (97,361 | ) | (18,782 | ) | (116,143) | ||||||||||
| Other income | 1,525 | 3,400 | 4,925 | ||||||||||||
| Net loss | $ | (95,836 | ) | $ | (15,382 | ) | $ | $ | (111,218) | ||||||
| F-13 |
Nine months ended September 30, 2022
| USA | Switzerland | Elimination | Total | ||||||||||||
| Revenues | $ | 63,898,961 | 3,554,591 | $ | (2,397,891 | ) | $ | 65,055,661 | |||||||
| Cost of revenue | 61,838,539 | 2,969,719 | (2,397,891 | ) | 62,410,367 | ||||||||||
| Gross profit | 2,060,422 | 584,872 | 2,645,294 | ||||||||||||
| Operating expenses | |||||||||||||||
| General and administration | 2,792,287 | 597,810 | 3,390,097 | ||||||||||||
| Operating loss | (731,865 | ) | (12,938 | ) | (744,803) | ||||||||||
| Other income (expense) | (45,938 | ) | 7,865 | (38,073) | |||||||||||
| Net loss | $ | (777,803 | ) | $ | (5,073 | ) | $ | $ | (782,876) | ||||||
Nine months Ended September 30, 2021
| USA | Switzerland | Elimination | Total | ||||||||||||
| Revenues | $ | 43,404,674 | 3,474,215 | $ | (36,172 | ) | $ | 46,842,717 | |||||||
| Cost of revenue | 42,487,024 | 3,018,878 | (36,172 | ) | 45,469,730 | ||||||||||
| Gross profit | 917,650 | 455,337 | 1,372,987 | ||||||||||||
| Operating expenses | |||||||||||||||
| General and administration | 3,077,319 | 587,154 | 3,664,473 | ||||||||||||
| Operating loss | (2,159,669 | ) | (131,817 | ) | (2,291,486) | ||||||||||
| Other income (expense) | (839,316 | ) | 18,723 | (820,593) | |||||||||||
| Net loss | $ | (2,998,985 | ) | $ | (113,094 | ) | $ | $ | (3,112,079) | ||||||
Asset Information
The following table shows asset information by geographic segment as of September 30, 2022 and December 31, 2021:
| September 30, 2022 | USA | Switzerland | Elimination | Total | |||||||||||
| Assets | |||||||||||||||
| Current assets | $ | 5,628,559 | $ | 1,091,622 | $ | (578,999 | ) | $ | 6,141,182 | ||||||
| Non-current assets | $ | 11,660,618 | $ | 600,882 | $ | (6,184,562 | ) | $ | 6,076,938 | ||||||
| Liabilities | |||||||||||||||
| Current liabilities | $ | 1,729,868 | $ | 1,619,112 | $ | (578,999 | ) | $ | 2,769,981 | ||||||
| Non-current liabilities | $ | $ | 246,473 | $ | $ | 246,473 | |||||||||
| December 31, 2021 | USA | Switzerland | Elimination | Total | |||||||||||
| Assets | |||||||||||||||
| Current assets | $ | 5,783,859 | $ | 997,216 | $ | (214,551 | ) | $ | 6,566,524 | ||||||
| Non-current assets | $ | 4,468,491 | $ | 609,189 | $ | (2,584,562 | ) | $ | 2,493,118 | ||||||
| Liabilities | |||||||||||||||
| Current liabilities | $ | 1,070,972 | $ | 1,506,594 | $ | (214,551 | ) | $ | 2,363,015 | ||||||
| Non-current liabilities | $ | $ | 275,729 | $ | $ | 275,729 | |||||||||
NOTE 12 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date these consolidated financial statements were available to be issued. The following subsequent event was identified:
| · | The Company issued shares of common stock for cashless exercise of warrants. |
| F-14 |
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”) (OTCQB: IQST) (www.iqstel.com) is a technology company offering a wide array of services to global telecommunications and technology industries with presence in 13 countries.
The Company has an extensive portfolio of products and services for its clients such as: SMS, VoIP, 4G & 5G international infrastructure connectivity, Cloud-PBX, OmniChannel Marketing, IoT services, blockchain and payment solutions.
The company operates its business through its wholly-owned subsidiary Etelix.com USA, LLC (“Etelix”) (www.etelix.com); and its majority-owned subsidiaries SwissLink Carrier AG (www.swisslink-carrier.com), QGlobal SMA (www.qglobalsms.com/), Smart Gas (www.iotsmartgas.com/) and ItsBChain (www.itsbchain.com/), Smartbiz Telecom (www.smartbiztel.com) and Whisl Telecom (www.whisl.com).
The information contained on our websites 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, 2022 was $21,936,634, compared with $16,516,739 for the three months ended September 30, 2021. These numbers reflect an increase of 32.81% quarter over quarter on our consolidated revenues. Our total revenue reported for the nine months ended September 30, 2022 was $65,055,661, compared with $46,842,717 for the nine months ended September 30, 2021. These numbers reflect an increase of 38.88% year over year on our consolidated revenues.
| 4 |
When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021:
| Subsidiary | Revenue Nine Months Ended September 30, 2022 | Revenue Nine Months Ended September 30, 2021 | ||||||
| Etelix.com USA, LLC | $ | 17,510,601 | $ | 11,271,992 | ||||
| SwissLink Carrier AG | 3,554,591 | 3,474,215 | ||||||
| QGlobal LLC | 317,594 | 585,151 | ||||||
| IoT Labs LLC | 39,733,761 | 31,547,531 | ||||||
| Smartbiz Telecom | 3,712,432 | — | ||||||
| Whisl Telecom | 2,624,573 | — | ||||||
| Sub-total | $ | 67,453,552 | $ | 46,878,889 | ||||
| Inter-company sales | (2,397,891 | ) | (36,172 | ) | ||||
| $ | 65,055,661 | $ | 46,842,717 | |||||
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, 2022 increased to $20,621,674, compared with $15,675,687 for the three months ended September 30, 2021. Our total cost of revenues for the nine months ended September 30, 2022 increased to $62,410,367, compared with $45,469,730 for the nine months ended September 30, 2021.
When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021:
| Subsidiary | Cost of Revenue Nine Months Ended September 30, 2022 | Cost of Revenue Nine Months Ended September 30, 2021 | ||||||
| Etelix.com USA, LLC | $ | 16,818,292 | $ | 10,855,644 | ||||
| SwissLink Carrier AG | 2,969,719 | 3,018,877 | ||||||
| QGlobal LLC | 236,402 | 486,296 | ||||||
| IoT Labs LLC | 39,356,735 | 31,145,085 | ||||||
| Smartbiz Telecom | 3,330,051 | — | ||||||
| Whisl Telecom | 2,097,059 | — | ||||||
| Sub-total | $ | 64,808,258 | $ | 45,505,902 | ||||
| Inter-company sales | (2,397,891 | ) | (36,172 | ) | ||||
| $ | 62,410,367 | $ | 45,469,730 | |||||
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.
| 5 |
Gross Profit
The gross profit for the three months ended September 30, 2022 increased to $1,314,960 from $841,052 for the same period of year 2021. For the nine months ended September 30, 2022 the gross profit increased to $2,645,294 from $1,372,987 for the same period of year 2021.
When we analyze the numbers expressed in percentages, the gross profit for the nine months ended September 30, 2022 was 4.07%, which compared to 2.93% for the nine months ended September 30, 2021, an increase in the consolidated gross profit of 38.91%.
When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021:
| Subsidiary | Gross Margin Nine Months Ended September 30, 2022 | Gross Margin Nine Months Ended September 30, 2021 | ||||||
| Etelix.com USA, LLC | % | 3.95 | % | 3.69 | ||||
| SwissLink Carrier AG | 16.45 | 13.11 | ||||||
| QGlobal LLC | 25.56 | 16.89 | ||||||
| IoT Labs LLC | 0.95 | 1.28 | ||||||
| Smartbiz Telecom | 10.30 | — | ||||||
| Whisl Telecom | 20.10 | — | ||||||
| % | 4.07 | % | 2.93 | |||||
The increase of our consolidated gross margin is the result of the improvement of the gross margin of Etelix, SwissLink and QGlobal; combined with the relatively high gross margin of our most recent acquisitions Smartbiz and Whisl.
Operating Expenses
Operating expenses increased to $1,256,147 for the three months ended September 30, 2022 from $957,195 for the three months ended September 30, 2021. Operating expenses decreased to $3,390,097 for the nine months ended September 30, 2022 from $3,664,473 for the nine months ended September 30, 2021. The detail by major category for the nine months ended September 30, 2022 and 2021 is reflected in the table below.
| Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
| Salaries, Wages and Benefits | $ | 1,239,271 | $ | 863,413 | ||||
| Technology | 188,950 | 198,143 | ||||||
| Professional Fees | 475,143 | 353,080 | ||||||
| Legal and Regulatory | 199,768 | 87,448 | ||||||
| Bad Debt Expense | 26,299 | — | ||||||
| Travel and Events | 55,281 | 15,710 | ||||||
| Public Cost | 24,122 | 30,078 | ||||||
| Advertising | 486,153 | 705,175 | ||||||
| Insurances | 7,328 | — | ||||||
| Bank Services and Fees | 27,109 | 85,885 | ||||||
| Financial Expenses | 134,608 | — | ||||||
| Depreciation and Amortization | 91,221 | 66,924 | ||||||
| Penalties and Settlements | 110,767 | — | ||||||
| Office, Facility and Other | 231,947 | 337,983 | ||||||
| Sub Total | 3,297,967 | 2,743,839 | ||||||
| Stock-based compensation | 92,130 | 920,634 | ||||||
| Total Operating Expense | $ | 3,390,097 | $ | 3,664,473 | ||||
| 6 |
The main reasons for the overall decrease in operating expenses for the nine months ended September 30, 2022 compared to the same period of 2021 is due to the significant decrease in Stock-based compensation.
When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021:
| Nine Months Ended September 30, | ||||||||||||
| 2022 | 2021 | Difference | ||||||||||
| iQSTEL | $ | 1,382,701 | 2,395,047 | -1,012,346 | ||||||||
| Etelix | 326,432 | 266,894 | 59,538 | |||||||||
| SwissLink | 597,810 | 587,154 | 10,656 | |||||||||
| ItsBchain | 12,653 | 2,198 | 10,455 | |||||||||
| QGlobal | 133,532 | 92,881 | 40,651 | |||||||||
| IoT Labs | 185,736 | 187,773 | -2,037 | |||||||||
| Global Money One | 109,627 | 132,526 | -22,899 | |||||||||
| Smartbiz Telecom | 246,268 | — | 246,268 | |||||||||
| Whisl Telecom | 395,338 | — | 395,338 | |||||||||
| $ | 3,390,097 | 3,664,473 | -274,376 | |||||||||
The most significant difference is generated by iQSTEL which is due to the reduction in Stock-based compensation.
Operating Income
The Company showed positive Operating Income for the three months ended September 30, 2022 of $58,813 compared with a negative result of $116,143 for the three months ended September 30, 2021.
The Company showed negative Operating Income for the nine months ended September 30, 2022 of $744,803 compared with a negative result of $2,291,486 for the nine months ended September 30, 2021.
Despite the operating loss incurred during the nine months ended September 30, 2022, the numbers compared with the same period of year 2021 reflect a positive evolution process as shown by the positive operating income during the three months ended September 30, 2022.
Other Expenses/Other Income
We had other expenses of $38,073 for the nine months ended September 30, 2022, as compared with other expenses of $820,593 for the same period ended 2021. The decrease in other expenses is a consequence of a significant reduction in interest expenses and other expenses related to derivatives.
Net Income
We finished the three months ended September 30, 2022 with a net income of $27,312, as compared to a loss of $111,218 during the three months ended September 30, 2021. We also finished the nine months ended September 30, 2022 with a loss of $782,876, as compared to a loss of $3,112,079 during the nine months ended September 30, 2021.
The decreased loss for the nine-month period above is primarily due to a $1,012,346 year over year reduction in the costs associated with the operation of the public entity (iQSTEL, Inc.).
| 7 |
Liquidity and Capital Resources
As of September 30, 2022, we had total current assets of $6,141,182 and current liabilities of $2,769,981, resulting in a positive working capital of $3,371,201. This compares with the working capital of $4,203,509 at December 31, 2021. This decrease in working capital, as discussed in more detail below, is primarily the result of the decrease of $2,039,832 in the cash position due to the funds used in the acquisitions of Smartbiz and Whisl.
Our operating activities used $1,488,901 in the nine months ended September 30, 2022 as compared with $2,486,045 used in operating activities in the nine months ended September 30, 2021.
Investing activities used $1,901,223 for the nine months ended September 30, 2022. Uses of funds in investing activities were primarily for the acquisition of subsidiaries of $1,814,132 and the purchase of property and equipment for $86,491.
Financing activities provided $1,367,982 in the nine months ended September 30, 2022 compared with $3,314,313 provided in the nine months ended September 30, 2021. Our positive financing cash flow in 2022 was largely the result of the proceeds from common stock issued of $1,100,000 and the common stock purchase option of $500,000.
Our current financial condition has improved significantly with a positive working capital of $3,371,201 and a cash position of $1,294,981 as of September 30, 2022. However, we intend to fund operations through increased sales and debt and/or equity financing arrangements to strengthen our liquidity and capital resources. The Company has received the qualification of a S-1 Offering Statement for the sale of up to 10,000,000 common stocks. This offering will be conducted on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold from the available shares. 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, 2022.
Critical Accounting Polices
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 accounting policies are discussed in detail in the footnotes to our financial statements included in this Quarterly Report on Form 10-Q for the nine months ended September 30, 2022; however, we consider our critical accounting policies to be those related to allowance for doubtful accounts, valuation of long-lived assets, and income taxes. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. See the Consolidated Financial Statements in this Quarterly Report for a complete discussion of our significant accounting policies.
Off Balance Sheet Arrangements
As of September 30, 2022, there were no off-balance sheet arrangements.
Recent Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operation, financial position, or cash flow.
| 8 |
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, 2022. 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 nine-month period ended September 30, 2022, 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.
| 9 |
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, 2022.
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, 2022, the Company issued 4,353,020 shares of common stock, valued at fair market value on issuance as follows;
| • | 2,000,000 shares issued for cash of $1,000,000 |
| • | 180,000 shares for compensation to our directors valued at $92,129 |
| • | 1,461,653 shares for acquisition of Whisl valued at $550,000 |
| • | 550,000 shares for asset acquisition valued at $357,500 |
| • | 161,367 shares for settlement of debt valued at $80,674 |
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
None
| 10 |
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, 2022 formatted in Extensible Business Reporting Language (XBRL). |
|
**Provided herewith |
| 11 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on November 14, 2022 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 |
|
| 12 |